Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D....

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Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi- Levi

Transcript of Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D....

Page 1: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Introduction to Supply Chain Management

Source: Designing and Managing the Supply Chain,

By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi

Page 2: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply

Sources:plantsvendorsports

RegionalWarehouses:stocking points

Field Warehouses:stockingpoints

Customers,demandcenterssinks

Production/purchase costs

Inventory &warehousing costs

Transportation costs Inventory &

warehousing costs

Transportation costs

Page 3: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

SUPPLIERS

ComponentManufacturing

FinalAssembly

Distribution &Warehousing

CUSTOMERS

Physical SupplyInbound Logistics

Physical DistributionOutbound Logistics

THE LOGISTICS SYSTEM

Page 4: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Definition:Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.

Notice: Everyone is involved Systems approach to reducing costs Integration is the key

Supply Chain Management

Page 5: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Conflicting Objectives in the Supply Chain

1. Purchasing• Stable volume requirements • Flexible delivery time• Little variation in mix• Large quantities

2. Manufacturing• Long run production• High quality• High productivity• Low production cost

Page 6: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Conflicting Objectives

in the Supply Chain

3. Warehousing• Low inventory • Reduced transportation costs• Quick replenishment capability

4. Customers• Short order lead time• High in stock• Enormous variety of products• Low prices

Page 7: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

The Dynamics of the Supply Chain

Ord

er

Siz

e

Time

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

CustomerDemand

CustomerDemand

Retailer OrdersRetailer OrdersDistributor OrdersDistributor Orders

Production PlanProduction Plan

Page 8: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

What Management Gets...

Ord

er

Siz

e

Time

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

CustomerDemand

CustomerDemand

Production PlanProduction Plan

Page 9: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

What Management Wants…

Vo

lum

es

Time

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

Production PlanProduction PlanCustomerDemand

CustomerDemand

Page 10: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

The Dynamic Supply Chain

Increasing customer power leads to increased demands on retailers

Increased retailer power leads to increased demands on suppliers

Page 11: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply Chain: The Magnitude

In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product). Transportation 58% Inventory 38% Management 4%

Third party logistics services grew in 1998 by 15% to nearly $40 billion

Page 12: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Dynamic Forces of the Global Supply Chain

GLOBALSUPPLY

CHAIN

ResourcesLogistics

User Logistics

InformationLogistics

Page 13: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply Chain: The Magnitude

It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies. A typical box of cereal spends more than

three months getting from factory to supermarket.

A typical new car spends 15 days traveling from the factory to the dealership, although actual travel time is 5 days.

Page 14: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply Chain: The Magnitude

Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.

In 1993, IBM lost a major fraction of its potential sales of desktop computers because it could not purchase enough chips that control the computer displays.

Page 15: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply Chain: The Magnitude

Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce writedowns of $2.6 billion in October 1997.

The reason? “Raw material shortages, internal and supplier parts shortages…”. (Wall Street Journal, Oct. 23, 1997)

Page 16: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply Chain: The Potential

Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months.

“According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”. (Journal of Business Strategy, Oct./Nov. 1997)

Page 17: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Cost Structure in the Supply Chain

Margin 12.1

18.1

5.08.1

4.1

9.7

42.7

StoresOperating Cost

Administration

LogisticsSales/Purchases

Marketing

ProductionCost

ACTUAL TARGET

9.8

16.4

4.8

6.23.08.2

40.8

100 100 = Average Retail Price

89.2

Page 18: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply Chain: The Potential

In two years, National Semiconductor reduced distribution costs by 2.5%, delivery time by 47% and increased sales by 34% by

- Shutting six warehouses around the globe.

- Air-freighting microchips to customers from a new centralized distribution center.

Page 19: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply Chain: The Potential

In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer.

Laura Ashley turns its inventory 10 times a year, five times faster than three years ago. This is achieved by using- New Information System- Centralized Warehouse

Page 20: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

“For a company with annual sales of $500 million and a 60% cost of sales, the difference between being at median in terms of supply chain performance and in the top 20% is $44 million of additional working capital.”

