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Beer game 2

Play the beer game through “Beer Game Online Playing Link” under Beer Game folder. Create a word file (2-3 page, double space) and answer the following questions:

1. Play “Expert” different level at least twice, and write down in which week you achieve balance in these two rounds (similar to Beer Game Report 1, see attached image). How did you try to improve that? (Feel free to play multiple rounds if you want)

2. After playing “Novice” level and “Expert” level, how these two levels are different (Hint: customer orders & especially cumulative unfilled order).

3. In chapter 11, Supply Chain Management, we introduced a terminology, “Bullwhip Effect”. Explain “bullwhip effect” in multi-player beer game scenario.

Operations Management: Sustainability and

Supply Chain Management

Thirteenth Edition

Chapter 11

Supply Chain Management
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved

Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
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1

Outline (1 of 3)
Global Company Profile: Red Lobster
The Supply Chain’s Strategic Importance
Sourcing Issues: Make-or-Buy and Outsourcing
Six Sourcing Strategies

Outline (2 of 3)
Supply Chain Risk
Managing the Integrated Supply Chain
Building the Supply Base
Logistics Management
Distribution Management

Outline (3 of 3)
Ethics and Sustainable Supply Chain Management
Measuring Supply Chain Performance

Red Lobster’s Supply Chain (1 of 2)
World’s largest seafood restaurant company
Serves 140 million meals annually from over 700 restaurants
A winning operations strategy requires a winning supply chain
Committed to seafood sustainability

Red Lobster’s Supply Chain (2 of 2)
Sources food from five continents and thousands of suppliers
Supply chains incorporate supplier qualification, product tracking, independent audits, and just-in-time delivery

Learning Objectives (1 of 2)
When you complete this chapter you should be able to:
11.1 Explain the strategic importance of the supply chain
11.2 Identify six sourcing strategies
11.3 Explain issues and opportunities in the supply chain
11.4 Describe the steps in supplier selection

Learning Objectives (2 of 2)
When you complete this chapter you should be able to:
11.5 Explain major issues in logistics management
11.6 Compute percentage of assets committed to inventory and inventory turnover

Supply-Chain Management
The objective of supply chain management is to structure the supply chain to maximize its competitive advantage and benefits to the ultimate consumer

A Supply Chain for Beer
Figure 11.1

The Supply Chain’s Strategic Importance (1 of 2)
The coordination of all supply chain activities, starting with raw materials and ending with a satisfied customer
Includes suppliers, manufacturers and/or service providers, distributors, wholesalers, retailers, and final customers

The Supply Chain’s Strategic Importance (2 of 2)
Large portion of sales dollars spent on purchases
Supplier relationships increasingly integrated and long term
Improve innovation, speed design, reduce costs
Managing supplier relationships has added emphasis

Supply Chain Costs
Table 11.1 Supply Chain Costs as a Percentage of Sales
INDUSTRY % PURCHASED
Automobiles 67
Beverages 52
Chemical 62
Food 60
Lumber 61
Metals 65
Paper 55
Petroleum 79
Restaurants 35
Transportation 62

Supply Chain vs. Sales Strategy
Hau Lee Furniture 60% of sales $ in supply chain Current gross profit = $10,000 Increase profits to $15,000 (50%)
Blank CURRENT SITUATION SUPPLY CHAIN STRATEGY SALES
STRATEGY
Sales $100,000 $100,000 $125,000
Cost of materials $60,000 (60%) $55,000 (55%) $75,000 (60%)
Production costs $20,000 (20%) $20,000 (20%) $25,000 (20%)
Fixed costs $10,000 (10%) $10,000 (10%) $10,000 (8%)
Profit $10,000 (10%) $15,000 (15%) $15,000 (12%)

