supply chain mgt (4)

8/3/2019 Supply Chain Mgt (4)

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External

Suppliers

Internal

Functions

External

Distributors

INFORMATION

Supply Chain: a network of activities that deliver a finished

product or service to the customer.

The connected links of external suppliers, internal

processes, and external distributors.

E-Commerce, Logistics and Supply Chain Management


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Logistics

The process of planning, implementing, andcontrolling the efficient, cost-effective flow and

storage of goods, services, and related

information, from point of origin to point of

consumption, for the purpose of conforming tocustomer requirements.

Components of an Integrated Logistics System

External Supply: links suppliers to operations process

Internal Operations: manages in-process material

flow

Physical Distribution: links operations process to

customers


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External Suppliers

External suppliers provide the necessary raw materials,services, and component parts.

Purchased materials & services frequently represent 50% (ormore) of the costs of goods sold.

Suppliers are frequently members of several supply chains often in different roles.

Tier one suppliers: Directly supplies materials or servicesto the firm that does business with the final customer

Tier two suppliers: Provides materials or services to tier

one suppliers Tier three suppliers: Providers materials or services to tier

two suppliers


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Developing a Supply Base

Criteria for Choosing Suppliers Cost: Cost per unit & transaction costs

Quality: Conformance to specifications

On-time delivery: Speed & predictability

Size of Supplier Pool: 1 or many per item

Partnering with Suppliers


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One Supplier per Item

May only be one practical source for the item Patent issues, geography, or quality considerations

The supply chain is integrated to support JIT or EDI

Making multiple suppliers impractical Availability of quantity discounts

Supplier may be more responsive if its guaranteed all

your business for the item

Contract might bind you to using only one supplier

Deliveries may be scheduled more easily


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Multiple Suppliers per Item

No single supplier may have sufficient capacity Competition may result in better pricing or service

Multiple suppliers spreads the risk of supply chaininterruption

Eliminates purchasers dependence on a singlesource of supply

Provides greater volume flexibility

Government regulation may require multiple

suppliers

Antitrust issues

Allows testing new suppliers without risking acomplete disruption of material flow


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Partnering with Suppliers

Involves developing a long-term, mutually-beneficial relationship:

Requires trust to share information, risk,

opportunities, & investing in compatibletechnology

Work together to reduce waste and inefficiency

& develop new products

Agree to share the gains


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Internal Functions

Vary by industry & firm, but might include:

Processing

Purchasing

Production Planning & Control

Quality Assurance

Shipping


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DistributionGetting the right material to the right place at

the right time in the right quantity:

Traffic Management:

The selection, scheduling & control of carriers (e.g.:

trucks & rail) for both incoming & outgoingmaterials & products

Distribution Management:

The packaging, storing & handling of products in

transit to the end-user.


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Formulas for Measuring Supply-Chain Performance

Inventory Turnover = Cost of goods sold .

Average aggregate inventory value

Weeks of Supply = Average aggregate inventory value

Cost of goods sold

(52 Weeks)


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Trends in Logistics Management

Increased awareness of strategic benefitsof integrated logistics management

Third-party logistics services

Just-in-time logistics

Environmental sensitivity

NOW: Supply chains create tremendous amounts of waste

material to protect goods in shipment and storage.

FUTURE: Distribution will use reverse logistics, the

recycling or proper disposal of cardboard, packing

material, strapping, shrink wrap, pallets, etc...


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Supply

Chain forMilk

Products


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Supply Chain Management

A philosophy that describes how organizations shouldmanage their supply chains to achieve strategicadvantage

The objective is to synchronize requirements of thefinal customer with the flow of materials andinformation along the supply chain to reach a balancebetween high customer service and low cost

Supply Chain Management entails: Coordinating the movement of goods and delivery of

services. Sharing information between members of the supply chain.

For example: sales, forecasts, promotional campaigns,and inventory levels.


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SCM: the need to reduce variability or the impact

of variability on the supply chain

Supply network variability late deliveries: weather,equipment breakdown

quality problems

Manufacturing process variability

machine reliability and equipment failure

changeovers / setups / part expediting

design and quality problems

Customer network variability cancellations and irregular orders

equipment failure

scheduling

Carrying safetyinventories are the

most common

approach to dealing

with variability


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Information Sharing

Supply chain partners can benefit by sharing

information on sales, demand forecasts,inventory levels & marketing campaigns

Inaccurate or distorted information leads to the

Bullwhip Effect

Typical Information Flow


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The bullwhip effect

Demand variability increases as you move up the supply chain from customers

towards supply

CustomerRetailerDistributorFactoryTier 1 SupplierEquipment


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Bullwhip effect in autos to machine tools

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

%c

hangeindemand

GDP = solid line

Source:Anderson, Fine and Parker (1996)

Autos Machine tools


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Bullwhip effect in the US PC supply chain

Semiconductor

1995 1996 1997 1998 1999 2000 2001

-40%

-20%

0%

20%

40%

60%

80%

PC

Semiconductor

Equipment

Changesin

demand

Semiconductor

1995 1996 1997 1998 1999 2000 2001

-40%

-20%

0%

20%

40%

60%

80%

PC

Semiconductor

Equipment

Changesin

demand

Annual percentage changes in demand (in $s) at three levels of the semiconductor

supply chain: personal computers, semiconductors and semiconductor manufacturing

equipment.


