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Introduction To Supply Chain Management Supply Chain Management
Introduction To Supply Chain Management Supply Chain Management
David Simchi-Levi
Customers demand
centers sinks
Sources: Field warehouses:
Plants vendors Regional warehouses: Stocking points
ports Stocking points
Supply
Production/purchase
costs Transportation costs Transportation costs
service requirements.
requirements
• Notice:
– Who is involved
– Cost and Service Level
– It is all about integration
©Copyright 2003 D. Simchi-Levi
1 Purchasing
1.
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
2. Manufacturing
• Long run production
• High quality
• High productivity
• Low production cost
©Copyright 2003 D. Simchi-Levi
2
Conflicting Objectives in the Supply
Chain
3 Warehousing
3.
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
4. Customers
• Short order lead time
• High in stock
• Enormous variety of products
• Low prices
Customer
Demand
Retailer Orders
Distributor Orders
Production Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
©Copyright 2003 D. Simchi-Levi
3
The Dynamics of the Supply Chain
Order Size
Customer
Demand
Production Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
©Copyright 2003 D. Simchi-Levi
4
Increase in Logistics Costs
US Logistics Costs as Percent of GDP
14
13
12
15% increase
11
10
8
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
1200
1000
47%
800
Transportation Inventory
600 62%
400
200
Admin
0
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
5
Today’s Supply Chain Challenges
11
Unprecedented Volatility
Year
In 2008 the price of oil changed 5% or more from its previous close
on 39 days making it the most volatile year since 1990.
Source: NYT 12
6
Supply Chain: The Magnitude
• It iis esti
timated
t d tth
hatt the
th grocery ind
dustry
t could
ld
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
t i l new car spendsd 15 days
d traveling
t li from
f
the factory to the dealership.
23, 1997)
7
Supply Chain: The Potential
8
Supply Chain: The Potential
• In 10 years,, Wal-Mart transformed itself
by changing its logistics system. It has
the highest sales per square foot,
inventory turnover and operating profit
of any discount retailer.
9
Supply Chain Challenges
• Achieving Global Optimization
– Conflicting Objectives
– Complex network of facilities
– System Variations over time
Sequential Optimization
Procurement Planning Manufacturing Planning Distribution Planning Demand Planning
Global Optimization
Supply Contracts / Collaboration / Information Systems and DSS
10
Supply Chain Challenges
• Achieving Global Optimization
– Conflicting Objectives
– Complex network of facilities
– System Variations over time
• Managing Uncertainty
– Matching Supply and Demand
– Demand is not the only source of
uncertainty
The Enterprise
Fulfillment and Development Supply Chains
Develop
•Product Architecture
Plan/Design •Make/Buy
Make/Buy
pment Supp
•Strategic Partnerships
Source •Suppliers Selection
•Supply Contracts
ply Chain
11
Fulfillment and Development Supply Chain
• Global competition
12
Significant Increase in Outsourcing
Purchasing as % of Sales
70%
% 60%
60%
57%
54%
50%
40%
34%
30%
28%
24% 22%
20%
16% Machinary
10% Computer and telecom
Food manufacturing
Telecom services
0%
1993 1996
New Concepts
• Push-Pull
Push Pull strategies
• Direct-to-Consumer
• Strategic alliances
• Manufacturing
g postp
p ponement
• Dynamic Pricing
• E-Procurement
13
©Copyright 2003 D. Simchi-Levi
14
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