1. IT Enabled Supply Chain Management Bent Steenholt Kragelund
Welcome to
IT Enabled Supply Chain Management
Bent Steenholt Kragelund 1

2. Today's Agenda
Understanding the Supply Chain
The Beer Game

3. Course material
Textbook: Chopra, S & Meindl, P (2012) Supply Chain Management, Strategy, planning and Operation (5th edition), Pearson
Global edition of the book will work as well
Selected readings to be provided

4. Understanding the Supply Chain

5. What is a Supply Chain?
All stages involved, directly or indirectly, in fulfilling a customer request
Includes manufacturers, suppliers, transporters, warehouses, retailers, and customers
Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service)

6. What is a Supply Chain?
Customer is an integral part of the supply chain
Includes movement of products from suppliers to manufacturers to distributors and information, funds, and products in both directions
May be more accurate to use the term “supply network” or “supply web”
Typical supply chain stages: customers, retailers, distributors, manufacturers, suppliers
All stages may not be present in all supply chains (e.g., no retailer or distributor for Dell)

7. Beer supply chain example
Hops supplier
Hops supplier
Hops supplier
Malt supplier
Malt supplier
Malt supplier
Yeast supplier
Yeast supplier
Product flow
Brewery
Distributor
Regional Wholesaler
Grocery Store
Consumer
Aluminum supplier
Funds & information flows
Can / bottle producer
Glass supplier
Packaging materials flow

8. Flows in a Supply Chain – the supply web8

9. The Objective of a Supply Chain
Maximize overall value created
Supply Chain Surplus
= Customer Value – Supply Chain Cost

10. The Objective of a Supply Chain
Customer the only source of revenue
Sources of cost include flows of information, products, or funds between stages of the supply chain
Effective supply chain management is the management of flows between and among supply chain stages to maximize total supply chain surplus

11. Decision Phases of a Supply Chain
Supply Chain Phase
Frequency
1. Supply chain strategy or design
Several years
2. Supply chain planning
Quarterly / yearly
3. Supply chain operation
Daily / weekly
Supply Chain strategy or design
Decisions about the structure of the supply chain and what processes each stage will perform
Strategic supply chain decisions
Locations and capacities of facilities
Products to be made or stored at various locations
Modes of transportation
Information systems
Supply chain design must support strategic objectives
Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty
2. Planning
Definition of a set of policies that govern short-term operations
Fixed by the supply configuration from previous phase
Starts with a forecast of demand in the coming year
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
Operation
Time horizon is weekly or daily
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)

12. Cycle View of Supply Chain Processes
Processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages
The supply chain is a concatenation of cycles with each cycle at the interface of two successive stages in the supply chain. Each cycle involves the customer stage placing an order and receiving it after it has been supplied by the supplier stage.
One difference is in size of order. Second difference is in predictability of orders - orders in the procurement cycle are predictable once manufacturing planning has been done.
This is the predominant view for ERP systems. It is a transaction level view and clearly defines each process and its owner. 12

13. Cycle View of Supply Chain Processes

14. Push/Pull View of Supply Chains
Processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull - reactive) or in anticipation of a customer order (push - speculative)
In this view processes are divided based on their timing relative to the timing of a customer order. Define push and pull processes.
They key difference is the uncertainty during the two phases.
Give examples at Amazon and Borders to illustrate the two views 14

15. Push/Pull View of – L.L. Bean

16. Push/Pull View – Dell

17. The beer game

18. Introduction to the Beer Game
The purpose of the Beer Game is to experience systemic effects and to introduce the need for supply chain and network management. Specifically it shows:
How single parts in a system influence each other.
How individual thinking differs from systemic thinking (network thinking).
Potentials for systems optimization and the use of information systems.
The Beer Game setup
The Beer Game supply chain consists of four stages:
The retailer (orange) has to fulfil the end consumer’s orders.
The wholesaler (yellow) has to fulfil the retailer’s orders.
The distributor (green) has to fulfil the wholesaler’s orders.
The factory (blue) has to produce the beer to fulfil the distributor’s orders.
The Beer Game is played in groups of 3, each of these groups sits around one table and plays one supply chain stage (see figure).

