Supply Chain

 All facilities, functions, activities, associated with flow and

transformation of goods and services from raw materials to
customers
 An integrated group of processes to “source,” “make,” and
“deliver” products
Functions and Activities
 Forecasting
 Purchasing
 Inventory management
 Information management
 Quality assurance
 Scheduling
 Production and delivery
 Customer service
Facilities

 Warehouses
 Factories
 Processing centers
 Distribution centers
 Retail outlets
 Offices
Typical Supply Chain for a
Manufacturer

Supplier

Supplier

Supplier
}
Storage Mfg. Storage Dist. Retailer Customer
 Supply Chain: Definition
 Supply chain is a network of interconnected
organizations or organizational entities developed
with the goal of getting the right product to the right
place at the right time

 Supply chain encompasses every effort involved in

producing and delivering a final product, from the
supplier’s supplier to the customer’s customer
Changing Basis of Competition

Basis of Competition
Manufacturing company
Yesterday versus
Manufacturing company

Manufacturing company and it’s

supply chain
Today versus
Manufacturing company and it’s
supply chain
The Objective of a Supply Chain
 Maximize overall value created
 Value is correlated to supply chain profitability
(difference between revenue generated from the
customer and the overall cost across the supply chain)
 Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
 Supply chain profitability is total profit to be shared
across all stages of the supply chain
 Supply chain success should be measured by total
supply chain profitability, not profits at an individual
stage
The Objective of a Supply Chain

 Sources of supply chain revenue: the customer

 Sources of supply chain cost: flows of information,
products, or funds between stages of the supply chain
 Supply chain management is the management of
flows between and among supply chain stages to
maximize total supply chain profitability
Decision Phases of a Supply Chain

 Supply chain strategy or design

 Supply chain planning

 Supply chain operation

Supply Chain Strategy or Design

 Decisions about the structure of the supply chain and what

processes each stage will perform
 Strategic supply chain decisions
 Supply chain design must support strategic objectives
 Supply chain design decisions are long-term and expensive to
reverse – must take into account market uncertainty
Supply Chain Planning
 Planning decisions:
 Which markets will be supplied from which locations
 Planned buildup of inventories
 Subcontracting, backup locations
 Inventory policies
 Timing and size of market promotions
 Must consider in planning decisions demand
uncertainty, exchange rates, competition over the
time horizon
Supply Chain Operation
 Decisions regarding individual customer orders
 Supply chain configuration is fixed and operating policies are
determined
 Goal is to implement the operating policies as effectively as
possible
 Allocate orders to inventory or production, set order due dates,
generate pick lists at a warehouse, allocate an order to a
particular shipment, set delivery schedules, place replenishment
orders
 Much less uncertainty (short time horizon)
Process View of a Supply Chain

 Cycle view: processes in a supply chain are

divided into a series of cycles, each performed at
the interfaces between two successive supply
chain stages
 Push/pull view: processes in a supply chain are
divided into two categories depending on whether
they are executed in response to a customer order
(pull) or in anticipation of a customer order (push)
Cycle View of Supply Chains

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
Cycle View of a Supply Chain
 Each cycle occurs at the interface between two
successive stages
 Customer order cycle (customer-retailer)
 Replenishment cycle (retailer-distributor)
 Manufacturing cycle (distributor-manufacturer)
 Procurement cycle (manufacturer-supplier)
 Cycle view clearly defines processes involved and the
owners of each process. Specifies the roles and
responsibilities of each member and the desired outcome
of each process.
 Bullwhip Effect
The magnification of variability in orders in the supply-
chain

Retailer’s Orders Wholesaler’s Orders Manufacturer’s Orders

Quantity

Quantity

Quantity
Order
Order

Order

Time Time Time

A lot of …can lead to …can lead to

retailers each greater variability even greater
with little for a fewer number variability for a
variability in of wholesalers, single
their orders…. and… manufacturer.
The Bullwhip Effect
 Farther away from the customer, the quality of
information gets worse & worse as supply
chain members base their guesses on the bad
guesses of their partners.
 The result is increasingly inefficient inventory
management, manufacturing, & logistics
Short-Circuit the Bullwhip

