Supply Chain Strategy and Design

• These notes cover supply chain strategy, process design, forecasting, capacity planning, and bottleneck management.

Strategy

• Supply chains should align with an organization's strategy, mission, and competitive priorities.
• Building a sustainable and trusted supply chain is essential.
• Design considerations should account for cultural and growth differences between industrialized and emerging economies.
• Key strategic considerations include control, location, sustainability, technology, sourcing, outsourcing, logistics, risk management, and performance measurement.

Supply Chain Design

• Efficient Supply Chains: Suitable for predictable demand, stable products, and low margins, focuses on minimizing inventory and maximizing efficiency.
• Responsive Supply Chains: Best for unpredictable demand, these emphasize flexibility and quick response.
• Push System: Goods are produced based on forecasts and stored as finished goods inventory, effective for consistent sales and few distribution points.
• Pull System: Production is driven by customer demand signals, ideal for numerous production facilities and distribution points.
• Push-Pull Boundary: The point where a supply chain transitions from a push to a pull system.
• Postponement: Delaying product customization until closer to the customer to enhance responsiveness and reduce inventory.

Vertical Integration and Outsourcing

• Vertical Integration: Consolidating elements of the value chain for greater control via backward integration (toward suppliers) and forward integration (toward distribution/customers).
• Outsourcing: Procuring goods or services from external suppliers instead of internal provision.
• Contract Manufacturers: Firms specializing in specific production activities under contract.
• Third-Party Logistics (3PL) Providers: Businesses offering integrated services such as packaging, warehousing, and transportation, creating efficiencies through business intelligence and analytics.

Offshoring and Reshoring

• Offshoring: Moving processes to another country while maintaining ownership, differing from outsourcing as the firm retains control.
• Reshoring: Bringing operations back to the company's domestic location.

Economical Local Decisions

• Facility costs like construction, utilities, and depreciation.
• Operating costs, including fuel, labor, and administration.
• Transportation costs for moving goods and customer travel.

Supply Chain Optimization

• Optimizing the supply chain involves ensuring efficiency and effectiveness by minimizing costs across manufacturing, transportation, sourcing, distribution, and inventory placement.

Transportation Problem

• A linear optimization model used for planning the distribution of goods from supply points to demand locations, forming the basis for advanced optimization models.

Process Types

• Make-to-Order (MTO): Products are custom-made to specific customer specifications.
• Assemble-to-Order: Products are assembled from standard components with limited customer options.
• Make-to-Stock (MTS): Standardized products are made according to a fixed design.
• Projects: Large-scale, customized undertakings with coordinated tasks.
• Job Shop Processes: Organized around flexible equipment for customized work.
• Flow Shop Processes: Activities are arranged in a fixed sequence, like assembly lines.
• Continuous Flow Processes: Create highly standardized goods in high volumes.

Product Life Cycle (PLC)

• The PLC describes product growth, maturity, and decline over time.
• Understanding the PLC is essential as processes and value chains must evolve with product maturity.
• The PLC phases include Introduction, Growth, Maturity, Decline, and Turnaround.

Product-Process Matrix

• Aligns process choice with product characteristics.
• Optimal alignment occurs along the diagonal, mismatches ("off the diagonal") indicate inefficiencies.

Service-Positioning Matrix (SPM)

• Analogous to the product-process matrix, focuses on the service-encounter level.
• Guides the design of service systems to meet customer needs and achieve superior performance, with the best results along the matrix's diagonal.
• The horizontal axis is described by the sequence of service encounters.

Value Stream Mapping (VSM)

• Maps all activities in designing, producing, and delivering goods/services.
• A VSM highlights value-added versus non-value-added activities.
• Includes costs for both types of activities.

Layout Types

• Product Layout: Arranged by the sequence of operations in manufacturing or service delivery.
• Process Layout: Groups similar equipment or activities functionally.
• Cellular Layout: Uses self-contained groups of equipment (cells) for producing specific items.
• Fixed-Position Layout: Consolidates resources in one location.

Characteristics of Layouts

Forecasting

• Forecasting projects future values of variables and is key in integrated operating systems.
• Planning Horizon: Forecast timeframe: Long-range (1-10 years), Intermediate-range (3-12 months), Short-range (up to 3 months).
• Time Bucket: Measurement unit for the forecast period.

Time Series

• Time Series are observations measured over time.
• Trend: The underlying growth or decline pattern.
• Seasonal Patterns: Repeatable ups and downs over short periods.
• Cyclical Patterns: Regular patterns over long periods.
• Random Variation (Noise): Unexplained deviations.
• Irregular Variation: One-time explainable variations.

Forecasting Methods

• Statistical Forecasting: Assumes the future extrapolates from the past using time-series and regression methods.
• Moving Average (MA): Average of recent observations.
• Single Exponential Smoothing (SES): Weighted average of past values.
• Multiple Linear Regression: Regression model with multiple independent variables.
• Judgmental Forecasting: Relies on expert opinions.
• Grassroots Forecasting: Gathers input from those close to consumers.
• Delphi Method: Collects and refines judgments from experts.

Forecast Error and Bias

• Forecast Error: Difference between the forecast and actual value.
• Bias: Forecasts consistently larger or smaller than actual values.

Forecasting Principles

• Use quantitative methods over qualitative ones.
• Limit subjective adjustments.
• Adjust for expected future events.
• Require experts to justify forecasts in writing.
• Integrate methods with structured procedures.
• Combine forecasts from different approaches with equal weights initially.
• Compare past performance and seek feedback.
• Use multiple accuracy measures.

Capacity

• Capacity is the capability of a system to produce output within a time period.
• Economies of Scale: Average cost decreases as throughput increases.
• Diseconomies of Scale: Average cost increases as throughput increases.
• Theoretical Capacity: Maximum output under ideal conditions.
• Effective Capacity: Achievable capacity under normal conditions.
• Safety Capacity: Reserved capacity for unexpected events.

Capacity Strategies

• One large capacity increase.
• Small capacity increases matching demand.
• Small capacity increases leading demand.
• Small capacity increases lagging demand.
• The Capacity equation is Theoretical Capacity = Safety capacity + Effective capacity

Utilization and Throughput

• Utilization: The fraction of time a workstation is busy.
• Throughput: The number of units completed per unit of time, limited by the bottleneck.

Bottleneck Management

• Identifying and breaking bottlenecks: Reduce waiting, reduce work-in-process inventory, enhance customer service, and allow efficient use of resources
• Queueing Systems:
  • Parallel Servers, Multiple Queues
  • Parallel Servers, Single Queue, One or more parallel servers fed by a single queue
  • Queues in Series

Theory of Constraints (TOC)

• Increases throughput by maximizing bottleneck utilization.
• Physical Constraint: Capacity of a resource, resulting in bottlenecks.
• Nonphysical Constraint: Low demand or inefficient policies.

Non-Bottleneck Management Principles

• Idle capacity exists in non-bottleneck work activities.
• Nonphysical constraints are not always removable.
• Move jobs quickly through non-bottleneck workstations.
• Idle time is acceptable if there's no work.
• Use smaller order sizes to maintain flow to the bottleneck.
• Time lost at a non-bottleneck doesn't affect total output.

Bottleneck Management Principles

• Prioritize bottleneck workstations in scheduling.
• Time lost at a bottleneck impacts the entire process.
• Buffer inventory in front of bottlenecks to maximize utilization.
• Use larger order sizes at bottlenecks to minimize setup time.
• Bottleneck workstations should run constantly to maximize throughput.