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Dell is a leader because of their fast response time. Customer orders are on delivery trucks in 36 hours. Their focus is on how fast inventory moves. The bulk of its components are housed within 15 minutes of each of its plants. As customers place orders, suppliers know when to ship components. Suppliers restock the warehouse and manage the inventory. Careful supply chain management is the key.
Supply chain: The network of services, material, and information flows that link a firms customer relationship, order fulfillment, and supplier relationship processes to those of its supplier and customers.
Supply chain management: Developing a strategy to organize, control, and motivate the resources involved in the flow of services and materials within the supply chain. Supply chain strategy: Designing a firms supply chain to meet the competitive priorities of the firms operations strategy.
Home customers
Required for facilitating goods Required for explicit services
Commercial customers
Required for implicit services
Florist
Packaging
Arrangement materials
Maintenance services
Internet services
Inventory: A stock of materials used to satisfy customer demand or to support the production of services or goods.
Input flow of materials
Inventory level
Raw materials (RM): The inventories needed for the production of services or goods.
Work-in-process (WIP): Items, such as components or assemblies, needed to produce a final product in manufacturing.
Finished goods (FG): The items in manufacturing plants, warehouses, and retail outlets that are sold to the firms customers.
Raw materials
Work in process
Finished goods
Supplier
Manufacturing plant
Distribution center
Retailer
Customer
Customer
Customer
Customer
Distribution center
Distribution center
Supply Chain
Tier 1
Manufacturer
Tier 2
Tier 3
Supplier of services
2007 Pearson Education
Supplier of materials
Average aggregate inventory value (AGV) is the total value of all items held in inventory for a firm.
AGV = (# of A items)(Value of each A)+(# of B items)(Value of each B)+ Weeks of supply: The average aggregate inventory value divided by sales per week at cost. Weeks of supply = Average aggregate inventory value Weekly sales (at cost)
Inventory turnover is annual sales at cost divided by the average aggregate inventory value maintained for the year. Inventory turnover = Annual sales at (cost) Average aggregate inventory value
Weeks of supply
Average aggregate inventory value Weekly sales (at cost) $6,821,000 18.5 weeks $19,200,000 52 weeks
Inventory turnover
Percent of orders taken accurately Time to complete the order placement process Customer satisfaction with the order placement process
Percent of incomplete orders shipped Percent of orders shipped on time Time to fulfill the order Percent of botched services or returned items Cost to produce the service or item Customer satisfaction with the order fulfillment process Inventory levels of WIP and FG
Percent of suppliers deliveries on time Suppliers lead times Percent defects in services and purchased materials Cost of services and purchased materials
Cost of Goods Sold: Buying materials at a better price, or transforming them more efficiently, improves a firms cost of goods sold measure and ultimately its net income. Total Revenue: Increasing the percent of on-time deliveries to customers increases total revenue because satisfied customers will buy more services and products.
Cash Flow: Cash-to-cash is the time lag between paying for the services and materials needed to produce a service or product and receiving payment for it.
The shorter the time lag, the better the cash flow position of the firm because it needs less working capital.
Supply chain dynamics can wreak havoc on supply chain performance measures.
Actions of downstream supply chain members can affect the operations of upstream members.
The bullwhip effect: The phenomenon in supply chains whereby ordering patterns experience increasing variance as you proceed upstream in the chain.
Volume changes.
Underfilled shipments.
disrupt the supply chain and may require a new supply chain. Service or product promotions may create a demand spike. Information errors such as demand forecast errors, faulty inventory counts, or miscommunication with suppliers.
Electronic Commerce (e-commerce) is the application of information and communication technology anywhere along the value chain of business processes.
Business-to-Consumer Systems (B2C) allows customers to transact business over the Internet.
Cost reduction: Using the Internet can reduce the costs of processing orders. Revenue flow increase: Reduction in the time lag associated with billing the customer or waiting for checks. Global Access: Available 24 hours a day.
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Customers buy from Dell by web site, voice-to-voice, and face-to-face. Order information is transmitted to the inventory system. Unique product configuration information is contained in the Traveler, a sheet that travels with the system the customer has ordered throughout its assembly and shipping. When the Traveler is pulled, all required internal parts and components for a system are picked and put in a tote or kit. (Procedure is called Kitting) A team uses the kit to assemble and initially test the system. Systems are thoroughly tested. Completed systems are boxed and placed on trucks. The entire assemble-to-order cycle takes only a few hours.
Inventory Placement
Centralized placement: Keeping all the inventory at one location such as a firms manufacturing plant or a warehouse and shipping directly to customers.
Inventory pooling is a reduction in inventory and safety stock because of the merging of variable demands from customers.
A higher than expected demand from one customer can be offset by a lower-than-expected demand from another.
Vendor-Managed Inventories
Vendor-managed inventories (VMI): An extreme application of forward placement involving locating inventories at the customers facilities. Key ingredients are:
Collaborative effort requires trust & accountability. Cost savings is realized by eliminating excess inventory. Customer service: The supplier is frequently on site for improved response times and reducing stockouts. Written agreement on procedures, methods, and schedules are clearly specified.
Efficient supply chains focus on the efficient flows of services and materials, keeping inventories to a minimum.
Work best where demand is highly predictable.
Environment Factors
Design Factors
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Three key activities are required to attain a lean supply chain: Strategic Sourcing: Identifying items or services that are of high value or complexity and purchase them from a select set of suppliers with whom the firm establishes a close relationship. Cost Management: Limiting the number of suppliers and focusing on helping them reduce their costs through trust and friendly collaboration. Supplier Development: Shifting from price negotiations to cost management and working with suppliers to achieve lean operations.