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OVERVIEW OF SUPPLY CHAIN PLANNING
ISSUES
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Helpful References (Print)
1. Chopra, S. and Meindl, P., “Supply Chain Management: Strategy, Planning and Operation,” Prentice Hall, 2004
2. Chase, Aquilano and Jacobs, “Operations Management for Competitive Advantage,” 9th Edition, McGraw Hill, 2001
3. Handfield, R.B. and Nichols, E.L., “Introduction to Supply Chain Management,” Prentice Hall, 1999
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Helpful References (Internet)
1. www.apics.org
2. www.supply-chain.org
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OM: Design, operation & improvement of the production systems
OM: Concerned with conversion of inputs to outputs
Operations Management (OM)
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INPUTS
PeoplePlantsPartsProcessesPlanning & control systems
TRANSFORMATION
AssemblyBlendingStoring
OUTPUTS
Tangible vs. Intangible
Direct vs. Indirect
OM Framework
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Transformations can be:– Physical
– Location
– Physiological
– Informational
OM: Transformation Types
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Characteristics of Manufacturing Environment
Increased product diversity Reduced product life cycles Increased awareness of the environment
– impact of products & manufacturing systems Difficulties of estimating the costs and benefits Changing social expectations
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Closed System– Manufacturing is seen as an internal function buffered
from suppliers, customers, and other functions Open Systems
– Manufacturing is seen as closely linked to suppliers, customers and other functions
Manufacturing System Views
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A Closed System View
R&D Marketing
Finance ManufacturingCustomer Service
Purchasing Personnel Distribution & Logistics
Suppliers Customers
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An Open System View
Suppliers ManufacturingExternal
Customers
Other Functions
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Evolution From OM to Supply Chain
OM View Supply Chain View
Closed System Open System
Manufacturer Orientation Customer Orientation
Local Optimization Global Optimization
Technology (hardware, software, multimedia, etc.)
Local System Capabilities Enterprise System Capabilities
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Basis of Competition
YesterdayManufacturing company
versusManufacturing company
Today
Manufacturing company and it’s supply chain versus
Manufacturing company and it’s supply chain
Changing Basis of Competition
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Consumers – Pay for your company’s final product
External customers – Receiving outputs from your company
Internal customers – Receiving outputs from you to others within the company
Customers
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Supply Chain: Definition
Supply chain is a network of interconnected organizations or organizational entities developed with the goal of getting the right product to the right place at the right time
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Supply Chain: Scope
Supply chain encompasses every effort involved in producing and delivering a final product, from the supplier’s supplier to the customer’s customer– Efforts include managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly, warehousing, information management, distribution and delivery to customers
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Supply Chain: Flows (1)
The following flows have to be managed in a supply chain:– Materials
– Information
– Cash
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Supply Chain: Flows (2)
Suppliers Manufacturers Distributors Customers
After-sales support, Recycling, Order information, Payments
Material, Information, Invoicing
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Supply Chain: Elements
Supply chain consists of elements internal and external to the company
These elements range from material producers to the customers
All supply chain elements must be appropriately integrated for a company to be able to effectively compete in chosen markets
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What is a Supply Chain?
All stages involved, directly or indirectly, in fulfilling a customer request
Includes manufacturers, suppliers, transporters, warehouses, retailers, customers
Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service)
Examples: Fig. 1.1 (Wal-Mart), Dell
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What is a Supply Chain?
Customer is an integral part of the supply chain Includes movement of products from suppliers to
manufacturers to distributors, but also includes movement of information, funds, and products in both directions
Typical supply chain stages: customers, retailers, distributors, manufacturers, suppliers (Fig. 1.2)
All stages may not be present in all supply chains(e.g., no retailer or distributor for Dell)
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What is a Supply Chain?
Customer wantsdetergent and goes
to Jewel
Customer wantsdetergent and goes
to Jewel
JewelSupermarket
JewelSupermarket
Jewel or thirdparty DC
Jewel or thirdparty DC
P&G or othermanufacturerP&G or othermanufacturer
PlasticProducer
PlasticProducer
Chemicalmanufacturer
(e.g. Oil Company)
Chemicalmanufacturer
(e.g. Oil Company)
TennecoPackagingTenneco
Packaging
Paper Manufacturer
Paper Manufacturer
TimberIndustryTimber
Industry
Chemicalmanufacturer
(e.g. Oil Company)
Chemicalmanufacturer
(e.g. Oil Company)
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The Objective of a Supply Chain
Maximize overall value created Supply chain value: difference between what the final
product is worth to the customer and the effort the supply chain expends in filling the customer’s request
Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)
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The Objective of a Supply Chain
Supply chain incurs costs (information, storage, transportation, components, assembly, etc.)
