Introduction to Supply Chain and Logistical

Management

Dr. Muhammad Saad MemonAsst. Professor, Department of Industrial Engineering and Management

• Flow of products and services from:

– Raw materials manufacturers

– Intermediate products manufacturers

– End product manufacturers

– Wholesalers and distributors and

– Retailers

• Connected by transportation and storage activities.

• Integrated through information, planning, and integration activities

• Cost and service levels

What is a Supply Chain?

• Supply chain management is a set of approaches utilized to

efficiently integrate suppliers, manufacturers, warehouses, and

stores, so that merchandise is produced and distributed at the

right quantities, to the right locations, and at the right time, in

order to minimize system wide costs while satisfying service

level requirements.

What is Supply Chain Management?

• The design and management of seamless, valueadded processacross organizational boundaries to meet the real needs of theend customer

Institute for Supply Management

• Managing supply and demand, sourcing raw materials andparts, manufacturing and assembly, warehousing and inventorytracking, order entry and order management, distribution acrossall channels, and delivery to the customer

The Supply Chain Council

What is Supply Chain Management? (Two Other Formal Definitions)

The SCM Network

• Every facility that impactscosts need to be considered– Suppliers’ suppliers

– Customers’ customers

• Efficiency and cost-effectiveness throughout thesystem is required– System level approach

• Multiple levels of activities– Strategic – Tactical –

Operational

Key Observations in SCM

• Supply chain strategy linked

to the Development Chain

• Challenging to minimize

system costs and maximize

system service levels

• Inherent presence of

uncertainty and risk

• Set of activities and processes associated with new product

introduction. Includes:

– product design phase

– associated capabilities and knowledge

– sourcing decisions

– production plans

The Development Chain

• Set of activities and

processes associated with

new product introduction.

Includes:

– product design phase

– associated capabilities and

knowledge

– sourcing decisions

– production plans

The Development Chain

Fig: The enterprise development and supply chain

• Geographically dispersed complex network

• Conflicting objectives of different facilities

• Dynamic system

– Variations over time

– Matching demand-supply difficult

– Different levels of inventory and backorders

• Recent developments have increased risks

– Lean production/Off-shoring/Outsourcing

Global Optimization

• New management paradigm for globally optimizing the Supply

Chain Optimization integration of material flow, information

flow and cash flow moving from suppliers to manufacturers to

distributors to retailers to customers, along a supply chain, in

order to fulfill customer’s need.

SC Optimization

Global Apparel Value Chain Tracing back the dress you are wearing

Global Apparel Value Chain Tracing back the dress you are wearing

• Logistics is the process of planning, implementing and

controlling the efficient, cost effective flow and storage of raw

materials, in-process inventory, finished goods and related

information from the point of origin to point of consumption for

the purpose of conforming to customer requirements.

Council of Supply Chain Management Professionals

Logistics

• Transportation/Transport

• Storage

• Loading/Unloading

• Packaging

• Operation for Distribution

• Information Management

• General Management

Functions in Logistics

• Forward Logistics: from factory to customer/market

• Reverse Logistics: from customer to factory/Warehouse

• Why Reverse Logistics is needed ?

– Received product is old-fashioned, mal-functioned, will be returned to

factory or supplier.

• System for Reverse Logistics:

– Using the existing logistics system or designing new depending on the

given situation system situation.

Reverse Logistics

• During whole product

Life-Cycle, considering

Sustainability.

• More details in Sustainable

SC chapter.

Green Logistics

• Costs are high– About 10.5% of GDP domestically

– About 12% of GDP internationally

– A range of 4 to 30% of sales for individual firms, avg. about 10%

– A high as 70-80% of sales if purchasing and production are included

• Customers are more demanding of the supply chain– Desire for quick response

– Desire for mass customization

• An integral part of company strategy– Generate revenue

– Improve profit

• Logistical lines are lengthening– Local vs. long distance supply

• Logistics is a key to trade and an increased standard of living– Law of comparative economic advantage applies

• Logistics adds value– Time and place utilities

Significance of Logistics

Scope of Business logistics

• Primary– Setting customer service goals

– Transportation

– Inventory management

– Location

• Secondary, or supporting– Warehousing

– Materials handling

– Acquisition (purchasing)

