Supply Chain Management an overview document

Supply Chain Management

1. Supply Chain Management:
An Overview
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2. Presented by: Raghu Vasu
Advisor: Dr. Subash C. SarinSupply Chain Management:
An Overview

3. Supply Chain Management: An Overview Objective: ¾
An overview of where supply chain management (SCM) research has reached
¾
To present a good literature of recent research works and their possible future
research implications in SCM
Approach:
„
The information sharing aspects
„
Inventory models
„
Performance measurements in supply chains
„
Global Supply Chains

4. SCM : Introduction „
Supply chain: Includes all the companies involved in all the upstream and
downstream flows of products, services, finances, and information from the initial
supplier to the ultimate customer
„
Supply Chain Management: “Systematic, strategic coordination of the traditional
business functions within a particular com pany and across businesses within supply
chain, for the purposes of improving the long-term performance of the individual
companies and the supply chain as a whole. (John T. Mentzer)

5. SCM: Introduction Supply Chain Management Activities: „
Integrated behavior
„
Mutually sharing information
„
Integration of processes
„
Mutually sharing channel risks and rewards
„
Cooperation
„
The same goal and the same focus of serving customers (Policy Integration)
„
Partners to build and maintain long-term relationships

6. SCM: Introduction
Figure 1: SCM Framework (Mentzer)

Supply Chain Supply
Chain
The Global Enviro nment
Flows

Customer
Inter-Corporate Coordination Products -Value
Services
Marketing, Customer Service Information Profitability
Inter Sales, Finance Financial
Functional Research & Development -Resources Differe ntial-
Coordination Forecasting, Logistics Demand Adv antage
Production, Purchasing & Forecasts
Information Systems


Supplier’s Supplier Firm Customer Customer’s
Supplier Customer

7. Production Distribution Models
Main processes in Supply chain „
Production planning & inventory control
„
Distribution and logistics
Conventional production-distribution chain : Composed of independent suppliers,
manufacturers, wholesalers and retailers.
Supply chain management: Comprises the same framework but involves coordination
of all the activiti es of the chain.

8. Production Distribution Models Relevant decisions in optimizing production/distribution planning (Erengiic,
Simpson and Vakharia [5]) „
Supplier Stage: ‰
Selection of suppliers
‰
Number of suppliers in each category
‰
What kind of relationship should be established with each supplier
‰
Volume and frequency of shipments from each supplier
‰
Use of intermediate stocking point or supplier distribution center (SDC)
‰
Number and location of the supplier distribution center
‰
Amount of inventory of each material in the supplier distribution

9. Production Distribution Models „
Plant or Transformation Stage: ‰
Nature of capacity constraints binding the plants
‰
Location of the transformation process
‰
Inventory Practices and its effect in the transformation network (between different
plants)
„
Distribution Stage: ‰
Whether there is an intermediate stocki ng point between the distribution centers
and the suppliers
‰
Number, capacity, location and type of the distribution centers
‰
Information flow and inventory control policies

10. Production Distribution Models The production and distribution decisions -depend on the push or pull strategies „
Push Supply Chains: ¾
Long term forecasts.
¾
More time to react to changing market place
¾
Bullwhip effect
„
Pull Supply Chains: ¾
Demand driven
¾
Elimination of inventory, reduction of bul lwhip effect and increased service levels.
¾
Difficult to implement for longer lead times

11. Production Distribution Models „
Push-Pull Supply Chains: ¾
Hybrid of the two systems
¾
Initial stages - Push-based strategy
¾
Final stages - Pull-based strategy
¾
The push part - where long-term forecasts have small uncertainty and variability.
¾
The pull part - where uncertainty and variability are high

12. Production Distribution Models
Fi
g
ure 3.1: Matchin
g
Su
pp
l
y
Chain Strate
g
ies with Industries (Simchi-Levi)

Demand uncertainty


Pull

Push

Pull Push Delivery cost


Books & CD’s


Groceries


Computers

Furniture

13. Production Distribution Models Four modeling approaches in supply chain (Beamon) „
Deterministic analytical models
„
Stochastic analytical models
„
Economic models
„
Simulation models.
Hybrid Model (Lee and Kim)
„
Combining simulation and analytical models
„
multi-period, multi-product, multi-s hop production and distribution mode
„
minimizes the overall costs of production, distribution, holding and shortages
„
Stochastic machine operation time and distribution operation time constraints
„
The above work can be extended by changing the prod-dist characteristics of the
simulation model

