1. Introduction to Supply Chain Management
Source: Designing and Managing the Supply Chain,
By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi

2. Customers,
demand
centers
sinks
Field
Warehouses:
stocking
points
Sources:
plants
vendors
ports
Regional
Warehouses:
stocking
points
Supply
Inventory &
warehousing
costs
Production/
purchase
costs
Transportation
costs
Transportation
costs
Inventory &
warehousing
costs

3. Physical Distribution
THE LOGISTICS SYSTEM
SUPPLIERS
Component
Manufacturing
Final
Assembly
Distribution &
Warehousing
CUSTOMERS
Physical Supply
Inbound Logistics
Physical Distribution
Outbound Logistics

4. Supply Chain Management
Definition:
Supply Chain Management is 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 and at the right time, and so as to minimize total system cost subject to satisfying service requirements.
Notice:
Everyone is involved
Systems approach to reducing costs
Integration is the key

5. Conflicting Objectives in the Supply Chain
1. Purchasing
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
2. Manufacturing
• Long run production
• High quality
• High productivity
• Low production cost

6. Conflicting Objectives in the Supply Chain
3. Warehousing
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
4. Customers
• Short order lead time
• High in stock
• Enormous variety of products
• Low prices

7. The Dynamics of the Supply Chain
Production Plan
Distributor Orders
Retailer Orders
Order Size
Customer
Demand
What is shown here is how divergent these various forecasts are in relation to real demand.
Why?? Because they are developed independently from each other and are dated, and unconnected to each other and the daily fluctuations in the market
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

8. What Management Gets...
Production Plan
Order Size
Customer
Demand
What is shown here is how divergent these various forecasts are in relation to real demand.
Why?? Because they are developed independently from each other and are dated, and unconnected to each other and the daily fluctuations in the market
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

9. What Management Wants…
Production Plan
Volumes
Customer
Demand
What is shown here is how divergent these various forecasting are in relation to real demand.
Why?? Because they are developed independently from each other and are dated, and unconnected to each other and the daily fluctuations in the market
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

10. The Dynamic Supply Chain
Increasing customer power leads to increased demands on retailers
Increased retailer power leads to increased demands on suppliers

11. Supply Chain: The Magnitude
In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product).
Transportation 58%
Inventory 38%
Management 4%
Third party logistics services grew in 1998 by 15% to nearly $40 billion

12. Dynamic Forces of the Global Supply Chain
Resources
Logistics
User Logistics
Information

13. Supply Chain: The Magnitude
It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies.
A typical box of cereal spends more than three months getting from factory to supermarket.
A typical new car spends 15 days traveling from the factory to the dealership, although actual travel time is 5 days.

14. Supply Chain: The Magnitude
Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.
In 1993, IBM lost a major fraction of its potential sales of desktop computers because it could not purchase enough chips that control the computer displays.

15. Supply Chain: The Magnitude
Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce writedowns of $2.6 billion in October The reason? “Raw material shortages, internal and supplier parts shortages…”. (Wall Street Journal, Oct. 23, 1997)

16. Supply Chain: The Potential
Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months. “According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”. (Journal of Business Strategy, Oct./Nov. 1997)

17. Cost Structure in the Supply Chain
Margin
12.1
18.1
5.0
8.1
4.1
9.7
42.7
Stores
Operating Cost
Administration
Logistics
Sales/Purchases
Marketing
Production
Cost
ACTUAL
TARGET
9.8
16.4
4.8
6.2
3.0
8.2
40.8
100
100 = Average Retail Price
89.2

18. Supply Chain: The Potential
In two years, National Semiconductor reduced distribution costs by 2.5%, delivery time by 47% and increased sales by 34% by
- Shutting six warehouses around the globe.
- Air-freighting microchips to customers from a new centralized distribution center.

19. Supply Chain: The Potential
In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer.
Laura Ashley turns its inventory 10 times a year, five times faster than three years ago. This is achieved by using
- New Information System
- Centralized Warehouse

20. Supply Chain: The Potential
“For a company with annual sales of $500 million and a 60% cost of sales, the difference between being at median in terms of supply chain performance and in the top 20% is $44 million of additional working capital.”
-- PRTM Director Mike Aghajanian

21. Supply Chain: The Complexity
National Semiconductors:
Production:
Produces chips in six different locations: four in the US, one in Britain and one in Israel
Chips are shipped to seven assembly locations in Southeast Asia.
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.

