What is SCM

Today’s market environment

Supply chain

  • also referred as logistics network
    • parties
      • suppliers
      • manufacturers
        • raw materials are procured
        • items are produced at one or more factories
      • warehouses & distribution centers
      • retailers & customers
    • flows
      • raw materials
      • work-in-process inventory
      • finished products that flow between the facilities
  • goal
    • reduce cost
    • improve service levels
  • tradeoffs
    • inventory level
      • average level of inventory
      • inventory turnover ratio - the ratio of the annual flow to average inventory at the manufacturer’s main warehouse
    • service level
      • percent of orders are delivered on time
    • above two levels have interactions and mutual promotion
  • definition
    • a set of approaches, utilized to efficiently integrate suppliers, manufacturers, warehouses and stores
    • merchandise is produced & distributed at the right quantities, to the right locations, and at the right time
    • minimize systemwide costs while satisfying service level requirements
  • elaborated definition
    • to take into consideration every facility that has an impact on cost and plays a role in making the product conform to customer requirements
    • to be efficient and cost-effective across the entire system – a systems approach
    • to encompasses the firm’s activities at many levels, from the strategic level through the tactical to the operational level
  • definition of logistic management
    • process of planning, implementing, controlling
    • the efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods, & related information
    • from point-of-origin to point-of-consumption for the purpose of conforming to customer requirements
  • main issues
    • who is involved?
    • what is the goal?
    • what is “integration”?
    • what level of activities are involved?

Development chain

  • definition
    • set of activities and processes associated with new product introduction
    • includes
      • product design phase
      • associated capabilities and knowledge
      • sourcing decisions
      • production plans

Why SCM

Cost of SCM

  • within manufacturing plants and warehouses and between different components
    • movement
    • storage
    • control
  • investment including unnecessary cost
    • redundant stock
    • inefficient transportation strategies
    • other wasteful practices

What makes SCM difficult

  • global optimization
    • desgin and operate a supply chain so that total system wide costs are minimized and system wide service levels are maintained
    • single facility vs. entire system
  • uncertainty
    • eliminate as much uncertainty as possible and deal effectively with the remaining
    • customer demand, travel times, machines, etc.
  • strategies for SCM
    • all of the advanced strategies, techniques, and approaches for SCM focus on
      • global optimization
      • managing uncertainty

Global optimization

  • sequential optimization vs. global optimization
  • why is global optimization hard
    • SC is a complex network
      • dispersed over a large geography
    • SC may have different & conflicting objectives
      • material – supplier v.s. manufacturer
    • SC is a dynamic system
      • customer demand & supplier capabilities
      • SC relationships change over time; power structure
    • SC varies over time
      • seasonal fluctuations, trends, advertising and promotions, competitors' pricing strategies, etc.

Managing uncertainty

  • contains
    • matching supply & demand
      • what management gets
      • what management wants
    • forecasting does not solve the problem
      • it is impossible to predict the precise demand for a specific item, even with the most advanced forecast techniques
    • inventory & back-order levels fluctuate considerably across the supply chain
      • bullwhip effect
      • even when customer demand for specific products does not vary greatly
      • distributor orders to the factory fluctuate far more than the underlying retailer demand
    • demand is not the only source of uncertainty
      • delivery lead times, manufacturing yields, transportation times, and component availability
      • as supply chains become larger and more geographically diverse, natural & man-made disasters can have tremendous impact
    • recent trends make things more uncertain
      • lean manufacturing
      • outsourcing
      • off-shoring
  • dealing with uncertainty
    • pull systems
    • risk pooling
    • centralization
    • postponement
    • strategic alliances
    • collaborative forecasting

Challenges of SCM

Common distribution strategies

  • traditional distribution strategy
    • inventory is kept at the warehouses
  • cross-docking
    • operating strategy at flow consolidation centers - from the receiving dock to shipping dock directly without storage
    • eliminates or significantly reduces the inventory at these centers
    • improve transit time & transportation cost without increasing inventory
  • direct shipping
    • goods are distributed from the suppliers directly to the retail stores
    • avoiding warehouses altogether

Major concerns

  • the ability to yield a globally optimized supply chain
    • each facility or party in the chain makes decisions with little regard to their impact on other supply chain partners
  • the ability to effectively manage uncertainty
    • product life cycles are becoming shorter & shorter
    • new products, no historical data are available
    • proliferation of products
    • significant price declines

Decision level

  • strategic level
    • long-lasting effect on the firm
    • number, location & capacity of warehouses and manufacturing plants, and the flow of material through the logistics network
    • acquisition of new production equipment and the design of working centers within each plant
    • design of transportation facilities, comm equipment, data processing means, etc.
  • tactical level
    • updated anywhere between once every quarter & once every year
    • purchasing and production decisions, inventory policies, work-force size, and transportation strategies (e.g., frequency)
  • operational level
    • refers to day-to-day decisions
    • scheduling, lead time quotations, routing, and truck loading
    • the assignment of customer orders to individual machines
    • dispatching, expediting and processing orders

Key issues questions, and trad-offs associated with different decisions

  • contents
    • distribution network configuration
    • information technology and decision-support systems
    • inventory control
    • customer value
    • distribution strategies
    • product design
    • supply chain integration and strategic partnering
  • key SC issues

What is new

  • challenges
    • global competition
    • shorter product life cycle
    • bew, low-cost distribution channels
    • more powerful well-informed customers
    • internet and e-business strategies
    • sustainability issues
    • risk management
  • approaches
    • push-pull strategies
    • direct-to-consumer
    • strategic alliances
    • manufacturing postponement
    • dynamic pricing
    • e-procurement

Internal and external

  • internal manufacturing operations
    • product design
    • binding/packaging
    • synchronization
  • external distribution process
    • material supply
    • distribution/vendition
    • coordination
  • problems
    • fluctuation in demand
    • poor coordination in supply chain
    • nullify manufacturing efficiency

Supply Chain Analytics

Overview

  • definition
    • the use of information and analytical tools to make better decisions regarding material flows in the supply chain
    • analytical approaches to make decisions that better match supply and demand
  • contains
    • descriptive analytics
      • what is happening
      • real-time information regarding location and quantities of goods in the supply chain
    • predictive analytics
      • what will be happening
      • demand forecasting at strategic, tactical, and operational levels, planning process, etc.
    • prescriptive analytics
      • what should be happening
      • mathematical optimization and simulation techniques to provide decision-support

Supply chain operations reference (SCOR) model

  • plan
  • source
  • make
  • deliver
  • return