14. Production Distribution Models Mathematical model (Lakhal, Martel, Kettani and Oral) „
Designed a heuristic to obtain solutions from the model
„
Model is static, w/o considering the dynamics of the supply chain
„
Considering the impact of competing companies in the model
Mixed Integer Programming Formulation (Dorgan and Goetschalckx)
„
Mixed integer programming formulation for integrated st rategic-tactical design
„
Primal decomposition algorithm with specialized acceleration techniques that yields the optimal
solution in a reasonable amount of time.
„
Simultaneous determination of vendor sourcing, facilitie s location, production lines location and
sizing, customer allocation and transportation flows

15. Production Distribution Models „
Continuous Model (Dasci and Verter) ‰
Continuous models - Simple algebraic expressions
‰
Both discrete and continuous approaches complement each other
‰
A continuous approximation would provide the decision makers with valuable
insights about structural decisio ns and possible alternatives
‰
A more detailed discrete model based on these insights can determine the
optimal configuration( requires extensive computations)
‰
Hence future research can be carried out in using a combination of discrete and
continuous models for prod-dist systems

16. Inventory Models Inventories „
Exist in various forms such as raw materi als, work in progress, or finished goods
throughout the supply chain.
„
Holding Cost: 20-40% of their value a year
„
Entire supply chain as a single system to achieve the lowest inventory levels
„
(s, S) Inventory Policy
„
s- Reorder Point
„
S- Order-up to level

17. Inventory Models Inventory Cost- Minimizing Model (Ganeshan) „
Based on Synthesis of these three subsystems ‰
Inventory analysis at the retailers
‰
Demand process at the warehouse
‰
Inventory analysis at the warehouse.
„
Multiple Suppliers, Central Warehouse, Multiple Retailers.
„
Optimal policy (reorder point, order quantity) at both the retailer and the distribution-
center level
„
Stochastic demand/lead time conditions
„
Future Research: ‰
Model limited to two echelons
‰
Assumes supplier is always in stock
‰
Assumes identical suppliers and retailers

18. Inventory Models Multiple-Product Type Inventory Policy (Altiok and Shiue [14] ) „
Have developed a continuous review (s, S) inventory policy for multiple product types
„
“When to switch to a new product”; “What product to Switch to”
„
Poisson Demand distribution
„
Unit processing times are independent and arbitrarily distributed
„
Products are assigned to machines based on a pre-defined priority structure.
„
An iterative procedure was developed to compute the average inventory level of each
product.
„
The (s, S) continuous review policy is applied to each type of product in the
warehouse.
„
Future research can be developed by using dynamic priorities for products based on
market demand than predefined priorities

19. Inventory Models
Stochastic High Demand Systems (Axsater) „
Attempted to reduce the computational complexity of high demand systems
„
Two echelon inventory system with continuous review and Poisson demand
„
distribution
„
The high demand system is scaled to a low demand system
„
Same standard deviation to mean
„
Resulting low demand system is optimized and scaled up
„
Scaled Down integer factor- k
„
Computational complexity is reduced by k
-4

20. Inventory Models
Constant Demand, Stochastic Lead Time Model „
Most publications indicate constant lead time and random demand
„
Exogenous Lead time: Decision Variables Q (Where Q = S-s) and s
„
Endogenous Lead time: Decision Variables Q, s and T
„
T is the expediting fact or-constant of proportionality between ordinary and
expedited lead times
„
For T>1, longer mean lead times resulting in rebate to customers
„
For T<1, shorter than average mean lead times resulting in a cost for customers
„
Future Research: ‰
Customers reserve manufacturing capacity, obtaining a stochastically shorter
lead time
‰
Demand that is not stationary
‰
Transfer-batch sizes rather than full lot size Q