– Protective packaging

– Product scheduling

– Order processing

Key Activities/Processes

• Total Cost Approach

– Cost trade-offs: changes to one activity cause some costs to increase

and others to decrease

• Total Logistics Cost Concept: to find the lowest total cost that

supports an organization’s customer service requirements

Total Cost Approaches to Logistics

Relationship of Logistics to Marketing and Production

• Demand forecasting

• International logistics

• Materials handling

• Packaging

• Reverse supply chain

• Warehousing management

Activities in the SC and Logistical Channel

• Customer service

• Facility location decisions

• Inventory management

• Order management

• Procurement

• Transportation management

REASONS for Mismatching EXAMPLES

• Raw material shortages

• Internal and supplier parts shortages

• Productivity inefficiencies

Boeing Aircraft’s inventory write-down of $2.6 billion

Sales and earnings shortfall

Larger than anticipated inventories

Sales at U.S. Surgical Corporation declined 25 percent,

resulting in a loss of $22 million

Stiff competition Intel reported a 38 percent decline in quarterly profit

Higher than expected orders for new products over

existing products

EMC Corp. missed its revenue guidance of $2.66 billion

for the second quarter of 2006 by around $100 million

Uncertainty and Risk Factors in SC

Matching Supply and Demand is a Major Challenge

Fluctuations of Inventory and Backorders throughout the Supply Chain

Uncertainty and Risk Factors in SC

• Forecasting is not a solution

• Demand is not the only source of uncertainty

• Recent trends make things more uncertain

– Lean manufacturing

– Outsourcing

– Off-shoring

Uncertainty and Risk Factors in SC

• August 2005 – Hurricane Katrina– P&G coffee supplies from sites around New Orleans

– Six month impact

• 2002 West Coast port strike– Losses of $1B/day

– Store stock-outs, factory shutdowns

• 1999 Taiwan earthquake– Supply interruptions of HP, Dell

• 2001 India (Gujarat state) earthquake– Supply interruptions for apparel manufacturers

Uncertainty and Risk Factors in SC

Evolution of Supply Chain Management

• U.S. companies spend more than $1 trillion in supply relatedactivities (10-15% of Gross Domestic Product)– Transportation 58%

– Inventory 38%

– Management 4%

• The grocery industry could save $30 billion (10% of operating cost)by using effective logistics strategies.

• A typical box of cereal spends 104 days getting from factory tosupermarket.

• A typical new car spends 15 days traveling from the factory to thedealership.

Complexity: The Magnitude

• Compaq computer’s loss of $500 million to $1 billion in salesin one year

– Laptops and desktops were not available when and where customerswere ready to buy them

• Boeing’s forced announcement of write-downs of $2.6b

– Raw material shortages, internal and supplier parts shortages….

• Cisco’s multi-billion ($2.2b) dollar write-off of inventories in2001-2002

– Customers balked on orders due to market meltdown

Complexity: The Magnitude

• P&G’s estimated savings to retail customers of $65 million throughlogistics gains

• Dell Computer’s outperforming of the competition in terms ofshareholder value growth over more than two decades by over3,000% using:– Direct business model

– Build-to-order strategy

• Wal-Mart transformation into the world’s largest retailer bychanging its logistics system:– highest sales per square foot, inventory turnover and operating profit of any

discount retailer

Supply Chain: The Potential

Chain Global Optimization Managing Risk and

Uncertainty

Distribution Network Configuration Supply Y

Inventory Control Supply Y

Production Sourcing Supply Y

Supply Contracts Both Y Y

Distribution Strategies Supply Y Y

Strategic Partnering Development Y

Outsourcing and Offshoring Development Y

Product Design Development Y

Information Technology Supply Y Y

Customer Value Both Y Y

Smart Pricing Supply Y

Key Issues in Supply Chain Management

• Work with procurement managers and buyers to select products that are indemand and will sell.

• Negotiate and manage contracts with suppliers.

• Plan the best way to get goods from suppliers to distribution centers then on toretailers.

• Track shipments and stock levels using computer software.

• Work with retailers to make sure they receive their goods on time and in the rightcondition.

• Look at ways to improve supply chain networks.

• Monitor overall performance to make sure targets are being met.

• Prepare forecasts and inventories for reports to the company's management team.

• Recruit, train and manage a team of supply chain staff.

Responsibilities of SC Managers

SC Manager Job and Salaries (Data from USA)