Supply Chain Management
Table 11.2 How Corporate Strategy Impacts Supply Chain Decisions
Blank LOW-COST
STRATEGY RESPONSE
STRATEGY DIFFERENTIATION STRATEGY
Primary supplier selection criteria • Cost • Capacity
• Speed
• Flexibility • Product development skills
• Willing to share information
• Jointly and rapidly develop products
Supply chain inventory • Minimize inventory to hold down costs • Use buffer stocks to ensure speedy supply • Minimize inventory to avoid product obsolescence
Distribution network • Inexpensive transportation
• Sell through discount distributors/retailers • Fast transportation
• Provide premium customer service • Gather and communicate market research data
• Knowledgeable sales staff
Product design characteristics • Maximize performance
• Minimize cost • Low setup time
• Rapid production ramp-up • Modular design to aid product differentiation

Sourcing Issues
Make-or-buy decisions
Choosing between obtaining products and services externally as opposed to producing them internally
Outsourcing
Transfer traditional internal activities and resources to outside vendors
Efficiency in specialization
Focus on core competencies

Six Sourcing Strategies
Many suppliers
Few suppliers
Vertical integration
Joint ventures
Keiretsu networks
Virtual companies

Many Suppliers
Commonly used for commodity products
Purchasing is typically based on price
Suppliers compete with one another
Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery

Few Suppliers
Buyer forms long-term relationships with fewer suppliers
Create value through economies of scale and learning curve improvements
Suppliers more willing to participate in J I T programs and contribute design and technological expertise
Cost of changing suppliers is huge
Trade secrets and other alliances may be at risk

Vertical Integration (1 of 2)
Figure 11.2

Vertical Integration (2 of 2)
Developing the ability to produce goods or services previously purchased
Integration may be forward, towards the customer, or backward, towards suppliers
Can improve cost, quality, delivery, and inventory but requires capital, managerial skills, and demand
Risky in industries with rapid technological change

Joint Ventures
Formal collaboration
Enhance skills
Secure supply
Reduce costs
The challenge is to cooperate without diluting brand or conceding competitive advantage

Keiretsu Networks
A middle ground between few suppliers and vertical integration
Supplier becomes part of the company coalition
Often provide financial support for suppliers through ownership or loans
Members expect long-term relationships and provide technical expertise and stable deliveries
May extend through several levels of the supply chain

Virtual Companies
Rely on a variety of supplier relationships to provide services on demand
Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands
Relationships may be short- or long-term
Exceptionally lean performance, low capital investment, flexibility, and speed

Supply Chain Risk
More reliance on supply chains means more risk
Fewer suppliers increase dependence
Compounded by globalization and logistical complexity
Vendor reliability and quality risks
Political and currency risks

Risk and Mitigation Tactics (1 of 6)
Research and assess possible risks
Innovative planning
Reduce potential disruptions
Prepare responses to negative events
Flexible, secure supply chains
Diversified supplier base

Risk and Mitigation Tactics (2 of 6)
Table 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Supplier failure to deliver Use multiple suppliers; effective contracts with penalties; subcontractors on retainer; preplanning McDonald’s planned its supply chain 6 years before its opening in Russia. Every plant—bakery, meat, chicken, fish, and lettuce—is closely monitored to ensure strong links.
Supplier quality failures Careful supplier selection, training, certification, and monitoring Darden Restaurants has placed extensive controls, including third-party audits, on supplier processes and logistics to ensure constant monitoring and reduction of risk.

Risk and Mitigation Tactics (3 of 6)
Table 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Outsourcing Take over production; provide or perform the service yourself Tyson took over chicken farm production in China to mitigate product quality and safety concerns related to using independent farmers.
Logistics delays or damage Multiple/redundant transportation modes and
warehouses; secure packaging; effective contracts with penalties Walmart, with its own trucking fleet and numerous distribution centers located throughout the U.S., finds alternative origins and delivery routes bypassing problem areas.

