94c04e0c-e709-42fb-9529-1b62f7a5725d

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

1/124

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

2/124

2

? ?

The Manufacturing EnvironmentThe Manufacturing Environment

Global Market and Competition

Rapid Changes

?New products rapidly introduced

?Short, unknown product life cycles

High Variety of Products

Increasing storage and transportation costs

Difficult to forecast demand

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

3/124

3

? ?

Supply Chain Management ProcessSupply Chain Management Process

Distribution Center

Plant

Customer

Supplier Multi - Organization

Multi - Currency

Global Consolidation

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

4/124

4

? ?The Goals of theThe Goals of the

Manufacturing OrganizationManufacturing Organization

Responsiveness

Competitive pricing

Efficiency

Customer service

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

5/124

5

? ?

Why Do These Goals Conflict?Why Do These Goals Conflict?

Forces for keeping low inventory

?inventory expensive

?low salvage values

Forces for keeping high inventory

?long lead times

?customer service is important

?demand is hard to predict

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

6/124

6

? ?

Definition:

Supply Chain Management is primarily concernedwith the efficient integration ofsuppliers, factories,warehouses and stores so that merchandise isproduced and distributed in the right quantities, to theright locations and at the right time, and so as tominimize total system cost subject to satisfyingservice requirements.

Supply Chain ManagementSupply Chain Management

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

7/124

7

? ?

Suppliers(International)

1.2 Million PC/Yr.Glasgow U.K.

Warehouse

Port

PC Assembly

Plant

13 TransshipmentPoints (TPs) in Europe

Country-wideDistribution

Centers (DCs)

Retailers

Example of a Typical Supply Chain: IBM Europe PC Supply Chain

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

8/124

8

? ?What Is the Goal of Supply ChainWhat Is the Goal of Supply Chain

Management?Management?

Supply chain management is concerned with the

efficient integration of suppliers, factories, warehousesand stores so that merchandise is produced anddistributed:

?In the right quantities

?To the right locations?At the right time

In order to

?Minimize total system cost

?Satisfy customer service requirements

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

9/124

9

? ?

Why SC Catches Attention?Why SC Catches Attention?

Information technology revolution

Global competition in cost, quality, delivery, and cycle

time.

Emergence of inter-organizational relationship

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

10/124

10

? ?

Information Technology RevolutionInformation Technology Revolution

In the not-too-distant past, the primary means of

communication between members of a supply chainwas paper.

One problem with paper-based systems has been the

time and money that is wasted re-keying the same

information into different computer systems.As a result the growth of computers, which support

networks, and networks that support peoples needs(business transactions, communication, etc.), has

exploded.

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

11/124

11

? ?

With Reduced Corporate Spending Increasing Revenue

is not an option.

Today: Difficult Economic ConditionsToday: Difficult Economic Conditions

With the Slowdown in

Customer Spending,

Increasing Sales or Prices

is not Easy.

Instead, Companies are

Concentrating on Cost

Reduction and Better

Customer Service.

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

12/124

12

? ?

Dynamics of Material Flow

Supplier Plant Warehouse Logistics Retailer

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

13/124

13

? ?

Dynamics of Order Flow


7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

14/124

14

? ?

Notice:Notice:

Who is involved?What level of activities are involved?

What do we mean by integration?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

15/124

15

? ?

Supply Chain Planning Processes

Demand PlanningMaterial Requirement Planning

Demand Forecasting


ProductionPlan

ComponentRequirement

Order Management

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

16/124

16

? ?

A complex networkA complex network exampleexample

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.

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

17/124

17

? ?

GSCM at National Semiconductors

?Number, location and capacity of plants

?What product to build at which plant

?Number, location and capacity of DCs

?Which DC should serve which customer

?Number and location of repair centers

?Optimal design of spare parts

Manufacturing

Logistics

Spare Parts

?Decision Variables for GSCM

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

18/124

18

? ?

GSCM at National Semiconductors

?Which supplier to keep

?Which product to buy in a nation

?Which supplier should supply each plant

?Location & availability of cheap labor

?Export regulations, duty rates

Supplier Selection

Miscellaneous

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

19/124

19

? ?

?GSCM minimizes a weighted sum of total cost and activity days

1. Production Costs

2. Inventory Costs

3. Material Handling Costs

4. Taxes

5. Facility/Production Line Fixed Costs

6. Transportation Costs

7. Duty Costs

?Objective Function for GSCM

?Total cost includes

GSCM at Digital Equipment Corp.

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

20/124

20

? ?

?Customer demand is met for each product, in each period, ineach 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 manufacturing style used by each facility

?Limited production capacity, inventory storage, and shippingvolume

?Constraints for GSCM

GSCM at Digital Equipment Corp.

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

21/124

21

? ?