 Make information transparent:

 Use Electronic Data Interchange (EDI) to
support Just-In-Time supplier replenishment
 Use bar codes & electronic scanning to
capture & share point-of-sale data
Supply Chain Measures

Common practice is to measure within a function:

Supplier Plant Distribution Customer

Center
Price Cost Inventory Cost
Efficiency Stock Rotation Quality
Output Space Speed
Flexibility
Measure Across Supply Chain Nodes

Supplier Plant Distribution Customer

Center

Cycle Time Cycle Time Cycle Time

On-time Delivery Delivery Reliability Order Completion
Vendor Managed Product Availability Performance
Inventory
End of Session
What is scheduling?

 Last stage of planning before production

occurs
 Specifies when labor, equipment,
facilities are needed to produce a
product or provide a service
Scheduled operations
 Process Industry  Batch Production
 Linear programming  Aggregate planning
 EOQ  Master scheduling

 Mass Production  Material requirements

 Assembly line balancing planning (MRP)

 Capacity requirements
 Project
planning (CRP)
 Project -scheduling techniques (PERT, CPM)
Objectives in Scheduling
 Meet customer due dates
 Minimize overtime
 Minimize job lateness
Maximize
 Minimize completion time
machine or labor
 Minimize time in the system

utilization
 Minimize idle time
 Minimize work-in-
process inventory
Sequencing
 Prioritize jobs assigned to a resource
 If no order specified use first-come first-
served (FCFS)
 Many other sequencing rules exist
 Each attempts to achieve to an objective
Sequencing Rules
 FCFS - first-come, first-served
 LCFS - last come, first served
 DDATE - earliest due date
 CUSTPR - highest customer priority
 SETUP - similar required setups
 SLACK - smallest slack
 CR - critical ratio
 SPT - shortest processing time
 LPT - longest processing time
Guidelines for Selecting a
Sequencing Rule
1. SPT (Shortest Processing Time) most useful when
shop is highly congested
2. Use SLACK (Smallest Slack) for periods of normal
activity
3. Use DDATE(earliest due date) when only small
tardiness values can be tolerated
4. Use LPT (Longest Processing Time) if subcontracting
is anticipated
5. Use FCFS (First Come First Serve) when operating
at low-capacity levels
6. Do not use SPT (Shortest Processing Time)to
sequence jobs that have to be assembled with other
jobs at a later date
Critical Ratio Rule

CR considers both time and work remaining

time remaining due date - today’s date
CR = work remaining = remaining processing time

If CR > 1, job ahead of schedule

If CR < 1, job behind schedule
If CR = 1, job on schedule
Sequencing Jobs Through One
Process
 Flowtime (completion time)
 Time for a job to flow through the system
 Makespan
 Time for a group of jobs to be completed
 Tardiness
 Difference between a late job’s due date
and its completion time
Sequencing Jobs Through Two
Serial Process
 Johnson’s Rule
 List time required to process each job at each
machine. Set up a one-dimensional matrix to
represent desired sequence with # of slots equal
to # of jobs.
 Select smallest processing time at either
machine. If that time is on machine 1, put the job
as near to beginning of sequence as possible.
 If smallest time occurs on machine 2, put the job
as near to the end of the sequence as possible.
 Remove job from list.
 Repeat steps 2-4 until all slots in matrix are filled
and all jobs are sequenced.
Johnson’s Rule
 Find the optimal sequence for the work centers.

Job Work Center A Work Center B

A 3.20 4.20
B 4.70 1.50
C 2.20 5.00
D 5.80 4.00
E 3.10 2.80
SOLUTION
? ? ? ? B
C ? ? ? B
C ? ? E B
C A ? E B
C A D E B