Risk and Mitigation Tactics (4 of 6)
Table 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Distribution Careful selection, monitoring, and effective contracts with penalties Toyota trains its dealers around the world, invoking principles of the Toyota Production System to help dealers improve customer service, used-car logistics, and body and paint operations.
Information loss or distortion Redundant databases; secure IT systems; training of supply chain partners on the proper interpretations and uses of information Boeing utilizes a state-of-the-art international communication system that transmits engineering, scheduling, and logistics data to Boeing facilities and suppliers worldwide.

Risk and Mitigation Tactics (5 of 6)
Table 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Political Political risk insurance; cross-country diversification; franchising and licensing Hard Rock Café reduces political risk by franchising and licensing, rather than owning, when the political and cultural barriers seem significant.
Economic Hedging to combat exchange rate risk; purchasing contracts that address price fluctuations Honda and Nissan are moving more manufacturing out of Japan as the exchange rate for the yen makes Japanese-made autos more expensive.

Risk and Mitigation Tactics (6 of 6)
Table 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Natural catastrophes Insurance; alternate sourcing; cross-country diversification Toyota, after its experience with fires, earthquakes, and tsunamis, now attempts to have at least two suppliers, each in a different geographical region, for each component.
Theft, vandalism, and terrorism Insurance; patent protection; security measures including RFID and GPS; diversification Domestic Port Radiation Initiative: The U.S. government has set up radiation portal monitors that scan nearly all imported containers for radiation.

Security and J I T
Shipments get misrouted, stolen, damaged, or excessively delayed
Technological innovations are improving security and inventory management
Location, motion sensors, broken seals, temperature, radioactivity
Tracking can help expedite shipments

Managing the Integrated Supply Chain (1 of 5)
Issues
Local optimization can magnify fluctuations
Incentives push merchandise into the supply chain for sales that have not occurred
Large lots reduce shipping and production costs but increase inventory holding and do not reflect actual sales

Managing the Integrated Supply Chain (2 of 5)
Issues
Local optimization can magnify fluctuations
Incentives push merchandise into the supply chain for sales that have not occurred
Large lots reduce shipping and production costs but increase inventory holding and do not reflect actual sales
Bullwhip effect occurs when orders are relayed through the supply chain with fluctuations increasing at each step

Managing the Integrated Supply Chain (3 of 5)
Opportunities
Accurate “pull” data, shared information
Lot size reduction, shipping, discounts, reduced ordering costs
Single stage control of replenishment
Single supply chain member responsible for ordering
Vendor managed inventory (V M I)

Managing the Integrated Supply Chain (4 of 5)
Opportunities
Collaborative planning, forecasting, and replenishment (C P F R) throughout the supply chain
Blanket orders against which actual orders are released
Standardization

Managing the Integrated Supply Chain (5 of 5)
Opportunities
Postponement withholds modification as long as possible
Electronic ordering and funds transfer speed transactions and reduce paperwork
Drop shipping and special packaging bypass the seller and reduce costs
Blockchain aids tracking and verification

Building the Supply Base (1 of 5)
Supplier evaluation
Finding potential suppliers
Determine likelihood of their becoming good suppliers
Supplier certification
Qualification
Education
Certification

Building the Supply Base (2 of 5)
Supplier development
Integrate the supplier into the system
Quality requirements
Product specifications
Schedules and delivery
Procurement policies
Training
Engineering and production help
Information transfer procedures

Building the Supply Base (3 of 5)
Negotiation
A significant element in purchasing
Highly valued skills
Cost-based price model
Supplier opens books
Market-based price model
Based on published, auction, or indexed prices
Competitive bidding
Common policy for many purchases
Does not generally foster long-term relationships

Building the Supply Base (4 of 5)
Contracting
Share risks, benefits, create incentives
Centralized purchasing
Leverage volume
Develop specialized staff
Develop supplier relationships
Maintain professional control
Devote resources to selection and negotiation
Reduce duplication of tasks
Promote standardization

Building the Supply Base (5 of 5)
E-Procurement
Speeds purchasing, reduces costs, integrates supply chain
Online catalogs and exchanges
Standard items or industry-specific web sites
Online auctions
Low barriers to entry
Reverse auctions for buyers
Price not always the most important factor