Results

Companies that

utilized best-in-classSCM solutions have

?Reduced inventory levels by 10-15%

?Reduced markdown & scrap by 10-15%

? Improved delivery reliability by 95-95%

?Used resources10-20% more efficiently

?Reduced transportation cost by 10-15%

?Reduced cycle time by 10-20%

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

22/124

22

? ?Case: How Dell ReengineeredCase: How Dell Reengineered

its Supply Chainits Supply Chain

Problem:

?Dell pioneered the mail orderapproach to selling PCs

?In 1993, Compaq cuts prices to

drive Dell out of the market. Dellexperiences $65 million in losses.

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

23/124

23

? ?Case: How Dell ReengineeredCase: How Dell Reengineered

its Supply Chain (cont.)its Supply Chain (cont.)

Solution:

?Dell implements the following re-engineeringstrategies:

?direct sell

?mass customization

?pull system?Use of Information Technology

?provides suppliers with access to Dells inventories

?electronic orders & shipments

?e-collaboration with major buyers

?monitoring of productivity & returns on investments

C iC H D ll R i d

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

24/124

24

? ?

Results:

?

Classic case in supply chain management.? In 2003, Dell made over $1 million in computer web sales/

day.

? Becomes leader in Customer Relationship Management

(CRM)?Online tracking of orders & shipments

?Viewer approved configurations and pricing

? Customized home pages for clients.

?

Increased communication with suppliers.

Case: How Dell ReengineeredCase: How Dell Reengineered

its Supply Chain (cont.)its Supply Chain (cont.)

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

25/124

25

? ?

Lessons from the CaseLessons from the Case

? By introducing a new business model , one can change

the manner in which business is done.

? To implement this model on a large scale, one needs tobuild super supply chain management.

?Another major success factor in Dells plans was the

improvements made in its logistics system along theentire supply chain.

? Improved communications and customer service, whichare part of Dells CRM program, are the cornerstones ofits success.

?Dell was using e-Commerce with its business partners.

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

26/124

26

? ?

Strategies for SCMStrategies for SCM

All of the advanced strategies, techniques,

and approaches for Supply Chain

Management focus on:

?Global Optimization

?Managing Uncertainty

? ?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

27/124

27

? ?

OptimizationOptimization

What is it?Why is it important?

What tools and approaches help?

? ?S ti l O ti i tiS ti l O ti i ti

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

28/124

28

? ?Sequential Optimization vs.Sequential Optimization vs.

Global OptimizatioGlobal Optimizationn

ProcurementPlanning

ManufacturingPlanning

DistributionPlanning

Demand

Planning

Sequential Optimization

ProcurementPlanning



Demand

Planning

ProcurementPlanning



Demand

Planning

Sequential Optimization

Supply Contracts/Collaboration/Information Systems and DSS

ProcurementPlanning



DemandPlanning

Global Optimization


ProcurementPlanning



DemandPlanning


ProcurementPlanning



DemandPlanning

Global Optimization

? ?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

29/124

29

? ?

Why is Global Optimization Hard?Why is Global Optimization Hard?

The supply chain is a complex network

?The difficulty increase exponentially when an entiresystem is being considered than when a single facility isbeing considered.

?Facilities dispersed over a large geography, and in many

cases, all over the globeDifferent facilities have conflicting objectives

? ?Conflicting Objectives in theConflicting Objectives in the

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

30/124

30

? ?Conflicting Objectives in theConflicting Objectives in the

Supply ChainSupply Chain

1. Warehousing

Low inventory

Reduced transportation costs

Quick replenishment capability

2. Customers

Short order lead time

High in stock

Enormous variety of products

Low prices

? ?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

31/124

31

? ?

Why is Global Optimization Hard?Why is Global Optimization Hard?

The supply chain is a dynamic system

?Not only demand and supplier capabilities change over time,but supply chain relationships also evolve overtime.

?Uncertainty is inherent in every supply chain

?Increasing customer power leads to increased demands on

retailers

?Increased retailer power leads to increased demands on

suppliers.

The system varies over time, due to

?Seasonal fluctuations, trends, advertising and promotions,

and so forth

? ?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

32/124

32

Tools and Strategies for OptimizationTools and Strategies for Optimization

Network Design

Inventory Control

Information System Systems

Outsourcing and Procurement Strategies

? ?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

33/124

33

ISSUES: Network DesignISSUES: Network Design

The structure of the distribution network

Pick the optimal number, location, and size of

warehouses and/or plants

Determine optimal sourcing strategy

?Which plant/vendor should produce which product

Determine best distribution channels

?Which warehouses should service which customers

? ?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

34/124

34

Network DesignNetwork Design

The objective is to balance service level against

Production/ purchasing costs

Inventory carrying costs

Facility costs (handling and fixed costs)

Transportation costs

That is, we would like to find a minimal-annual-costconfiguration of the distribution network that satisfies productdemands at specified customer service levels.

