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Supply Chain Management; Chapter 7 Department of Business Administration SPRING 2016-2017 Chapter 7: Supply Chain and Logistics Management MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Outline: What You Will Learn . . . Define supply chain and logistics management Discuss the nature and importance supply chain and logistics management Discuss the goal of the Supply Chain Management. Discuss the Value Chain Describe fhe five major Supply Chain drivers Define Global Supply Chain Discuss the concept of Ethics and Supply Chain Define Strategic Responsibilities and Supply Chain... 2 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 ‘‘Same old same old’’-Supply Chain The practice of supply chain management is guided by some basic underlying concepts that have not changed much over the centuries. Clerchus of Sparta in 401 B.C., recognized the value of supply in his speech to the small Greek army. In other words survival of the Greek army depended not only on its discipline, training, and morale but also on its supply chain. Alexander the Great based his strategies and campaigns on his army’s unique capabilities and these were made possible by effective supply chain management. In the spirit of the saying, “amateurs talk strategy and professionals talk logistics,” Alexander was a master of supply chain management and he could not have succeeded otherwise. MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. 3 Supply Chain Management; Chapter 7 ‘‘Same old same old’’- -Supply Chain The practice of supply chain management is guided by some basic underlying concepts that have not changed much over the centuries. Several hundred years ago, Napoleon made the remark, “An army marches on its stomach’’. Napoleon was a master strategist and a skilful general and this remark shows that he clearly understood the importance of what we would now call an efficient supply chain. Unless the soldiers are fed, the army cannot move. 4 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Supply Chain A supply chain represents all the stages at which value is added in producing and delivering a product or service from suppliers (and their suppliers) to customers (and their customers). supply chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together. Supply Chain Management has an important role to play in moving goods more quickly to their destination. Supply Chain Management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer. MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. 5 Supply Chain Management; Chapter 7 A Typical Supply Chain Manufacturing Supply Chain Mfg, storage, distributing, Customer Service Supply Chain Storage, Service and Customer Retailer, and 6 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Supply Chain Flow Supply Chain Flow Good and services flow clockwise Cash flows counter-clockwise 7 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 A farm to market supply chain A farm to market supply chain shows key suppliers at each stage 8 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Value Chain Supply chains are sometimes called value chains. This means that value is added as goods and services progress through chain. Value Chain Components Supply o This starts at the begining of the chain and ends with the internal operations of the organization. Demand o It starts at the point where the organization’s output is delivered to its immediate customer and ends with the final customer in the chain. o The demand chain is the sales and distribution portion of the value chain. 9 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 The goal of the Supply Chain Management Determining the appropriate level of outsourcing Managing procurement Managing Suppliers Managing customer relationships Being able to quickly identify problems and respond to them 10 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 The Five Major Supply Chain Drivers Inventory Production Information Trasportation Location 11 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Trends in Supply Chain Management Measuring supply chain ROI This enables manager to incorporate economics into outsourcing and other decisions, giving them a rational basis for managing their supply chains. Greening the supply chain This generating interest for variety of reasons including corporate responsibility, regulations and public pressure i.e. Reducing pollution and choosing green suppliers. Reevaluating outsourcing This is a second chance looking at outsourcing, especially global suppliers. i.e lower labor costs, converting fixed costs to variable costs, freeing up capital to devote to other needs etc... 12 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Trends in Supply Chain Management Integrating IT This produces real time data that can enhance strategic planning and help business to control costs, measure quality and productivity, respond quickly to problems and improve supply chain operations... Managing risks This develops strategies to manage risks. i.e. risk avoidance, risk reduction, risk transfer etc... Adopting lean principles This improves the performance of their supply chains. i.e. It can easily eliminate traditional supply chain. In other words, eliminate non value added processes, improving product flow by using pull system... 