Logistics Management
Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities
Is a frequent candidate for outsourcing
Allows competitive advantage to be gained through reduced costs and improved customer service

Shipping Systems (1 of 3)
Trucking
Moves the vast majority of manufactured goods
Chief advantage is flexibility
Railroads
Capable of carrying large loads
Containers and piggybacking have helped improve flexibility

Shipping Systems (2 of 3)
Airfreight
Fast and flexible for light loads
May be expensive
Waterways
Typically used for bulky, low-value cargo
Used when shipping cost is more important than speed

Shipping Systems (3 of 3)
Pipelines
Used for transporting oil, gas, and other chemical products
Multimodal
Combines shipping methods
Common, especially in international shipments
Aided by standardized containers

Cost and Speed of Shipments
Faster shipping is generally more expensive than slower shipping
Faster methods tend to involve smaller shipment sizes while slower methods involve very large shipment sizes

Warehousing (1 of 2)
May be expensive, but alternatives may be more so
Fundamental purpose is to store goods
May provide other functions
Consolidation
Break-bulk
Cross-docking
Postponement

Warehousing (2 of 2)
Channel assembly
Implementation of postponement
Ship components or modules
Distributors become manufacturing partners
Finished goods inventory reduced
Better market response with less investment

Third-Party Logistics (3P L)
Outsourcing logistics can reduce inventory, costs, and improve delivery reliability and speed
Coordinate supplier inventory with delivery services
May provide warehousing, assembly, testing, shipping, customs

Distribution Management (1 of 5)
The outbound flow of products
Rapid response
Product choice
Service
Increasing the number of facilities generally improves response time and customer satisfaction

Distribution Management (2 of 5)
Total costs are important
Inventory costs
Transportation costs
Facility costs
Total logistics costs

Distribution Management (3 of 5)
Figure 11.3

Distribution Management (4 of 5)
Figure 11.3

Distribution Management (5 of 5)
Facilities, packaging, and logistics
Selection and development of dealers or retailers
Downstream management is as important as upstream management

Ethics and Sustainable Supply Chain Management
Personal ethics
Critical to long-term success of an organization
Supply chains particularly susceptible
Ethics within the supply chain
Ethical behavior regarding the environment

Institute for Supply Management Principles and Standards
Promote and uphold responsibilities to one’s employer; positive supplier and customer relationships; sustainability and social responsibility; protection of confidential and proprietary information; applicable laws, regulations, and trade agreements; and development of professional competence
Avoid perceived impropriety; conflicts of interest; behaviors that negatively influence supply chain decisions; and improper reciprocal agreements

I S M Ethical Standards (1 of 4)
PERCEIVED IMPROPRIETY. Prevent the intent and appearance of unethical or compromising conduct in relationships, actions, and communications
CONFLICTS OF INTEREST. Ensure that any personal, business or other activity does not conflict with the lawful interests of your employer
ISSUES OF INFLUENCE. Avoid behaviors or actions that may negatively influence, or appear to influence, supply management decisions

I S M Ethical Standards (2 of 4)
RESPONSIBILITIES TO YOUR EMPLOYER. Uphold fiduciary and other responsibilities using reasonable care and granted authority to deliver value to your employer
SUPPLIER AND CUSTOMER RELATIONSHIPS. Promote positive supplier and customer relationships
SUSTAINABILITY AND SOCIAL RESPONSIBILITY. Champion social responsibility and sustainability practices in supply management

I S M Ethical Standards (3 of 4)
CONFIDENTIAL AND PROPRIETARY INFORMATION. Protect confidential and proprietary information
RECIPROCITY. Avoid improper reciprocal agreements
APPLICABLE LAWS, REGULATIONS, AND TRADE AGREEMENTS. Know and obey the letter and spirit of laws, regulations, and trade agreements applicable to supply management