? ?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

35/124

35


Cost Trade-Off for BuyPC.com

$0

$2$4$6$8

$10$12$14$16$18$20

0 5 10 15

Number of DC's

Cost($million Total Cost

Inventory

Transportation

Fixed Cost

DirectDirect--toto--ConsumerConsumer

? ?The Impact of Increasing the NumberThe Impact of Increasing the Number

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

36/124

36

The Impact of Increasing the NumberThe Impact of Increasing the Number

of Warehousesof Warehouses

Improve service level due to reduction of averageservice time to customers

Increase inventory costs due to a larger safety stock

Increase overhead and set-up costs

Reduce transportation costs in a certain range

?Reduce outbound transportation costs

?Increase inbound transportation costs

? ?

Minimize the cost of your logistics network withoutMinimize the cost of your logistics network without

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

37/124

37

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

0 2 4 6 8 10Number of Warehouses

Cost(millions$)

Total Cost

Transportation Cost

Fixed Cost

Inventory Cost

Minimize the cost of your logistics network withoutMinimize the cost of your logistics network without

compromising service levelscompromising service levels

Opt imalNumber

of War ehouses

? ?Industry Benchmarks:Industry Benchmarks:

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

38/124

38

yy

Number of Distribution CentersNumber of Distribution Centers

Avg.# of

WH 3 14 25

Chemicals Food Companies Pharmaceuticals

- High margin product- Service not important (or

easy to ship express)- Inventory expensive

relative to transportation

- Low margin product- Service very important

- Outbound transportationexpensive relative to inbound

? ?

N t k D iN t k D i

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

39/124

39


? ?Displaying the Solutions Allows you ToDisplaying the Solutions Allows you To

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

40/124

40

p y g yp y g y

Compare ScenariosCompare Scenarios

? ?

A Typical Network Design ModelA Typical Network Design Model

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

41/124

41

A Typical Network Design ModelA Typical Network Design Model

Several products are produced at several plants.

Each plant has a known production capacity.There is a known demand for each product at each customer

zone.

The demand is satisfied by shipping the products via regionaldistribution centers.

There may be an upper bound on total throughput at eachdistribution center.

? ?Heuristics andHeuristics and

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

42/124

42

the Need for Exact Algorithmsthe Need for Exact Algorithms

Table 1

Distribution costs per unitFacility

WarehouseP1 P2 C1 C2 C3

W1W2

05

42

32

41

52

? ?

What is the LP?What is the LP?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

43/124

43


kjx

jix

wm

jk

pw

ij

markettowarehousefromflowthe

warehousetoplantfromflowthe

:Let

?

?

? ?


7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

44/124

44


negative-nonflowsAll

000,50

000,100

000,50

000,60

s.t.

225

432450:min

2,23,1

2,22,1

1,21,1

3,22,21,22,22,1

3,12,11,11,21,1

2,21,2

3,21,23,1

2,11,12,21,22,11,1

??

??

??

????

????

??

???

?????

wmwm

wmwm

wmwm

wmwmwmpwpw

wmwmwmpwpw

pwpw

wmwmwm

wmwmpwpwpwpw

xx

xx

xx

xxxxx

xxxxx

xx

xxx

xxxxxx

? ?

The Optimal StrategyThe Optimal Strategy

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

45/124

45

The Optimal StrategyThe Optimal Strategy

Table 2

Distribution strategy

Facility

Warehouse

P1 P2 C1 C2 C3

W1

W2

140000

0

0

60000

50000

0

40000

60000

50000

0

The total cost for the optimal strategy is 740,000.

? ?BuyPC.com Case Study:BuyPC.com Case Study:

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

46/124

46

Current NetworkCurrent Network

I nbound: $ 851,000

Out bound: $ 2,930,000I nv Cost : $ 13,291,000

WH Fixed: $ 1,875,000

Total: $18,947,000

? ?BuyPC.com Case Study:BuyPC.com Case Study:

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

47/124

47

Optimal NetworkOptimal Network

I nbound: $ 783,000

Out bound: $ 5,900,000I nv Cost : $ 7,679,000

WH Fixed: $ 625,000

Total: $14,987,000

$4 Million Savings

? ?

ISSUES: Inventory controlISSUES: Inventory control

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

48/124

48

ISSUES: Inventory controlISSUES: Inventory control

when should a resource (material, machine or labor) be

put in inventory and taken out of inventory;

where should a resource be stored

? ?

ISSUES:ISSUES: Inventory ManagementInventory Management

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

49/124

ISSUES:ISSUES: Inventory ManagementInventory Management

What should be the order quantity (Q)?

When should an order be placed, called a reorder point

(ROP)?

How much safety stock (SS) should be maintained?

? ?

ISSUES: Why Keep Inventory?ISSUES: Why Keep Inventory?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

50/124

50

ISSUES: Why Keep Inventory?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

? ?

