sc 4 yr Chapter two marketing strategy of business

marketing strategy of business

1. Chapter two Supply chain configuration design

2. What is Supply Chain Design? Supply chain design is the process by which a company structures and manages the supply chain in order to identify the right balance between inventory, transportation, and manufacturing cost.

3. Why use Supply Chain Design? Supply Chain Design is being used to match the supply and demand under uncertainty by positioning and managing inventory effectively. In addition, uses resources effectively in a dynamic environment.

4. Factors of Supply Chain Design 1. Location and Distance The location includes customers, suppliers, warehouse, manufacturing facilities, seaports, airports and so on. 2. Current and Future Demand Once determining the location, you need to group the demand/supply points so you can determine the current and future demand. 3. Service Requirements Things such as maximum allowable transit time or maximum allowable distance dictate the location of potential warehouses.

5. 4. Size and Frequency of Shipment These factors have the direct impact on cost (more frequency = more cost, smaller size = higher cost). 5. Warehousing Costs Fixed cost is relatively easy to find but variable costs such as labor cost can be tricky because it is not static. 6. Trucking Costs Suppose you're dealing mainly with trucking, you need to find the appropriate cost data. LTL rates can be very complicated because of rates depend on "class", "exception" and "commodity". Moreover, the rate for "Boston to Chicago" may not be the same as "Chicago to Boston"

6. 7. Mode of Transportation Since material flows from one point to another, you need to identify the mode of transportation that you're currently using.

7. 2.1 sourcing, models for strategic alliances strategic alliances A relationship formed by two or more organizations that share (proprietary), participate in joint investments, and develop linked and common processes to increase the performance of both companies. Many organizations form strategic alliances to increase the performance of their common supply chain.

8. Some of the Strategic alliance resources are: Products Distribution channels Manufacturing capability Project funding Capital equipment Knowledge Expertise or intellectual property

9. A typical strategic alliance formation consists of some steps which are: Strategy Development : development involves feasibility of alliance, objectives and goals, decisions, focus on critical issues, technology and people with their challenges and resources. Partner Assessment : In this assessment partner’s strength, potential, developing managing styles, preparing criteria for partner selection and understanding their motives for joining alliances. Contract Negotiation : It is the development of realistic objectives among the group and forming the high caliber or developing synergy. Consideration on security of information, termination clauses, and penalties for poor performance is formulated. Alliance Operation : it is linking of budgets and resources to fulfil the strategic priorities, measuring the performance etc. Alliance Termination : It is the winding down of partnership due to failure or not meeting the clauses decided before.

10. Types of strategic alliances Joint venture : In this type of alliance two or more firms create legally independent company to develop competitive advantage Equity Strategic Alliance : There is sharing of different percentages of the company. Non-equity Strategic Alliance : It is alliance on a contractual- relationship to share the unique resources. Global Strategic Alliances : It is formed between a company and foreign company.

11. SUPPLIER SELECTION PROCESS Experts agree that no best way exists to evaluate and select suppliers, and thus organizations use a variety of approaches. The overall objective of the supplier evaluation process is to reduce risk and maximize overall value to the purchaser. An organization must select suppliers it can do business with over an extended period of time.

12. Step 1: Identify key supplier evaluation categories One of the first steps when developing a supplier survey is for the purchaser to decide which performance categories to include. The primary criteria are cost/price, quality and delivery , which are generally the most obvious and most critical areas that affect the buyer. For many items, these three performance areas would be enough, however for critical items needing an in-depth analysis of the supplier's capabilities, a more detailed supplier evaluation study is required. Step 2: Weight each evaluation category The performance categories usually receive a weight that reflects the relative importance of the category. The total of each weight must equal 1.0. An important characteristic of an effective evaluation is flexibility. One way that management achieves this flexibility is by assigning different weights or adding or deleting performance categories as required.

