Supply Chain Management

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Supply Chain Management

• Lecture 6

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Outline

• Today
• Chapter 5
• Introduction to Excel Solver
• Next week
• Finish Chapter 5 start Chapter 6
• Bring your laptop if you can on Tuesday September
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• Homework 2

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Design Options For a Distribution Network
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Amazon.com Network Design (US)
A successful distribution network satisfies
customer needs at the lowest possible cost
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Dell Network Design (Europe)
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Dell Network Design
A competitive strategy defines, relative to
competitors, a companys set of customer needs
that it seeks to satisfy through its products and
services
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Dell Network Design
As Cannon noted, the Dell build-to-order and do
it all ourselves model served the company well
for almost 20 years, but the environment has
changed. Just a few years ago, Dell was
positioned as the supply chain place where most
of us needed to be almost no finished goods or
parts inventory negative cash-to-cash cycle
(paid by customers before paying suppliers)
have it your way flexibility/the epitome of
mass customization sophisticated demand
management techniques to drive buyers to what was
most profitable or available in terms of PC
configs cut out the middleman. Now, it appears,
Dell itself doesnt want to be there. Our
supply chain needs to change dramatically,
Cannon said.
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Dell Network Design
Dells approach added a lot of complexity and
cost. He said, for example, that for many models,
there were as many as 500,000 configuration
options. Why do that? Because we could, Cannon
said. We had a very flexible supply chain that
allowed us to offer that level of configuration
choice. That approach, in turn actually led to
higher product costs in many cases. Heres how.
Base/entry models had to be built in a way that
permitted all these add-ons to much higher end
models. So, if/when customers configured their
way up to a high-end unit, Dell made good money.
But if a customer stayed with a basic offering,
the company lost margin because the base unit
versus the competition had extra costs to support
the potential of high-end add-ons.
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Dell Network Design
Dell has said it believes it can save 3 billion
annually from various measures, and Cannon said
most of that will come out of these changes to
the supply chain over the next 2-3 years. It had
sales of 61 billion last year, so thats about a
5 reduction in total costs.
Dell is closing its world famous Topfer PC plant
in Austin, TX
Dell to Migrate Manufacturing Operations from
Ireland to Poland
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Network Design Decisions

• Facility role
• What role should each facility play?
• Facility location
• Where should facilities be located?
• Capacity allocation
• How much capacity should be allocated to each
  facility?
• Market and supply allocation
• What markets should each facility serve?
• Which supply sources should feed each facility?

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Impact of Network Design Decisions

• Facility role
• Determines the amount of flexibility the supply
  chain has in changing the way it meets demand
• Facility location
• Long term impact on supply chain performance
  because it is very expensive to shut down a
  facility or move it to a different location
• Capacity allocation
• Capacity allocation can be altered more easily
  than location, capacity decisions do tend to stay
  in place for several years
• Market and supply allocation
• Affects total production, inventory, and
  transportation costs incurred by the supply chain
  to satisfy customer demand

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Example Dell Network Design Decision
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Example Dell Network Design Decision
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What is an Optimization Problem

• Generally, an optimization problem seeks a
  solution where decisions need to be made in a
  constrained or limited resource environment
• Most supply chain optimization problems require
  matching demand and supply when one, the other,
  or both may be limited
• An optimization problem comprises three major
  components
• Decision variables
• Constraints
• Objective

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Introduction to Excel Solver

• Installing Excel Solver
• Goto Tools gt Add-ins
• Select Solver Add-in and press OK
• Opening Excel Solver
• Goto Tools gt Solver

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Example Profit Maximization Problem

• The Windsor Glass Company is planning to launch
  two new products.
• 8 feet glass door with aluminum framing
• 4x6 feet window with wood framing
• Management of the company wants to determine what
  mixture of both products would be most profitable

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Example Profit Maximization Problem
8 Feet Aluminum Frame Doors
4x6 Wood Frame Windows
Windsor Glass Company
Plant 1(Aluminum frames)
1 hour
Profits
Plant 3 (Glass and assembly)
Excess cap. 4 hours
3 hours
3,000
2 hours
5,000
Plant 2(Wood frames)
Excess cap. 18 hours
2 hours
Excess cap. 12 hours
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Windsor Glass Company Model