The Inventory CycleThe Inventory Cycle

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

51/124

51

The Inventory CycleThe Inventory Cycle

Profile of Inventory Level Over Time

Quantity

on hand

Q

Receiveorder

Placeorder

Receiveorder

Placeorder

Receiveorder

Lead time

Reorderpoint

Usagerate

Time

? ?

Graph of Annual Inventory CostsGraph of Annual Inventory Costs

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

52/124

52

p yp y

? ?

EOQ Model EquationsEOQ Model Equations

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

53/124

53

Optimal Order Quantity

Expected Number of Orders

Expected Time Between Orders Working Days / Year

Working Days / Year

= =

= =

= =

=

=

Q*

D S

H

ND

Q*

T

N

dD

ROP d L

2

DD = Demand per year= Demand per year

SS = Setup (order) cost per order= Setup (order) cost per order

HH= Holding (carrying) cost= Holding (carrying) cost

dd= Demand per day= Demand per day

LL = Lead time in days= Lead time in days

Q qQ q

? ?

ISSUES:ISSUES: IInformation Systemsnformation Systems

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

54/124

54

Internet and WWW facilitate easy links between

organizations.Electronic data interchange and electronic fundstransfer enables electronic commerce.

Application of new computer and communicationtechnologies can reduce paperwork, lead-time,

inventory, and non-value-added activities.

? ?

Information Systems in SCMInformation Systems in SCM

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

55/124

55

Information sharing

Electronic data interchange

Process Sharing

Advanced production planning and scheduling

? ?

Information Sharing

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

56/124

56

g

Traditional

Business Model

E-Commerce

Business ModelAll elements of the business communicate.

Decisions made at the most effective level.

Information Decisions

C.E.O

Mgmt.Design

Production

ServiceClerical

? ?

Goals of SCM ISGoals of SCM IS

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

57/124

57

Collect data from delivery or purchase point to provide

complete visibility for all parties involved in supplychain.

Access any data in the system from a single point ofcontact.

Analyze, plan activities, and make trade-offs based on

information from the entire supply chain.

? ?

Single Point of Contact

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

58/124

58

g

Single-

Point-of-

Contact

Demand planner Sales representative

Accountant

Service representativeOperations manager

Customer

? ?

Driving Supply Chain EfficiencyDriving Supply Chain Efficiency

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

59/124

59

? Automate All Internal Business Processes

? Extend Automation Across Your Supply Chain

? Drive Continuous Improvement With Better Information

CustomersSuppliers Your Company

Internet Internet

? ?

1. Disparate1. DisparateS tSystems

2.2. Limited PartnerLimited PartnerC i tiC i ti

3. FragmentedReporting

Obstacles:

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

60/124

60

SystemsSystems

Cust

omer

Supp

lier

CommunicationCommunication Reporting

Call CenterCall Center

Siebel

ProductProductInfoInfo

AdvancedAdvancedPlanningPlanning

i2


TransportationTransportation

G-Log


BarcodingBarcoding

ClearOrbit


SourcingSourcing

Commerce One


ServiceService

ExecutionExecution

FieldCentrix


eProcurementeProcurement

Ariba


PlantPlantMaintenanceMaintenance

Indus


WarehousingWarehousing

Manhattan


Web StoreWeb Store

Broadvision


Core ERPCore ERPProduct/Product/CustomerCustomer

InfoInfo

? ?

1. Disparate1. DisparateSystemsSystems

2. Limited Partner2. Limited PartnerCommunicationCommunication

3. FragmentedReportingObstacles:

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

61/124

61

SystemsSystems

Cust

omer

Supp

lier

CommunicationCommunication Reporting

Call CenterCall Center

Siebel


AdvancedAdvancedPlanningPlanning

i2


TransportationTransportation

G-Log


BarcodingBarcoding

ClearOrbit


SourcingSourcing

Commerce One


ServiceService

ExecutionExecution

FieldCentrix


eProcurementeProcurement

Ariba


PlantPlantMaintenanceMaintenance

Indus


WarehousingWarehousing

Manhattan


Web StoreWeb Store

Broadvision


Core ERPCore ERPProduct/Product/CustomerCustomer

InfoInfo

? ?

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

62/124

62

Overcoming theOvercoming the

ObstaclesObstacles

? ?

Automate All Business ProcessesAutomate All Business ProcessesWith Unique EWith Unique E--Business ArchitectureBusiness Architecture

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

63/124

63

All Product,

Customer,

& Supplier

Information PlanPlan

OrderOrder

HRHR

FinanceFinance

SourceSource

SellSell

ServiceService

ProjectsProjects

ProcureProcure

MarketMarket

FulfillFulfill

MaintainMaintain

ManufactureManufacture

DevelopDevelop

Built on a Single, CompleteData Model

End-to-End ProcessIntegration

Modular Deployment byBusiness Flow

Based on Open Standards

qq

? ?

