Seventh Edition Global Edition Supply Chain Management Strategy, Planning, and Operation Sunil Chopra Kellogg School of Management Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong Tokyo • Seoul • Taipei • New Delhi • Cape Town • Sao Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan Vice President, Business, Economics, and UK Courseware: Donna Battista Operations Specialist: Carol Melville Director of Portfolio Management: Stephanie Wall Design Lead: Kathryn Foot Director, Courseware Portfolio Management: Ashley Dodge Manager, Learning Tools: Brian Surette Senior Sponsoring Editor: Neeraj Bhalla Content Developer, Learning Tools: Lindsey Sloan Editorial Assistant: Linda Albelli Managing Producer, Digital Studio and GLP, Media Production and Development: Associate Acquisitions Editor, Global Edition: Ananya Srivastava Ashley Santora Project Editor, Global Edition: Paromita Banerjee Managing Producer, Digital Studio: Diane Lombardo Product Marketer: Kaylee Claymore Digital Studio Producer: Regina DaSilva Product Marketing Assistant: Marianela Silvestri Digital Studio Producer: Alana Coles Manager of Field Marketing, Business Publishing: Adam Goldstein Digital Content Project Lead: Courtney Kamauf Executive Field Marketing Manager: Thomas Hayward Manager, Media Production, Global Edition: Vikram Kumar Vice President, Production and Digital Studio, Arts and Business: Etain O’Dea Project Managers: Ronel Mirano and Raja Natesan, SPi Global Director of Production, Business: Jeff Holcomb Interior Design: SPi Global Managing Producer, Business: Melissa Feimer Cover Design: Lumina Datamatics Content Producer: Sugandh Juneja Cover Art: Cosmo Condina North America/Alamy Stock Photo; Geoffrey Content Producer, Global Edition: Vamanan Namboodiri Robinson/Alamy Stock Photo; and PhotoAlto/Alamy Stock Photo Senior Manufacturing Controller, Global Edition: Angela Hawksbee Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published as part of the services for any purpose. All such documents and related graphics are provided “as is” without warranty of any kind. Microsoft and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all warranties and conditions of merchantability, whether express, implied or statutory, fitness for a particular purpose, title and non-infringement. In no event shall Microsoft and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from the services.
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Authorized adaptation from the United States edition, entitled Supply Chain Management: Strategy, Planning, and Operation, 7th Edition, ISBN 978-0-13-473188-9 by Sunil Chopra, published by Pearson Education © 2019. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners.
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The publisher reserves the right to remove any material in this eBook at any time. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN 10: 1-292-25789-X ISBN 13: 978-1-292-25789-1 eBook ISBN 13: 978-1-292-25791-4 Typeset in Times NR MT Pro by SPi Global Dedication I would like to thank my colleagues at Kellogg for all I have learned from them about logistics and supply chain management. I thank Peter Meindl for his collaboration during earlier editions of this book.
I am grateful for the love and encouragement that my parents, Krishan and Pushpa, and sisters, Sudha and Swati, have always provided during every endeavor in my life. I thank my children, Ravi and Rajiv, for the joy they have brought me. Finally, none of this would have been possible without the constant love, caring, and support of my wife, Maria Cristina. —Sunil Chopra ABOUT THE AUTHOR SUNIL CHOPRA Sunil Chopra is the IBM Distinguished Professor of Operations Management and Information Systems at the Kellogg School of Management.
He has served as the interim dean and senior associate dean for curriculum and teaching, and the codirector of the MMM program, a joint dual-degree program between the Kellogg School of Management and the McCormick School of Engineering at Northwestern University. He has a PhD in operations research from SUNY at Stony Brook. Prior to joining Kellogg, he taught at New York University and spent a year at IBM Research. Professor Chopra’s research and teaching interests are in supply chain and logistics management, operations management, combinatorial optimization, and the design of telecommunication networks.
He has won several teaching awards at the MBA and Executive programs of Kellogg. He has authored more than 50 papers and two books. He has been a department editor for Management Science and an associate editor for Manufacturing & Service Operations Management, Operations Research, and Decision Sciences Journal. He has also consulted for several firms in the area of supply chain and operations management.
