Strategic planning. MBI Course Supply Chain Management: Tactical planning. Strategic planning

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1 MBI Course Supply Chain Management: Chapter 8: Strategic and Tactical Supply Chain Planning Strategic planning Resource acquisition options Resource divestment options Competitive position Efficiency Time frame: 3-10 years Marjan van den Akker Strategic planning Tactical planning Irreversible decisions arge investments Optimization models important Aggregate operational effects Or solve operational problem as a subproblem Resource adjustment and allocation Time frame: few months to a year

2 Taxonomy of resources Resource-based view of the firm Physical resources Human resouces Financial resources IT resources Marketing resources Organizational resources egal resources Competitive position of the firm heavily depends on its resources and how they are used Optimization model: determine optimal resource level Resources Case: AHOD special shops Heterogeneous resources: average or marginal value are below market price Homogeneous resources: average or marginal value are about market price Stranded resources: value below market price Shadow prices are important! Zaandam Hazerswoude Oosterhout Current situation: Separate DC s and delivery. Question: Is one combined DC an interesting option?

3 Case: AHOD special shops Types of supply chains (Fisher) Strategic study: Which issues have to be taken into account? Which optimization problems have to be solved? Functional products: Predictable, stable demand ong life-cycle Innovative products: Difficult to predict demand Short life-cycle Types of supply chain (2) Functional products: Efficient supply chain Minimize supply chain cost Push model Innovative products: Responsive supply chain Marketing more important Maximize customer service Flexibility (e.g. selection of suppliers) Manage product variety Pull model

4 Case: AHOD special shops Many different aspects Performance: Warehouse cost Warehouse management Inventory management: assume similar as before Transportation cost Routing problem Customer service Delivery frequency Operational problem was solved to answer strategic question: Optimize routing of trucks Simulation of warehouse would be interesting ogistics supply chain management is concerned with the flow of raw material, work-in-process, and finished products needed to ensure that the company s customers receive finished products at the correct time, in the correct location and in the correct amounts. Framework for ogistics Strategy Formation Customer service Strategic Network Network design strategy Structural Warehouse Transportation Materials (Inventory) Operations management Management Functional Policies and Facilities and Organization, IT Procedures equipment Change Man. Implementation Take cost into account Optimization modeling logistics: Important issues Existing facilities, left open, expanded or shut down? Which new facilities, how much capacity and where? Mission of facility (which products)? What equipment? Which facility to which market/customer? Which suppliers for which facilities? 0-1 variables in Mixed Integer inear Program Simulation of warehouse operations or inventory management From Service Mark by Andersen Consulting

5 Framework for Manufacturing Strategy Formation New prod. development Purchasing Product competitiveness Strategic Supply chain Supply chain design strategy Structural Plant Design, Quality Supplier Operations IT management Management materials mng Functional Policies and Facilities and Organization, Procedures equipment Implementation Transport, Change Man. Supply chain design Decisions regarding own facilities Relationship to suppliers make-or-buy vertical integration mergers alliances short-term contracts Take cost into account From Service Mark by Andersen Consulting C O R E Make or buy Outsource Develop Buy-in Contracting Collaboration In-house H Impact on Profitability Decisions based on supplier value portfolio management The Kraljic Matrix (Kraljic, P) everage Product Competitive Bidding Routine Products Systems Contracting Strategic Product Partnership Bottleneck Products Secure continuity of supply H H Competence of Contractors Supply Risk H

6 Case: Merger of paper companies Case: Merger of paper companies Before merger: American Paper: 3 plants, 25 DC s, 7 days a week, long production runs Beacon Paper: 7 plants, 22 DC s, 5 days a week, short production runs After merger: Overcapacity for production Space at plants underutilized Cost and equipment of plants varied a lot Decide on: Number, size, location of plants Production (product groups) per plant Interplant shipping Assignment of markets to plants Capital equipment Workweek arge MIP: minimize production and distribution cost for given demand Validation run with current data How to arrange production? Optimization modeling manufacturing: Important issues Managing product variety How many plants? Mission of plants? Which product at which plant and in which amount? Which recipe for which product? Which technology? Common components: postpone differentiation Vanilla boxes Quick response to early sales 0-1 variables in Mixed Integer inear Program

7 DC location (revisited) DC location m Possible DC-locations Data: all distances d ij Demand store j: D j Capacity DC i: C i Handling cost DC per truckload at DC i: h i Fixed cost DC i: F i Transportation cost: k cent per truck per kilometer n Stores Which possible DC s should be opened and how to arrange transport so that cost are minimal?