13 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 The effect of Global Supply Chain Global Logistics It was so easy to deal with supply chain management in the past. Good and services were used to flow from developed countries to under-developed countries. Flow of raw-materials was other way around. Difficulties in Global Logistics Claim 50% shares in a firm’s partnership An increase in labor wages New opportunities in India, China and Russia Some trade agreement organizations make international trade easier; such as NAFTA or EU 14 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Global Supply Chain Make use of outsourcing Pursue opportunities beyond their domestic market Products should be design globally Low labor and material cost Some services may be outsourced to the countries such as China and India... Well and young educated people Language and cultural differences Technological improvement 15 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Global Supply Chain Outsourcing is defined as the act of moving a firm’s internal activities and decision responsibility to outside providers. Reasons to Outsorcing Organizationally-driven Improvement-driven Financially-driven Revenue-driven Cost-driven Employee-driven 16 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Global Supply Chain: Outsourcing 17 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Global Supply Chain:Supply Network 18 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. The Wal-Mart supply Chain Supply Chain Management; Chapter 7 To succeed in the competitive markets that make up today’s economy, companies must learn to align their supply chains with the demands of the markets they serve. Supply chain performance is now a distinct competitive advantage for companies who excel in this area. One of the largest companies in North America is a testament to the power of effective supply chain management. Wal-Mart has grown steadily over the last 20 years and much, if not most, of its success is directly related to its evolving capabilities to continually improve its supply chain. 19 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Measuring Supply-Chain Performance One of the most commonly used measures in all of operations management is “Inventory Turnover” Cost of goods sold Inventory turnover Average aggregate inventory value In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time Average aggregate inventory value 52 weeks Weeks of supply Cost of goods sold 20 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Example of Measuring Supply-Chain Performance Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company normally has an inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean? 21 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Example of Measuring Supply-Chain Performance-Answer Cost of goods sold Inventory turnover Average aggregate inventory value = $160/$35 = 4.57 Since the company’s normal inventory turnover ration is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more inventory relative to their cost of goods sold than before. MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. 22 Supply Chain Management; Chapter 7 Ethics and Supply Chain Bribing government or company officials Ignoring health, safety, and environment standards Violating basic rights of workers Mislabeling country of origin Selling goods abroad that are banned at home. 23 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Strategic Responsibilities and Supply Chain Supply Chain strategy alignment How is outsorcing employed Network configuration Location of supplier, production facilities, distrubution center Information Technology Integrating system, monitoring inventory sytem, tracking of shipments Product and services New product design and service selection Capacity planning Long term needs for the capacity are assessed 24 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Strategic responsibilities and Supply Chain Strategic partnerships Choices are made carefully Distribution strategy Use centralized or decentralized distribution Deciding to use own facilities and equipment or not Uncertainty and risk reduction Potential source of risk should be identified or acceptable 25 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Creating an effective Supply Chain Strategic sourcing is a term that plays an important role for an effective SC Analysing the procurement process to lower costs by reducing waste and non value added activities, increasing profits, reduce risks, and improve supplier performance. Trust Information velocity Supply Chain visibility Event management (unplanned activities such as delayed shipment) Performance metrics (Fill rate: % demand on stock, late deliveries, inventory turnover response time etc...) 26 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Purchasing Interfaces- Functional Areas Accounting Operations Purchasing Design and engineering Receiving Supplier (vendor) Excluded from the exam topics 27 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Purchasing Cycle Excluded from the exam topics Purchasing Cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition. Supplier Requisition Purchasing Cycle Monitor orders Order with a vendor Receiving orders 28 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Purchasing Cycle Purchasing Cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition. Requisition A description of the item The quantity and quality Desired delivery dates Supplier They should have the capability of supplying the desired goods Order with a vendor Large and expensive one-time purchase of equipment A vendor need to be used for small purchase Excluded from the exam topics 29 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Purchasing Cycle Purchasing Cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition. Monitor orders They follow up on orders, especially larger orders with lengthy lead time. Receiving orders It must notify purchasing, accounting, and the operating unit that requested the goods. Excluded from the exam topics 30 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Purchasing Strategies Plans to help achieve company mission Affect long-term competitive position Strategic options Many suppliers Few suppliers Keiretsu network Vertical integration Virtual company Plan © 1995 Corel Corp. 31 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Supply-Chain Strategies Negotiate with many suppliers; play one supplier against another Develop long-term “partnering” arrangements with a few suppliers who will work with you to satisfy the end customer Keiretsu - have your suppliers become part of a company coalition. Vertically integrate; buy the actual supplier Create a virtual company that uses suppliers on an asneeded basis. 