11 SupplyChain Management Power Point presentation to accompany

11 Supply-Chain Management Power. Point presentation to accompany Heizer and Render Operations Management, 10 e Principles of Operations Management, 8 e Power. Point slides by Jeff Heyl © 2014 Pearson Education, Inc. © 2011 Pearson Education, Inc. publishing as Prentice Hall 12 - 1

Supply Chain Economics Dollars of additional sales needed to equal $1 saved through the supply chain Percent of Sales Spent in the Supply Chain Percent Net Profit of Firm 30% 2 $2. 78 4 $2. 70 6 $2. 63 8 $2. 56 10 $2. 50 40% $3. 23 $3. 13 $3. 03 $2. 94 $2. 86 50% $3. 85 $3. 70 $3. 57 $3. 45 $3. 33 60% $4. 76 $4. 55 $4. 35 $4. 17 $4. 00 70% $6. 25 $5. 88 $5. 56 $5. 26 $5. 00 80% $9. 09 $8. 33 $7. 69 $7. 14 $6. 67 90% $16. 67 $14. 29 $12. 50 $11. 11 $10. 00 Table 11. 4 © 2014 Pearson Education, Inc. © 2011 Pearson Education, Inc. publishing as Prentice Hall 12 - 2

Problem 11. 6 Using Table 11. 4, determine the sales necessary to equal a dollar of savings on purchases for a company that has: a) A net profit of 4% and spends 40% of its revenue on purchases. b) A net profit of 6% and spends 80% of its revenue on purchases. © 2014 Pearson Education, Inc. 12 - 3

Problem 11. 6 Using Table 11. 4: (a) Net profit of 4%, spends 40% of its revenue on purchases. It will take $3. 13 in sales to equal $1 saved through purchasing. (b) Net profit of 6%, spends 80% of its revenue on purchases. It will take $7. 69 in sales to equal $1 saved through purchasing. © 2014 Pearson Education, Inc. 12 - 4

Vendor Evaluation Scores (1 -5) Weight x Score Criteria Weights Engineering/research/innovation skills . 20 5 1. 0 Production process capability (flexibility/technical assistance) . 15 4 . 6 Distribution/delivery capability . 05 4 . 2 Quality systems and performance . 10 2 . 2 Facilities/location . 05 2 . 1 Financial and managerial strength (stability and cost structure) . 15 4 . 6 Information systems capability (eprocurement, ERP) . 10 2 . 2 Integrity (environmental compliance/ ethics) . 20 5 1. 0 Total © 2014 Pearson Education, Inc. 1. 00 © 2011 Pearson Education, Inc. publishing as Prentice Hall 3. 9 12 - 5

Problem 11. 2 As purchasing agent for Woolsey Enterprises in Golden, Colorado, you ask your buyer to provide you with a ranking of “excellent, ” “good, ” “fair, ” or “poor” for a variety of characteristics for two potential vendors. You suggest that “Products” total be weighted 40% and the other three categories’ totals be weighted 20% each. The buyer has returned the following ranking: Which of the two vendors would you select? © 2014 Pearson Education, Inc. 12 - 6

Problem 11. 2 © 2014 Pearson Education, Inc. 12 - 7

Problem 11. 2 © 2014 Pearson Education, Inc. 12 - 8

Cost of Shipping Alternatives Value of connectors = $1, 750. 00 Holding cost = 40% per year Second carrier is 1 day faster and $20 more expensive Daily cost of holding = product Annual holding cost x Product value /365 = (. 40 x $1, 750)/ 365 = $1. 92 Since it costs less to hold the product one day longer than it does for the faster shipping ($1. 92 < $20), we should use the cheaper, slower shipper © 2014 Pearson Education, Inc. © 2011 Pearson Education, Inc. publishing as Prentice Hall 12 - 9

Problem 11. 10 Monczka-Trent Shipping is the logistics vendor for Handfield Manufacturing Co, in Ohio. Handfield has daily shipments of a powersteering pump from its Ohio plant to an auto assembly line in Alabama. The value of the standard shipment is $250, 000. Monczka-Trent has two options: (1) its standard 2 -day shipment or (2) a subcontractor who will team drive overnight with an effective delivery of 1 day. The extra driver costs $175. Handfields's holding cost is 35% annually for this kind of inventory. a) Which option is most economical? b. ) What production issues are not included in the data presented above? © 2014 Pearson Education, Inc. 12 - 10

