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Supply Chain Management encompasses every effort involved in producing and delivering a final product or service, from the supplier¶s supplier to the customer¶s 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.
Sources: plants vendors ports
Regional Warehouses: stocking points
Field Warehouses: stocking points
Customers, demand centers sinks
Inventory & warehousing costs Production/ purchase costs Transportation costs Inventory & warehousing costs Transportation costs
Flows in a supply chain
information. distributors and customers. manufacturers. Stanford Supply Chain Forum Logistics involves ³managing the flow of items. period and pattern values. cash and ideas through the coordination of supply chain processes and through the strategic addition of place. and financial flows in a network consisting of suppliers. MIT Center for Transportation and Logistics .Some More Definitions Supply Chain Management deals with the management of materials. information.
design/engineering..Key Observations Integrated activity: * Among functions such as logistics.) .e. marketing. finance.p. customers& 3 PL providers * Coordination of conflicting goals. etc. distribution. manufacturing. * Multiple organizations. credits. etc. status. Responsible for multiple flows: * Information (orders. suppliers. raw material.i.etc.) * Financial (payment. contracts) * Physical (finished goods. w.i. metrics.
.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.
TPM. CRM.) . etc) 2000s: Era of achieving excellence at the value chain level (SCM. BPR.Efficiency: Basis of Production Management Efficiency leads to lower costs Lower cost implies Lower Price => Greater demand => Better market growth => Higher profits => Product/ Process development => Better market share 1980s and 1990s: Era of achieving excellence at the firm level (JIT. ERP. E-Commerce. etc. TQM.
Distribution ± Retailer Stage 2: Materials Management Logistics Management Stage 3: Supply Chain Management .Evolution of SCM Stage 1: Vendor ± Purchase ± Production .
Why is SCM Important? Strategic Advantage ± It Can Drive Strategy * Manufacturing is becoming more efficient * SCM offers opportunity for differentiation (Dell) or cost reduction (Wal-Mart or Big Bazaar) Globalization ± It Covers The World * Requires greater coordination of production and distribution * Increased risk of supply chain interruption * Increases need for robust and flexible supply chains .
Why is SCM Important? (continued) At the company level. supply chain management impacts * COST ± For many products. . performance factors such as inventory availability and speed of delivery are critical to customer satisfaction. * SERVICE ± For many products. 20% to 40% of total product costs are controllable logistics costs.
Manufacturing Long run production High quality High productivity Low production cost .Conflicting Objectives in the Supply Chain 1. Purchasing Stable volume requirements Flexible delivery time Little variation in mix Large quantities 2.
Warehousing Low inventory Reduced transportation costs Quick replenishment capability 4. Customers Short order lead time High in stock Enormous variety of products Low prices .Conflicting Objectives in the Supply Chain 3.
Decision Phases in a Supply Chain Supply chain strategy or design Supply chain planning Supply chain operation .
Process view of a supply chain Cycle view Push/pull view .
Customer order cycle Customer arrival Customer order entry Customer order fulfillment Customer order receiving .
Replenishment cycle Retail order trigger Retail order entry Retail order fulfillment Retail order receiving .
retailer. or customer . or customer Production scheduling Manufacturing and shipping Receiving at the distributor.Manufacturing cycle Order arrival from the distributor. retailer.
Push/Pull View of Supply Chains Pull processes: execution is initiated in response to a customer order Push processes: execution is initiated in anticipation of customer orders .
long-term contract. strategic alliance. Insourcing/OutSourcing (The Make/Buy or Vertical Integration Decision) 2. joint venture.SUPPLY CHAIN DESIGN: Three Components 1. The Contractual Relationship (Arm's length. equity participation.) . etc. Partner Selection (Choice of suppliers and partners for the chain) 3.
wholesaler. or distributor in its supply chain .Dell Computer¶s supply chain Customer Web page Assembly plant All of Dell¶s suppliers and their suppliers Dell builds to order: customer order initiates manufacturing at Dell Dell does not have a retailer.
Three Types of Integration of the Supply Chain Geographical Integration *From local to world-wide logistics Functional Integration * From Function-dominated logistics to Flow-dominated logistics Inter-Firm Integration * From a Sector-based Logistics to Inter-sector Logistics .
but supply chain relationships also evolve over time. . conflicting objectives * For instance.Supply Chain Integration is Difficult for two main reasons Different facilities in the supply chain may have different. The supply chain is a dynamic system that evolves over time * Not only do demand and supplier capabilities change over time. the suppliers are in direct conflict with the manufacturers¶ desire for flexibility.
