Supply Chain Basics

Supply Chain Management IEEM 341Fall, 2004

Dr. Lu

Outline

• Syllabus of the class

• The definition of supply chain and supply chain management

• The layout of this course

• The goal of this this course

• Read: Chapter 1 and chapter 3

Syllabus of IEEM 341

• Instructor: Dr. Xiangwen Lu – Phone: 2358-8627– Office: Room 5544. – E-mail: xwlu@ust.hk

• Tentative office hours: – Tuesday 10-12, Thursday 10-12, by appointm

ent, drop by

• Teaching assistant: Mr. Miao Zhaowei, E-mail: miaomiao@ust.hk

Tentative Schedule (1)

• Basic Picture about SCM– Week 1-2: Introduction of Supply Chain

Management– Week 3: The Strategic fit and scope; play the

beer game– Week 4: The bullwhip effect

Tentative Schedule (2)

• Demand Forecasting and planning– Week 5-6, demand forecasting – Week 7: Aggregate Planning and Forward

Buying

• Managing the material flow– Week 8-11: Joint replenishment, forward

buying, risk-pooling, postponement, tailored sourcing

– Week 12: Network design and transportation

Tentative Schedule (3)• Managing the information flow

– Week 4: The bullwhip effect – Week 8: Guest speakers: the supply chain

management in the internet age – Week 10: Risk pooling, postponement – Week 13: e-business

• Managing the financial flow– Week 13: Supply chain coordination: buy

back, discount and rebate

Textbook and Reference

• Textbook– Chopra and Meindl : Supply chain manageme

nt, second edition, Prentice Hall.

• Reference– Nahmias: Production and operation analysis, I

rwin.– Thomas: Quantitative methods for business st

udies, Prentice Hall

Grade Distribution

• Homework 30%

• Mid-term 35%

• Final project 30%

• Class participation 5%

• Project– Finding a supply chain and provide detailed

analysis for the current practice and for the recommendations

Why SCM hot now?

• 1970, Quality• 1980, lean manufacturing• 1990 and beyond, SCM

– The Increased complexity of supply chain• Emergence of global supply chain• More demanding customers• Shorter production lifecycles• Outsourcing, decentralized control and more…

– Feasibilities• radical improvement in information technology and

communication capabilities

Definition of Supply Chain

A Network of facilities including• Material supply from the suppliers• Transformation of materials to finished products• Distribution of finished products to the customer

As well as associated information flow and financial flow

P &G Product of Detergent

Detergentmanufacturer

P&SSupermarket

P&S or third party DC

Customer wants detergent and goes

To Supermarket

PlasticsProducer

ChemicalManufacturer

(e.g. Oil Company)

PackagingFirm

PaperManufacturer

TimberIndustry

Chemical Manufacturer

(e.g. Oil Company)

Manufacturer Wholesaler Retailer Customer

Supplier Supplier Supplier

Dell Computer

Website or Phone

Dell Assembly Plant

Customer wants To buy computer

Master Board

Hard disk

SRAM

Direct Shipment

Customer’s Order

Different Names

• Supply network, supply network management

• Demand chain, demand network management, demand network integration

• Value chain, value chain management

Supply Chain FlowsCapacity, promotion plans, delivery schedulesRaw materials, in-process products, finished goods Credits, payment terms, invoices

InformationMaterialFinance

Sales, orders, inventory, quality, promotion plansReturns, repairs, servicing, recycling, disposal Payments, consignment

InformationMaterialFinance

Suppliers manufacturer Distributors Resellers Customers

Structures and Players

• Basic supply chain structure– Serial, Distribution and Assemble

• Players/Echelons– Supplier– Manufacturer– Distributor/Wholesaler– Retailer

Serial Supply Chain

• Boxes=Inventory/process locations• Arrows=product flows

Supplier

Wholesaler

Retailer

Distribution Network

Supplier

Wholesaler

Retailer

Assembly Network

Supplier

Manufacturer

What Is SCM

• SCM is the systematic coordination of activities/processes that procure, produce and deliver products and/or service in a manner that maximizes value to the end customer

Goal of SCM

• Maximize the overall value generated in the chain

• Generate cost savings and better customer service over the entire supply chain

• Ideal:– Have the right product

– In the right amount

– At the right place

– At the right time

– At the least cost

SCM v.s. Logistics

• Logistics– Transportation, inventory management, material

management and purchasing– Functional area (s) within a firm

• SCM– Accomplish logistics task from a chain’s perspective– Seeking strategic advantage by coordinating logistics

activities among firms in the supply chain– Creative use of technology, reallocation decision

rights, reconfiguring the supply chain network

Pampers

• Pampers is diaper produced by Procter and Gamble

• The consumers are babies– They consume the product at pretty steady

rate

Bullwhip Effect Example (P & G)

Lee et al., 1997, Sloan Management Review

Bullwhip Effect

• The variability is amplified when we move up along the chain

DemandOrders by the retailer

Orders by the manufacturer

Ways to Reduce Bullwhip Effect

• Good demand forecasting– We will discuss how to make good forecasting based

on known information

• Information sharing– Value of information sharing and VMI will be

addressed– E-biz will be discussed

• Coordination– Several kinds of mechanism to coordinate the chain

will be introduced

Course Layout

• Demand forecasting• Managing the flow of material

– Inventory, transportation and network design

• The role of information and technology– Value of information sharing, e-business, e-commerce

• Managing relationship: coordination and integration– Outsourcing, partnership, incentives, contracts

Different Distribution System

• Central warehousing Cross-docking Direct shipment

Recent Successful Innovations• Cross docking

– Wal-Mart

• Direct Shipments– Amazon.com, Dell, eBay

• Vendor managed inventory (VMI) programs– Wal-Mart and Procter & Gamble

• Postponement– Hewlett-Packard

• Assemble to order– Dell

• Dynamic pricing– eBay (bid), IBM and airlines

Course Objectives

• Questions– Why are these innovations successful?– Can they be simply copied by other company?– Are there any theory or guidelines?– Can we innovate too?

• We are trying to answer these questions by– Studying the basic concepts and theory– Listening to guest speaker– Analyzing the case

• A bigger goal: a way of thinking

Summary

• What is supply chain• What is supply chain management (SCM)• Bullwhip effect• Successful innovations • Course layout and course goal• Next week

– The drivers for the performance of the supply chain– The basic facts and their implications in the supply ch

ain management