-- PRTM Director Mike Aghajanian

Supply Chain: The Potential

Page 21: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply Chain: The Complexity

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.

Page 22: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

Supply Chain: The Complexity

1. Supply Chain Integration• Conflicting Objectives• The Dynamics of the Supply Chain

2. Matching Supply and Demand3. System Variations over Time4. Status of Logistics Knowledge

• Many problems are new• Incomplete understanding of issues• Methodology is rather narrow

Page 23: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES:Decision Classification

Strategic Planning:Decisions that typically involve major capital investments and have a long-term effect.

1. Determination of the number, size and location of new plants, distribution centers and warehouses

2. Acquisition of new production equipment and the design of working centers within each plant

3. Design of transportation facilities, communications equipment, data processing means, etc.

Page 24: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES:Decision Classification

Tactical Planning:Effective allocation of manufacturing and distribution resources over a period of several months

1. Work-force size

2. Inventory policies

3. Definition of the distribution channels

4. Selection of transportation and trans-shipment alternatives

Page 25: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES:Decision Classification

Operational Control:Includes day-to-day operational decisions

1. The assignment of customer orders to

individual machines

2. Dispatching, expediting and processing orders

3. Vehicle scheduling

Page 26: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

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

Page 27: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES:Demand Forecast

The three principles of all forecasting techniques:

Forecasting is always wrong The longer the forecast horizon the worse the

forecast Aggregate forecasts are more accurate

Page 28: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES:Inventory control

How much inventory to keep? Can uncertainty be reduced? What size should orders be? How does forecasting tool effect

inventory level?

Page 29: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: The Challenge of Inventory Management

Matching supply and demand accurately is a critical challenge

“Dell Computers predicts a loss; stock plunges. Dell acknowledged that the company was sharply off in its forecast of demand, resulting in inventory writedowns”. (WSJ, August 1993)

“IBM continues to struggle with shortages in the Think Pad line”. (WSJ, May 1994)

“Liz Claiborne said its unexpected earnings decline is the consequence of higher than anticipated excess inventories”.(WSJ, August 1993)

Page 30: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: Purchasing

What to Purchase- In-house production Vs. external suppliers

Where to purchase- Domestic Vs. international

From whom to purchase- Cost- Reliability: quality and on time delivery- Availability and flexibility

Page 31: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: Purchasing

Centralized Vs. Decentralized

Number of suppliers:Single sourcing Vs. Multiple sourcing

Supply contracts

Page 32: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: Production

Location of manufacturing plants Production cost Taxes Incentives (by government) Proximity to markets and raw materials Transportation infrastructure Political stability and culture

Page 33: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: Production

Flexibility

The ability to produce different products simultaneously and efficiently

The ability to produce new products efficiently

Page 34: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: Production

Efficiency Low cost Short lead time

Reliability On-time delivery Quality

Page 35: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: Distribution

The structure of the distribution network

The distribution strategy

The Classical Strategy

Cross Docking

Direct Shipping

Page 36: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES:Product Design

What role does product design play in supply chain management?

When is redesigning products worth the cost?

Can product design compensate for uncertainty in customer demand?

Page 37: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES:Information Systems

The advantages of advanced information systems

The challenge of unlimited data The roll of e-commerce Impact of the internet

Page 38: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: What’s New in Logistics?

Global competition

Shorter product life cycle

Increasing product variety

New, low-cost distribution channels

More powerful well-informed customers

Page 39: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: What’s New in Logistics?

New communications and information technologies POS and EDI technology Wireless technology

Decision Support Systems Integrated systems Multi-modal transportation

Page 40: Introduction to Supply Chain Management Source: Designing and Managing the Supply Chain, By D. Simchi-Levi, P. Kaminsky & E. Simchi-Levi.

ISSUES: What’s New in Logistics?

New concepts in logistics Push Vs Pull strategies

Cross docking

Strategic alliances

Manufacturing postponement

Design for Logistics