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Consequences of the bullwhip effect

Inefficient production or excessive inventory.

Low utilization of the distribution channel.

Necessity to have capacity far exceeding average demand.

High transportation costs.

Poor customer service due to stockouts.


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Causes of the bullwhip effect Order synchronization

Multiple retailers who tend to order around the same time period

Manufacturers responding to an MRP system that place raw material orders at

the beginning of the month

Order batching

In order to save on shipping or ordering costs, firms order a full pallet or full

truck load

Trade promotions and forward buying Supplier offers a discount on product ordered in a specific time period

Supplier offers a quantity discount

A retailer orders a large quantity intending to take advantage of a discount and

sells excess product to a second retailer (this strategy is called diversion)

Reactive and over-reactive ordering A retailer who is not sure that demand is stable over time may act aggressively

when faced with periods of lower or higher than expected demand

Shortage gaming

A retailer who wants to insure product from an under-capacitated supplier may

over order expecting to only receive a portion of the ordered quantity


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Strategies to combat the bullwhip effect

Information sharing:

Collaborative Planning, Forecasting and Replenishment (CPFR)

Smooth the flow of products

Coordinate with retailers to spread deliveries evenly.

Reduce minimum batch sizes.

Smaller and more frequent replenishments (EDI).

Eliminate pathological incentives

Every day low price

Restrict returns and order cancellations Order allocation based on past sales in case of shortages

Vendor Managed Inventory (VMI): delegation of stocking decisions


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Extraction Business

Component Manufacturer

Producer

Wholesaler

Retailer

Consumer

Material Refiner

Extraction Business

Component Manufacturer

Producer

Consumer

Material Refiner

Classic downstreamSupply Chain

DisintermediationOf Supply Chain

with E-Commerce

Future ChallengesHousehold Replenishment:

Fulfilling consumer demand at the point of use (the home).

Often called the last mile problem.

Freeze Point Delay (Postponement):

Last minute customization to

provide exactly what the

consumer wants while

maintaining very small

inventories


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Functional Activity % of sales

Administration 2.4Transportation :

Inbound 2.1

Outbound 4.3 6.4

Receiving and shipping 1.7Packaging 2.6Warehousing 3.7

Inventory carrying cost:

Interest 2.2Taxes, insurance, obsolescence 1.6 3.8

Order processing 1.2Total 21.8%

Functional Activity % of sales

Supply Chain and Logistical Costs


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Transportation and the Traveling Salesman Problem

The traveling salesman problem is a special network formulationsthat requires a heuristic solution for all but the smallest problems.

The object of the TSP is to find a network cycle that minimizes thetotal distance required to visit all nodes once.

The nearest neighbor procedure (heuristic)

1. Start with a node (location to be visited) at the beginningof the tour (the depot node).

2. Find the closest to the last node added to the tour.

3. Go back to step 2 until all nodes have been added.4. Connect the first and last nodes to complete the tour.


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Example: Use the following symmetric distance matrix to design a tour that minimizes

total distance traveled.

From To Node (in miles)

Node 1 2 3 4 5 61 - 5.4 2.8 10.5 8.2 4.1

2 5.4 - 5.0 9.5 5.0 8.5

3 2.8 5.0 - 7.8 6.0 3.64 10.5 9.5 7.8 - 5.0 9.5

5 8.2 5.0 6.0 5.0 - 9.26 4.1 8.5 3.6 9.5 9.2 -

Example: Use the following symmetric distance matrix to design a tour that minimizes


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TheC

lark and Wright Savings Heuristic

1. Select any node as the depot node (node 1)

2. Compute the savings, Sij , for linking nodes i and j:

Sij = c1i + c 1j - cij for i and j nodes 2,3,...,n

where cij = the cost of traveling from node i to node j3. Rank the savings from largest to smallest

4. Start at the top of the list, form larger subtours by linking

appropriate nodes i and j. Stop when complete tour is

formed.


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1

4

2

3

10 miles

Example

supply chain mgt (4)

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