13. Step 3: Identify and weight subcategories This process requires identifying any performance subcategories, if they exist, within each broader performance category. The sum of the subcategory weight must equal the total weight of the performance category. Step4: Define scoring system for categories and subcategories A clearly defined scoring system takes criteria that may be highly subjective and develops a quantitative scale for measurement. Scoring metrics are effective if different individuals interpret and score the same performance categories under review.

14. Step 5: Evaluate supplier directly A purchaser can compare objectively the scores of different suppliers competing for the same purchase contract or select one supplier over another based on the evaluation score. It is also possible, based on the evaluation that a supplier does not qualify at this time for further purchase consideration. Purchasers should have minimum acceptable performance requirements that suppliers must satisfy before they can become part of the supply base.

15. Step6: Review evaluation results and make selection decision The primary output from this step is a recommendation about whether to accept a supplier for a business. A purchaser may evaluate several suppliers who might be competing for a purchaser contract. The purpose of the evaluation is to qualify potential suppliers for current or expected future purchase contracts. Step7: Review supplier performance continuously When a purchaser decides to select a supplier, the supplier must then perform according to the purchaser's requirements. The emphasis shirts from the initial evaluation and selection of suppliers to evidence of continuous improvement by suppliers.

16. Outsourcing Outsourcing (sometimes referred to as "contracting out") shifts tasks, operations, jobs, or processes to an external workforce, by contracting with a third party for a significant period of time. Businesses typically do this to reduce costs or improve efficiency. Outsourced functions can be performed by the third party either onsite or offsite of the business.

17. Why outsourcing

18. 1) Flexibility With uncertainty surrounding today’s global economy, companies need the ability to expand or downsize quickly. Unfortunately, that’s not always possible with today’s labor laws, as employee lawsuits are at an all-time high. By outsourcing, companies take that risk away, allowing businesses to adapt more quickly to rising or slowing demand. 2) Efficiency Odds are, your company isn’t an expert in IT management, HR services or accounting functions. Companies can spend weeks, sometimes months, just finding people for a particular in-house department. From there, you’re forced to train people and really adjust on the fly. At the end of the day, businesses can be left with a hefty bill with little to show for their money. By simply outsourcing basic business services, companies are able to jump right to the finish line when building a department.

19. 3.) Peace of Mind While the uncertainty surrounding outsourcing contract negotiations can be unsettling, companies often feel a sense of relief once people start signing on the dotted line. Contractual agreements offer protection for both parties, and remove any nasty human interactions that can take place when in-house workers are dismissed. Outsourcing companies can also be held responsible for negligence and poor performance in legally binding contracts, further aiding the outsourcing drive.

20. 4.Freeing Up Internal Resources Why waste people in areas that don’t focus on core business functions? Capital and people are becoming higher commodities in a difficult financial environment, and companies need as many good people as possible to focus on what really matters with a business. By outsourcing lesser services, companies free up time and capital to move their business forward. 5.) Risk Management Going along with No. 10 on this list, risk management is another top reason why companies choose to outsource. If a business is launching a new product or offering something new, having employees in developed nations offers little in terms of risk management should the product not do well on the open market. With offshore workers, operations can quickly be fine-tuned to meet a skyrocketing demand or a demand that never comes into fruition.

21. 6.) Improved Service Believe it or not, outsourcing can actually help improve service. Why waste time and valuable resources training an in-house customer service team when there are professionals to be hired that can usually do the same task for less money? IT performance, HR functions and financial services are some of the most commonly outsourced jobs, and companies all over the world have been working in those specific fields for years. Having an offshore company handle non-core business activities usually leads to better service.

