Page 276 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes The appropriate design of the supply chain will depend on both the customer's needs and the
role of the stages involved. In some cases, a manufacturer may fill customer orders directly.

Example: Dell has been one of the most successful examples of effective supply chain
management. Dell builds-to-order, that is, a customer order initiates manufacturing at Dell.
Dell does not have a retailer, wholesaler, or distributor in its supply chain. While other computer
companies must stock a month of inventory, Dell carries only a few days worth. In fact, many of
the components are delivered within hours of being assembled and shipped to the customer. It
plans orders and signals suppliers every two hours, which enables it to manufacture and deliver
exactly what its customers want.
In other cases, such as in a mail order business like Amazon.com, the company maintains an
inventory of product from which they fill customer orders. In the case of retail stores, the supply
chain may also contain a wholesaler or distributor between the store and the manufacturer.

13.2 Elements of Supply Chain Management

The major elements in Supply Chain are:
1. Production: Strategic decisions regarding production focus on what customers want and
the market demands. This first stage in developing supply chain agility takes into
consideration what and how many products to produce, and what, if any, parts or
components should be produced at which plants or outsourced to capable suppliers. These
strategic decisions regarding production must also focus on capacity, quality and volume
of goods, keeping in mind that customer demand and satisfaction must be met. Operational
decisions, on the other hand, focus on scheduling workloads, maintenance of equipment
and meeting immediate client/market demands. Quality control and workload balancing
are issues which need to be considered when making these decisions.
2. Inventory: Further strategic decisions focus on inventory and how much product should
be in-house. A delicate balance exists between too much inventory, which can cost anywhere
between 20 and 40 percent of their value, and not enough inventory to meet market
demands. This is a critical issue in effective supply chain management. Operational
inventory decisions revolved around optimal levels of stock at each location to ensure
customer satisfaction as the market demands fluctuate. Control policies must be looked at
to determine correct levels of supplies at order and reorder points. These levels are critical
to the day to day operation of organizations and to keep customer satisfaction levels high.

3. Location: Location decisions depend on market demands and determination of customer
satisfaction. Strategic decisions must focus on the placement of production plants,
distribution and stocking facilities, and placing them in prime locations to the market
served. Once customer markets are determined, long-term commitment must be made to
locate production and stocking facilities as close to the consumer as is practical. In industries
where components are lightweight and market driven, facilities should be located close to
the end-user. In heavier industries, careful consideration must be made to determine
where plants should be located so as to be close to the raw material source. Decisions
concerning location should also take into consideration tax and tariff issues, especially in
inter-state and worldwide distribution.
4. Transportation: Strategic transportation decisions are closely related to inventory decisions
as well as meeting customer demands. Using air transport obviously gets the product out
quicker and to the customer expediently, but the costs are high as opposed to shipping by
boat or rail. Yet using sea or rail often times means having higher levels of inventory in-

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