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Some Definitions
Supply Chain Management encompasses every effort involved in producing and delivering a final product or service, from the suppliers supplier to the customers customer. Supply Chain Management includes managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer. The Supply Chain Council, U.S.A.
Supply
Inventory & warehousing costs Production/ purchase costs Transportation costs Inventory & warehousing costs Transportation costs
Customer
Funds
Key Observations
Integrated activity:
* Among functions such as logistics, manufacturing, distribution,
design/engineering, marketing, finance,etc. * Multiple organizations,i.e., suppliers, customers& 3 PL providers * Coordination of conflicting goals, metrics, etc.
* Physical (finished goods, raw material, w.i.p.) * Financial (payment, credits, etc.)
Notable Quotes
In the end, all business comes down to Supply Chain vs. Supply Chain
Robert Rodin, CEO, Marshall Industries Japanese Manufacturing Industry owes its Competitive Advantage and Strength to its Sub-Contracting Structure. Ministry of International Trade and Industry, Japan (1992) Manufacturing now competes less on product and quality which are often comparable and more on inventory turns and speed to market. John Kasarda, Forbes, 1999
Philosophy of SCM
The entire supply chain is a single, integrated entity. The cost, quality and delivery requirements of the customer are objectives shared by every company in the chain.
Inventory is the last resort for resolving supply and demand imbalances.
Evolution of SCM
Stage 1: Vendor Purchase Production - Distribution Retailer
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
Replenishment cycle
Retail order trigger Retail order entry Retail order fulfillment Retail order receiving
Manufacturing cycle
Order arrival from the distributor, retailer, or customer Production scheduling Manufacturing and shipping Receiving at the distributor, retailer, or customer
PUSH PROCESSES
PULL PROCESSES
Distributor Orders
Production Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Customer Demand
Production Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Functional Integration
* From Function-dominated logistics to
Flow-dominated logistics
Inter-Firm Integration
* From a Sector-based Logistics to Inter-sector Logistics
Third party logistics services grew in 1998 by 15% to nearly $40 billion
It is estimated that the grocery industry in USA could save $30 billion (10% of operating cost) by using effective logistics strategies.
A typical box of cereal spends 104 days getting from factory to supermarket.
A typical new car spends 15 days traveling from the factory to the dealership.
Sequential Optimization
Procurement Planning
Demand Planning
Global Optimization
Supply Contracts/Collaboration/Information Systems and DSS
Procurement Planning
Manufacturing Planning
Distribution Planning
Demand Planning
Managing Uncertainty
Matching Supply and Demand Demand is not the only source of uncertainty
Managing Uncertainty
1. Point forecasts are invariably wrong Plan for forecast range use flexible contracts to go up/down. 2. Aggregate forecasts are more accurate Aggregate the forecast postponement/risk pooling
Customer Need
Price Low Responsiveness High
Low
Cost
High Low
Responsivenes s spectrum
Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand
Key Concepts
Design, operate, and control the physical and information flows as though the channel were one seamless corporate entity. Let the activities (and costs) migrate across corporate boundaries to where they make the most sense. Rely on the benefits of channel integration to replace the benefits of open market forces. Share the risks and the rewards between players.
New Concepts
Push-Pull strategies Direct-to-Consumer Strategic alliances Manufacturing postponement Dynamic Pricing E-Procurement
Lead Time
Low
High
identical?
Can a single supply chain structure be used for all products / customers? No! A single supply chain will fail different
Tailored Logistics
Each Logistically Distinct Business (LDB) will have distinct requirements in terms of
Inventory Transportation Facility
Information
Product information
Negotiation
Face to face, phone, fax, sealed bids,
Order placement
Physical store, EDI, phone, fax, face to face,
Order tracking
EDI, phone, fax,
Inventory costs
Cycle, Safety, Seasonal inventory
Transportation costs
Inbound and outbound costs
Information sharing
Coordination
A Plethora of Approaches
Just in Time Inventory Vendor Managed Inventory Quick Response Collaborative Planning, Forecasting and Replenishment Cross-docking / Flow through Centres Outsourcing / 3 PLs Activity Based Costing Internet / EDI Bar-Coding / RFID Build to Order
A Plethora of Approaches
(continued)
Partnerships / Alliances Auctions / Exchanges Postponement Strategies SC Software SC Event Management Merge-In-Transit Collaborative Transportation Management Cash to Cash Metrics
Management of Uncertainty
* Risk can be measured, monitored, and managed
Location Models
- These models identify the optimal location of facilities such as plants and warehouses, considering the inbound and outbound transportation costs as well as the fixed and variable costs of operation at the locations under consideration. These are usually formulated as Mixed Integer Programming Models.
Allocation Models
- These models help in optimally allocating commodities from sources to destinations in a multi-source, multi-destination environment. The costs considered for optimisation are production costs and warehousing costs. The constraints considered can be due to demand, capacity, route restrictions, etc.
Alternative Analysis
- This model simply proposes the identification of alternatives, criteria for decision making and analysis of the alternatives across the criteria to arrive at the best choice. Formal approaches such as simulation and analytic hierarchy process could be used in assessing the implications of the criteria.