Strategic Decisions (Part II)

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Strategic Decisions (Part II)
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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

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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

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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

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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

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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 firms (supply chains)
  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

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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

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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

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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

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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

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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

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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)

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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

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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

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Supply Chain Performance Measurement
Metrics for measuring supply chain performance

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

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Case Study Toyotas 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. Toyotas accessory supply administrators
  had to go into the spreadsheets to manually enter
  and extract critical vehicle information.

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Toyotas Challenges

• To automate the forecasting process
• To allow more time to examine demand drivers
• To remove inefficiencies from the supply chain

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Toyotas Supply Chain Solution

• Replace existing spreadsheet-based system
• Enable administrators to investigate issues
  during ordering process
• Analyze part numbers more effectively

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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.

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The Outcome

• increased forecasters efficiency
• Improved communication among supply chain
  divisions
• Reduced inventory shortages and overages
  resulting from poor forecasting

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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?