Extend AutomationExtend Automation

Across Your Supply ChainAcross Your Supply Chain

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

64/124

64

YourCompanySuppliers Customers

Sell / OrderSell / Order

PlanPlan

ProcureProcure

ManufactureManufacture

FulfillFulfill

ServiceService

OutsourcedOutsourcedManufacturingManufacturing

Negotiations,Negotiations,Contracts, Execution,Contracts, Execution,

PaymentsPayments

Orders, Prices,Promise Dates,

Billing, Payments

Drop Ship,Drop Ship,Carrier MgmtCarrier Mgmt

Service Requests,Service Requests,WarrantiesWarranties

SparesSparesReplenishmentReplenishment

Sales and Order Forecast,Supply Commits

Sales and Order Forecast,Supply Commits

Order Status

ProjectsProjects

Bill Presentmentand Payment

Schedule,Schedule,Status, CostStatus, Cost

Schedule,Schedule,ContractsContracts

Across Your Supply Chainc oss ou Supp y C a

Product Specs.

? ?

Deliver RealDeliver Real--Time Business IntelligenceTime Business Intelligence

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

65/124

65

Design

Planning

Purchasing

Manufacturing

Fulfillment

Sales

Finance

GraphsGraphs

AnalysisAnalysis

PersonalPersonalHome PageHome Page ReportsReports

Role BasedIntelligence

Pre-BuiltPortals

Performance Performance

Measures Measures

UnifiedDashboard

PerformancePerformance

MeasuresMeasures

? ?Competitive Information SystemCompetitive Information SystemFederal ExpressFederal Express

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

66/124

66

FedExlets you access information about your

packages through your Internet connection and Webbrowser.

First mover - the company who is first to market witha new IT-based product or service.

Distribution chain - the path followed from the

originator of a product or service to the end consumer.Alliance partner - a company you do business with

on a regular basis in a cooperative fashion, usually

facilitated by IT systems.

? ?Competitive Information SystemCompetitive Information SystemFederal ExpressFederal Express

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

67/124

67

Enter your trackingEnter your trackingnumber here.number here.

? ?ISSUES: Outsourcing and procurementISSUES: Outsourcing and procurement

strategiesstrategies

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

68/124

68

What to Purchase

- In-house production Vs. external suppliersWhere to purchase

- Domestic Vs. international

From whom to purchase

- Cost

- Reliability: quality and on time delivery

- Availability and flexibility

? ?ISSUES: Outsourcing andISSUES: Outsourcing and

procurement strategiesprocurement strategies

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

69/124

69

Centralized Vs. Decentralized

Number of suppliers:

Single sourcing Vs. Multiple sourcing

Supply contracts

? ?

Outsourcing and Global SourcingOutsourcing and Global Sourcing

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

70/124

70

Outsourcing is the process of contracting with

external suppliers for goods and services thatwere formally provided internally.

Global sourcing is an important aspect of supply

chain outsourcing strategy and we see it occurring

more and more.

? ?

Primary Reasons Outsourcing OccurringPrimary Reasons Outsourcing Occurring

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

71/124

71

The advent of telecommunications and computertechnology that physically allowed work thatpreviously had to be done locally or regionally tonow be conducted overseas.

Outsourcing in general is a major strategic element

of SCM these days, not just for productionmaterials but for a wide range of services as well.

? ?

Supplier Selection and Vendor AnalysisSupplier Selection and Vendor Analysis

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

72/124

72

Characteristics of a good supplier are:

?

Deliveries are made on time and are of the qualityand in the quantity specified.

?Prices are fair, and efforts are made to hold orreduce the price.

? Able to react to unforeseen changes.

?Supplier continually improves products andservices.

?Supplier is willing to share information and be animportant link in the supply chain.

? ?

Supplier RelationshipsSupplier Relationships

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

73/124

73

In the past, most customers purchased from the lowest

bidders who could meet their quality and delivery

needs.

Customers are seeking a closer, more cooperative

relationship with their suppliers.

? ?

PurchasingPurchasing

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

74/124

74

Activities to reliably obtain materials by the time

they are needed in the product supply process.Important considerations include price, quality,lead times, and reliability.

Manufacturing organizations spend an average of55 percent of revenue for outside materials and

services.

? ?Potential for Lowering Cost andPotential for Lowering Cost and

Increasing ProfitsIncreasing Profits

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

75/124

75

Total sales = $10,000,000

Purchased materials = 7,000,000

Labor and salaries = 2,000,000

Overhead = 500,000

Profit = 500,000

? ?

JIT and PurchasingJIT and Purchasing

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

76/124

76

Widespread use of JIT has increasedimportance of purchasing and procurement

since delays in the receipt of materials will

stop a JIT program dead in its tracks.