21. Inventory Models
Delay in Order Placement (Moinzadeh) „
Arbitrary demand distribution, Constant lead time, fixed negligible ordering costs
„
Improved ordering policy that uses or der release times as a policy parameter
„
Total cost rate is reduced compared to policies where order is at demand epochs
„
Future work can be done by changing the demand and lead time conditions
Other Models
„
Computing safety stock levels in an uncer tain environment of random flow times and
yield rates (Hung and Chang)
„
Order levels to multiple suppliers with c apacity limits on suppliers and manufacturers
and uncertain market demand conditions (Kim, Leung and Lee )
„
Direct Derivative Estimation of order-up-to levels (Gavirneni and Tayur ) ‰
Discrete time non-stationary model
‰
computes the derivatives of the infinite horizon cost function in a recursive manner
in order to determine the optimal order up-to level

22. Inventory Models Bull Whip Effect on Inventory Policy „
Bullwhip Effect:
Variability of orders increasi ng relative to the variab ility of the buyer’s demand,
which is largely an effect of the ordering policy.
„
The increase in variability leads to ‰
Excessive inventory due to the need for larger safety stock
‰
Large and more variable production batches
‰
Unaccepted service levels
‰
Inability to manage resources effectively

Figure 4.1: The bullwhip effect
The bullwhip effect
0
20
40
60
80
100
120
140
1
3
5
7
9
1
1
1
3
1
5
1
7
19
Week
Order
Factory Distributor Retailer Customer

23. Inventory Models „
Causes of Bullwhip Effect ‰
Lack of inter firm communication
‰
Large time lag between receipt and transfer of information
‰
Forecast updating
‰
Order Batching
‰
Price Fluctuations
‰
Rationing and Shortage gaming
„
Remedies ‰
Effective Information System
‰
Centralized demand information
‰
Single sourcing of forecast
‰
Point of Sale Data-reduces batch sizes and increases order quantities
‰
Limiting pricing fluctuations
‰
Rationing method based on past sales than orders placed

24. Performance Measurements in SCM
Performance Measurements in SCM „
Criteria for measurement based on a number of factors including the type
of supply chain, organization goals, perspective of measurement and
transparency among supply chain partners.
Measurement Systems for Manufacturing Supply Chain (Beamon) „
the use of resources, the desired output and flexibility as vital
components to supply chain success

25. Performance Measurements in SCM
Table 5.2: Framework for performance measurements [4]

Performance
Measurement Type
Goal Different Measures
Resources High level of efficiency Total costs, Distribution
costs, Manufacturing costs,
Inventory levels, Capacity
utilizations, Energy usage
Output High level of customer
service
Sales, Profit, Fill rate, On-
Time deliveries,
Backorder/Stock out,
Customer response time,
Manufacturing lead time,
Shipping Errors, Customer
complaints
Flexibility Ability to respond to a
changing environment
Volume Flexibility,
Delivery Flexibility, Mix
Flexibility, New Product
flexibility

26. Performance Measurements in SCM Measurement based on perspectives „
Profit-based and Goal-based
„
Six Perspectives ‰
System Dynamics
‰
Operations Research
‰
Logistics
‰
Marketing
‰
Organization
‰
Strategy

27. Performance Measurements in SCM
Table 5.1: Performance measurement based on different perspectives [1]

Perspective Purpose of SCM Performance Metri
c
System Dynamics Managing trade-offs along
the complete supply chain
Capacity utilizations,
Cumulative inventory l
e
Stock-outs, Time lags,
T
to adapt, Phantom order
i
Operations Research/IT Calculating optimal
solutions within a given set
of degrees of freedom
Logistics cost per unit,
Service level, Time to
deliver
Logistics Integrating generic
processes sequentially,
vertically and horizontally
Integration, Lead times,
Order cycle time, Inven
t
level, Flexibility
Marketing Segmenting products and
markets and combine both
using the right distribution
channel
Customer satisfaction,
Distribution costs per u
n
Market Share/Channel
Costs
Organization Determining and mastering
the need to coordinate and
manage relationships
Transaction Costs, Tim
e
network, Flexibility,
Density of relationships
Strategy Merging competencies and
re-locating into the deepest
segment of profit pool
Time to network, Time
t
Market, Return of
Investment of focal
organization