Supply chain profitability is total profit to be shared across all stages of the supply chain
Supply chain success should be measured by total supply chain profitability, not profits at an individual stage
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The Objective of a Supply Chain
Sources of supply chain revenue: the customer Sources of supply chain cost: flows of information,
products, or funds between stages of the supply chain Supply chain management is the management of
flows between and among supply chain stages to maximize total supply chain profitability
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Decision Phases of a Supply Chain
Supply chain strategy or design Supply chain planning Supply chain operation
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Supply Chain Strategy or Design
Decisions about the structure of the supply chain and what processes each stage will perform
Strategic supply chain decisions– Locations and capacities of facilities– Products to be made or stored at various locations– Modes of transportation– Information systems
Supply chain design must support strategic objectives Supply chain design decisions are long-term and
expensive to reverse – must take into account market uncertainty
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Supply Chain Planning
Definition of a set of policies that govern short-term operations
Fixed by the supply configuration from previous phase
Starts with a forecast of demand in the coming year
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Supply Chain Planning
Planning decisions:– Which markets will be supplied from which locations
– Planned buildup of inventories
– Subcontracting, backup locations
– Inventory policies
– Timing and size of market promotions Must consider in planning decisions demand
uncertainty, exchange rates, competition over the time horizon
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Supply Chain Operation Time horizon is weekly or daily Decisions regarding individual customer orders Supply chain configuration is fixed and operating
policies are determined Goal is to implement the operating policies as
effectively as possible Allocate orders to inventory or production, set order
due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders
Much less uncertainty (short time horizon)
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Process View of a Supply Chain
Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages
Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)
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Cycle View of Supply Chains
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
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Cycle View of a Supply Chain Each cycle occurs at the interface between two successive
stages Customer order cycle (customer-retailer) Replenishment cycle (retailer-distributor) Manufacturing cycle (distributor-manufacturer) Procurement cycle (manufacturer-supplier) Figure (see previous power point) Cycle view clearly defines processes involved and the
owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process.
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Customer Order Cycle
Involves all processes directly involved in receiving and filling the customer’s order
Customer arrival Customer order entry Customer order fulfillment Customer order receiving
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Replenishment Cycle
All processes involved in replenishing retailer inventories (retailer is now the customer)
Retail order trigger Retail order entry Retail order fulfillment Retail order receiving
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Manufacturing Cycle
All processes involved in replenishing distributor (or retailer) inventory
Order arrival from the distributor, retailer, or customer Production scheduling Manufacturing and shipping Receiving at the distributor, retailer, or customer
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Procurement Cycle All processes necessary to ensure that materials are
available for manufacturing to occur according to schedule
Manufacturer orders components from suppliers to replenish component inventories
However, component orders can be determined precisely from production schedules (different from retailer/distributor orders that are based on uncertain customer demand)
Important that suppliers be linked to the manufacturer’s production schedule
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Push/Pull View of Supply Chains
Procurement,Manufacturing andReplenishment cycles
Customer OrderCycle
CustomerOrder Arrives
PUSH PROCESSES PULL PROCESSES
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Push/Pull View of Supply Chain Processes
Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand
Pull: execution is initiated in response to a customer order (reactive)
Push: execution is initiated in anticipation of customer orders (speculative)
Push/pull boundary separates push processes from pull processes
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Push/Pull View of Supply Chain Processes
Useful in considering strategic decisions relating to supply chain design – more global view of how supply chain processes relate to customer orders
Can combine the push/pull and cycle views– L.L. Bean (Figure 1.8)
– Dell (Figures 1.9 and 1.10) The relative proportion of push and pull processes can
have an impact on supply chain performance
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Examples of Supply Chains Micron Electronics Inc. (A direct sales
Manufacturer)– Why has assembly of certain PCs been outsourced? What
characterizes PCs or orders that have been outsourced?– Why does Micron have only one manufacturing site?– Why are individual orders shipped using FedEx and large
corporate orders shipped using LTL?– Why are individual orders merged in transit rather than
at the assembly site itself?– How much inventor of components and finished products
is maintained?
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Examples of Supply Chains
7-Eleven ( A Convenience Store) (Japan)– One of the company’s objectives is to micro-
match supply and demand by location, season, and time of day.
– Fresh food and distribution center. Toyota (A Global Auto Manufacturer)
– Global production and distribution network.
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Examples of Supply Chains Amazon.com (An E-Business)
– Why is Amazon.com building more warehouses as it grows? How many warehouses should it have, and where should they be located?
– What advantages does selling books via the Internet provide over a traditional bookstore? Are there any disadvantages to selling via the Internet?
– Why does Amazon.com stock best-sellers while buying other titles from distributors?
– Des the Internet channel provide greater value to a bookseller like Borders with retail outlets or to an e-business like Amazon.com?
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Stages of a Detergent Supply Chain
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Supply Chain Stages