SECTION 8.

APPLYING A
SUPPLY CHAIN
DESIGN

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved

 8-2

LEARNING OUTCOMES

5. List and describe the four drivers of

supply chain management

6. Explain supply chain management

strategies focused on efficiency

7. Explain supply chain management

strategies focused on effectiveness
 8-3

USING IT TO DRIVE THE SUPPLY

CHAIN
• The four primary drivers of supply chain
management
1. Facilities
2. Inventory
3. Transportation
4. Information

• Organizations use these four drivers to support

either a supply chain strategy focusing on
efficiency or a supply chain strategy focusing on
effectiveness
 8-4

USING IT TO DRIVE THE SUPPLY

CHAIN
 8-5

FACILITIES DRIVER

• Facility – processes or transforms

inventory into another product, or it
stores the inventory before shipping it to
the next facility

• Three primary facilities components

1. Location
2. Capacity
3. Operational design
 8-6

FACILITIES 1:
Location
• Location efficiency – centralize the
location to gain economies of scale,
which increases efficiency

• Location effectiveness – decentralize

the locations to be closer to the
customers, which increases
effectiveness
 8-7

FACILITIES 2:
Capacity
• Capacity efficiency – minimal excess
capacity with the ability to produce only
what is required

• Capacity effectiveness – large

amounts of excess capacity which can
handle wide swings in demand
 8-8

FACILITIES 3:
Operational Design
• Operational design efficiency – product
focus design allows the facility to become
highly efficient at producing one single
product, increasing efficiency

• Operational design effectiveness –

functional focus design allows the facility to
perform a specific function on many different
types of products, increasing effectiveness
 8-9

FACILITIES DRIVER
 8-10

INVENTORY DRIVER
• Inventory – offsets discrepancies between
supply and demand

• Inventory management and control

software – provides control and visibility to
the status of individual items maintained in
inventory

• Two primary inventory components

1. Cycle inventory
2. Safety inventory
 8-11

INVENTORY 1:
Cycle Inventory
• Cycle inventory – the average amount
of inventory held to satisfy customer
demands between inventory deliveries
– Cycle inventory efficiency – holding small
amounts of inventory and receiving orders
weekly or even daily
– Cycle inventory effectiveness – holding
large amounts of inventory and receiving
inventory deliveries only once a month
 8-12

INVENTORY 2:
Safety Inventory
• Safety inventory – extra inventory held
in the event demand exceeds supply
– Safety inventory efficiency – holding
small amounts of safety inventory
– Safety inventory effectiveness – holding
large amounts of safety inventory
 8-13

INVENTORY DRIVER
 8-14

TRANSPORTATION DRIVER

• Transportation – moves inventories

between the different stages in the
supply chain

• Two primary inventory components

1. Method of transportation
2. Transportation route
 8-15

TRANSPORTATION 1:
Method of Transportation
• Global inventory management system –
provides the ability to locate, track, and
predict the movement of every component
or material anywhere upstream or
downstream in the supply chain
– Method of transportation efficiency
– Method of transportation effectiveness
 8-16

TRANSPORTATION 2:
Transportation Route
• Transportation planning software – tracks
and analyzes the movement of materials and
products to ensure the delivery of materials and
finished goods at the right time, the right place,
and the lowest cost

• Distribution management software –

coordinates the process of transporting
materials from a manufacturer to distribution
centers to the final customer
– Transportation route efficiency
– Transportation route effectiveness
 8-17

TRANSPORTATION DRIVER
 8-18

INFORMATION DRIVER

• Information – an organization must

decide how and what information it
wants to share with its supply chain
partners

• Two primary information components

1. Information sharing
2. Push verses pull strategy
 8-19

INFORMATION 1:
Information Sharing
• Information sharing efficiency – freely share
lots of information to increase the speed and
decrease the costs of supply chain processing

• Information sharing effectiveness – share

only selected information with certain
individuals, which will decrease the speed and
increase the costs of supply chain processing
 8-20

INFORMATION 2:
Push vs. Pull Information Strategy
• Pull information strategy (efficiency) –
supply chain partners are responsible for
pulling all relevant information
– Pull technology – pulls information

• Push information strategy effectiveness –

organization takes on the responsibility to
push information out to its supply chain
partners
– Push technology – sends information
 8-21

INFORMATION DRIVER
 8-22

APPLYING A SUPPLY CHAIN

DESIGN
• Wal-Mart’s supply chain management
strategy emphasizes efficiency, but also
maintains adequate levels of
effectiveness
– Facilities focus – Efficiency
– Inventory focus – Efficiency
– Transportation focus – Effectiveness
– Information focus - Efficiency
 8-23

APPLYING A SUPPLY CHAIN

DESIGN
 8-24

FUTURE SUPPLY CHAIN TRENDS

• Fastest growing SCM components

– Supply chain event management (SCEM)
– Selling chain management
– Collaborative engineering
– Collaborative demand planning
 8-25

OPENING CASE QUESTIONS

Dell’s Famous Supply Chain
4. Identify the four primary drivers of SCM and
explain how Dell uses each one to gain
efficiency or effectiveness in its supply chain

5. Choose one of the fast growth SCM

components and explain how Dell can use it to
increase business operations

6. What is RFID and how could Dell use the

technology to improve its supply chain?
 8-26

CLOSING CASE ONE

BudNet
1. How can an SCM system help a distributor such
as Anheuser-Busch make its supply chain more
effective and efficient?

2. SCM is experiencing explosive growth. Explain

why this statement is true using BudNet as an
example

3. Evaluate BudNet’s effect on each of the five

factors that are driving SCM success

4. List and describe the components of a typical

supply chain along with its ability to help
 8-27

CLOSING CASE TWO

Listerine’s Journey
1. Summarize SCM and describe Warner-
Lambert’s supply chain strategy.
Diagram the SCM components

2. Detail Warner-Lambert’s facilities

strategy

3. Detail Warner-Lambert’s inventory

strategy
 8-28

CLOSING CASE TWO

Listerine’s Journey
4. What would happen to Warner-Lambert’s
business if a natural disaster in Saudi Arabia
depletes its natural gas resources?

5. Assess the impact to Warner-Lambert’s

business if the majority of the eucalyptus crop
was destroyed in a natural disaster

6. Detail Warner-Lambert’s information strategy

 8-29

CLOSING CASE THREE

Levi’s
1. How did Levi Strauss achieve business success
through the use of supply chain management?

2. What might have happened to Levi’s if its top

executives had not supported investments in
SCM?

3. David Bergen, Levi’s CIO, put together a cross-

functional team of key managers from IT, finance,
and sales to transform Levi’s systems to meet
Wal-Mart’s requirements. Analyze the
relationships between these three business areas
and SCM systems. How can an SCM system help
support these three critical business areas?
 8-30

CLOSING CASE THREE

Levi’s
4. Describe the five basic SCM
components in reference to Wal-Mart’s
business model

5. Explain RFID and provide an example of

how Levi’s could use the technology to
increase its business operations