Supply Chain Management: Key Concepts

• Any organization offering a product or a service has a supply chain.
• Products and services are created from materials, equipment, labor, time, money, and other resources.
• Products and services need suppliers, manufacturers, and customers.
• A supply chain can be simple or complex.
• Supply chains exist in organizations that are large/small, public/private, or for-profit/non-profit.

Logistics

• Logistics manages the flow and storage of goods from origin to consumption.

Warehousing

• Warehouses store materials and finished products.
• Warehousing involves receiving, storing, withdrawing, packaging, and shipping items.

Transportation

• The 5 modes of transport are: truck, rail, air, pipeline, and water.
• Rail is the most capable
• Air is the most expensive
• Pipeline is the cheapest
• Water is the longest
• Intermodal transportation combines multiple modes for a single shipment.
• Rolling a truck onto a ship without unloading is an example of intermodal transport.
• Public, private, small, and big Corp companies with lots of inventory benefit the most from the supply chain

Benefits of Supply Chain Management

• Improved Customer Service.
• Increased Revenue
• Lower costs.
• Better asset utilization.
• Adds customer value
• Retains customers
• Minimized Delays
• Shorter lead-times.
• Elimination of rush unplanned activities.
• Reduced uncertainty in the supply chain.
• Lower inventory levels.
• ability to respond to disruptions and conflicts effectively."

Beneficiaries of Supply Chain Management

• Firms with large inventories.
• Firms with a large number of suppliers.
• Firms with complex products and/or numerous products.
• Firms with substantial purchasing budgets and expenditures.

Goal of Supply Chain Management

• To increase Customer Service while simultaneously reducing inventory investment and operating expenses (i.e., costs).

Reasons to Implement Supply Chain Management

• To achieve cost savings.
• To better coordinate resources

Supply Chain Spanning

• Supply chains generally span from end-to-end – from suppliers through internal operations to customers.

Basic Supply Chain Model

• Plan, Source, Make, Deliver, Enable

SCOR Model: Plan

• Establishes parameters for supply chain operation.
• Includes determining marketing and distribution channels, promotion, quantities, timing, inventory, replenishment, and production policies.

SCOR Model: Source

• Involves identifying suppliers for materials and services needed to deliver finished products.
• Helps identify reliable suppliers and builds relationships.
• Includes developing pricing, shipping, delivery, and payment processes.
• Includes creating metrics for monitoring and improving performance.

SCOR Model: Make

• Series of operations to convert materials into finished product.
• Includes manufacturing, testing, packaging, and scheduling delivery of the finished product.
• Quality management is a key aspect.
• This is the most metric-intensive part of supply chain, enabling measurement of quality, output, and productivity.

SCOR Model: Deliver

• Logistic phase that plans and executes the flow of goods and information to meet customer needs.
• Where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to transport products to customers, and set up an invoicing system to receive payments, among other aspects.

SCOR Model: Return

• Reverse Logistics plans and controls the movement of goods from consumption back to origin for repair, reclamation, remanufacture, recycling, or disposal.
• Creates a flexible network for receiving defective and excess products and supports customers with questions or problems.

SCOR Model: Enable

• Facilitates a company’s ability to manage its supply chain and is pervasive throughout every stage.
• Enabling processes include supply chain systems, network operations, supply configuration control, interfaces, gateways, database administration, EDI, telecom services, performance measurement, contract management, business rules, standards, and training/education.

Production Philosophies and Models

• Just-in-Time (JIT) is a manufacturing philosophy that focuses on eliminating waste and continuous improvement.
• Push or Make-to-Stock: produces stock based on anticipated demand; relies on demand forecasting.
• Push Business Model is an anticipatory model used by most companies

Push Business Model Advantages

• If the manufacturer accurately forecasts and plans supply, the product is readily available to ship, and resources can be better planned.

Push Business Model Disadvantages

• The dependency causes high inventories and capital being tied up, dependency on forecasting, forecasting inaccuracy that creates non-value adding time, inefficiencies, obsolescence, shortages, and additional cost,.

Push Business Model vs Pull Business Model

• advantages are a high level of customer service due to responsiveness and flexibility.
• models also have short lead times, reduce dependency on forecasting, use short and flexible production runs, store very low inventories, reduce waste, provide opportunities for customization, and improve cash flow.

Pull Business Model Disadvantages

• Every order is potentially a rush order, which can create high cost, and any issues can lead to customer dissatisfaction.
• Dependent upon customer relationships and integrated systems/processes.

Demand Types

• Independent Demand: demand for an item unrelated to other items (e.g., finished product, spare part). Forecasted.
• Dependent Demand: demand for an item directly related to other items (e.g., component). Calculated.
• Example: a bicycle (independent demand), and its frame, seat, tires (dependent demand).