32 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Many Suppliers Strategy Many sources per item Adversarial relationship Short-term Little openness High prices large lots Delivery to receiving dock © 1995 Corel Corp. Excluded from the exam topics 33 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Few Suppliers Strategy One or few sources per item Partnership (JIT) Long-term, stable On-site audits & visits Exclusive contracts Low prices (large orders) Frequent, small lots Delivery to point of use © 1995 Corel Corp. Excluded from the exam topics 34 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Vertical Integration Strategy Vertical integration is a strategy and a control mechanism. In the form of Vertical integration, the companies in the same supply chain merge under the joint management. Horizontal integration is a strategy where one company buys its rival company. Raw Material (Suppliers) Backward Integration Current Transformation Forward Integration Finished Goods (Customers) 35 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Forms of Vertical Integration Iron Ore Silicon Steel Automobiles Farming Raw Material (Suppliers) Flour Milling Backward Integration Current Transformation Integrated Circuits Forward Integration Distribution Circuit Boards System Dealers Computers Watches Calculators Baked Goods Finished Goods (Customers) 36 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Logistics Logistics is the part of a supply chain involved with the forward and reverse flow of goods, services, cash and information. Logistics is the movement of goods through the supply chain. Logistics is the art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities” 37 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Logistics Management Logistics Management includes management of inbound and outbound transportation, material handling, warehousing, inventory, distribution and reverse logistics. First time, the word of Logistics was used for military purposes in 1905. Military staffs and personnels were transported from one point to another. 38 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Logistics Functions People prefer to use the Logistics Functions or the concept of Logistics becomes popular because of; An increase in transportation and distance costs An increase in production An increase in use of JIT and Lean system An increase in type of products An increase in use of technology An increase in use of recycling materials An increase in number of international companies 39 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Logistics Organization Purchasing System Production System Distribution System Examples for logistics companies Craft Inc. : o Sales of volume is 10 billion per annum for food staffs. Bayer AG: o Sales of volume is 25 billion per annum for food staffs... 3000 distribution points... Logistics budget is 5 billion dollar per annum... Excluded from the exam topics 40 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Logistics Organization Examples for logistics companies Canon Inc.: o It is the 100th biggest company about photograph machines. FedEx: o Sales of volume is 12 billion per annum for delivery staffs... 3 billion parcels distributed... Number of customers is 2 million.. United Parcel Service: o Sales of volume is 22 billion per annum for delivery staffs... 3.1 billion packets distributed to the point... Number of transportation vehicles is 2 million.. Excluded from the exam topics MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. 41 Supply Chain Management; Chapter 7 Related issues in Logistics How to best transport goods – Modes of transportation • Truck, ship, rail pipelines – Warehouses • Consolidation • Cross Docking • Hub-and-Spoke systems Facility Location Excluded from the exam topics 42 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Related issues in Logistics Facility Location • • • • • • • Proximity to Customers Business Climate Total Costs Infrastructure Quality of Labor Suppliers Other Facilities 43 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Related issues in Logistics Facility Location • • • • • • • Free Trade Zones Political Risk Government Barriers Trading Blocs Environmental Regulation Host Community Competitive Advantage Excluded from the exam topics 44 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 How to calculate Facility Location-The centroid method The centroid method is used for locating single facilities that considers existing facilities, the distances between them, and the volumes of goods to be shipped between them This methodology involves formulas used to compute the coordinates of the two-dimensional point that meets the distance and volume criteria stated in the formula. 45 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 How to calculate Facility Location-The centroid method Cx = d V V ix i i Cy = d V V iy i i Where: Cx = X coordinate of centroid (facility location) Cy = Y coordinate of centroid (facility location) dix = X coordinate of the ith location (destination) diy = Y coordinate of the ith location (destination) Vi = volume of goods moved to or from ith location 46 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 How to calculate Facility Location-The centroid method Example 1a Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom Question: What is the best location for a new Z-Mobile warehouse facility considering only distances and quantities sold per month? Y No of Truckload Shipment Q (790,900) D (250,580) A (100,200) (0,0) MGMT 405, POM, 2014/15. Lec Notes X © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. 