Complexities Involved in Supply Chain Management The supply chain is a complex network of facilities and organizations with different. conflicting objectives Matching supply and demand is a major challenge System variations over time are also an important consideration Many supply chain problems are new and there is no clear understanding of all the issues involved .
one in Britain and one in Israel ± Chips are shipped to seven assembly locations in Southeast Asia.Supply Chain: The Complexity National Semiconductors: Production: ± Produces chips in six different locations: four in the US. 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 45 days ± 5% are delivered within 90 days.
Supply Chain Challenges Achieving Global Optimization ± Conflicting Objectives ± Complex network of facilities ± System Variations over time .
Sequential Optimization Procurement Planning Sequential Optimization vs. Global Optimization Manufacturing Planning Distribution Planning Demand Planning Global Optimization Supply Contracts/Collaboration/Information Systems and DSS Procurement Planning Manufacturing Planning Distribution Planning Demand Planning Source: Duncan McFarlane .
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 .
2. Aggregate forecasts are more accurate Aggregate the forecast ± postponement/risk pooling .Managing Uncertainty 1. Point forecasts are invariably wrong Plan for forecast range ± use flexible contracts to go up/down.
somebody else knows what is going to happen Collaborate . In many cases. Longer term forecasts are less accurate Shorten forecasting horizons ± multiple orders. early detection 4.Managing Uncertainty (cont¶d) 3.
low-cost distribution channels More powerful well-informed customers Internet and E-Business strategies .What¶s New in SCM? Global competition Shorter product life cycle New.
New Concepts Push-Pull strategies Direct-to-Consumer Strategic alliances Manufacturing postponement Dynamic Pricing E-Procurement .
Tailored Logistics Each Logistically Distinct Business (LDB) will have distinct requirements in terms of ± Inventory ± Transportation ± Facility ± Information Key: How to gain efficiencies while tailoring logistics? .
Applying the Framework to e-commerce: What is e-commerce? Commerce transacted over the Internet ± Is product information displayed on the Internet? ± Is negotiation over the Internet? ± Is the order placed over the Internet? ± Is the order tracked over the Internet? ± Is the order fulfilled over the Internet? ± Is payment transacted over the Internet? .
phone. EDI. EDI. « . catalogs. phone. sealed bids. « Order placement ± Physical store. « Order tracking ± EDI. Product information Existing Channels for Commerce ± Physical stores. phone. face to face. face to face. fax. fax. « Negotiation ± Face to face. fax.
Safety. Seasonal inventory Transportation costs ± Inbound and outbound costs Information sharing ± Coordination .Cost Impact of E-Commerce Facility costs ± Site and processing cost Inventory costs ± Cycle.
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 .
Framework for analysis Model Based Approach * Use fundamental models to gain insights * Analytical. though not necessarily Operations Research. approach * Extensive use of case studies and real-life examples Total System Cost * Avoid the silo effect of traditional logistics * Capture and integrate across different players in SC * Service can be included .
These are usually formulated as Mixed Integer Programming Models. given the lead-time necessary for response. considering the inbound and outbound transportation costs as well as the fixed and variable costs of operation at the locations under consideration.These models allow prediction of demand based on past data or other parameters that are independently available. . Location Models .Modeling for SCM Forecasting Models .These models identify the optimal location of facilities such as plants and warehouses. They enable better planning.
three and even four stages of distribution network. capacity.These models are usually comprehensive in nature. deciding between two. The constraints considered can be due to demand. location of warehouses and break-bulk points. Allocation Models .These models help in optimally allocating commodities from sources to destinations in a multi-source. . and sometimes even the transportation. The costs considered for optimisation are production costs and warehousing costs. route restrictions. etc.Modeling for SCM (cont¶d) Distribution Network Design Models . multi-destination environment.
Modeling for SCM (cont¶d) Inventory Models . taxes & duties.Inventory plays a major role in SCM. inventory carrying cost. transportation cost. stock-out cost.Batching and shipment inventories . based on tradeoffs among.Pipeline inventory ( primary and secondary transportation ) These models minimize the total relevant cost. . inter alia.Inventory can be of various types such as: .Buffer stocks to take care of uncertainties . ordering cost. etc. .
These models allow optimal routing on a transportation network from a given source to a destination. the Traveling Salesman Problem and the Vehicle Routing Problem. . The models used are the Shortest Path Problem.e.. using a Geographical Information System ) are also very useful in such decisions.Modeling for SCM (cont¶d) Routing Models . Decision Support Systems that interactively use the expertise of the decision maker by providing graphical support through a map (i.
These models enable allocation of resources to particular activities. Depending on the criteria of interest and the number of resources.Modeling for SCM (cont¶d) Scheduling Models . Formal approaches such as simulation and analytic hierarchy process could be used in assessing the implications of the criteria. Alternative Analysis . the models are of aid in evaluating appropriate rules for allocation. .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.
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