1. Supply Chain Management

2. Supply Chain
The sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.
Supply chain connects suppliers, producers and final customers together in a tework that is essential to the creation and delivery of goods and services.
(Value chains are the chain of activities and functions WITHIN a single organization.)

3. Benefits of Supply Chain Management
Lower inventories
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty

4. Supply Chain Management (SCM)
The strategic coordination of the supply chain for the purpose of intergating supply and demand management.

5. Logistics
The part of a supply chain involved with the forward and reverse flow of goods, services, cash and information.
Movement within the facility
Incoming and outgoing shipments
Distribution

6. Facilities Warehouses Factories Processing centers
Distribution centers
Retail outlets
Offices …

7. Functions and Activities
Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Production and delivery
Customer service

8. Key issues of SCM Determinate the appropriate level of outsourcing
Managing procurement
Managing suppliers
Managing customer relationships
Being able to quickly identify and respond to problems
Managing risks and uncertainty

9. Typical Supply Chains Purchasing Receiving Storage Operations
Production
Distribution

10. Typical Supply Chain for a Manufacturer
Supplier
Storage }
Mfg.
Dist.
Retailer
Customer

11. A farm-to-market supply chain
Farm (wheat)
Suppliers: equipment, repair, feed, seed, fertilizer, pesticides, energy/fuel
Mill (flour)
equipment, repair, energy
Bakery (bread)
equipment, repair, energy, other ingredients
Supermarket (bread sold to the final customer)
T r a n s p o r t

12. Typical Supply Chain for a Service
Supplier }
Storage
Service
Customer

13. Supply chain and Cash flow
Goods and services
Cash flow
Reverse logistics
Suppliers
Consumers
Marketing
Customers
Production
Design
Logistics

14. Elements of Supply Chain Management
Deciding how to best move and store materials
Logistics
Determining location of facilities
Location
Monitoring supplier quality, delivery, and relations
Suppliers
Evaluating suppliers and supporting operations
Purchasing
Meeting demand while managing inventory costs
Inventory
Controlling quality, scheduling work
Processing
Incorporating customer wants, mfg., and time
Design
Predicting quantity and timing of demand
Forecasting
Determining what customers want
Customers
Typical Issues
Element

15. Global supply chains Product design Products sold globally
Outsourcing to low labor cost countries
Difficulties: language, culture, currency fluctuations, increased tratnsportation costs and lead time, increased need for trust

16. PROCUREMENT
Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service. Goal: to develop and implement purchasing plans for products and services that support operations strategies. Duties:
Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies
Purchasing cycle: series of steps that begin with a request for purchase and end with notification of shipment recieved in satisfactory condition.

17. Purchasing Cycle Requisition received Supplier selected
Legal
Accounting
Operations
Data
process-
ing
Design
Receiving
Suppliers
Requisition received
Supplier selected
Order is placed
Monitor orders
Receive orders

18. Centralized vs. decentralized purchasing
Purchasing is handled by one special department
Lower prices, better service and closer attention from suppliers, employing specialists
Decentralized purchasing
Individual departments or separate locations handle their own purchasing requirements
Aware to different local needs, quicker response

19. Trade-offs Lot-size vs. inventory
Bullwhip effect
Inventory vs. transportation costs (reducing average costs)
Cross-docking
Lead time vs. transportation costs
Product variety vs. inventory
Delayed differentiation
Cost vs. customer service
Disintermediation

20. Trade-offs Bullwhip effect
Demand variations begin at the customer end of the chain and become increasingly large as they radiate backwards through the chain.
Inventories are progressively larger moving backward through the supply chain.

21. Bullwhip Effect
Demand
Initial supplier
Final customer
Backward effect

22. Bullwhip Effect = Amount of inventory Tier 2 Suppliers Tier 1
Producer
Distributor
Retailer
Final Customer

23. Trade-offs Cross-docking
Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded immediately onto outbound trucks. Avoids warehouse storage. Reduces holding costs and lead times.

24. Trade-offs Delayed differentiation Disintermediation
Production of standard components and subassemblies, which are held until late in the process to add differentiating features (expl. automobiles produced without extras)
Disintermediation
Reducing one or more steps in a supply chain by cutting out one or more intermediaries.

