strategic decisions (part ii). decision phases of a supply chain supply chain strategy or design...
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Strategic Decisions (Part II)
Decision Phases of a Supply Chain Supply chain strategy or design
Automate flow of information between company and supply chain partners
Supply chain planning Generate demand forecasts for a product
(demand planning) and help develop sourcing and manufacturing plans for that product
Supply chain operation– Manage the flow of products through
distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner
Supply Chain Planning
Definition of a set of policies that govern short-term operations
Fixed by the supply configuration from previous phase
Starts with a forecast of demand in the coming year
Supply Chain Planning
Planning decisions: Which markets will be supplied from which
locations Planned buildup of inventories Subcontracting, backup locations Inventory policies Timing and size of market promotions
Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon
Capacity Management in a Supply Chain
Managing capacity Time flexibility from workforce Use of seasonal workforce Use of subcontracting Use of dual facilities – dedicated and flexible Designing product flexibility into production
processes
The Capacity Management Problem Given the demand forecast for each period in the
planning horizon, determine the production level, inventory level, and the capacity level for each period that maximizes the firm’s (supply chain’s) profit over the planning horizon
Specify the planning horizon (typically 3-18 months)
Specify the duration of each period Specify key information required to develop
capacity management plan
Capacity Management Strategies
Trade-off between capacity, inventory, backlog/lost sales
Chase strategy – using capacity as the lever Time flexibility from workforce or capacity
strategy – using utilization as the lever Level strategy – using inventory as the
lever Mixed strategy – a combination of one or
more of the first three strategies
Chase Strategy
Production rate is synchronized with demand by varying machine capacity or hiring and laying off workers as the demand rate varies
However, in practice, it is often difficult to vary capacity and workforce on short notice
Expensive if cost of varying capacity is high Negative effect on workforce morale Results in low levels of inventory Should be used when inventory holding costs are
high and costs of changing capacity are low
Time Flexibility Strategy
Can be used if there is excess machine capacity Workforce is kept stable, but the number of
hours worked is varied over time to synchronize production and demand
Can use overtime or a flexible work schedule Requires flexible workforce, but avoids morale
problems of the chase strategy Low levels of inventory, lower utilization Should be used when inventory holding costs are
high and capacity is relatively inexpensive
Level Strategy
Maintain stable machine capacity and workforce levels with a constant output rate
Shortages and surpluses result in fluctuations in inventory levels over time
Inventories that are built up in anticipation of future demand or backlogs are carried over from high to low demand periods
Better for worker morale Large inventories and backlogs may accumulate Should be used when inventory holding and backlog
costs are relatively low
Decision Phases of a Supply Chain
Supply chain strategy or design Automate flow of information between
company and supply chain partners Supply chain planning
Generate demand forecasts for a product (demand planning) and help develop sourcing and manufacturing plans for that product
Supply chain operation– Manage the flow of products through
distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner
Supply Chain Operation
Time horizon is weekly or daily Decisions regarding individual customer orders Supply chain configuration is fixed and operating
policies are determined Goal is to implement the operating policies as
effectively as possible Allocate orders to inventory or production, set
order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders
Much less uncertainty (short time horizon)
Drivers of Supply Chain Performance
Facilities places where inventory is stored, assembled,
or fabricated production sites and storage sites
Inventory raw materials, WIP, finished goods within a
supply chain inventory policies
Transportation combinations of transportation modes and
routes
Drivers of Supply Chain Performance Information
data and analysis regarding inventory, transportation, facilities throughout the supply chain
potentially the biggest driver of supply chain performance
Sourcing functions a firm performs and functions that
are outsourced Pricing
Price associated with goods and services provided by a firm to the supply chain
Metrics for measuring supply chain performance:
Supply Chain Performance Measurement
1. Fill rate (the ability to fill orders by the due date)
2. Average time from order to delivery
3. The number of days of supply in inventory
4. Forecast accuracy
5. The cycle time for sourcing and making a product
Case Study :Toyota’s Demand Planning
With more than 1,200 accessory part numbers Toyota was experiencing greater business complexity and increased business volume regarding new models and parts
The spreadsheet-based system Toyota used to manage its supply chain processes was less than optimal. Toyota’s accessory supply administrators had to go into the spreadsheets to manually enter and extract critical vehicle information.
Toyota’s Challenges To automate the forecasting process
To allow more time to examine demand drivers
To remove inefficiencies from the supply chain
Toyota’s Supply Chain Solution Replace existing spreadsheet-based system Enable administrators to investigate issues
during ordering process Analyze part numbers more effectively
How did i2 Technology help?
Toyota chose i2 Demand Planner™ as the solution to forecast future demand for its automotive parts and accessories.
Demand Planner provides an environment that combines the best statistical techniques, unlimited causal factors, and the ability to manage multiple inputs with best-in-class, multi-dimensional data representation and analysis in a user-friendly manner.
The Outcome
increased forecasters’ efficiency Improved communication among
supply chain divisions Reduced inventory shortages and
overages resulting from poor forecasting
Discuss the following questions: What problems do Toyota address? How
does i2 Technology supply chain solution help solve these problems?
What issues and challenges do Toyota present? What can be done to address these issues?
What are the business as well as the technology issues that should be addressed when i2 Technology provide Toyota demand planning solution?