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Supply Chain Management: Issues and Models

Lecture 1: Introduction
Dr. Jinxing Xie Department of Mathematical Sciences Tsinghua University, Beijing 100084, China http://faculty.math.tsinghua.edu.cn/~jxie Email: jxie@ math.tsinghua.edu.cn Voice: (86-10)62787812 Fax: (86-10)62785847 Office: Rm. 1308, New Science Building

Course Information

Objective:
Understanding the supply chain and related issues Introducing some models and technologies for supply chain management

Project / Assignment (choose any one)


A review of literatures on a topic you are interested A report which is a generalization to a paper

References:
Course notes at http://www.csiam.edu.cn/scm Some journal papers from Management Sciences et. al.

Focus on:
Issues (Problems) and Models
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Example: Stages of a Detergent Supply Chain


P&G or other manufacturer Wal-Mart Or thirdparty DC

Wal-Mart
Store

Customer wants detergent and goes to Wal-Mart

Plastic producer

Tenneco packaging

Chemical manufacturer

Chemical manufacturer

Paper manufacturer

Timber industry
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WHAT IS A SUPPLY CHAIN?


A Supply Chain consists of organizations that successively transform raw materials into intermediate goods, then to final good, and finally deliver them to customers. A Supply Chain consists of all stages involved, directly or indirectly, in fulfilling a customer request.
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WHAT IS A SUPPLY CHAIN?


The global network used to deliver products and services from raw materials to the end customer through engineered flows of information, physical distribution and cash.

The Supply Chain

Information Systems

World-Wide Requirements Planning

Relationship Management

Logistics Network

Distribution Processes

Understanding the Supply Chain: Supply Network, Supply Web


Not only manufacturer and supplier, but also transporters, warehouses, retailers and customers themselves. All functions involved in filling a customer request within each organization: new product development, marketing, operations, distribution, finance, and customer service. SCM vs. Logistics (

Supply Chain Stages


Manufacturer Distributor Supplier Retailer Customer

Supplier

Retailer
Distributor

Customer

Manufacturer

Supplier

Retailer

Customer

Connect Supply With Demand


Information

SUPPLY

Product
Cash

DEMAND

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Example 1: Typical U.S. Apparel Industry Supply Chain


Average inventory and elapsed time (weeks): Materials: 6.5 In-process: 9 6 Finished goods: 7.5 9.5 In-transit: 4 4 Fiber suppliers Textile makers Apparel makers

12 Retailers

Agents

Agents

Agents
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Discussion of Issues and opportunities for improvement to U.S. Apparel Industry

Issues
Supply chain is too long and too slow 58.5 weeks (excludes processing time & international transit times) Little of this time is spent in processing Only 15 of the 58.5 weeks are in-process inventory Even in processing, the ratio of processing time to wait time is notoriously low Thus, American apparel industry was reduced enormously during
the last 25 years

Opportunities
Faster response to customer orders Eliminating unnecessary inventory, stockouts and markdowns $25 billion can be saved annually
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Example 2: HP DeskJet Printer Supply Chain


Supplier
Integrated circuit manufacturing Asia-Pacific distribution center

Dealers

Supplier

Printed circuit assembly & test

Vancouver 4-5 final weeks assembly California & 1 day distribution test center

Dealers

Supplier

Printed mechanism manufacturing

4-5 weeks Supplier

European distribution center

Dealers

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Discussion of Example 2: Improvement during the early 1980s


Manufacturing cycle time reduced
8-12 weeks ==> 1 weeks

Average inventory reduced


3.5 months ==> 0.9 months

All finished goods inventory eliminated Importance of response time and transportation time increased Further improvements should be made on supply chain
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Discussion of Example 2: Improvement of supply chain in 1990


Comparison of Response Time (months)
6 5 4 3 2 1 0 1.25 0.2 19901990+ 5.25 4.25

Time between order and delivery reduced


Europe & Asia: 5.25 months ==> 1.25 months North-America: 4.25 months ==> 0.2 months

Europe & Asia

NorthAmerica

Importance of transportation time increased


Europe & Asia: 1% ==> 12% North-America: 20% ==> 80%
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Hints from Examples 1 and 2

Further reduction in manufacturing cycle time is not highly beneficial after the improvements of 1980s
Example 1: Only 15 of the 58.5 weeks are WIP inventory

Improvements in supply chain is very beneficial Inventory cost reduced


HP Case: 4 months inventory reduced, total cost reduces up to 5%

Time between order and delivery reduced


Better sales forecasts, reduced wrong orders, markdowns, stockouts and delays in delivery

Lower total cost & higher customer service


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Objectives of Supply Chain Management (SCM)

To improve the profitability and efficiency of the supply chain and all organizations involved
Optimizing

By

the speed and certainty and


Maximizing

the net value added by all relevant processes.

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Decision phases in a supply chain

Depending on the time frame over which the decisions made apply
Supply chain strategy or design: next few years Supply chain planning: yearly or monthly Supply chain operation: weekly or daily

Some key fields


Supply chain design and product development Demand forecasting and customer relationship Production planning and scheduling Inventory management Transportation management Location and Facilities management Information management and Information Technology . 18


(S) (S/T)

(S/T/O)
(T/O) (S) (S) (S) S T O
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Petri (PA) Markov

Markov Lagrangian Agent (DAI)


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The Virtual Enterprise

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Key Elements In Supply Chain Uncertainty

DEMAND
Timing of Order - How predictable is this? Size and Composition of Order - Are there unexpected elements, and is it subject to change? Data Accuracy on Products Required, Delivery Points and Timings

SUPPLY
Lead Time to Supply - How predictable is this? Quantity Supplied - Can the delivery be accepted without being counted? Quality of Supply - Can the supplies be used without testing? 23 Data Accuracy on Products Supplied and Prices

Good, Bad or Optimum Inventory

Once uncertainty is stripped away to the maximum practicable degree, inventory can then be determined at the correct (optimal) level (for each stage of the supply chain and overall) Profit (or performance enhancement) from holding stock equals potential lost sales (or lost performance) times the gross profit margin on sales (or added value) less the cost of holding stock (interest plus holding costs, which can be substantial in real terms and are often underestimated)
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Old Order Driven Supply Chain

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Supply Planning Across the Virtual Enterprises

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SCM vs. OR/MS/DS


Operations Research and Management Science (OR/MS)

The professional disciplines that deal with the application of information technology for informed decision-making Provide rational bases for decision making by seeking to understand and structure complex situations and to use this understanding to predict system behavior and improve system performance.