22. 7) Tax Breaks Check out our piece on the  Top 5 Tax Efficient Outsourcing Locations , and you’ll get a clearer picture on why companies choose to outsource some of their operations. By handling business overseas, businesses are able to take advantage of lower corporate tax rates. Countries like Ireland, Hong Kong, Singapore and Taiwan have very low corporate tax rates, which can have a dramatic impact on a company’s bottom line should they outsource certain services there. 8) Lower Regulatory Costs Not only can companies pay offshore workers less, but significantly lowering regulatory costs also drive down the outsourcing price tag. Programs like Social Security, Medicare and unemployment insurance don’t exist in many developing countries, which drive down outsourcing costs further. Even if an outsourced worker makes the same as his/her American or European counterpart, lower regulatory costs mean that it’s usually much cheaper for the business to go with the overseas employee.

23. 9.) Focusing on Core Business The biggest reason companies choose to outsource is to free up time to focus on core business processes. Without having to run an accounting department or an IT operation, companies are able to direct their scope to work on what really matters inside their business, increasing work flow and allowing managers to finish projects faster. 10.) Lower Wages As the old saying goes, it’s all about the money. The fact of the matter is that most companies wouldn’t be sending jobs overseas if they weren’t saving money. According to a 2010 study, India’s per capita income is $1,371, good for 133rd in the world. By comparison, the United States placed tenth, with a per capita income of $46,860. Lower wages are a huge factor when outsourcing, and the top reason companies choose to send parts of their operation overseas.

24. Make or Buy Analysis Analysis will look at the expected sales levels and cost of internal operations vs. cost of purchasing the product or service

25. Procurement  “is the process of getting the goods and/or services your company needs to fulfill its business model. Some of the tasks involved in procurement include developing standards of quality, financing purchases, negotiating price, buying goods, inventory control and disposal of waste products like packaging. In the overall supply chain process, procurement stops once your company has possession of the goods. To make a profit, the cost of procuring your goods must be less than the amount you can sell the goods for, minus whatever costs are associated with processing and selling them.”

26. Procurement Process

27. An  invoice , sometimes called a sales invoice,   is a document sent by a provider of a product or service to the purchaser. The invoice establishes an obligation on the part of the purchaser to pay, creating an  account receivable . In other words, the invoice is a written verification of the agreement between the buyer and seller of the goods or services. 

28. What Does an Invoice Include? The date  that the invoice was created. Don't forget this. The date of the invoice starts the clock ticking on the customer. If you have terms (a time limit for payment), you want to include the date so everyone knows when the payment is due.  Names and addresses  of customer and supplier. If you're creating the invoice in accounting software, you may only need the email address of the customer, but it's still a good idea to collect and include the physical address, in case you need to send a real letter or document.

29. Description of items purchased , either products or services,  including prices  and quantities. Often you will have standard item descriptions and inventory numbers. But be as specific and detailed as possible, when you create the invoice. This avoids confusion and "I didn't know" issues.  Terms of payment.  For example, the provider might specify "net 30 days," which means that the entire amount is due within 30 days.

30. Models for Facility Location and Capacity Allocation Network design models are used to decide on locations and capacities, and to assign current demand to facilities Objective: Maximize the overall profitability of the supply chain network, while providing customers with the appropriate responsiveness Many trade-offs during network design

31. Conventional Network Customer Store Materials DC Component Manufacturing Vendor DC Final Assembly Finished Goods DC Components DC Vendor DC Plant Warehouse Finished Goods DC Customer DC Customer DC Customer DC Customer Store Customer Store Customer Store Customer Store Vendor DC 5- 31

32. Tailored Network: Multi-Echelon Finished Goods Network Regional Finished Goods DC Regional Finished Goods DC Customer 1 DC Store 1 National Finished Goods DC Local DC Cross-Dock Local DC Cross-Dock Local DC Cross-Dock Customer 2 DC Store 1 Store 2 Store 2 Store 3 Store 3 5- 32

33. Framework for Network Design Decisions Phase I: Define a Supply Chain Strategy/Design Clear definition of the firm ’ s competitive strategy Set of customer needs that the firm seeks to satisfy Define capabilities needed Forecast the likely evolution of global competition Identify constraints on available capital Determine growth strategy

