Professional Documents
Culture Documents
Supply Chain Management: Business Mantras
Supply Chain Management: Business Mantras
Upstream Downstream
Process View
Customer
Customer
Order Cycle Pull
Retailer
Replenishment
Cycle
Distributor
Manufacturing
Cycle
Manufacturer Push
Procurement
Cycle
Supplier
Objective of a Supply Chain
• Maximise overall profit
• Profit
– Revenue generated from customer - costs
incurred along the entire chain
(e.g. manufacturing / storing /
distributing the product)
• When is Supply chain effective?
– Manage Product, Information and Fund flow
Why not max. individual
profitability?
Buy Back
Manufacturer Manufacturer
No risk Cost = Rs. 1 Cost = Rs. 1
Buy Back
Profit Rs. 4000 Sharing Profit Rs. 5520 at Rs. 3
Retailer Retailer
Cost = Rs. 5
of Cost = Rs. 5
Bears Q = 1000 Q = 1200
All risk risks
Profit Rs. 4000 Profit Rs. 5160
Customer Customer
Cost = Rs. 10 Cost = Rs. 10
Demand = 900 Demand = 1080
So, what is SCM?
• Objective is to be able to have the right products
in the right quantities (at the right place) at the
right moment at minimal cost.
Bull Whip Effect
• Inventory
– Raw materials
– WIP
– Finished Goods
– Responsiveness Vs Efficiency
• Sourcing
– Outsourcing
• Transportation
Transportation Total
costs
Cost
Transport
costs
Inventory
costs
Rail Air
Inventory
• Where do we hold inventory?
– Suppliers and manufacturers
– warehouses and distribution centers
– retailers
• Types of Inventory
– raw materials
– WIP
– finished goods
• Why do we hold inventory?
– Uncertainty in supply and demand
– Lead Time
– Avoid stock outs (customer goodwill)
Terms Involved
• Inventory lot size
• Replenishment Lead time
• Stock out
• Reorder Point
• Safety stock
Relevant Costs in an Inventory
System
• Procurement costs
– Ordering cost (appx. administrative, inspection,
transportation etc.)
• Holding costs
– Maintenance and Handling
– Taxes
– Obsolescence
• Stock-outs costs
– Lost sales (Customer goodwill)
– Backorders
The Inventory Cycle
Reorder
point
Time
Receive Place Receive Place Receive
order order order order order
Lead time
Decisions
• When to order
• How much to order
• Types of System
– Continuous Review
– Periodic Review
EOQ: A View of Inventory
Note:
• No Stockouts
• Order when no inventory
• Order Size determines policy
Inventory
Order
Size
Time
EOQ - Cost Minimization Goal
The Total-Cost Curve is U-Shaped
Annual Cost
Holding Costs
Ordering Costs
Order Quantity
QO (optimal order quantity)
or EOQ (Q)
EOQ: Important Observations
• Tradeoff between set-up costs and holding
costs when determining order quantity.
Manufacturer
Retailer
Customers
• Drop Shipping
Manufacturer storage with direct
shipping and in-transit merge
Manufacturer
Customers
Distributor storage with carrier
delivery
Manufacturer
Warehouse Storage by
Distributor/Retailer
Customers
To Summarize
• Components of supply chain (SC)
• Objective of SC is to max. profit
• Bull whip effect
• Facilities decisions
• Inventory policies
• Distribution networks
Information Sources
• Wikipedia.com
• mit.edu .. Open Courseware
• http://www.supplychainseminars.com/online.html
• The Goal
– Eliyahu M. Goldratt
• Kelkar library
– POM/SCM
• THE NEW BCLUB WEBSITE
– http://students.iitk.ac.in/bclub/
Thank You