I S M Ethical Standards (4 of 4)
PROFESSIONAL COMPETENCE. Develop skills, expand knowledge, and conduct business that demonstrate competence and promote the supply management profession

Establishing Sustainability in Supply Chains (1 of 2)
Return or reverse logistics
Sending returned products back up the supply chain for resale, repair, reuse, remanufacture, recycling, or disposal
Closed-loop supply chain
Proactive design of a supply chain that tries to optimize all forward and reverse flows
Prepares for returns prior to product introduction

Establishing Sustainability in Supply Chains (2 of 2)
Table 11.4 Management Challenges of Reverse Logistics
ISSUE FORWARD LOGISTICS REVERSE LOGISTICS
Forecasting Relatively straightforward More uncertain
Product quality Uniform Not uniform
Product packaging Uniform Often damaged
Pricing Relatively uniform Dependent on many factors
Speed Often very important Often not a priority
Distribution costs Easily visible Less directly visible
Inventory management Consistent Not consistent

Measuring Supply-Chain Performance (1 of 6)
Assets committed to inventory

Home Depot had $12.5b inventory, total assets of $42.9b

Measuring Supply-Chain Performance (2 of 6)
Table 11.5 Inventory as Percentage of Total Assets (with examples of exceptional performance)
Manufacturer (Toyota 5%) 15%
Wholesale (Coca-Cola 2.9%) 34%
Restaurants (McDonald’s .05%) 2.9%
Retail (Home Depot 25.7%) 27%

Measuring Supply-Chain Performance (3 of 6)
Inventory turnover

Inventory investment
Average of several periods
(beginning plus ending)/2
Ending inventory

Measuring Supply-Chain Performance (4 of 6)
From PepsiCo, Inc. Annual Report
Net revenue Blank $63.5
Cost of goods sold Blank $28.7
Inventory: Blank Blank
Raw material inventory $1.32 Blank
Work-in-process inventory $.15 Blank
Finished goods inventory $1.26 Blank
Total inventory investment Blank $2.73

Measuring Supply-Chain Performance (5 of 6)
Table 11.6 Examples of Annual Inventory Turnover

Measuring Supply-Chain Performance (6 of 6)
Weeks of supply

For PepsiCo
Inventory investment = $2.73b
Average weekly cost of goods sold = $28.7b / 52 = $.55b
Weeks of supply = 2.73 / .55 = 4.96 weeks

Benchmarking the Supply Chain (1 of 2)
Comparison with benchmark firms
Table 11.7 Supply Chain Metrics in the Consumer Packaged Goods Industry
Blank TYPICAL FIRMS BENCHMARK FIRMS
Order fill rate 71% 98%
Order fulfillment lead time (days) 7 3
Cash-to-cash cycle time (days) 100 30
Inventory days of supply 50 20

The SCOR Model (1 of 2)
Processes, metrics, and best practices
Figure 11.4

The SCOR Model (2 of 2)
Table 11.8 SCOR Model Metrics to Help Firms Benchmark Performance Against the Industry
PERFORMANCE ATTRIBUTE SAMPLE METRIC CALCULATION
Supply chain reliability Perfect order fulfillment (Total perfect orders) / (Total number of orders)
Supply chain responsiveness Average order fulfillment cycle time (Sum of actual cycle times for all orders delivered) / (Total number of orders delivered)
Supply chain agility Upside supply chain flexibility Time required to achieve an unplanned 20% increase in delivered quantities
Supply chain costs Supply chain management costs Cost to plan + Cost to source + Cost to deliver + Cost to return
Supply chain asset management Cash-to-cash cycle time Inventory days of supply + Days of receivables outstanding − Days of payables outstanding

Benchmarking the Supply Chain (2 of 2)
Benchmarking useful
May not be adequate
Audits may be necessary
Continuing communication, understanding, trust, performance, corporate strategy
Foster a mutual belief that “we are in this together”

Copyright
This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.

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