Supply Chain Management an overview document

Supply Chain Management:
An Overview
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Presented by: Raghu Vasu
Advisor: Dr. Subash C. Sarin
Supply Chain Management:
An Overview

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

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 company 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)

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

SCM: Introduction
Figure 1: SCMFramework (Mentzer)
Supply Chain Supply
Chain
The Global Environment Flows
Customer
Inter-Corporate Coordination Products -Value
Services
Marketing, Customer Service Information Profitability
Inter Sales, Finance Financial
Functional Research &Development -Resources Differential-
Coordination Forecasting, Logistics Demand Advantage
Production, Purchasing & Forecasts
Information Systems
Supplier’s Supplier Firm Customer Customer’s
Supplier Customer

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 activities of the chain.

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

„ 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 stocking point between the distribution centers
and the suppliers
‰ Number, capacity, location and type of the distribution centers
‰ Information flow and inventory control policies

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 bullwhip effect and increased service levels.
¾ Difficult to implement for longer lead times

„ 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

Figure 3.1: Matching Supply Chain Strategies with Industries (Simchi-Levi)
Demand uncertainty
Pull
Push
Pull Push Delivery cost
Books & CD’s Groceries
Computers Furniture

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-shop 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

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 strategic-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, facilities location, production lines location and
sizing, customer allocation and transportation flows

„ 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 decisions 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

Inventory Models
Inventories
„ Exist in various forms such as raw materials, 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

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

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

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

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 factor-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

Inventory Models
Delay in Order Placement (Moinzadeh)
„ Arbitrary demand distribution, Constant lead time, fixed negligible ordering costs
„ Improved ordering policy that uses order 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 uncertain environment of random flow times and
yield rates (Hung and Chang)
„ Order levels to multiple suppliers with capacity 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

Inventory Models
Bull Whip Effect on Inventory Policy
„ Bullwhip Effect: Variability of orders increasing relative to the variability 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
1
9
Week
Order
Factory
Distributor
Retailer
Customer

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

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

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

Measurement based on perspectives
„ Profit-based and Goal-based
„ Six Perspectives
‰ System Dynamics
‰ Operations Research
‰ Logistics
‰ Marketing
‰ Organization
‰ Strategy

Table 5.1: Performance measurement based on different perspectives [1]
Perspective Purpose of SCM Performance Metric
System Dynamics Managing trade-offs along
the complete supply chain
Capacity utilizations,
Cumulative inventory le
Stock-outs, Time lags, T
to adapt, Phantom orderi
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, Invent
level, Flexibility
Marketing Segmenting products and
markets and combine both
using the right distribution
channel
Customer satisfaction,
Distribution costs per un
Market Share/Channel
Costs
Organization Determining and mastering
the need to coordinate and
manage relationships
Transaction Costs, Time
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

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), reporting 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

Figure 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

Sensitivity of Performance Measures
„ Sensitivity of observed service level, supply chain cycle 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 frequency decreases the service level, return
on investment and increases cycle time

„ 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

„ Effect of Supply Management Orientation (SMO) on performance (Hojung,
David and Darryl)
‰ long-term relationship with buyer, supplier 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 (cost, quality, delivery, flexibility)
‰ Influence of SMO on
„ Quality and delivery time significant than cost/flexibility

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 clear, concise and consistent
definition
„ Still at a point of emergence

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

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

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
Logistics
Bann
Manugistics
Numetrix
PeopleSoft

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

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

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

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

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

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

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

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 competitive benchmarking
Evaluate Operating standards
Recognize and reward improvements
Evaluate program annually
Evaluate strategic and operational
aspects of partners
Redesign or revise programs

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

Supply Chain Management an overview document

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