47 Supply Chain Management; Chapter 7 How to calculate Facility Location-The centroid method Example-1a To begin, you must identify the existing facilities on a twodimensional plane or grid and determine their coordinates. Y Q (790,900) D (250,580) A (100,200) (0,0) You must also have the volume information (number of shipment/trip) on the business activity at the existing facilities. X No of Truckload Shipment 48 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 How to calculate Facility Location-The centroid method Solution You then compute the new coordinates using the formulas: Cx = 100(1250) + 250(1900) + 790(2300) 2,417,000 = = 443.49 1250 + 1900 + 2300 5,450 Cy = 200(1250) + 580(1900) + 900(2300) 3,422,000 = = 627.89 1250 + 1900 + 2300 5,450 49 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 How to calculate Facility Location-The centroid method Solution You then take the coordinates and place them on the map: Y Q New location of facility Z about (443,627) (790,900) D Z (250,580) A (100,200) (0,0) No of Truckload Shipment X 50 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Calculate Facility Location-Induvidual volume/ distance d (V) Induvidual distance(v olume) = (dx - Cx) 2 (dy - Cy) 2 Where: Cx = X coordinate of computed facility location Cy = Y coordinate of computed facility location dx = X coordinate of destination dy = Y coordinate of destination 51 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Calculate Facility Location-The centroid method d (V)Total distance (volume) = d (v) t where d (v) = distance/volume to town or city t = total annual trips /volume 52 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Calculate Facility Location-The centroid method Example 1b: Based on the information below: (1b/1) calculate the distance for each showroom. (1b/2) calculate the total distance from the new location to showrooms. Y No of truckload Showroom shipment Q (790,900) D (250,580) A (100,200) (0,0) MGMT 405, POM, 2014/15. Lec Notes X A 1250 D 1900 Q 2300 © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Calculate Facility Location-The centroid method Example 1b: Based on the information below: (1b/1) Individual distance for each showroom. dA=SQRT((100-443.49)^2+(200-627.89)^2)=548.70 dD=SQRT((250-443.49)^2+(580-627.89)^2)=199.32 dQ==SQRT((790-443.49)^2+(900-627.89)^2)=440.58 (1b/2) calculate the total distance for new location. d(v)=2077944 total distance travelled to showrooms. MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Facility Location Example 2 Consider, for example, The Clayton County Rescue Squad and Ambulance service which serves five rural town as shown in the following table. The Rescue Squad wants to construct a centralized facility and garage to minimize its total annual mileage to the towns. The locations of towns in terms of their graphical X,Y coordinates measured in miles relative to x=0, y=0 and the expected number of annual trips the Squad will have to make to each town are as follows: Coordinates Town Abbeville Benton Clayton Dunnig Eden x y 20 10 25 32 10 20 35 9 15 8 # of Annual Trips 75 105 135 60 90 55 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Facility Location Example 2 The Clayton County Rescue Squad and Ambulance service which serve five rural town try to find out the best possible garage or facility location among the towns. (a) Determine facility location for the system (b) Calculate individual distance for each town (c) Compute the total distance that minimizes the miles travelled from the garage to the towns. (d) Show the figures calculated on a graph 56 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 How to calculate Facility Location-The centroid method Solution for example 2-a You then compute the new coordinates using the formulas: Cx = 20(75) + 10(105) + 25(135) 32(60) 10(90) = 18.80 75 + 105 + 135 60 90 20(75) + 35(105) + 9(135) 15(60) 8(90) CY = = 16.69 75 + 105 + 135 60 90 57 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 How to calculate Facility Location Example 2- b/c d (V)Induvid ual distance/v olume = (X - Cx) 2 (Y - Cy) 2 d (V) total distance/volume = d (v) t dA=sqroot[(20-18.80)2+(20-16.69)2]=3.52 dB=20.31 dC=9.87 dD=13.30 dE=12.36 D(v)=3.52(75)+....+12.36(90)=5642.20 total miles travelled to the towns (total distance). 58 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Facility Location for example 2- d Supply Chain Management; Chapter 7 Rescue Squad Facility Location 59 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Facility Location Example 3 We have 4 suppliers to transport goods to the Lahma company and the other information is given in the following table: City Izmir Istanbul Ankara Bursa Coordinates x y 200 200 100 500 250 600 500 300 # of truckload shipment 65 120 90 75 60 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Facility Location Example 3 4 suppliers transport goods to the Lahma company where they try to find out the best possible facility location among the cities. (a) Determine facility location for the system (b) Calculate individual distance for each city (c) Compute the total distance that minimizes the total miles from the cities to the Lahma company. (d) Show the figures calculated on a graph 61 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Facility Location Example 3-a Location centers: 200(65) + 100(120) + 250(90) 500(75) = 242.85 65 + 120 + 90 75 200(65) + 500(120) + 600(90) 300(75) Cy = = 427.14 65 + 120 + 90 75 Cx = 62 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Facility Location Example 3- b/c d (V)Induvid ual distance/v olume = (X - Cx) 2 (Y - Cy) 2 d (V) total distance/volume = d (v) t dL=sqroot[(200-242.85)2+(200-427.14.)2]=231.14 diz 231.14 dis 491.34 dan 173.00 dbu 286.86 D(v)=231.14(65)+...+286.86(75)=111071.97 total distance. 63 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Facility Location Example 3- d, e Location 700 600 ANKARA 500 ISTANBUL FL 400 300 BURSA 200 IZMIR 100 0 0 100 200 300 400 500 600 64 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 How to calculate Incremental holding cost Example-3 Incremental holding cost= H(d)/365 H=Annual earning potential of shipped item, d= difference between shipping alternatives. Determine shipping alternative, one day or three days when holding cost is $1000 with one day shipping cost is $40 and three day shipping cost is a) $35 b) $30 Excluded from the final exam topics 65 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 How to calculate Incremental holding cost Solution Incremental holding cost= H(d)/365 H=Annual earning potential of shipped item, d= difference between shipping alternatives. H=$1000 per year with one day shipping, time saving will be 2 days IHC=1000(2)/365=$ 5.48 a) $40-$35=$5 cost saving is less than incremental cost $5.48 b) $40- $30=$10 cost saving exceeds incremental cost $5.48 Excluded from the final exam topics 66 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved. Supply Chain Management; Chapter 7 Thanks 67 MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2010- Prof. Dr. Sami Fethi, EMU, All Right Reserved.