34. Framework for Network Design Decisions Phase II: Define the Regional Facility Configuration Forecast of the demand by country or region Economies of scale or scope: can they play a role? If yes, go for fewer facilities If no, maybe a facility for each market Identify demand risk, exchange-rate risk, political risk, tariffs, requirements for local production, tax incentives, and export or import restrictions Identify competitors

35. Framework for Network Design Decisions Phase III: Select a Set of Desirable Potential Sites Hard infrastructure requirements to support the desired production methodologies Availability of suppliers, transportation services, communication, utilities and warehousing facilities Soft infrastructure requirements Skilled workforce, workforce turnover and community receptivity Phase IV: Location Choices Select precise locations and allocate capacity for each facility

36. A Typical Location Model There may be an upper bound on the distance between a distribution center and a market area served by it A set of potential location sites for the new facilities was identified Costs: Set-up costs Transportation cost is proportional to the distance Storage and handling costs Production/supply costs

37. Complexity of Network Design Problems Location problems are, in general, very difficult problems. The complexity increases with the number of customers, the number of products, the number of potential locations for warehouses, and the number of warehouses located.

38. Solution Techniques Mathematical optimization techniques: Exact algorithms: find optimal solutions Heuristics: find “good” solutions, not necessarily optimal Simulation models: provide a mechanism to evaluate specified design alternatives created by the designer.

39. Heuristic models are able to accommodate broad problem definitions, but they do not provide an optimum solution. The use of a heuristic approach can help to reduce a problem to a manageable size and search automatically through various alternatives in an attempt to find a better solution. To reduce the number of location alternatives, the decision maker should incorporate into the heuristic program site characteristics considered to be optimal. Heuristic Models

40. Heuristics and the Need for Exact Algorithms Single product Two plants p1 and p2 Plant P1 has an annual capacity of 200,000 units. Plant p2 has an annual capacity of 60,000 units. The two plants have the same production costs. There are two warehouses w1 and w2 with identical warehouse handling costs. There are three markets areas c1,c2 and c3 with demands of 50,000, 100,000 and 50,000, respectively.

41. Heuristics and the Need for Exact Algorithms

42. Why Optimization Matters? D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 Cap = 200,000 $4 $5 $2 $3 $4 $5 $2 $1 $2 Production costs are the same, warehousing costs are the same $0

43. Traditional Approach #1: Assign each market to closet WH. Then assign each plant based on cost. D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 Cap = 200,000 $5 x 140,000 $2 x 60,000 $2 x 50,000 $1 x 100,000 $2 x 50,000 Total Costs = $1,120,000

44. Traditional Approach #2: Assign each market based on total landed cost D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 Cap = 200,000 $4 $5 $2 $3 $4 $5 $2 $1 $2 $0 P1 to WH1 $3 P1 to WH2 $7 P2 to WH1 $7 P2 to WH 2 $4 P1 to WH1 $4 P1 to WH2 $6 P2 to WH1 $8 P2 to WH 2 $3 P1 to WH1 $5 P1 to WH2 $7 P2 to WH1 $9 P2 to WH 2 $4

45. Traditional Approach #2: Assign each market based on total landed cost D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 Cap = 200,000 $4 $5 $2 $3 $4 $5 $2 $1 $2 $0 P1 to WH1 $3 P1 to WH2 $7 P2 to WH1 $7 P2 to WH 2 $4 P1 to WH1 $4 P1 to WH2 $6 P2 to WH1 $8 P2 to WH 2 $3 P1 to WH1 $5 P1 to WH2 $7 P2 to WH1 $9 P2 to WH 2 $4 Market #1 is served by WH1, Markets 2 and 3 are served by WH2

