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1、Designing and Managing the Supply ChainDavid Simchi-Levi Philip Kaminsky Edith Simchi-LeviSolutions for Discussion Questions1Kerem Bulbul1We would like to thank Shiming Deng for his valuable contributions to the preparation of this manual.Chapter 1Introduction to Supply ChainManagementDiscussion Que
2、stionsQuestion 1Pick any car model manufactured by a domestic auto maker. For example, consider the2002 Ford Thunderbird.a. The supply chain for a car typically includes the following components:1. Suppliers for raw materials2. Suppliers for parts and subsystems3. Automobile manufacturer (Ford, in t
3、his example). Within a company, there are alsodifferent departments, which constitute the internal supply chain:i. Purchasing and material handingii. Manufacturingiii. Marketing, etc.4. Transportation providers5. Automobile dealersb. Many rms are involved in the supply chain.1. Raw material supplier
4、s. For instance, suppliers for steel, rubber, plastics, etc.2. Parts suppliers. For instance, suppliers for engines, steering wheels, seats, and elec-tronic components, etc.3. Automobile manufacturer. For instance, Ford.4. Transportation providers. For instance, shippers, trucking companies, railroa
5、ds, etc.5. Automobile dealers. For example, Hayward Ford.c. All companies involved in the supply chain want to maximize their respective protsby increasing revenue and decreasing cost. However, companies may employ different2strategies in order to achieve this goal. Some of them focus on customer sa
6、tisfactionand quick delivery, while others may be more concerned about minimizing inventoryholding costs.d. In general, different parts of the supply chain have objectives that are not aligned witheach other.1. Purchasing: Stable order quantities, exible delivery lead times and little variationin mi
7、x.2. Manufacturing: Long production runs, high quality, high productivity and low pro-duction costs.3. Warehousing: Low inventory, reduced transportation costs and quick replenishmentcapability.4. Customers: Short order lead times, a large variety of products and low prices.Typically, the automobile
8、 dealer would like to offer a variety of car colors and cong-urations to accommodate different customer preferences, and meanwhile have a shortdelivery lead time from the manufacturer. However, in order to maximize the length ofproduction runs, and utilize resources more efficiently, the manufacture
9、r would like toaggregate orders from different dealers and offer less variety in car congurations. Thisis a clear example of conicting marketing and manufacturing goals.Question 2a. The supply chain for a consumer mortgage offered by a bank may involve various com-ponents:1. Marketing companies that
10、 handle solicitation to potential customers.2. Credit reporting agencies that evaluate potential customers.3. The bank that extends the mortgage loans.4. Mortgage brokers through which the loans are distributed.b. The marketing companies strive to increase the response rate from homebuyers in ordert
11、o maximize their returns. Banks aim at a customer portfolio with a relatively low risk,healthy ow of payments and low average loan maturity date. The brokers would liketo maximize their sales commissions.c. Similar to product supply chains, the objective of a service supply chain is to providewhat i
12、s needed (in this case a particular type of service, rather than a physical product)at the right location, at the right time, and in a form that conforms to customer require-ments while minimizing systemwide costs. However, there are a number of differencesbetween the two types of supply chains. For
13、 instance:1. In a product supply chain, there is both a ow of information and physical products.In a service supply chain, it is primarily information.2. Contrary to a service supply chain, transportation and inventory are major costcomponents in a product supply chain.33. Services typically cannot
14、be held in inventory, so matching capacity with demand isfrequently more important in a service supply chain.4. In a service supply chain, the (explicit) cost of information is higher than in a productsupply chain. Note that in the mortgage example above, the bank has to compensatethe credit reporti
15、ng agency for each credit report it obtains.Question 3Many supply chains evolve over time. For example, consider a memory chip supply chain.Production strategies may change during different stages of the product life cycle. Whena new memory chip is introduced, price is high, yield is low, and produc
16、tion capacityis tight, and the availability of the product is important. Consequently, production isusually done at plants close to markets, and the management focuses on increasing yield,reducing the number of production disruptions, and fully utilizing capacity. When theproduct matures, however, i
17、ts price drops and demand is stabilized for a period of time,so minimizing production cost moves to center stage. To reduce costs, production may beoutsourced to overseas foundries, where labor and materials are much cheaper.Question 4A vertically integrated company aims at tighter interaction among
