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©Copyright 200
Customers,
Field demand
Sources: Regional Warehouses: centers
plants Warehouses: stocking sinks
vendors stocking points
ports points
Supply
Inventory &
warehousing
costs
Production/
purchase Transportation Transportation
costs costs costs
Inventory &
warehousing
costs
SC, if not managed effectively…
Reduced Profitability Higher Costs Lower Revenue
Poor Quality
Poor
Availability
Poor
Service
High Inventory High Inventory
I n v e n t o r y MI n gv me nt .t o r y F l o Cw os s t I n f o r m a t i o n FR l ios wk P la n n in g R e la tio n s h
P i p e l i n e I n St ee r ag ma tli eo sn s / V Li sai bn lde e d C o s St h a r e d S h a r e dS C T e a m AF po pc ru os a oc nh l a
Product
Information
Supply Chain Management in a
Manufacturing Plant
Raw
Materials,
Finished Inspection,
Customers
Suppliers
Materials Management
Warehousing
Shipping
Purchasin Production and
and
g Control Inventory
Traffic
Control
Physical materials flow
Information flow
INTRODUCTION
• Supply chain management is the
configuration, coordination and
improvement of a sequentially
related set of operations
• With supply chain management,
the idea of satisfying an entire
chain of customers becomes
reality
Flows in a Supply Chain
Information
Product
Customer
Funds
Supply Chain
12
Supply Chain Management
• Definition:
Supply Chain Management is primarily
concerned with the efficient integration of
suppliers, factories, warehouses and stores so
that merchandise is produced and distributed
in the right quantities, to the right locations
and at the right time, and so as to minimize
total system cost subject to satisfying service
requirements.
• Notice:
– Who is involved
– Cost and Service Level
– It is all about integration
Supply Chain Management
• Refers to all the management functions related to the
flow of materials from the company’s direct
suppliers to its direct customers.
• Includes purchasing, traffic, production control,
inventory control, warehousing, and shipping.
• Two alternative names:
– Materials management
– Logistics management
Cross-Functional Linkages
Finance MIS
Budgeting.
What IT solutions Human
to make it all work
Analysis. together? Resources
Funds. Skills? Training?
# of Employees?
15
Decision Phases of a Supply
Chain
16
Supply Chain Strategy or Design
18
Supply Chain Planning
• Planning decisions:
– Which markets will be supplied
from which locations
– Planned buildup of inventories
– Subcontracting, backup locations
– Inventory policies
– Timing and size of market
promotions
• Must consider in planning decisions
demand uncertainty, exchange rates, 19
Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer
orders
• Supply chain configuration is fixed and
operating policies are determined
• Goal is to implement the operating policies
as effectively as possible
• Allocate orders to inventory or production,
set order due dates, generate pick lists
at a warehouse, allocate an order to a
particular shipment, set delivery
schedules, place replenishment orders 20
©Copyright 2002 D. Simchi-Levi
Sequential Optimization vs.
Global Optimization
Sequential Optimization
National Semiconductors:
• Production:
– Produces chips in six different locations:
four in the US, one in Britain and one in
Israel
– Chips are shipped to seven assembly
locations in Southeast Asia.
• Distribution
– The final product is shipped to hundreds
of facilities all over the world
– 20,000 different routes
– 12 different airlines are involved
– 95% of the products are delivered within
Global Optimization
2. Different facilities
in the supply
chain frequently have different conflicting
objectives
3. Dynamic system of supply
chain
buying power increase or decrease
4. System variation over time
due
to seasonal fluctuation , advertisement ,
promotion and change in pricing strategies of
the competitor
©Copyright 2002 D. Simchi-Levi
SCOR is structured around five distinct
management processes
Plan
Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source
SCOR Model
Customers
S1 Source Stocked Products M1 Make-to-Stock D1 Deliver Stocked Products
Return Return
Source Deliver
Enable
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
29
Cycle View of a Supply Chain
• Each cycle occurs at the interface between
two successive stages
• Customer order cycle (customer-retailer)
• Replenishment cycle (retailer-distributor)
• Manufacturing cycle (distributor-
manufacturer)
• Procurement cycle (manufacturer-supplier)
• Cycle view clearly defines processes involved
and the owners of each process. Specifies
the roles and responsibilities of each
member and the desired outcome of each
30
process.
Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles
Customer
Order Arrives
31
Push/Pull View of
Supply Chain Processes
• Supply chain processes fall into one of
two categories depending on the
timing of their execution relative to
customer demand
• Pull: execution is initiated in response to
a customer order (reactive)
• Push: execution is initiated in
anticipation of customer orders
(speculative)
• Push/pull boundary separates push 32
processes from pull processes
Push/Pull View of
Supply Chain Processes
• Useful in considering strategic decisions
relating to supply chain design – more
global view of how supply chain
processes relate to customer orders
• Can combine the push/pull and cycle
views
– L.L. Bean
– Dell
• The relative proportion of push and pull
processes can have an impact on 33
Supply Chain Macro Processes in a
Firm
• Supply chain processes discussed in the
two views can be classified into:
– Customer Relationship
Management (CRM)
– Internal Supply Chain Management
(ISCM)
– Supplier Relationship Management
(SRM)
• Integration among the above three
macro processes is critical for 34
Gateway: A Direct Sales
Manufacturer
•
• Why did Gateway have multiple production
facilities in the US? What advantages or
disadvantages does this strategy offer relative
to Dell, which has one facility?
• What factors did Gateway consider when deciding
which plants to close?
• Why does Gateway not carry any finished goods
inventory at its retail stores?
• Should a firm with an investment in retail stores
carry any finished goods inventory?
• Is the Dell model of selling directly without any
retail stores always less expensive than a
supply chain with retail stores? 35
•
7-Eleven
What factors influence decisions of opening and
closing stores? Location of stores?
• Why has 7-Eleven chosen off-site preparation of fresh
food?
• Why does 7-Eleven discourage direct store delivery
from vendors?
• Where are distribution centers located and how
many stores does each center serve? How are
stores assigned to distribution centers?
• Why does 7-Eleven combine fresh food shipments by
temperature?
• What point of sale data does 7-Eleven gather and
what information is made available to store 36
managers? How should information systems be
Toyota
• Where should plants be located, what degree
of flexibility should each have, and what
capacity should each have?
• Should plants be able to produce for all
markets?
• How should markets be allocated to plants?
• What kind of flexibility should be built into the
distribution system?
• How should this flexible investment be valued?
• What actions may be taken during product
design to facilitate this flexibility?
37
Conflicting Objectives in the Supply
Chain
1. Purchasing
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
2. Manufacturing
Customer
Demand
Retailer
Retailer Orders
Orders
Distributor
Distributor Orders
Orders
Production
ProductionPlan
Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
©Copyright 2002 D. Simchi-Levi
The Dynamics of the Supply Chain
Order Size
Customer
Demand
Production
ProductionPlan
Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
©Copyright 2002 D. Simchi-Levi
Supply Chain: The Magnitude
•In 1998, American companies spent
$898 billion in supply-related
activities (or 10.6% of Gross Domestic
Product).
– Transportation 58%
– Inventory 38%
– Management 4%
•Third party logistics services grew in
1998 by 15% to nearly $40 billion
•
•
©Copyright 2002 D. Simchi-Levi
Supply Chain: The Magnitude
(continued)
Increased Sales:
• Faster to Market
• Improved Quality
• Pricing Flexibility
• Innovation
Lower Total Cost:
• Acquisition Cost
• Processing Cost
• Quality Cost
• Downtime Cost
• Risk Cost
• Cycle Time Cost
• Conversion Cost
• Non-value Added Cost
• Supply Chain Cost
• Post Ownership Cost
1-50 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
What’s New in Logistics?
•Global competition
•Shorter product life cycle
•New, low-cost distribution
channels
•More powerful well-informed
customers
•Internet and E-Business strategies
©Copyright 2002 D. Simchi-Levi
New Concepts
•Push-Pull strategies
•Direct-to-Consumer
•Strategic alliances
•Manufacturing postponement
•Dynamic Pricing
•E-Procurement