22. Supply Chain: The Complexity
1. Supply Chain Integration
• Conflicting Objectives
• The Dynamics of the Supply Chain
2. Matching Supply and Demand
3. System Variations over Time
4. Status of Logistics Knowledge
• Many problems are new
• Incomplete understanding of issues
• Methodology is rather narrow

23. ISSUES: Decision Classification
Strategic Planning: Decisions that typically involve major capital investments and have a long-term effect.
1. Determination of the number, size and location of new plants, distribution centers and warehouses
2. Acquisition of new production equipment and the design of working centers within each plant
3. Design of transportation facilities, communications equipment, data processing means, etc.

24. ISSUES: Decision Classification
Tactical Planning: Effective allocation of manufacturing and distribution resources over a period of several months
1. Work-force size
2. Inventory policies
3. Definition of the distribution channels
4. Selection of transportation and trans-shipment alternatives

25. ISSUES: Decision Classification
Operational Control: Includes day-to-day operational decisions
1. The assignment of customer orders to individual machines
2. Dispatching, expediting and processing orders
3. Vehicle scheduling

26. ISSUES: Why Keep Inventory?
Uncertainty in customer demands
Uncertainty in the supply
Uncertainty in quantity and quality
Uncertainty in delivery time
Uncertainty in costs
Economies of scale

27. ISSUES: Demand Forecast
The three principles of all forecasting techniques:
Forecasting is always wrong
The longer the forecast horizon the worse the forecast
Aggregate forecasts are more accurate

28. ISSUES: Inventory control
How much inventory to keep?
Can uncertainty be reduced?
What size should orders be?
How does forecasting tool effect inventory level?

29. ISSUES: The Challenge of Inventory Management
Matching supply and demand accurately is a critical challenge
“Dell Computers predicts a loss; stock plunges. Dell acknowledged that the company was sharply off in its forecast of demand, resulting in inventory writedowns”. (WSJ, August 1993)
“IBM continues to struggle with shortages in the Think Pad line”. (WSJ, May 1994)
“Liz Claiborne said its unexpected earnings decline is the consequence of higher than anticipated excess inventories”. (WSJ, August 1993)

30. ISSUES: Purchasing What to Purchase Where to purchase
- In-house production Vs. external suppliers
Where to purchase
- Domestic Vs. international
From whom to purchase
- Cost
- Reliability: quality and on time delivery
- Availability and flexibility

31. ISSUES: Purchasing Centralized Vs. Decentralized
Number of suppliers: Single sourcing Vs. Multiple sourcing
Supply contracts

32. ISSUES: Production Location of manufacturing plants Production cost
Taxes
Incentives (by government)
Proximity to markets and raw materials
Transportation infrastructure
Political stability and culture

33. ISSUES: Production Flexibility
The ability to produce different products simultaneously and efficiently
The ability to produce new products efficiently

34. ISSUES: Production Efficiency Reliability Low cost Short lead time
On-time delivery
Quality

35. ISSUES: Distribution The structure of the distribution network
The distribution strategy
The Classical Strategy
Cross Docking
Direct Shipping

36. ISSUES: Product Design
What role does product design play in supply chain management?
When is redesigning products worth the cost?
Can product design compensate for uncertainty in customer demand?

37. ISSUES: Information Systems
The advantages of advanced information systems
The challenge of unlimited data
The roll of e-commerce
Impact of the internet

38. ISSUES: What’s New in Logistics?
Global competition
Shorter product life cycle
Increasing product variety
New, low-cost distribution channels
More powerful well-informed customers

39. ISSUES: What’s New in Logistics?
New communications and information technologies POS and EDI technology
Wireless technology
Decision Support Systems
Integrated systems
Multi-modal transportation

40. ISSUES: What’s New in Logistics?
New concepts in logistics
Push Vs Pull strategies
Cross docking
Strategic alliances
Manufacturing postponement
Design for Logistics