Forecasting and Demand Planning

• Forecasting involves developing forecasts through data analysis and judgment, and is the key building block from which all supply chain planning activities are derived

Demand Planning

• Demand planning involves reviewing the forecast to align with company strategy and business knowledge.

Forecasting Techniques

• Qualitative forecasting relies on opinion and intuition (no data).
• Quantitative forecasting uses mathematical models and historical data.

Qualitative Models

• Personal Insight
• Jury of Executive Opinion
• Delphi Method
• Sales Force Estimation
• Customer Survey

Quantitative Techniques

• Time series: predicts future demand using historical data.
• Cause and effect: assumes factors predict demand.
• A combination of qualitative and quantitative techniques is recommended.

Bullwhip Effect

• How small fluctuations in market demand can get amplified, leading to larger fluctuations as you move upstream (from customer to supplier).
• Mitigation: safety stock and avoiding overreaction in ordering.

Bullwhip Effect Effects

• The Bullwhip Effect leads to discrepancies between inventory and demand and can cause increased production, higher storage and labor costs, unmet demand, spoilage, and obsolescence.
• Can be fixed by collaborative planning.

Naive Forecasting

• Sets the demand for the next period equal to the demand in the last period. Works for mature products but can create inventory issues if demand varies.

Collaborative Planning, Forecasting, Replenishment (CPFR)

• CPFR can significantly reduce the bullwhip effect (its safety stock and associated cost) by improving customer service, lowering inventory costs, improving quality, and reducing cycle time.

Supply Chain Planning

• Establishes how to meet demand plan requirements.
• Objectives: balance supply and demand, achieve financial/service goals.

Supply Chain plannings objective

• Is to balance supply and demand In a way that realizes the financial and service objectives of the company.
• Supply chain planning involves long-range, intermediate-range, and short-range categories
• The S&OP box works with aggregate planning.

Master Productions Schedule

• Disaggregates and focuses on specific products to get precise information on product needs, costs, and timing.

Planning Schedules

• Resource requirement panning- Checks if aggregate resources can satisfy aggregate production.
• Rough-cut planning is for case planning during unforeseen events.
• Capacity Requirements Planning (CRP) checks the feasibility of the material requirements plan.

Material Requirements Planning

• Material requirements Planning is where the bill for material is created.
• MRP systems fire purchase orders based on suppliers ' customer requirements.

Distribution Planning

• Time-phased finished good inventory replenishment plan in the distribution network.
• Determines the need to replenish inventory at branch warehouses.

Simple vs Multiple Regression

• Simple regression attempts to model the relationship between a single independent variable and a dependent variable (demand)
• Multiple regressions attempts to model the relationship between two+ independent variables and a dependent variable

Aggregated Production Plan

• Translates annual business plans and demand forecasts into a production plan for a product family within a facility (one year).

ERP Systems

• Major ERP providers are Sap, Oracle, and Microsoft.
• Goal is Implementing ERP systems
• Two types are Best of breeds or Single integrator solution

Production Strategies

• Level production strategy: constant output.
• Chase production strategy: adjusts capacity to match demand.
• Mixed production strategy: maintains a stable workforce, uses short term help.
• Level production maintains a constant level of production despite the demand variations, unlike chase who's production varies by demand.

Cyclical Variation

• Wave-like pattern extending multiple years, not easily predicted (e.g., business cycle).

Tiers of Suppliers

• Tier 1: directly supplies products/services to the company.
• Tier 2: provides materials/components to Tier 1.
• Tier 3: supplies Tier 2.

Rough Cut Planning (RCCP)

• RCCP is Used to double check MPS

Forecast Error Measurement

• Measured the size of the forecast error in units
• Mean absolute deviation (MAD): average of absolute errors.
• Mean absolute percent error (MAPE): error in percentage terms. better.
• Measured of forecasting accuracy (MSE): magnifies the errors by squaring each one before adding them up and dividing by the number of forecast periods.

Final Note

• Supply chain management starts with understanding the flow.
• Strategic partnerships are seen as one of the foundations of supply chain management
• CPFR's aim is is improving forecast accuracy and reducing inefficiencies in the supply chain
• In supply chain planning, Material Requirements Planning (MRP) primarily Focus on managing material procurement for production
• Enterprise Resource Planning (ERP) systems integrate various business functions into a unified system

Explore core principles of supply chain management, including goals, flows, and models. Learn about forecasting, production planning, supplier roles, and reverse logistics. Understand the SCOR model and the Bullwhip Effect.