? ?

Value AnalysisValue Analysis

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

77/124

77

A special responsibility of purchasing, or purchasing

working jointly with engineering/design and operations

(and sometimes even the supplier), is to regularly

evaluate thefunction of purchased items or services,

especially those that are expensive or used in high

volumes.

The goal is to either reduce the cost of the item orimprove its performance.

? ?

Key Elements of Effective PurchasingKey Elements of Effective Purchasing

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

78/124

78

They leverage their buying power.

They commit to a small number of dependablesuppliers.

They work with and help their suppliers reduce total

cost.

? ?

UncertaintyUncertainty

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

79/124

79

What is variation?

What is randomness?

What tools and approaches help us to

deal with these issues?

? ?Why Is Uncertainty Hard to DealWhy Is Uncertainty Hard to Deal

With?With?

M hi l d d d i diffi l

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

80/124

80

Matching supply and demand is difficult.

Inventory and back-order levels typically fluctuatewidely across the supply chain.

Forecasting doesnt solve the problem.

?Forecasting is always wrong

?

The longer the forecast horizon the worse the forecast

? ?Why Is Uncertainty Hard to DealWhy Is Uncertainty Hard to Deal

With?With?

D d i t th l f t i t

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

81/124

81

Demand is not the only source of uncertainty:

?

Lead times?Manufacturing Yields

?Transportation times

?Natural Disasters

?

Component Availability

? ?

Dynamics of the Supply ChainDynamics of the Supply Chain

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

82/124

82

Ord

erSize

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

Customer

Demand

Retailer OrdersDistributor Orders

Production Plan

? ?

What Management Gets...What Management Gets...

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

83/124

83

Ord

erSize

Time


Customer

Demand

Production Plan

? ?

What Management WantsWhat Management Wants

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

84/124

84

Volumes

Time


Production PlanCustomer

Demand

? ?

What are the CausesWhat are the Causes..

Promotional sales

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

85/124

85

Promotional sales

Volume and Transportation discounts

?Batching

Inflated orders

?Play Station orders increased by 2-3 times whenretailers thought that Play Station would be out of

stock over Christmas?Same with Motorolas Cellular phones

Demand Forecast

Long cycle times

Lack of Visibility to demand information

? ?

ConsequencesConsequences..

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

86/124

86

Increased safety stock

Reduced service level

Inefficient allocation of resources

Increased transportation costs

? ?

Dealing with UncertaintyDealing with Uncertainty

Pull Systems

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

87/124

87

Pull Systems

PostponementRisk Pooling & Centralization

Strategic Alliances/Collaborative

? ?Dealing with UncertaintyDealing with UncertaintyPushPush--Pull SystemPull System

Push System

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

88/124

88

Push System

?Production decisions are based onforecast

? ?

From MakeFrom Make--toto--Stock ModelStock Model..

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

89/124

89

ConfigurationAssemblySuppliers

? ?

Demand ForecastDemand Forecast

The three principles of all forecasting techniques:

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

90/124

90

The three principles of all forecasting techniques:

?Forecasts are always wrong?The longer the forecast horizon the worst is the

forecast

?Aggregate forecasts are more accurate

?The Risk Pooling Concept

? ?

A new Supply Chain ParadigmA new Supply Chain Paradigm

A shift from a Push System...

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

91/124

91

a Sy

?Production decisions are based on forecast

to a Push-Pull System

? ?

PushPush--Pull Supply ChainsPull Supply Chains

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

92/124

92

Push-PullBoundary

PUSH STRATEGY PULL STRATEGY

Low Uncertainty High Uncertainty

The Supply Chain Time Line

CustomersSuppliers

? ?

A new Supply Chain ParadigmA new Supply Chain Paradigm

A shift from a Push System...

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

93/124

93

y

?Production decisions are based on forecast

to a Push-Pull System

?Parts inventory is replenished based on forecasts

?Assembly is based on accurate customer demand

? ?

..to Assembleto Assemble--toto--Order ModelOrder Model

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

94/124

94

ConfigurationAssemblySuppliers

? ?

Organizational Skills NeededOrganizational Skills Needed

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

95/124

95

RawMaterial Customers

PullPush

Low Uncertainty

Long Lead Times

Cost Minimization

Resource Allocation

High Uncertainty

Short Cycle Times

Service Level

Responsiveness

? ?

Dealing with UncertaintyDealing with Uncertainty

Postponement StrategyPostponement Strategy

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

96/124

96

Postpone the point of committing semi-finished products

to customer specific requirements

Product postponement occurs in two ways:

?Manufacturing PP: Changes in form and identityoccur at the latest possible point in the SCN

?Logistics PP: Changes in inventory location occur at the

latest possible point in time

? ?

