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Foundations of Global Supply Chain Management

Supply Chain Planning

What is Supply Chain Planning ?
Supply Chain is a set of activities (e.g. purchasing, manufacturing, logistics, distribution, marketing) that perform the function of delivering value to end customer

Traditionally, all the business units along a supply chain have their own objectives and these are often conflicting

There is no single plan to carry out supply chain activities

Supply Chain Planning Processes
Material Requirement Planning Component Requirement Demand Forecasting Demand Planning

Production Plan






Order Management

 Reduced inventory levels by 10-15%  Reduced markdown & scrap by 10-15%  Used resources10-20% more efficiently  Improved delivery reliability by 95-95%  Reduced outages to 0-5%  Reduced cycle time by 10-20%  Reduced transportation cost by 10-15% Companies that utilized best-in-class SCM solutions have

GSCM at Digital Equipment Corp.

1957: Founded by Ken Olsen
1961: Started Construction of first computer PDP-1 1978: Took Over the majority of minicomputer market

1980: Second Largest Computer company in the world
1990: DEC suddenly found its sales faltering 1998: DEC was sold to Compaq 2002: Compaq was taken over by HP 2003: Digital Global Soft is a well respected IT service company in India. Earlier it was 51% subsidiary of DEC

GSCM at Digital Equipment Corp.
DEC in Late 80s and Early 90s:

DEC successfully supported a full range of products for over 20 years with 33 plants in 13 countries including 30 distribution and repair centers

A mismatch among capacity, infrastructure, and demands of new markets

1988 - 1993:
Digital reengineered the business processes throughout manufacturing and logistics.
Corporate Logistics and Manufacturing initiated the development of GSCM for simultaneously balancing the conflicting attributes of manufacturing and logistics

GSCM at Digital Equipment Corp.
 Objective Function for GSCM
 GSCM minimizes a weighted sum of total cost and activity days  Total cost includes 1.
2. 3. 4. 5. 6. 7. Production Costs Inventory Costs Material Handling Costs Taxes Facility/Production Line Fixed Costs Transportation Costs Duty Costs

GSCM at Digital Equipment Corp.
 Constraints for GSCM
 Customer demand is met for each product, in each period, in each customer region Limits on number of facilities making each product  Limit on number of facilities using each manufacturing style Fixed charges for products made by each facility Fixed charges for facilities making any product  Fixed charges for manufacturing style used by each facility  Limited production capacity, inventory storage, and shipping volume

GSCM at Digital Equipment Corp.
 Solution Approach
The problem of realistic size and detail, the GSCM features constitute a formidable class of large, difficult optimization problem Users are invited to advise and assist the solver by specifying with each constraint just how much it would cost to violate the constraint Elastic penalties help solver decide which constraints are hard and which are soft The solver uses branch and bound enumeration

GSCM at Digital Equipment Corp.
 Impact of GSCM on DEC (1990-1994)
 A reduction of $167 million in annual manufacturing cost

 A reduction of $200 million in annual logistics cost
 Number of plants was to be reduced from 33 to 12 Five times more computers were manufactured

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