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TOC in Supply Chain Management
TOC in Supply Chain Management
Management
Dr. James R. Holt, PE (Jonah-Jonah)
Washington State University
14204 NE Salmon Creek Avenue
Vancouver, WA 98686
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The Supply Chain
Raw Refine /
Produce Transport
Materials Prepare
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Short & Long Duration Chains
Dairy
Creamery Deliver Retail Customer
Cows
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Complex Combinations
Brakes Car
Lot
Tires
Engine Car
Lot
Transmission
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Dedicated Chain
Rolling Steel
Mine Smelter Product
Mill Sales
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Competitive Link Opportunity
Profit=Sales-Purchase-Inventory Cost-Overhead
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Simple Dist. Chain Game
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Simple Game Example
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Black Bean Business
Black Bean Business: A Simplified Distribution Game
Beginning
Raw Material Manufacture Transportation Distribution Retail Customer Cash On
Hand
Beginning
Inventory=> 6 My Division: $ 0
My Order=> Orders
(for upstream
Filled @$+50 $
materials)
Week 1
Running
I Receive=> Orders Weekly
Product=> Back Total
(from upstream
Available
(from down
Orders @$-50 $ Cash
Cash On
materials) stream clients) Flow
Hand
Inventory=>
Remaining @$-10 $ $ $
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Generic Supply Chain Conflict
To meet customer demands (next link in chain as well as the end customer) I need to keep
a significant inventory. But, the cost of inventory deeply erodes my profits. Missing an
order erodes my future profits. My forecasts are inaccurate and replenishment takes too
long. I’m stuck between a rock and a hard place.
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Traditional Supply Chain
Solution
Raw
Produce Distribute Retail Customer
Materials
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Typical Production Solution
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Difficulty in Forecasting
Product A Demand
80
60
Number
Actual
40
Mean
20
0
1 2 3 4 5 6 7 8 9 10
Date
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Potential Future
Product A Demand
80
60
Number
Actual
40
Mean
20
0
1
11
13
15
Date
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Adjusting for Product Life
Product A Demand
80
60
Number
Actual
40
Mean
20
0
Product B Demand
1
11
13
Date 15 80
60
Number
Actual
40
Mean
20
0
1
11
13
15
Date
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Inventory Demand
Probability
90% Sure
Inventory Level
Mean 50 70
Std Dev 10
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DBR Production Solution
Constraint Buffer Protects Shipping Buffer Protects
Replenishment Short Lead Demand
Raw Constraint
Materials Machine Warehouse
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Non-Cooperative Supply Chain
Raw Produce
Transport Distribute Retail Customer
Material Constraint
Watch
Diligently
Watch
Diligently
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Cooperative Supply Chain
Raw Produce
Transport Distribute Retail Customer
Material Constraint
Watch
Diligently
Firm 1 Firm 2
After
Watch
Diligently
Watch
Diligently
Firm 1 Firm 2
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Transfer Costs in
Cooperating Chains
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Incentive to Switch
Market
5ea @$70
RM Cap. 35@ Cap. Sell
$20 40/wk $60 40/wk $100
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Cooperative Dedicated
Sources
Best Supplier
RM Cap. 60% of Orders
$20 40/wk
35@ Cap. Sell
$60 40/wk $100
RM Cap.
$20 40/wk Lesser Supplier
40% of Orders
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