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Supply-Chain
Design
Chapter 9
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.
First-Tier Supplier
Service/Product Provider
Support Processes
Support Processes
New Service/
Product
Development
Process
Supplier
Relationship
Process
Business-toBusiness
(B2B)
Customer
Relationship
Process
OrderFulfillment
Process
New Service/
Product
Development
Process
Supplier
Relationship
Process
Business-toBusiness
(B2B)
Customer
Relationship
Process
OrderFulfillment
Process
External Customers
External Suppliers
External Value-Chain Linkages
Figure 9.1
Supply Chain for a Florist
Home
customers
Commercial
customers
Florist
Packaging
Local
delivery
service
FedEx
delivery
service
Arrangement
materials
Flowers –
local/
international
Maintenance
services
Internet
services
Required for facilitating goods
Required for implicit services
Required for explicit services
Required for supporting facilities
Figure 9.2
Creation of Inventory
Input flow of materials
Inventory level
Scrap flow
Figure 9.3
Output flow of materials
Inventory at Different
Stocking Points
Raw
materials
Supplier
Work in
process
Manufacturing plant
Finished
goods
Distribution center
Retailer
Figure 9.4
Supply
Chain
Customer
Customer
Customer
Distribution
center
Customer
Distribution
center
Manufacturer
Tier 1
Tier 2
Tier 3
Figure 9.5
Legend
Supplier of services
Supplier of materials
Supply Chain Dynamics for
Facial Tissue
Package supplier’s
weekly orders to
cardboard supplier
Order Quantity
9,000 –
7,000 –
5,000 –
Consumers’
daily
demand
Retailers’
daily orders to
manufacturer
Manufacturer’s
weekly orders
to package
supplier
3,000 –
0–
Figure 9.6
Time
Materials Management
Purchasing
domain of
responsibility
Egg
supplier
Sugar
supplier
Flour
supplier
Chocolate
chips
supplier
Maintenance
services
supplier
Figure 9.7
FG storage
Transformation
process and WIP
storage
Purchasing
domain of
responsibility
Egg
supplier
Sugar
supplier
Flour
supplier
Chocolate
chips
supplier
Maintenance
services
supplier
RM storage
Figure 9.7
FG storage
Production domain
of responsibility
Transformation
process and
WIP storage
RM storage
Egg
supplier
Sugar
supplier
Flour
supplier
Purchasing
domain of
responsibility
Chocolate
chips
supplier
Maintenance
services
supplier
Figure 9.7
FG storage
Production domain
of responsibility
Transformation
process and
WIP storage
RM storage
Egg
supplier
Sugar
supplier
Flour
supplier
Purchasing
domain of
responsibility
Chocolate
chips
supplier
Maintenance
services
supplier
Figure 9.7
Supermarket A
distribution center
Distribution
domain of
responsibility
Supermarket B
distribution center
FG storage
Transportation
services supplier
Production domain
of responsibility
Transformation
process and
WIP storage
RM storage
Egg
supplier
Sugar
supplier
Flour
supplier
Purchasing
domain of
responsibility
Chocolate
chips
supplier
Maintenance
services
supplier
Figure 9.7
Supermarket A
distribution center
Supermarket B
distribution center
Distribution
domain of
responsibility
Transportation
services supplier
FG storage
Production domain
of responsibility
Transformation
process and
WIP storage
RM storage
Egg
supplier
Sugar
supplier
Flour
supplier
Purchasing
domain of
responsibility
Chocolate
chips
supplier
Maintenance
services
supplier
Figure 9.7
Inventory Measures
Average inventory = $2 million
Cost of goods sold = $10 million
52 business weeks per year
$2 million
Weeks of supply =
= 10.4 weeks
($10 million)/(52 weeks)
$10 million
Inventory turns =
= 5 turns/year
$2 million
Example 9.1
Inventory Measures
Figure 9.8
Supply-Chain Process Measures
TABLE 9.1
SUPPLY–CHAIN PROCESS MEASURES
Customer
Relationship

Percent of orders
taken accurately
Time to complete
the order
placement process
Customer
satisfaction with
the order
placement process
Order
Fulfillment

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
Supplier
Relationship

Percent of
suppliers’
deliveries on time
Suppliers’ lead
times
Percent defects in
services and
purchased
materials
Cost of services
and purchased
materials
Supply-Chain Environments
TABLE 9.2
ENVIRONMENTS BEST SUITED FOR EFFICIENT AND
RESPONSIVE SUPPLY CHAINS
Factor
Demand
Competitive
priorities
New-service/
product
introduction
Contribution
margins
Product variety
Efficient Supply Chains
Responsive Supply Chains
Predictable, low
forecast errors
Low cost, consistent
quality, on-time
delivery
Infrequent
Unpredictable, high
forecast errors
Development speed, fast
delivery times,
customization, volume
flexibility, variety,
top quality
Frequent
Low
High
Low
High
Supply-Chain Design
TABLE 9.3
DESIGN FEATURES FOR EFFICIENT AND
RESPONSIVE SUPPLY CHAINS
Factor
Efficient Supply Chains
Responsive Supply Chains
Operation
strategy
Make-to-stock or
standardized services;
emphasize high
volume, standardized
services or products
Low
Assemble-to-order, maketo-order, or customized
services; emphasize
service or product
variety
High
Low, enable high
inventory turns
Shorten, but do not
increase costs
Emphasize low prices,
consistent quality, ontime delivery
As needed to enable fast
delivery time
Shorten aggressively
Capacity
cushion
Inventory
investment
Lead time
Supplier
selection
Emphasize fast delivery
time, customization,
variety, volume flexibility,
top quality
Pepperidge Farm
SCM System
• Order Commitment
• Transportation
Management
• Purchasing
Management
• Demand
Management
• Vendor-Managed
Inventory
©
• Replenishment
Planning
• Configuration
• Material Planning
• Scheduling
• Master Planning
• Strategic Planning