supply chain management, designing the supply chain network

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Supply Chain Management, Designing the Supply Chain Network , Presentations By Rajendran Ananda Krishnan,


  • 1. Supply Chain Management:Designing the supply chainnetwork Rajendran Ananda Krishnan

2. Topics to be coveredDesigning the supply chain network Designing the distribution network- roleof distribution, factors influencingdistribution Design options, e-business and itsimpact Distribution networks in practice Network design in the supply chain, roleof network Factors affecting the network design, modeling for supply chain prettythings 3. Role of Distribution in the supplychainDistribution refers to the steps taken to move and store a product from the supplier stage to a customer stage in the supply chain. Distribution is a key driver of the overall profitability of a firm because it affects both the supply chain cost and the customer experience directly.The appropriate distribution network can be used to achieve a variety of supply chain objectives ranging from low cost to high responsiveness. As a result, companies in the same industry often select very different distribution networks. prettythings 4. Dell distributes its PCs directly to end consumers, whereas companies such as HP distribute through resellers. Dell customers wait several days to get a PC, whereas customers can walk away with an HP PC from a reseller.P&G has chosen to distribute directly to large supermarket chains while obligating smaller players to buy P&G products from distributors. Products move directly from P&G to the larger chains , but move through an additional stage when going to smaller supermarkets. prettythings 5. Factors Influencing DistributionNetwork DesignPerformance of a distribution networkshould be evaluated along twodimensions: Customer needs that are met Cost of meeting customer needsThe customers needs that are metinfluence the companys revenues,which along with cost decide theprofitability of the delivery network. prettythings 6. Customer service components: Response time Amount of time it takes for a customerto receive an order. Product variety Number ofdifferentproducts/configurations that are offered by thedistribution network. Product availability Probability of having a product instock when a customer order arrives. Customer experience includes the ease with whichcustomers can place and receive orders as well as theextent to which this experience is customized. Time to market Time it takes to bring a new product tothe market. Order visibility Ability of customers to track theirorders from placement to delivery. Returnability Ease with which a customer can returnunsatisfactory merchandise and the ability of thenetwork to handle such returns. 7. Firms that target customers who can tolerate a long response time require only a few locations that may be far from the customer. These companies can focus on increasing the capacity of each location. In contrast, firms that target customers who value short response times need to locate facilities close to them. These firms must have many facilities, each with a low capacity. Thus, a decrease in the response time customers desire increases the number of facilities required in the network.Changing the distribution network design affects the followingsupply chain costs: Inventories Transportation Facilities and handling InformationA decrease in the response time customers desire increases thenumber of facilities required in the network. As the number offacilities in a supply chain increases, the inventory andresulting inventory costs also increase. 8. Relationship between DesiredResponse Time and Number ofFacilitiesRequirednumber offacilities Desired Response Time prettythings 9. Relationship between Number ofFacilities and Inventory Costs Inventory CostsNumber offacilities 10. Inbound transportation costs are the costsincurred in bringing material into a facility. Outbound transportation costs are the costs ofsending material out of a facility. Outbound transportation costs per unit tend to behigher than inbound costs because inbound lotsizes are typically larger. Increasing the number of warehouse locationsdecreases the average outbound distance to thecustomer and makes outbound transportationdistance a smaller fraction of the total distancetravelled by the product. Thus, as long as inbound transportationeconomies of scale are maintained, increasingthe number of facilities decreases totaltransportation cost. prettythings 11. Relationship between Number ofFacilities and Transportation Cost Transportation Cost Number of facilities 12. If the number of facilities is increased to a point whereinbound lot sizes are also very small and result in asignificant loss of economies of scale in inboundtransportation, increasing the number of facilitiesincreases total transportation cost. Facility costs decrease as the number of facilities isreduced. Total logistics costs are the sum of inventory,transportation and facility costs for a supply chainnetwork. As the number of facilities increases, totallogistics costs first decrease and then increase. Eachfirm should have at least the number of facilities thatminimize total logistics costs. As a firm wants to reducethe response time to its customers further, it may haveto increase the number of facilities beyond the point thatminimizes logistics costs. A firm should add facilitiesbeyond the cost-minimizing point only if managers areconfident that the increase in revenues because ofbetter responsiveness is greater than the increase incosts because of the additional facilities. prettythings 13. Relationship between Number ofFacilities and Facility CostFacility Cost Number of Facilities prettythings 14. Variation in Logistics Cost andResponse time with Number ofFacilitiesResponseTime Total Logistics Cost Number of Facilities 15. Design Options for a DistributionNetwork Manufacturer storage with directshipping Product is shipped directlyfrom the manufacturer to the endcustomer, bypassing the retailer ( whotakes the order and initiates the deliveryrequest). This option is also referred toas drop shipping, with product delivereddirectly from the manufacturer to thecustomer. It is best suited for a largevariety of low-demand, high-value itemsfor which customers are willing to wait fordelivery and accept several partialshipments. 16. Manufacturer Storage with Direct Shipping(Drop Shipping)MfrRetailer Customer Product Flow prettythings 17. Performance Characteristics of Manufacturer Storage with DirectShipping NetworkCost FactorPerformanceInventoryLower costs because of aggregation. Benefits of aggregation are highest for low demand, high value items. Benefits are very large if product customization can be postponed ate manufacturer.TransportatioHigher transportation costs because of increasedndistance and disaggregate shipping.Facilities and Lower facility costs because of aggregation. Somehandling saving on handling costs if manufacturer can manage small shipments or ship from production line.InformationSignificant investment in information infrastructure to integrate manufacturer and retailer. 18. Service Factor PerformanceResponse TimeLong response time of one to two weeks because of increased distance and two stages for order processing. Response time may vary by product, thus complicating receiving.Product VarietyEasy to provide a very high level of variety.Product Availability Easy to provide a high level of product availability because of aggregation at manufacturer.Customer ExperienceGood in terms of home delivery but can suffer if order from several manufacturers is sent as partial shipments.Time to market Fast, with the product available as soon as the first unit is produced.Order visibility More difficult but also more important from a customer service perspective.ReturnabilityExpensive and difficult to implement. prettythings 19. Manufacturer storage with direct shippingand in-transit merge Unlike pure drop-shipping, under which each product in theorder is sent directly from its manufacturer tothe end customer, in-transit merge combinespieces of the order coming from differentlocations so that the customer gets a singledelivery. For eg, when a customer orders a PC fromDell along with a Sony monitor, the packagecarrier picks up the PC from the Dell factoryand the monitor from the Sony factory; it thenmerges the two together at a hub beforemaking a single delivery to the customer. It is best suited for low-to medium demand,high value items the retailer is sourcing froma limited number of manufacturers. 20. In-transit merge Net workFactoriesIn-transit mergeRetailerBy Carrier CustomersCustomersProduct Flow Flow prettythings 21. Performance Characteristics of In-Transit MergeCost FactorPerformanceInventorySimilar to drop shipping.Transportation Somewhat lower transportation costs than drop shipping.Facilities and Handling costs higher than drop shipping athandling carrier; receiving costs lower at customer.InformationInvestment is somewhat higher than for drop shipping.Service Factor PerformanceResponse TimeSimilar to drop-shipping; may be marginally higher.Product varietySimilar to drop shipping.Product Av


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