Decision Was Risky o New design left no plant in North America or Europe Long and variable supply lead times Higher inventory levels o Remaining manufacturing facilities in Asia and Latin America fully utilized Any disruption of supply from these countries, due to epidemics or geopolitical problems, would make it impossible to satisfy many market areas How can one design the supply chain taking into account epidemics or geopolitical problems that are difficult to quantify? o Analyze the cost trade-offs
9-16 Decision Was Risky ⚫ New design left no plant in North America or Europe ⚫ Long and variable supply lead times ⚫ Higher inventory levels. ⚫ Remaining manufacturing facilities in Asia and Latin America fully utilized ⚫ Any disruption of supply from these countries, due to epidemics or geopolitical problems, would make it impossible to satisfy many market areas. ⚫ How can one design the supply chain taking into account epidemics or geopolitical problems that are difficult to quantify? ⚫ Analyze the cost trade-offs
Trade-Offs 7 more plants is near optimal optimal solution Total plants .Total i Variable conversion Fixed cost -+Transportation+ Duty-e-Inventor FIGURE 10-2: Cost trade-offs in supply chain design 17
9-17 Trade-Offs FIGURE 10-2: Cost trade-offs in supply chain design
Analysis of the Trade-Offs o Closing 17 plants and leaving 23 open will minimize supply chain costs Total cost function is quite flat around the optimal strategy o Increasing the number of open plants from 23 to 30 facilities o increases total cost by less than $2. 5M o increases redundancy significantly 9-18
9-18 Analysis of the Trade-Offs ⚫ Closing 17 plants and leaving 23 open will minimize supply chain costs. ⚫ Total cost function is quite flat around the optimal strategy. ⚫ Increasing the number of open plants from 23 to 30 facilities ⚫ increases total cost by less than $2.5M ⚫ increases redundancy significantly
Sensing and Responding o Speed in sensing and responding can help the firm overcome unexpected supply problems Failure to sense could lead to o Failure to respond to changes in the supply chain Can force a company to exit a specific market 9-19
9-19 Sensing and Responding ⚫ Speed in sensing and responding can help the firm overcome unexpected supply problems ⚫ Failure to sense could lead to: ⚫ Failure to respond to changes in the supply chain ⚫ Can force a company to exit a specific market
Sensing and Responding EXample o Different responses of Nokia and ericsson on a fire at one of the suppliers facility e Supplier was Philips Semiconductors in Albuquerque, NM Nokia: o Changed product design to source components from alternate suppliers e For parts that could not be sourced from elsewhere worked with Philips to source it from their plants p China and Netherlands o All done in about five days
9-20 Sensing and Responding Example ⚫ Different responses of Nokia and Ericsson on a fire at one of the supplier’s facility ⚫ Supplier was Philips Semiconductors in Albuquerque, NM ⚫ Nokia: ⚫ Changed product design to source components from alternate suppliers ⚫ For parts that could not be sourced from elsewhere, worked with Philips to source it from their plants in China and Netherlands ⚫ All done in about five days