• Inputs
• Decision variables
• X1 number of batches of doors produced
• X2 number of batches of windows produced

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Windsor Glass Company Model

• Objective function
• Maximize3000 X1 5000 X2

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Windsor Glass Company Model

• Constraints
• Hours available in Plant 1X1 ? 4
• Hours available in Plant 22 X2 ? 12
• Hours available in Plant 33 X1 2 X2 ? 18
• Nonnegative production quantitiesX1 ? 0, X2 ? 0

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Windsor Glass Company Model

• Decision variables
• X1 number of batches of doors produced
• X2 number of batches of windows produced
• Objective function
• Maximize 3000 X1 5000 X2
• Constraints
• X1 lt 4 (Available hours Plant 1)
• 2 X2 lt 12 (Available hours Plant 2)
• 3 X1 2 X2 lt 18 (Available hours Plant 3)
• X1, X2 gt 0 (nonnegativity)

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Windsor Glass Company Model

• Objective function
• Maximize 3000 X1 5000 X2

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Windsor Glass Company Model

• Constraints
• X1 lt 4 (Available hours Plant 1)
• 2 X2 lt 12 (Available hours Plant 2)
• 3 X1 2 X2 lt 18 (Available hours Plant 3)
• X1, X2 gt 0 (nonnegativity)

• Constraints
• 0 lt 4 - X1 (Available hours Plant 1)
• 0 lt 12 - 2 X2 (Available hours Plant 2)
• 0 lt 18 - 3 X1 - 2 X2 (Available hours Plant 3)
• X1, X2 gt 0 (nonnegativity)

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Windsor Glass Company Model

• Decision variables
• X1 number of batches of doors produced
• X2 number of batches of windows produced
• Objective function
• Maximize 3000 X1 5000 X2
• Constraints
• 0 lt 4 - X1 (Available hours Plant 1)
• 0 lt 12 - 2 X2 (Available hours Plant 2)
• 0 lt 18 - 3 X1 - 2 X2 (Available hours Plant 3)
• X1, X2 gt 0 (nonnegativity)

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Windsor Glass Company Model using Excel Solver
Objective function
Decision variables
Constraints
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Windsor Glass Company Model using Excel
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Example Dell Network Design Decision
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Example Dell Network Design Decision
What are the decisions?
What are the constraints?
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Example Dell Network Design Decision
What are the decisions?
What are the constraints?
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Example Dell Network Design Decision

• Constraints
• XIreland,France XPoland,France
  XRomenia,France 15,000
• XIreland,Germany XPoland,Germany
  XRomenia,Germany 20,000
• XIreland,Italy XPoland,Italy XRomenia,Italy
  13,000
• XIreland,Spain XPoland,Spain XRomenia,Spain
  12,000
• XIreland,UK XPoland,UK XRomenia,UK
  19,000

• Constraints (Satisfy demand at each market)
• 0 15,000 - XIreland,France - XPoland,France -
  XRomenia,France
• 0 20,000 - XIreland,Germany - XPoland,Germany -
  XRomenia,Germany
• 0 13,000 - XIreland,Italy - XPoland,Italy -
  XRomenia,Italy
• 0 12,000 - XIreland,Spain - XPoland,Spain -
  XRomenia,Spain
• 0 19,000 - XIreland,UK - XPoland,UK -
  XRomenia,UK

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Example Dell Network Design Decision
What are the decisions?
What are the constraints?
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Example Dell Network Design Decision

• Constraints
• XRomenia,France XRomenia,Germany
  XRomenia,Italy XRomenia,Spain XRomenia,UK
  ? 80,000YRomenia
• XPoland,France XPoland,Germany XPoland,Italy
  XPoland,Spain XPoland,UK ?
  80,000YPoland
• XIreland,France XIreland,Germany
  XIreland,Italy XIreland,Spain XIreland,UK
  ? 80,000YIreland

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Dell Example Using Excel