CONTENTS Preface 9 Part I Building a Strategic Framework to Analyze Supply Chains CHAPTER 1 UNDERSTANDING THE SUPPLY CHAIN 15 What Is a Supply Chain? 15 The Objective of a Supply Chain 17 Decision Phases in a Supply Chain 20 Process Views of a Supply Chain 22 Examples of Supply Chains 27 Developing Skills for Your Career 31 Discussion Questions 32 • Bibliography 32 CHAPTER 2 ACHIEVING STRATEGIC FIT IN A SUPPLY CHAIN 33 Competitive and Supply Chain Strategies 33 How is Strategic Fit Achieved? 36 Supply Chain Levers to Deal with Uncertainty 45 Expanding Strategic Scope 47 Discussion Questions 50 • Bibliography 50 ▶ CASE STUDY: The Demise of Blockbuster 51 CHAPTER 3 SUPPLY CHAIN DRIVERS AND METRICS 54 Financial Measures of Performance 54 A Framework for Supply Chain Decisions 59 Facilities 61 Inventory 64 Transportation 66 Information 68 Sourcing 70 Pricing 72 Discussion Questions 75 • Bibliography 75 ▶ CASE STUDY: Seven-Eleven Japan Co. 75 ▶ CASE STUDY: Financial Statements for Walmart Stores Inc. and Macy’s Inc. 82 Part II Designing the Supply Chain Network CHAPTER 4 DESIGNING DISTRIBUTION NETWORKS AND APPLICATIONS TO OMNI-CHANNEL RETAILING 83 Factors Affecting Distribution Network Design in the Supply Chain 83 Design Options for a Distribution Network 88 4 Contents 5 Online Sales and Omni-Channel Retailing 102 Discussion Questions 111 • Bibliography 111 ▶ CASE STUDY: Blue Nile and Diamond Retailing 112 CHAPTER 5 NETWORK DESIGN IN THE SUPPLY CHAIN 117 The Role of Network Design in the Supply Chain 117 Factors Influencing Network Design Decisions 119 Framework for Network Design Decisions 124 Models for Designing a Regional Network Configuration 127 Models for Identifying Potential Sites in a Region 132 Models for Demand Allocation and Plant Location 135 Discussion Questions 143 • Exercises 143 • Bibliography 148 ▶ CASE STUDY: Designing the Production Network at CoolWipes 148 ▶ CASE STUDY: Managing a Merger at Lightning Networks 149 CHAPTER 6 DESIGNING GLOBAL SUPPLY CHAIN NETWORKS 152 The Impact of Globalization on Supply Chain Networks 152 The Importance of Total Cost in Global Networks 154 Risk Management in Global Supply Chains 157 Evaluating Network Design Decisions using Decision Trees 161 To Onshore or To Offshore: The Value of Flexibility in a Supply Chain Under Uncertainty 171 Discussion Questions 179 • Exercises 179 • Bibliography 181 ▶ CASE STUDY: BioPharma, Inc.
182 ▶ CASE STUDY: Global Supply Design for the Future: Nokia 184 Part III Planning and Coordinating Demand and Supply in a Supply Chain CHAPTER 7 DEMAND FORECASTING IN A SUPPLY CHAIN 186 The Role of Forecasting in a Supply Chain 186 Components of a Forecast and Forecasting Methods 188 Time-Series Forecasting Methods 192 Measures of Forecast Error 202 Building Forecasting Models using Excel 205 Discussion Questions 213 • Exercises 214 • Bibliography 216 ▶ CASE STUDY: Specialty Packaging Corporation 216 CHAPTER 8 AGGREGATE PLANNING IN A SUPPLY CHAIN 219 Aggregate Planning and its Role in a Supply Chain 219 The Basic Tradeoffs in Aggregate Planning 222 Aggregate Planning using Linear Programming 223 Aggregate Planning in Excel 231 Discussion Questions 236 • Exercises 236 • Bibliography 238 ▶ CASE STUDY: Kloss Planters and Harvesters 238 ▶ CASE STUDY: Smartphone Production at QuickTronics 240 6 Contents CHAPTER 9 SALES AND OPERATIONS PLANNING IN A SUPPLY CHAIN 241 Responding to Predictable Variability in the Supply Chain 241 Sales and Operations Planning at Red Tomato 245 Discussion Questions 252 • Exercises 252 • Bibliography 254 ▶ CASE STUDY: Mintendo Game Girl 255 ▶ CASE STUDY: Promotion Challenges at Gulmarg Skis 256 CHAPTER 10 COORDINATION IN A SUPPLY CHAIN 258 Lack of Supply Chain Coordination and its Impact on Performance 258 Obstacles to Coordination in a Supply Chain 262 Managerial Levers to Improve Coordination 266 Some Practical Approaches to Improve Supply Chain Coordination 272 Discussion Questions 277 • Bibliography 277 Part IV Planning and Managing Inventories in a Supply Chain CHAPTER 11 MANAGING ECONOMIES OF SCALE IN A SUPPLY CHAIN CYCLE INVENTORY 278 The Role of Cycle Inventory in a Supply Chain 278 Economies of Scale to Exploit Fixed Costs 281 Aggregating Multiple Products in a Single Order 288 Economies of Scale to Exploit Quantity Discounts 296 Why do Suppliers offer Quantity Discounts? 302 Short-Term Discounting: Trade Promotions 308 Managing Multiechelon Cycle Inventory 312 Managerial Levers to Reduce Cycle Inventory 315 Discussion Questions 317 • Exercises 317 • Bibliography 321 ▶ CASE STUDY: Delivery Strategy at MoonChem 321 ▶ CASE STUDY: Pricing and Delivery at NAN 323 Appendix 11A: Economic Order Quantity 324 CHAPTER 12 MANAGING UNCERTAINTY IN A SUPPLY CHAIN SAFETY INVENTORY 325 The Role of Safety Inventory in a Supply Chain 325 Factors Affecting the Level of Safety Inventory 327 Determining the Appropriate Level of Safety Inventory 331 Impact of Supply Uncertainty on Safety Inventory 340 Impact of Aggregation on Safety Inventory 342 Impact of Replenishment Policies on Safety Inventory 355 Managing Safety Inventory in a Multiechelon Supply Chain 358 Managerial Levers to Reduce Safety Inventory 359 Contents 7 Discussion Questions 360 • Exercises 360 • Bibliography 364 ▶ CASE STUDY: Managing Inventories at ALKO Inc. 364 ▶ CASE STUDY: Should Packing Be Postponed to the DC?