18、 various business com-ponents, and frequently manages them centrally. Such a structure helps to achieve sys-temwide goals more easily by removing conicts among different parts of the supply chainthrough central decision making. In a horizontally integrated company, there is frequentlyno benet in coo
19、rdinating the supply chains of each business within the company. Indeed,if every business specializes in its core function, and operates optimally, an overall globaloptimum may be approached.Question 5Effective supply chain management is also important for vertically integrated companies.In such an
20、organizational structure, various business functions are handled by differentdepartments of the company that usually have different internal objectives, and theseobjectives are not necessarily aligned with each other. This may be due to lack of com-munication among departments or the incentives prov
21、ided by the upper management. Forinstance, if the sales department is evaluated based on revenue only, and the manufacturingdepartment is evaluated based on cost only, the company.s prot may not be maximizedglobally. Effective supply chain management is still necessary to achieve globally optimalope
22、rations.Question 6The sources of uncertainty in this example include:1. Factors such as weather conditions, diseases, natural disasters cause uncertainty inavailability of raw materials, i.e., peach crop.2. Uncertain lead times during transportation of crop from the eld to the processingfacility may
23、 affect the quality of peaches, e.g., they may get spoiled.43. Processing times in the plant, as well as the subsequent warehousing and transportationtimes are subject to uncertainty.4. Demand is not known in advance.Question 7A small number of centrally located warehouses allows a rm to take advant
24、age of riskpooling in order to increase service levels and decrease inventory levels and costs. However,outbound transportation cost is typically higher, and delivery lead times are longer. Onthe other hand, by building a larger number of warehouses closer to the end customers, arm can decrease outb
25、ound transportation costs and delivery lead times. However, thistype of system will have increased total inventory levels and costs, decreased economies ofscale, increases warehousing expenses, and potentially increased inbound transportationexpenses.Question 8The choice of the particular transporta
26、tion service depends largely on the types and sizesof products the company wants to transport, the inventory and delivery strategies and theneed for exibility:1. A truckload carrier is better if delivering bulky items or small items in large and stablequantities from warehouses to demand points (sto
27、res). A good example is the deliveryof groceries from warehouses to supermarkets. Note that in this case we would like thedemand to be in increments of full truck loads.2. A package delivery rm is more appropriate if relatively small items are delivered fromthe manufacturer/warehouse directly to the
28、 customers. Additionally, a package carriercompany offers more exibility by different modes of transportation depending on theneeds of the individual customers.Question 91. High inventory levelsi. Advantages: High ll rate (service level) and quick order fulllment.ii. Disadvantages: High opportunity
29、cost of capital tied in inventory, danger of pricedeclines over time and obsolescence, need for more warehouse space.2. Low inventory levelsi. Advantages: Low inventory holding and warehousing costs.ii. Disadvantages: Higher risk of shortages and lower service levels.5Case Discussion Questions Medit
30、ech SurgicalQuestion 1Meditech experiences poor service levels for new products, and inventory levels higher thannecessary for all products.Question 2There are many causes for these problems:1. Demand is not studied in detail.2. Information systems that record and monitor demand and inventory are po
31、orly designed.3. Forecasting errors are not tracked.4. There is a tendency to shift the blame to the customers, e.g., panic ordering.5. There are built-in delays and monthly buckets in the planning system.6. The planning system amplies small variations in demand.7. Poor communication with customers;
32、 Meditech doesn.t typically see end-customer de-mand.Question 3The customer service manager is directly exposed to the complaints from the customers.Hence, he is in a good position to gauge the scope of the problems. Other managers donot face the customers, and they do not necessarily focus on their
33、 satisfaction.Question 41. Recognize that demand is predictable, and establish better forecasting systems andaccountability for forecasts.2. Institute better planning systems to eliminate planning delays; reduce the size of systemtime buckets.3. Alternatively, put assembly within the pull system and
34、 eliminate bulk inventory com-pletely.4. Develop and implement better information systems.5. Improve communications with customers.6Chapter 2Logistics Network ConfigurationDiscussion QuestionsQuestion 1The factors that affect the performance of the logistics network are not static, i.e., theychange
35、over time. These factors include demand, product design, various costs in thelogistics network, regulations, contracts, etc. The effects of these dynamics need to beevaluated periodically in order to determine whether the existing conguration is stillsatisfactory given the new operating environment.