Much of this work is done using analytical and numerical techniques to develop and manipulate mathematical and computer models of organizational systems composed of people, machines, and procedures.
The field is closely related to several other fields in the "decision sciences" -applied mathematics, computer science, economics, industrial engineering, and systems engineering. From http://www.informs.org/Join/Orms.html

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SCM vs. OM
What is Operations Management (OM)?

OM is the set of activities that creates goods and services by transforming inputs into outputs. OM is the business function that manages that part of a business that transforms raw materials and human inputs into goods and services of higher value. (narrow view)
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OM

(5P)

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OM vs. OR/MS/DS vs. SS/SE vs. IE/EM


OR/MS/DS SS/SE IE/EM

OM OR/MS /DS IE/EM

SS/SE

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The Heritage of OM

1776-1880:

1880-1910
Gantt/

1910-1980
PERT/CPMMRP

1980-1995
JITTQMEDICAD/CAM/CAPP


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1995-2005
INTERNETE-Commerce) BPRERP SCM

OM5060

What Operations Managers do? (Top 10 Research Directions)

Goods and services design

What product should we offer? How should we design these products and services?
Who is responsible for quality? How do we define the quality we want in our service or product?

Managing quality

Process and capacity design

What process will these products require and in what order? What equipment and technology is necessary for these processes?
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What Operations Managers do? (Top 10 Research Directions)

Location strategies

Where should we put the facility? On what criteria should we bas the location decision?
How should we arrange the facility? How large must the facility be to meet our plan? How do we provide a reasonable work environment? How much can we expect our employees to produce? Should we buy or produce the component? Who are our suppliers and who can integrate into our e34 commerce program?

Layout design

Human resources and job design


Supply chain management


What Operations Managers do? (Top 10 Research Directions)

Inventory control

How much inventory of each item should we have? When do we reorder? Is subcontracting production a good idea? Are we better off keeping people on the payroll during slowdowns? Who is responsible for maintenance?
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Intermediate, short-term, and project scheduling


Maintenance

Exciting New Trends in OM


Local or national focus Global focus, international OM

Batch (large) shipments


Low-bid purchasing

Just-in-time shipments
Supply chain partners, ERP, e-Commerce Rapid product development, alliances

Lengthy product development

Standardized products
Job specialization

Mass customization
Empowered employees, teams, and lean production
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Important Research Field - Service Operations Management


Intangible Produced and consumed simultaneously Unique High customer interaction Inconsistent product definition Knowledge-based Dispersed Difficult to automate Difficult to measure quality .

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Research Methods
Strategic Tactic Operational
Levels of Decision

Qualitative
Quantitative

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Research Methods

Empirical
Case study Survey Panel study Database

Simulation
Motivation and Objective Experiment design Independent variables Dependent variables Simulation run Data analysis Findings Insights

Theoretic models
Deterministic models Uncertainty models

Simulation Expert system (knowledge model)

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OR/MS

Applied Mathematics Mathematical Modeling: Motivation,Formulation,Solution,Validation


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Manufacturing and Service Operations Management Society

Established March 1999, Newest within INFORMS Membership: 950, Largest within INFORMS Society Webpage: http://msom.society.informs.org The methods which MSOM members apply in order to help the operations function add value to products and services are derived from a wide range of scientific fields, including operations research and management science, mathematics, economics, statistics, information systems and artificial intelligence.
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* INFORMS: Institute for Operations Research and Management Science Merged from ORSA (1952) and TIMS (1953) in 1994

Source of References
Top journal:
Operations Research (OR) Management Science (MS)

Quasi-Top journal:
Operations Research Letters (ORL) IIE Transactions (IIET) Naval Research Logistics (NRL) Mathematics of Operations Research (MOR) Journal of operations management (JOM)

Major journal:
European Journal of Operational Research (EJOR) International Journal of Production Research (IJPR) International Journal of Production Economics (IJPE) Journal of the Operational Research Society (JORS)
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OM Related Journals
Relevance

Ranks (1999, JOM)


Quality

JOM (J. of OM) IJOPM (Int. J. Op. Prod. Mgmt.) POM (Prod. & OM) IJPR (Int. J. of Prod. Research) IJPE (Int. J. of Prod. Economics) PIMJ (Prod. Invent. Mgmt. J.) MS Management Sciences) HBR (Harvard Business Rev.) EJOR Sloan Mgmt. Review

MS (SSCI, SCI) OR (SCI) JOM IJOPM IJPR (SCI) POM (SCI) EJOR(SCI, SSCI) HBR Academy of Mgmt. Journal DS (Decision Sciences) (SSCI)
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MSOM

Summary
What is Supply chain / SCM? What kinds of issues SCM concern? What are the Theory and Techniques which can be possibly potential in SCM? SCM vs. OR/MS/DS/OM/IE/EM/SS/SE? Top journals publishing SCM studies

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