Decision Was RiskyNew design left no plant inNorthAmerica orEuropeLongandvariable supplyleadtimesHigherinventorylevelsRemaining manufacturing facilities in Asia andLatin America fully utilizedAnydisruptionof supply fromthesecountries,duetoepidemics orgeopolitical problems,wouldmakeitimpossibletosatisfymanymarket areasHowcanone designthe supply chain taking intoaccountepidemics orgeopolitical problems thatare difficult to quantify?Analyzethecosttrade-offs9-16
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-Offs7moreplantsisnearoptimaloptimalsoluition3630252320381098Totalplants+Total--Variableconversion★Fixedcost+Transportation*Duty--InventoryFIGURE10-2:Costtrade-offsinsupplychaindesign9-17
9-17 Trade-Offs FIGURE 10-2: Cost trade-offs in supply chain design
Analysis of the Trade-OffsClosing17plantsandleaving23openwillminimizesupplychaincostsTotal costfunctionisquiteflataroundtheoptimalstrategy.Increasingthenumberof openplantsfrom23to30facilitiesincreasestotalcostbylessthan$2.5Mincreases redundancy significantly9-18
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 RespondingSpeedinsensingandrespondingcanhelpthe firm overcome unexpected supplyproblemsFailuretosensecouldleadto:·Failure to respond to changes in the supplychainCan force a company to exit a specific market9-19
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 RespondingExampleDifferentresponsesofNokiaandEricssononafire atoneof the supplier's facility·Supplierwas PhilipsSemiconductors inAlbuquerqueNMNokia:Changed product design to source components fromalternatesuppliersForpartsthatcould notbesourcedfromelsewhereworked withPhilips to source it fromtheirplants inChinaandNetherlandsAll done inaboutfivedays9-20
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