36、For instance, service level requirements may change due to increased competition whichtypically means that the lead time to fulll customer orders needs to be shortened. Thismay require the rm to redesign its logistic network and build new warehouses that arecloser to the end customers.Question 2The
37、design of the logistics network is a strategic decision that has long lasting effects andimpacts all functions within the company. For the success of such a project, many levelsof the organization must be involved:1. Upper Management: The new design must be aligned with the vision and strategic goal
38、sof the company. Additionally, such a project may be costly, so management buy-in isessential to ensure that sufficient resources are devoted to the project.2. Sales and Marketing: Demand forecasts and anticipated changes in product design andofferings affect the network and need the involvement of
39、sales and marketing teams.3. Manufacturing and Operations: The logistics network design has obvious impact on day-to-day operation of the rm. In order for the implementation to succeed, it is essentialthat the people involved with operating the system on a daily basis are involved in itsdesign.Quest
40、ion 3The decision that a single warehouse will be built has been made up-front. Therefore, weonly need to focus on the location and capacity of the warehouse, and determine how much7space should be allocated to each product in the warehouse. The main steps of the analysisare outline below.1. Data co
41、llectioni. Location of retail stores, existing warehouses (5 warehouses located in Atlanta,Boston, Chicago, Dallas and Los Angeles), manufacturing facilities (a single man-ufacturing facility in San Jose), and suppliers.ii. Candidate locations for the new warehouse.iii. Information about products, i
42、.e., their sizes, shapes and volumes.iv. Annual demand (past actuals and future estimates) and service level requirementsof the retail stores.v. Transportation rates by available modes.vi. Transportation distances from candidate warehouse locations to retail stores.vii. Handling, storage and xed cos
43、ts associated with warehousing. Fixed costs shouldbe expressed as a function of warehouse capacity.viii. Fixed ordering costs, order frequencies and sizes by product or product family.2. Data aggregation. Demand needs to be aggregated based on distribution patternsand/or product types. Replace aggre
44、gated demand data points by a single customer.3. Mathematical model building.4. Model validation based on existing network structure.5. Selection of a few low cost alternatives based on the mathematical model.i. For the nal decision, incorporate qualitative factors that were disregarded in themathem
45、atical model, e.g., specic regulations, environmental factors, etc.ii. Optionally, build a detailed simulation model to evaluate these low cost candidatesolutions.6. Decide where to locate the centralized warehouse.With the centralized warehouse, service level will increase (less stock-outs) and inv
46、en-tory holding costs will decrease due to risk pooling. Also, xed costs associated with ware-housing will typically decrease, and inbound transportation costs from the manufacturingfacility to the warehouse should be less than the sum of the previous inbound transporta-tion costs. However, we will
47、incur increased outbound transportation costs from the centralwarehouse to the retailers. In summary, the essential design trade-off is between trans-portation costs on one hand, and inventory holding costs and service level requirements onthe other.Question 4a. In automobile manufacturing, cars are
48、 usually delivered over land, and demand is con-centrated around major cities. Therefore, we would expect warehouses in this industryto be located near large cities with easy access to freeways and railroads. This wouldhelp to reduce the delivery lead time to dealerships in the cities.8b. In the pharmaceutical industry, overnight delivery is common. Therefore, proximityto a major