28. Performance Measurements in SCM Inter-company Integration: (Faisst and Kanet) „
Degree of Supply Chain Coupling (DSCC)
„
2-Tuple effect measuring the magnitude and effectiveness of information systems
„
Some of the measures that are considered in DSCC are ‰
data quality (accuracy and currency), re porting ability (as needed/on demand,
detailed level, summary level) and systems performance (accessibility, ease of
use, and repeatability).
„
Framework based on strategic context and operational contribution of supply
chain members

29. Performance Measurements in SCM
Fi
g
ure 5.1: Framework for Supply Chain Measurement [3]



Traditional
Suppliers

Retailers
Innovative Supply Chains
Strategy/Strategic Sophistication
Integrat
ion
Customer
Service
Cost
Effectiv
eness
Cost Saver
Market
Extension
Market Creation
Contribut
ion of
organizat
ion to
supply
chain
competiti
veness

30. Performance Measurements in SCM Sensitivity of Performance Measures „
Sensitivity of observed service level, supply chain c ycle time and return on
investment (ROI) (Remko) ‰
Supply chain with four echelons
‰
On three major inventory parameters: the forecast error, the mode of
communication between echelons (Flow Planning) and the planning frequency.
‰
Forecast Planning „
Distributed Resource Planning
„
Reorder Point Method
„
Increasing forecast errors and planning frequen cy decreases the service level, return
on investment and increases cycle time

31. Performance Measurements in SCM „
Sensitivity of Expected Lead time and Cost
„
Supply chain with single manufacturer and multiple suppliers
Table 5.3: Effect of parameter value changes on supply chain performance [8]

Parameters Expected Lead Time Cost
Product variety Concave increasing Concave increasing
Setup time Linear increasing Concave increasing
Unit manufacturing time Convex increasing Convex increasing
Number of retailers Not affected Concave increasing
Demand rate Convex increasing Increasing

32. Performance Measurements in SCM „
Effect of Supply Management Orientation (SMO) on performance (Hojung,
David and Darryl) ‰
long-term relationship with buyer, supp lier involvement in product development
process, reduced number of suppliers and a quality focus constitute the SMO
‰
Impact of SMO on „
supplier’s operational performance and
„
buyer’s competitive priorities (c ost, quality, delivery, flexibility)
‰
Influence of SMO on „
Quality and delivery time signifi cant than cost/flexibility

33. Performance Measurements in SCM Conclusion „
No single standard metric for the measurement of supply chain performance
„
Criteria for measurement are based on a number of factors including ‰
type of supply chain,
‰
organization goals,
‰
perspective of measurement and
‰
transparency among supply chain partners
„
State of supply chain measurement is still in need of clea r, concise and consistent
definition
„
Still at a point of emergence

34. Information Sharing Need For Information Technology „
Functional Integration
„
Quality and Time-based competition
„
Increasing Computing Power
Information System Implementation
„
Intra-firm information system ‰
Decision Support Systems
‰
Warehouse Management Systems
‰
Transportation Management Systems
‰
Intranet
‰
ERP systems

35. Information Sharing „
Inter-firm Information System ‰
EDI
‰
Internet
„
Supply Chain Information System ‰
Functional Integration to manage „
Physical flow of goods
„
Flow of information
„
Flow of Finance
Barriers to supply chain Information Systems
„
Complete Integration
„
Transparency of information
„
Shift of supply chain cost

36. Information Sharing
Impact of Information Systems „
Strategic Level Planning
„
Tactical Planning
„
Operational level planning
Figure 2.2: IT/IS planning vendors for SCM Planning Phases [3]
Strategic Tactical Operational



Insight


Adapta
Ortems
STG
Taylor
Thru-put Technologies
i2 Technologies
SynQuest
CAPS
Lo
g
istics
Bann
Manugistics
Numetrix
PeopleSoft

37. Internet-Enabled Information Sharing
Web based relationships „
Business to business (b2b)
„
Product ordering
„
Sharing product information
„
Creating display space
„
Defining customer information
„
Co-developing products and
„
Business to Customer (b2c)
„
sharing packing, shipping,
inventory, product movement
trends and forecasts with the
supply chain partners.
„
Market Transactions

