Supply Chain Basics Supply Chain Management IEEM 341 Fall, 2004 Dr. Lu

Outline Syllabus of the class The definition of supply chain and supply chain management The layout of this course The goal of this this course Read: Chapter 1 and chapter 3

Syllabus of IEEM 341 Instructor: Dr. Xiangwen Lu –Phone: –Office: Room – Tentative office hours: –Tuesday 10-12, Thursday 10-12, by appointment, drop by Teaching assistant: Mr. Miao Zhaowei, E- mail:

Tentative Schedule (1) Basic Picture about SCM –Week 1-2: Introduction of Supply Chain Management –Week 3: The Strategic fit and scope; play the beer game –Week 4: The bullwhip effect

Tentative Schedule (2) Demand Forecasting and planning –Week 5-6, demand forecasting –Week 7: Aggregate Planning and Forward Buying Managing the material flow –Week 8-11: Joint replenishment, forward buying, risk-pooling, postponement, tailored sourcing –Week 12: Network design and transportation

Tentative Schedule (3) Managing the information flow –Week 4: The bullwhip effect –Week 8: Guest speakers: the supply chain management in the internet age –Week 10: Risk pooling, postponement –Week 13: e-business Managing the financial flow –Week 13: Supply chain coordination: buy back, discount and rebate

Textbook and Reference Textbook –Chopra and Meindl : Supply chain management, second edition, Prentice Hall. Reference –Nahmias: Production and operation analysis, Irwin. –Thomas: Quantitative methods for business studies, Prentice Hall

Grade Distribution Homework 30% Mid-term 35% Final project 30% Class participation 5% Project –Finding a supply chain and provide detailed analysis for the current practice and for the recommendations

Why SCM hot now? 1970, Quality 1980, lean manufacturing 1990 and beyond, SCM –The Increased complexity of supply chain Emergence of global supply chain More demanding customers Shorter production lifecycles Outsourcing, decentralized control and more… –Feasibilities radical improvement in information technology and communication capabilities

Definition of Supply Chain A Network of facilities including Material supply from the suppliers Transformation of materials to finished products Distribution of finished products to the customer As well as associated information flow and financial flow

P &G Product of Detergent Detergent manufacturer P&S Supermarket P&S or third party DC Customer wants detergent and goes To Supermarket Plastics Producer Chemical Manufacturer (e.g. Oil Company) Packaging Firm Paper Manufacturer Timber Industry Chemical Manufacturer (e.g. Oil Company) ManufacturerWholesalerRetailerCustomer Supplier

Dell Computer Website or Phone Dell Assembly Plant Customer wants To buy computer Master Board Hard disk SRAM Direct Shipment Customer’s Order

Different Names Supply network, supply network management Demand chain, demand network management, demand network integration Value chain, value chain management

Supply Chain Flows Capacity, promotion plans, delivery schedules Raw materials, in-process products, finished goods Credits, payment terms, invoices Information Material Finance Sales, orders, inventory, quality, promotion plans Returns, repairs, servicing, recycling, disposal Payments, consignment Information Material Finance SuppliersmanufacturerDistributorsResellersCustomers

Structures and Players Basic supply chain structure –Serial, Distribution and Assemble Players/Echelons –Supplier –Manufacturer –Distributor/Wholesaler –Retailer

Serial Supply Chain Boxes=Inventory/process locations Arrows=product flows Supplier Wholesaler Retailer

Distribution Network Supplier Wholesaler Retailer

Assembly Network Supplier Manufacturer

What Is SCM SCM is the systematic coordination of activities/processes that procure, produce and deliver products and/or service in a manner that maximizes value to the end customer

Goal of SCM Maximize the overall value generated in the chain Generate cost savings and better customer service over the entire supply chain Ideal: –Have the right product –In the right amount –At the right place –At the right time –At the least cost

SCM v.s. Logistics Logistics –Transportation, inventory management, material management and purchasing –Functional area (s) within a firm SCM –Accomplish logistics task from a chain’s perspective –Seeking strategic advantage by coordinating logistics activities among firms in the supply chain –Creative use of technology, reallocation decision rights, reconfiguring the supply chain network

Pampers Pampers is diaper produced by Procter and Gamble The consumers are babies –They consume the product at pretty steady rate

Bullwhip Effect Example (P & G) Lee et al., 1997, Sloan Management Review

Bullwhip Effect The variability is amplified when we move up along the chain Demand Orders by the retailer Orders by the manufacturer

Ways to Reduce Bullwhip Effect Good demand forecasting –We will discuss how to make good forecasting based on known information Information sharing –Value of information sharing and VMI will be addressed –E-biz will be discussed Coordination –Several kinds of mechanism to coordinate the chain will be introduced

Course Layout Demand forecasting Managing the flow of material –Inventory, transportation and network design The role of information and technology –Value of information sharing, e-business, e- commerce Managing relationship: coordination and integration –Outsourcing, partnership, incentives, contracts

Different Distribution System Central warehousing Cross-docking Direct shipment

Recent Successful Innovations Cross docking –Wal-Mart Direct Shipments –Amazon.com, Dell, eBay Vendor managed inventory (VMI) programs –Wal-Mart and Procter & Gamble Postponement –Hewlett-Packard Assemble to order –Dell Dynamic pricing –eBay (bid), IBM and airlines

Course Objectives Questions –Why are these innovations successful? –Can they be simply copied by other company? –Are there any theory or guidelines? –Can we innovate too? We are trying to answer these questions by –Studying the basic concepts and theory –Listening to guest speaker –Analyzing the case A bigger goal: a way of thinking

Summary What is supply chain What is supply chain management (SCM) Bullwhip effect Successful innovations Course layout and course goal Next week –The drivers for the performance of the supply chain –The basic facts and their implications in the supply chain management