Example for a Postponement StrategyExample for a Postponement Strategy

Making Sweaters

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

97/124

97

Making Sweaters

?three major stages?Dyeing, knitting and distribution

Reverse Dyeing and Knitting

?make clothes without colour

?apply colour when a customer order is received?colours match the movement of the market - dye just

in time

? ?

Postponement:Postponement: ExampleExample

Demand for black t-shirts

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

98/124

98

?50% probability 100

?50% probability 200

Same for white t-shirts

Production alternatives

?

Produce 150 of each color ahead of time?Produce 300 which can be dyed after demand is

observed

? ?

Postponement:Postponement: ExampleExample

?First Alternative

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

99/124

99

?25% probability -- short 50 of each

?25% probability -- extra 50 of each

?50% probability -- short 50 of one, extra 50 of the

other

?

Second Alternative?25% probability -- short 50 of each

?25% probability -- extra 50 of each

?50% probability -- no shortage or extra

? ?

Postponement:Postponement: Key ConceptsKey Concepts

Delay differentiation of products in the same family as

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

100/124

100

late as possible

Enables the use of aggregate forecasts

Enables the delay of detailed forecasts

Reduces scrapped or obsolete inventory, increases

customer service

May require new processes or product design with

associated costs

? ?

Product Postponement (cont.)Product Postponement (cont.)

Advantages of PP:

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

101/124

101

Hedge against uncertain customer demandReduce inventory holding cost

Reduce Logistics/Warehousing costs

Minimize imbalance in stock distribution

? ?

Relation to a Customer Commit PointRelation to a Customer Commit Point

The Customer Commit Point is a function of lead time

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

102/124

102

Postponement Strategies are a function of the productstructure and/or material flow structure

Postponement tries to delay as much Added Value

behind the CCP

? ?

How is Postponement Realised?How is Postponement Realised?

Postponement is realised through:

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

103/124

103

?

Manufacturing Lead Time reduction?Reduced Set Up Times

?etc..

?Re-design of manufacturing process

?Define generic base for product range

?Identify customer specific actions and put them at the end

of the Manufacturing Process

? ?

Postponement ConsiderationsPostponement Considerations

Tradeoff increased product cost with decreased

i t

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

104/124

104

inventory

Need to decide where to postpone - the push-pull

boundary

Inventory value may increase

? ?

ISSUES:ISSUES: Collaboration and CoordinationCollaboration and Coordination

Individual objectives of different functional units within

fi j di ll ffi i

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

105/124

105

a firm may jeopardize overall efficiency

Manufacturing: Long production runs

Procurement: Lowest procurement costs

Marketing: Infinite assortments

Finance: Low inventories

Logistics: Full Truck Loads

? ?Sequential Optimization vs.Sequential Optimization vs.Global OptimizatioGlobal Optimizationn

Sequential OptimizationSequential Optimization

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

106/124

106

ProcurementPlanning



Demand

Planning

ProcurementPlanning



Demand

Planning

ProcurementPlanning



Demand

Planning


Procurement

Planning

Manufacturing

Planning

Distribution

Planning

Demand

Planning

Global Optimization


Procurement

Planning

Manufacturing

Planning

Distribution

Planning

Demand

Planning


Procurement

Planning

Manufacturing

Planning

Distribution

Planning

Demand

Planning

Global Optimization

? ?

Collaborative SCM systems are designed tosupport enhanced information sharing and

ISSUES:ISSUES: Collaboration andCollaboration andCoordinationCoordination

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

107/124

107

support enhanced information sharing and

collaborative planning among partners in aneffort to reduce information asymmetries in thesupply chain, which contributes to the bullwhipeffect and result in excess inventories

? ?

Collaboration and Coordination (cont.)Collaboration and Coordination (cont.)

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

108/124

108

Information Sharing (Transparency) usingSCM/ERP Solutions

B2B Markeplaces

? ?

NGM (Next Generation Manufacturing)NGM (Next Generation Manufacturing)

FrameworkFrameworkN G M

C o m p a n y

StrategicMater ia ls N e e d s

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

109/124

109

N G MPartners

& Suppl i er s

N G MC u s t o m e r

StrategicVis ion/Coals /

Objec t i ves /Pr i nc ip les

People , Bus inessProcesses, &T echno l ogy

Met r ic s of Suc cess

for theEx ten ded En t er pr i s e

Mater ia ls

Serv i ces

In fomat ion

R e s o u r c e s

N e e d s

Se r v i c e s

In fo rmat ion

R e s o u r c e s

Results Resul

ts

Metr ics

Resul ts

Va l ue - Add i ng

P r o c e s s e s

Metr ics

R e s o u r c e s

NGM Requirements:

1) Responsiveness (market, resources) and teaming within a Mfg Company2) Sharing of knowledge and resources with other NGM Companies

3) Collaboration and integration among NGM Companies

? ?

