anupindi mbpf3 ch06
Managing Business Process Flows:
Ch 6
Supply
Chain
Management
Managing the Supply
Chain
Key to matching demand with supply
Managing materials waiting time
Cost and Benefits of inventory
Inventory Analysis: Economies of Scale (Ch 6)
Palu Gear: Inventory management of a retailer: EOQ +
ROP
Levers for improvement
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
1
Key Financial Indicators of Supply Chain Performance
Return on Assets
Net Present Value
…
…
These are LAGGING indicators. What must the supply chain do to achieve this? Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
2
Accurately Matching Demand with Supply is the Key
Challenge: Inventories
2008 Logistics costs (US economy)
– Freight Transportation
– Inventory Expense
– Administrative Expense
– Logistics related activity
$864Billion
$420 Billion
$60 Billion
9.4% of GDP
Inventory = Working capital
– Reduced inventory implies less working capital
Why do inventories arise?
– Mismatch between demand and supply
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
3
Costs of not Matching Supply and Demand
Cost of overstocking
– liquidation, obsolescence, holding
Cost of under-stocking
– lost sales and resulting lost margin
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
4
Where is the Flow Time?
Buffer
Waiting
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Operation
Processing
5
Flow Times in White Collar Processes
Source: J. Blackburn
Industry
Process
Average
Flow Time
Theoretical
Flow Time
Flow Time
Efficiency
Life Insurance
New Policy
A pplication
72 hrs.
7 min.
0.16%
Consumer
Packaging
New
Graphic
Design
Consumer
Loan
18 days
2 hrs.
0.14%
24 hrs.
34 min.
2.36%
Hospital
Patient
Billing
10 days
3 hrs.
3.75%
A utomobile
Manufacture
Financial
Closing
11 days
5 hrs
5.60%
Commercial
Bank
Copyright © 2013 Pearson Education Inc.
Ch 6
Supply
Chain
Management
Managing the Supply
Chain
Key to matching demand with supply
Managing materials waiting time
Cost and Benefits of inventory
Inventory Analysis: Economies of Scale (Ch 6)
Palu Gear: Inventory management of a retailer: EOQ +
ROP
Levers for improvement
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
1
Key Financial Indicators of Supply Chain Performance
Return on Assets
Net Present Value
…
…
These are LAGGING indicators. What must the supply chain do to achieve this? Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
2
Accurately Matching Demand with Supply is the Key
Challenge: Inventories
2008 Logistics costs (US economy)
– Freight Transportation
– Inventory Expense
– Administrative Expense
– Logistics related activity
$864Billion
$420 Billion
$60 Billion
9.4% of GDP
Inventory = Working capital
– Reduced inventory implies less working capital
Why do inventories arise?
– Mismatch between demand and supply
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
3
Costs of not Matching Supply and Demand
Cost of overstocking
– liquidation, obsolescence, holding
Cost of under-stocking
– lost sales and resulting lost margin
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
4
Where is the Flow Time?
Buffer
Waiting
Copyright © 2013 Pearson Education Inc. publishing as Prentice Hall
Operation
Processing
5
Flow Times in White Collar Processes
Source: J. Blackburn
Industry
Process
Average
Flow Time
Theoretical
Flow Time
Flow Time
Efficiency
Life Insurance
New Policy
A pplication
72 hrs.
7 min.
0.16%
Consumer
Packaging
New
Graphic
Design
Consumer
Loan
18 days
2 hrs.
0.14%
24 hrs.
34 min.
2.36%
Hospital
Patient
Billing
10 days
3 hrs.
3.75%
A utomobile
Manufacture
Financial
Closing
11 days
5 hrs
5.60%
Commercial
Bank
Copyright © 2013 Pearson Education Inc.