Problem 11. 10 (a) Daily holding cost = (Annual holding cost Cost)/Days in year = (. 35 $250, 000)/365 = $239. 73. Difference in cost per day between shipping options = $175. Since the daily holding cost ($239. 73) is more than the cost of faster shipping ($175), use the faster subcontractor. (b) Implications of added in-transit time to the production process: potential delay in activity for which the component is destined (new product development, quality test, the production process, etc. ). © 2014 Pearson Education, Inc. 12 - 11

Measuring Supply-Chain Performance u Assets committed to inventory Percent invested in = inventory Total inventory investment x 100 Total assets Investment in inventory = $11. 4 billion Total assets = $44. 4 billion Percent invested in inventory = (11. 4/44. 4) x 100 = 25. 7% © 2014 Pearson Education, Inc. © 2011 Pearson Education, Inc. publishing as Prentice Hall 12 - 12

Measuring Supply-Chain Performance Inventory as a % of Total Assets (with exceptional performance) Manufacturing (Toyota 5%) 15% Wholesale (Coca-Cola 2. 9%) 34% Restaurants (Mc. Donald’s. 05%) 2. 9% Retail (Home Depot 25. 7%) 27% © 2014 Pearson Education, Inc. © 2011 Pearson Education, Inc. publishing as Prentice Hall Table 11. 7 12 - 13

Measuring Supply-Chain Performance u Inventory turnover = © 2014 Pearson Education, Inc. Cost of goods sold Inventory investment © 2011 Pearson Education, Inc. publishing as Prentice Hall 12 - 14

Measuring Supply-Chain Performance Examples of Annual Inventory Turnover Food, Beverage, Retail Manufacturing Anheuser Busch 15 Dell Computer 90 Coca-Cola 14 Johnson Controls 22 Toyota (overall) 13 Home Depot 5 Mc. Donald’s 112 Nissan (assembly) 150 Table 11. 8 © 2014 Pearson Education, Inc. © 2011 Pearson Education, Inc. publishing as Prentice Hall 12 - 15

Measuring Supply-Chain Performance u Inventory turnover Net revenue Cost of goods sold Inventory: Raw material inventory Work-in-process inventory Finished goods inventory Total inventory investment © 2014 Pearson Education, Inc. © 2011 Pearson Education, Inc. publishing as Prentice Hall $32. 5 $14. 2 $. 74 $. 11 $. 84 $1. 69 12 - 16

Measuring Supply-Chain Performance u Inventory turnover Net revenue $32. 5 Cost of goods sold $14. 2 Inventory turnover = Inventory investment Inventory: Raw material inventory $. 74 = 14. 2 / 1. 69$. 11 = 8. 4 Work-in-process inventory Finished goods inventory $. 84 Total inventory investment $1. 69 © 2014 Pearson Education, Inc. © 2011 Pearson Education, Inc. publishing as Prentice Hall 12 - 17

Measuring Supply-Chain Performance u Inventory turnover Net revenue $32. 5 Cost of goods sold $14. 2 Average weekly Inventory turnover = = $14. 2 /investment 52 = $. 273 Inventory cost of goods sold Inventory: Raw material inventory $. 74 = 14. 2 / 1. 69$. 11 = 8. 4 Inventory investment Work-in-process inventory Weeks of supply = Finished goods inventory $. 84 cost of Average weekly Total inventory investment goods sold $1. 69 = 1. 69 /. 273 = 6. 19 weeks © 2014 Pearson Education, Inc. © 2011 Pearson Education, Inc. publishing as Prentice Hall 12 - 18

Problem 11. 12 Arrow Distributing Corp. likes to track inventory by using weeks of supply as well as by inventory turnover. a) What is its weeks of supply? b) What percent of Arrow's assets are committed to inventory? c) What is Arrow's inventory turnover? © 2014 Pearson Education, Inc. 12 - 19

Problem 11. 12 © 2014 Pearson Education, Inc. 12 - 20