Successful Supply Chain ManagementSuccessful Supply Chain Management

The basic requirements for successful supply chain

management are trustworthy partners good

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

110/124

110

management are trustworthy partners, good

communication, appropriate performance measures,and competent managers with vision.

? ?Examples of Visionary SCMExamples of Visionary SCMInnovationsInnovations

Dells direct model and Palms strategicsourcing.

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

111/124

111

g

? Wal-Marts cross-docking technique of off-loading goods from incoming trucks at awarehouse directly into outbound distributiontrucks instead of being placed into inventory.

? delayed differentiation where final modules areeither inventoried for last-minute assembly tocustomer order, or differentiating features areadded to the final product upon receipt of the

customers order.

? ?Examples of Visionary SCMExamples of Visionary SCMInnovations (cont.)Innovations (cont.)

Hewlett-Packards postponement approach todelayed differentiation where variety and

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

112/124

112

delayed differentiation where variety and

customization is delayed until as late in the

production process as possible, sometimes even

arranging with the carrier to perform the final

customization (calledchannel assembly).

? ?Examples of Visionary SCM InnovationsExamples of Visionary SCM Innovations --

PalmPalm Inc.Inc.

During the year 2000, Palm Inc. was selling every

PDA (computerized Personal Digital Assistant) that

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

113/124

113

PDA (computerized Personal Digital Assistant) that

wasnt nailed down.In the last few years, Palm has developed a strategic

supply chain management function.

They have gone from doing business with hundreds of

suppliers to developing deep relationships with only afew suppliers

? ?Examples of Visionary SCM InnovationsExamples of Visionary SCM Innovations-- Palm Inc. continuedPalm Inc. continued

The secret to driving the cost so low was workingclosely with their suppliers to hit tight cost targets

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

114/124

114

closely with their suppliers to hit tight cost targets

for the display, the processor, the memory, thebattery, and the mechanicals.

The result of their new strategic emphasis on

supply chain management has been a 20-30percent reduction in materials costs and a 27percent reduction in overall costs, an increase ininventory turns from 3 to 22, and a 30 percentincrease in profit margins.

? ?

B2B Networks and Private ExchangesB2B Networks and Private Exchanges

B2B Online Marketplaces

Private Exchanges

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

115/124

115

Private Exchanges

?HP

?Ace Hardware

?IBM

? ?

B2B Online Internet MarketplacesB2B Online Internet Marketplaces

When the Internet revolution began, a number of

organizations rushed to establish B2B online

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

116/124

116

g

marketplaces for entire industries including steel,automobile manufacturing, and electronics.

More recently, however, a number of firms including

HP, IBM, and Wal-Mart created their ownprivateexchanges (also called corporate marketplaces).

? ?B2B Online Internet MarketplacesB2B Online Internet Marketplacescontinuedcontinued

These links allow the parties to collaborate andmanage the supply chain in real time.

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

117/124

117

g pp y

Ace's motivation for the development of its systemwas the desire to manage its inventory moreefficiently and be able to collaborate with

suppliers in real time.

? ?B2B Online Internet MarketplacesB2B Online Internet Marketplacescontinuedcontinued

Ace used its supply chain management softwareto link the computer systems located in its 14

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

118/124

118

p y

distribution centers with nine suppliers.

Ace 's system provides links to over 20,000 of itssuppliers.

Ace further estimates that it realized almost $400million in savings that year due to the increasedefficiency of its Web-based procurement system.

? ?

ConclusionsConclusions

Traditional waySCM involves each

organization managing their portion of the

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

119/124

119

ga a a ag g p

supply chain and monitoring their partners toensure they fulfill their contractual obligations

? ?

ConclusionsConclusions (Cont(Contd)d)

Problembullwhip effect, the uncertainty indemand and lead times cause order sizes and

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

120/124

120

lead times

leading to excessive and obsoleteinventory to prevent stock outs

? ?


Supply chain optimization/coordination focuses

on making decision that reduce the information

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

121/124

121

g

asymmetry and resulting excess inventory in thesupply chain

? ?


In order to optimize the entire supply network

and not just create local optima in one or two

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

122/124

122

j p

partners, the organizations are increasinglydeveloping strategic partnerships with their

suppliers and customers in an effort to reduce

waste in the procurement and order fulfillment

processes

? ?


Collaborative SCM goes beyond mere

exchanging and integrating information

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

123/124

123

g g g g

between suppliers and their customers, andinvolves tactical joint decision making among

the partners in the areas of collaborative

planning, forecasting, distribution, and product

design

? ?


Benefits of Collaborative SCMreduce waste

in supply chain; increased responsiveness;

7/31/2019 94c04e0c-e709-42fb-9529-1b62f7a5725d

124/124

124

customer satisfaction and competitivenessamong all members of partnership

Documents

94c04e0c-e709-42fb-9529-1b62f7a5725d