25. Supply Chain Benefits and Drawbacks
Problem
Potential
Improvement
Benefits
Possible
Drawbacks
Large inventories
Smaller, more frequent deliveries
Reduced holding costs
Traffic congestion
Increased costs
Long lead times
Delayed differentiation
Disintermediation
Quick response
May not be feasible
May need absorb functions
Large number of parts
Modular
Fewer parts
Simpler ordering
Less variety in final products
Cost
Quality
Outsourcing
Reduced cost, higher quality
Loss of control (even on quality)
Variability
Shorter lead times, better forecasts
Able to match supply and demand
Less variety

26. Successful Supply Chain
Trust among trading partners
Effective communications
Supply chain visibility
Event-management capability
The ability to detect and respond to unplanned events (uncertainty)
Performance metrics

27. LOGISTICS
The movement of materials, services, cash, and information in a supply chain.
Movement within a facility
Incoming and outgoing shipments (traffic managemment)

28. Movement within a facility
From incoming vehicles to receiving
From receiving to storage
From storage to work centres
Between work centres (or temporary storages)
From operations to final storage
From storage to packing/shipping
From shipping to outgoing vehicles

31. Location planning

32. Nature of Location Decisions
Strategic Importance
Long term commitment/costs
Impact on investments, revenues, and operations
Supply chains
Objectives
Profit potential
No single location may be better than others
Identify several locations from which to choose
Options
Expand existing facilities
Add new facilities
Move

33. Making Location Decisions
Decide on the criteria
Identify the important factors
Develop location alternatives
Evaluate the alternatives
Make selection

34. Location Decision Factors
Community Considerations
Regional Factors
Site-related Factors
Multiple Plant Strategies

35. Seminar

36. Evaluating shipping alternatives
Problem solving in logistics
Evaluating shipping alternatives

37. Additional examples

38. Solutions Example 1: Example 2: The best choice is the 6-days freight.
H(d)/365 = (2000*10)(5-2)/365 =
< 135
Use the 2 days freight.
Example 2:
Between overnight and 2-days freights:
H(d)/365 = (200*0.3*80)(1)/365 = 13.15
Price difference between frights: = 40
The 2-days freight is better than the overnight-freight [13.15 < 40].
Between 2-days and 6-days freights:
H(d)/365 = (200*0.3*80)(4)/365 = 52.60
Price difference between frights: = 80
The 6-days freight is better than the 2-days-freight [52.60<( )].
The best choice is the 6-days freight.

39. Problem solving in Location Planning with CPV Analysis

40. Locational Cost-Profit-Volume Analysis
Numerical and graphical analysis are both feasible. We focus on the graphical one.
The steps:
Determine the fixed and variable costs for each location
Plot the total-cost lines for all location alternatives on the same graph
Determine which location will have the lowest total cost for the expected level of output. Alternatively, determine which location will have the highest profit.

41. Assumptions of the Cost-Profit-Volume (CPV) Analysis
Fixed costs are constant for the range of probable output
Variable costs are linear for the range of probable output
The required level of output can be closely estimated
Only one product is involved

42. The total cost curve TC = FC + VC = FC + v*Q Total cost = VC + FC
Q (volume in units)
Total cost = VC + FC
Total variable cost (VC)
Fixed cost (FC)

43. Alternatively, the total profit is
TP = Q * (R – v) – FC

44. A simple problem from the text-book
Location
Fixed cost (FC)
Variable cost per unit (v) A
250,000 11 B
100,000 30 C
150,000 20 D
200,000 35

45. Plotting the total-cost lines

46. Calculate the break-even output levels
For the crossing of lines B and C:
100, *Q = 150, *Q
Q = 5,000
For the crossing of lines C and A:
150, *Q = 250, *Q
Q = 11,111

47. Which location is the best?
The expected long-term volume
Best location
> 11,111 A
5,000 < Exp. vol. < 11,111 C
< 5,000 B

48. Another problem for the same method
Location
Fixed cost (FC)
Variable cost per unit (v) A
10000 30 B
20000 20 C
35000 15 D
25000 40

49. Solution: Step 1: The plot

50. Solution: Step 2 For the crossing of lines A and B:
10, *Q = 20, *Q
Q = 1,000
For the crossing of lines B and C:
20, *Q = 35, *Q
Q = 3,000
Conclusion: if the volume is below 1,000 units, then we have to choose location A; with a volume between 1,000 and 3,000 B is the best alternative; while volumes greater than 3,000 requires C to minimize the total cost.

51. Thank you for your attention!