19. Table layout
Every table has the same layout that shows four different areas (see figure):
The place for incoming orders (inbox) – coming from the downstream stage
The place for outgoing orders (outbox) – going to the upstream stage
The place for incoming deliveries (receiving) – coming from the upstream stage
The place for outgoing deliveries (dispatch) – going to the downstream stage
Deliveries are “on the road” for 2 weeks (lead time); production also takes 2 weeks. This lead time delay is represented by 2 two extra fields between the tables that hold the deliveries and are moved forward in each week.

20. General playing procedure
The game runs in weeks and it starts in week 1. In each week, each supply chain group has to proceed with the following steps:
Receive new deliveries and update the play sheet (“incoming” and “available”).
Receive orders in the inbox and update the play sheet (“new order” and “to ship”)
Calculate the total amount that will be shipped (“your delivery”), note down the amount, and place it in a box in the dispatch area on your table.
Agree on a new order amount, note down the number, and put it in an envelope in the outbox field.
The goal
Your goal is to minimize your cost!
(Remember that you compete against the same stage in the other supply chains – retailer against retailer, distributor against distributor etc.)
There are two different kinds of cost:
Inventory cost: Items in stock cost € 0,50 per week in holding costs.
Backorder cost: If an incoming order cannot be (fully) fulfilled, items are outstanding and have to be put on “backorder” to be fulfilled in the following week(s). Each item on backorder costs € 1,00 per week.

21. What is a backorder?
If an incoming order cannot be fully fulfilled due to a lack of available items in the inventory, items go on backorder. In this case your inventory is empty and a number of items have to appear as backorder in your play sheet.
What happens in the next week?
In the following week, you will add the old backorder to the new incoming order to calculate the amount “to ship”. Again, if the available inventory is too little to fulfil the amount “to ship”, items have to be put on backorder and will cost $ 1,00 per item.

22. Some general rules
No communication is allowed between supply chain groups, supply chain groups must not talk to each other at any time!
If stock is available, an order has to be fulfilled.
Every order has to be fulfilled, either in the current week (if enough stock is available) or in one of the next weeks (items go on backorder).
Either the inventory or the backorder, one of them is always zero (0)!

23. Delay
Factory
Distributor
Wholesaler
Retailer
Delay
Delay
Delay

24. Distributor Outgoing order Incoming order Delay Delay Incoming
Wholesaler
Delay
Delay
Incoming
delivery
Outgoing
delivery
Factory

25. The initial table set-up
Delay
Factory
Distributor
Wholesaler
Retailer
Delay
Delay
Delay D D D D D D D D D D D D D D

26. The play-sheet

27. Step 1: Delivery IN 5 Distributor Outgoing order Incoming order Delay20

28. Step 2: Order IN 4 5 Distributor Outgoing order Incoming order Delay
delivery
Outgoing
delivery 4

29. Step 3: Prepare delivery
Distributor 4
Outgoing
order
Incoming
order 5
Delay
Delay
Incoming
delivery
Outgoing
delivery

30. Backorder 5 Distributor Outgoing order Incoming order Delay Delay
Delivery
Backorder
Distributor
Outgoing
order
Incoming
order 5
Delay
Delay
Incoming
delivery
Outgoing
delivery

31. Step 4: Place your order 3 4 Distributor
This is entirely your decision
Keep your cost low !
Distributor
Outgoing
order
Incoming
order
Delay
Delay
Incoming
delivery
Outgoing
delivery 4 3 3

32. The initial table set-up
Delay
Factory
Distributor
Wholesaler
Retailer
Delay
Delay
Delay D D D D D D D D D D D D D D

33. Between weeks - Logistics
Delay
Factory
Distributor
Wholesaler
Retailer
Delay
Delay
Delay D D D D D D D D D D D D

34. Ready to play? Three assistants needed Form groups of 3
Each group should have a Laptop / Tablet capable of running excel
Download the play-sheet from the course blog
Rename to Table-n where n is 1,2 or 3
Open the right tab depending on your role