46. Traditional Approach #2: Assign each market based on total landed cost D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 Cap = 200,000 $5 x 90,000 $2 x 60,000 $3 x 50,000 $1 x 100,000 $2 x 50,000 $0 x 50,000 P1 to WH1 $3 P1 to WH2 $7 P2 to WH1 $7 P2 to WH 2 $4 P1 to WH1 $4 P1 to WH2 $6 P2 to WH1 $8 P2 to WH 2 $3 P1 to WH1 $5 P1 to WH2 $7 P2 to WH1 $9 P2 to WH 2 $4 Total Cost = $920,000

47. precise mathematical procedures that are guaranteed to find the “best,” or optimum, solution optimization approaches essentially select an optimal course of action from a number of feasible alternatives Optimization Models

48. Network Optimization Models Allocating demand to production facilities Locating facilities and allocating capacity Which plants to establish? How to configure the network? Key Costs : Fixed facility cost Transportation cost Production cost Inventory cost Coordination cost

49. Models for Facility Location and Capacity Allocation Important information: Location of supply sources and markets Location of potential facility sites Demand forecast by market Facility, labor, and material costs by site Transportation costs between each pair of sites Inventory costs by site and as a function of quantity Sale price of product in different regions Taxes and tariffs Desired response time and other service factors

50. Network Model 1: Transportation Problem The (simple) Transportation Problem Shipment of a single product from a set of suppliers to a set of customers (or similarly allocating demand to production facilities) Input parameters: Capacities: the maximum amount of products a supplier can ship in a given amount of time Demand: the customer demand (typically estimated from demand forecasting models) Shipping cost: the shipping cost (per unit of product) for each possible supplier-customer pair

51. Application: Transportation Problem One of the first applications of linear programming was to the problem of minimizing the cost of transporting materials. Problems of this type are referred to as transportation problems. Example: A computer manufacturing company has two assembly plants, plant A and plant B, and two distribution outlets, outlet I and outlet II. Plant A can assemble at most 700 computers a month, and plant B can assemble at most 900 computers a month. Outlet I must have at least 500 computers a month, and outlet II must have at least 1,000 computers a month.

52. Transportation Problem (continued) Transportation costs for shipping one computer from each plant to each outlet are as follows: $6 from plant A to outlet I; $5 from plant A to outlet II: $4 from plant B to outlet I; $8 from plant B to outlet II. Find a shipping schedule that will minimize the total cost of shipping the computers from the assembly plants to the distribution outlets. What is the minimum cost?

53. Transportation Problem (continued) Solution: To form a shipping schedule, we must decide how many computers to ship from either plant to either outlet. This will involve 4 decision variables: x 1 = number of computers shipped from plant A to outlet I x 2 = number of computers shipped from plant A to outlet II x 3 = number of computers shipped from plant B to outlet I x 4 = number of computers shipped from plant B to outlet II

54. Transportation Problem (continued) Constraints are as follows: x 1 + x 2 < 700 Available from A x 3 + x 4 < 900 Available from B x 1 + x 3 > 500 Required at I x 2 + x 4 > 1,000 Required at II Total shipping charges are: C = 6 x 1 + 5 x 2 + 4 x 3 + 8 x 4

55. Transportation Problem (continued) Thus, we must solve the following linear programming problem: Minimize C = 6 x 1 + 5 x 2 + 4 x 3 + 8 x 4 subject to x 1 + x 2 < 700 Available from A x 3 + x 4 < 900 Available from B x 1 + x 3 > 500 Required at I x 2 + x 4 > 1,000 Required at II Before we can solve this problem, we must multiply the first two constraints by -1 so that all are of the > type.

56. Transportation Problem (continued) The problem can now be stated as: Minimize C = 6 x 1 + 5 x 2 + 4 x 3 + 8 x 4 subject to - x 1 - x 2 > -700 - x 3 - x 4 > -900 x 1 + x 3 > 500 x 2 + x 4 > 1,000 x 1 , x 2 , x 3 , x 4 >

57. Transportation Problem (continued)