Introduction

Backward Linkage Forward Linkage

 Introduction
Field
Regional Warehouses:
Warehouses: stocking
stocking points
points

Sources:
plants Suppl
vendors y
ports

Inventory &
warehousing
costs
Inventory &
Production warehousing
costs costs Customer
Transportation Transportatio Transportatio
n
costs n
costs costs
 Introduction

A set of approach primarily concerned with the efficient integration of

suppliers, factories, warehouses and stores so that merchandise is
produced and distributed in the right quantities, to the right locations at
the right time, hence minimizing total system cost subject to satisfy
service requirements.

Primary issues:
• Cost and Service Level
• All about integration and optimization
 Introduction

Profit
• Profit 4% Logistics
Cost

• Logistics Cost 21% Marketing

Cost

• Marketing Cost 27%

Manufacturing
Cost
• Manufacturing Cost 48%
Introduction
 Introduction
Customer
Cycle View of Supply Chains
Each cycle occurs at the interface
between two successive stages Retailer

Four Cycles Distributor

• Customer order cycle (customer-retailer)
• Replenishment cycle (retailer-distributor) Manufacturer
• Manufacturing cycle (distributor-manufacturer)
• Procurement cycle (manufacturer-supplier)
Supplier
 Introduction
Cycle View of Supply Chains
Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
 Introduction
Cycle View of Supply Chains

Customer
Customer Order Cycle

Retailer

• Customer arrival
• Customer order entry
• Customer order fulfillment
• Customer order receiving
 Introduction
Cycle View of Supply Chains

Retailer
Replenishment Cycle

Distributor

• Retail order trigger

• Retail order entry
• Retail order fulfillment
• Retail order receiving
 Introduction
Cycle View of Supply Chains

Distributor
Manufacturing Cycle
Manufacturer

• Order arrival
• Production scheduling
• Manufacturing & shipping
• Receiving
 Introduction
Cycle View of Supply Chains

Manufacturer
Procurement Cycle

Supplier

• Production schedule
• Component order trigger
• Component replenishment
 Introduction
Push-Pull View of Supply Chains
• Useful in considering strategic decisions relating to supply chain
design – more global view of how supply chain processes relate
to customer orders
• Pull: execution is initiated in response to a customer order
(reactive)
• Push: execution is initiated in anticipation of customer orders
(speculative)
• Push/pull boundary separates push processes from pull
processes
 Introduction
Push-Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
 Introduction
Push-Pull View of Supply Chains

Procurement Customer Order and

cycles Manufacturing cycle

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
 Introduction
Push-Pull View of Supply Chains
Procurement,
Manufacturing,
Replenishment and
Customer Order cycles

PULL PROCESSES

Customer
Order Arrives
 Introduction
Important Activities/Elements

1. Customer
2. Transportation
3. Credit and cash transfers
4. Supplier
5. Distributor
6. Accounts payable and receivable
7. Warehousing and inventory
8. Order fulfillment
9. Sharing supplier, customer and production
information
 Introduction
Conflicting Objectives
Purchasing Manufacturing Warehousing Customer
Stable volume Long run Low inventory Short order lead
requirements production time
Flexible delivery High quality Reduced Product Quality
time transportation
costs
Little variation in High productivity Quick Enormous
mix replenishment product quantity
capability and variety
Large quantities Low production Low prices
cost
 Introduction
Dynamics of Supply Chain

Distributor Orders

Retailer Orders
Order Size

Customer
Demand

Production Plan

Time
 Introduction
Sequential Optimization

Procurement Manufacturing Distribution

Demand
Planning Planning Planning Planning

Supply Chain Challenge: Achieving Global Optimization

Global
Local Optimization
Optimization

Supply Contracts/Collaboration/Information Systems and DSS

Procurement Manufacturing Distribution

Demand
Planning Planning Planning
Planning