Figure 6.3: Web-based commerce model [5]




b2b b2c



Supplier

Customer

Firm

M

38. Internet-Enabled Information Sharing E-Supply Chain Approach (Hoek) „
Based on supply chain scope and degree of
planning
„
True Electronic Supply Chain - Upper Right
Quadrant
„
Supply chain-wide information structure
„
More intense cooperation around market activities
„
Supply Chain Information Sharing
„
Enhance all the supply chain functions
„
Collaborative supply chain management
„
Enhanced customer relations
„
Re-engineer the supply chain for competitive
differentiation
„
Optimization of the entire supply chain

Figure 1: Supply chain approaches to e-business [4]

Strategic
Approach

Operational
Approach

Partial/ Fragmented Integral
Supply chain scope

39. Internet-Enabled Information Sharing Analyzing Electronic Supply Chains (Leonard and Cronan) „
Based on the organizational performance ‰
Lower inventory levels
‰
Lower inventory carrying costs
‰
Fewer stock outs
‰
Shorter order cycles
‰
Lower prices
‰
Greater flexibility of products
Figure 2: Research Model

Organizational Performance






Supplier Manufacturer Distributor Retail Outlet Customer


Price &Availability
Inventory Level
Inventory Carrying Cost
Stock outs
Order Cycle
Fill rate

40. Information Sharing Future Research „
Digitization Implementations for different supply chains
„
Testing and validation of information systems
„
Structure of competing chains
„
Configuration of information systems
„
Dynamics of competition in electronic business markets
„
Performance metrics for information systems

41. Global Supply Chain Management Drivers for globalization „
Decreasing tariffs
„
Improving transportation, communication and information technology
„
Globalization of products and services
„
Development of homogenous markets
„
Global competition
„
Economic regionalism (e.g. reduced trade barriers in a region)
„
Need for centralized research and development

42. Global Supply Chain Management Global Supply Chain Characteristics „
Transportation and coordination are more important
„
Longer order to delivery
„
Communication and travel more difficult
„
Complex Supply Chain Structure
„
Multiple national markets
„
Complex Information Systems
„
Diversity of demand and supply conditions

43. Global Supply Chain Management
Figure 1: Factors influencing global supply chain processes [12]














Approach to
Globalization:
• Multinational
firm
• International
Firm
• Global firm
• Transnational
firm

Corporate Strategy:
• Multiple domestic
supply chain
• Multiple
international supply
chains
• Global network of
supply and demand
• Flexible,
interdependent,
balance of locally
responsive and
globally efficient
supply chains
Supply Chain Processes:

• Strategic Fit
• Risk management
• Knowledge
management
• Relationship
management
• Financial management
• Development of
organizational
capability
• Technology
management
• Channel management/
Outsourcing decisions
• Information
Management

Global Diversity:
• Political
• Cultural
• Economic
Global Environmental
Factors:
• Uncertainty
• Complexity
• Asymmetry

44. Global Supply Chain Management

Figure 1: Global Supply Chain Management Model (Mortwani, Larson and Ahuja)

























Phase 1
Creating awareness and
commitment
Phase 2 Searching and Planning Phase 3 Selecting Phase 4 Implementing Phase 5 Evaluating
Define/Redefine core components
Top management commitment
Developing understanding of GSCM
Establish searching & choosing criteria
Establish selection and planning
criteria
Set expectations
Asses/Evaluate supplying chain
partners
Formally form a partnership
Establish effectiveness measures and
indicators
Establish specific detailed expectations
Determine operating standards
Perform com
p
etitive benchmarkin
g
Evaluate Operating standards
Recognize and reward improvements
Evaluate program annually
Evaluate strategic and operational
aspects of partners
Redesign or revise programs

45. Global Supply Chains Conclusion and Future Research Work „
Need of more coherent literature on global supply chains
„
Effect of time lag between the onset of IT and the final results
„
The role of IT in breakdowns that occur in GSCM implementation and how they can
be prevented
„
IT-specific objective measures for measuring GSCM success and failures
„
More comprehensive and comparative case studies of successful implementation of
GSCM