Supply Chain Management: Issues and Models Lecture 1: Introduction

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Supply Chain ManagementIssues and
ModelsLecture 1 Introduction

• Dr. Jinxing Xie
• Department of Mathematical Sciences
• Tsinghua University, Beijing 100084, China
• http//faculty.math.tsinghua.edu.cn/jxie
• Email jxie_at_ math.tsinghua.edu.cn
• Voice (86-10)62787812 Fax [phone]
• Office Rm. 1308, New Science Building

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Course Information

• Objective
• Understanding the supply chain and related issues
• Introducing some models and technologies for
  supply chain management
• Project / Assignment (choose any one)
• A review of literatures on a topic you are
  interested
• A report which is a generalization to a paper
• References
• Course notes at http//www.csiam.edu.cn/scm
• Some journal papers from Management Sciences et.
  al.
• Focus on
• Issues (Problems) and Models

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Example Stages of a Detergent Supply Chain
Customer wants detergent and goes to Wal-Mart
Wal-Mart Store
Wal-Mart Or third-party DC
PG or other manufacturer
Plastic producer
Tenneco packaging
Chemical manufacturer
Chemical manufacturer
Paper manufacturer
Timber industry
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WHAT IS A SUPPLY CHAIN?
A Supply Chain consists of organizations that
successively transform raw materials into
intermediate goods, then to final good, and
finally deliver them to customers.
A Supply Chain consists of all stages involved,
directly or indirectly, in fulfilling a customer
request.
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WHAT IS A SUPPLY CHAIN?

The global network used to deliver products and
services from raw materials to the end customer
through engineered flows of information, physical
distribution and cash.

The Supply Chain
Information Systems
World-Wide Requirements Planning
Relationship Management
Logistics Network
Distribution Processes
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Understanding the Supply ChainSupply Network,
Supply Web

• Not only manufacturer and supplier, but also
  transporters, warehouses, retailers and customers
  themselves.
• All functions involved in filling a customer
  request within each organization new product
  development, marketing, operations, distribution,
  finance, and customer service.
• SCM vs. Logistics (??)

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Supply Chain Stages
Manufacturer
Distributor
Supplier
Retailer
Customer
Supplier
Retailer
Customer
Distributor
Manufacturer
Supplier
Customer
Retailer
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Connect Supply With Demand

Information
SUPPLY
DEMAND
Product
Cash
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Example 1 Typical U.S. Apparel Industry Supply
Chain

• Average inventory and elapsed time (weeks)
• Materials
  6.5
• In-process 9
  6
• Finished goods 7.5 9.5
• In-transit 4
  4 12

Retailers
Fiber suppliers
Textile makers
Apparel makers
Agents
Agents
Agents
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Discussion of Issues and opportunities for
improvement to U.S. Apparel Industry

• Issues
• Supply chain is too long and too slow
• 58.5 weeks (excludes processing time
  international transit times)
• Little of this time is spent in processing
• Only 15 of the 58.5 weeks are in-process
  inventory
• Even in processing, the ratio of processing time
  to wait time is notoriously low
• Thus, American apparel industry was reduced
  enormously during the last 25 years
• Opportunities
• Faster response to customer orders
• Eliminating unnecessary inventory, stockouts and
  markdowns
• 25 billion can be saved annually

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Example 2 HP DeskJet Printer Supply Chain
Asia-Pacific distribution center
Integrated circuit manufacturing
Supplier
Dealers
Vancouver final assembly test
4-5 weeks
Printed circuit assembly test
California distribution center
Supplier
1 day
Dealers
4-5 weeks
Printed mechanism manufacturing
European distribution center
Supplier
Supplier
Dealers
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Discussion of Example 2 Improvement during the
early 1980s

• Manufacturing cycle time reduced
• 8-12 weeks gt 1 weeks
• Average inventory reduced
• 3.5 months gt 0.9 months
• All finished goods inventory eliminated
• Importance of response time and transportation
  time increased
• Further improvements should be made on supply
  chain

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Discussion of Example 2 Improvement of supply
chain in 1990

• Time between order and delivery reduced
• Europe Asia
• 5.25 months gt 1.25 months
• North-America
• 4.25 months gt 0.2 months
• Importance of transportation time increased
• Europe Asia 1 gt 12
• North-America 20 gt 80

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Hints from Examples 1 and 2

• Further reduction in manufacturing cycle time is
  not highly beneficial after the improvements of
  1980s
• Example 1 Only 15 of the 58.5 weeks are WIP
  inventory
• Improvements in supply chain is very beneficial
• Inventory cost reduced
• HP Case 4 months inventory reduced, total cost
  reduces up to 5
• Time between order and delivery reduced
• Better sales forecasts, reduced wrong orders,
  markdowns, stockouts and delays in delivery
• Lower total cost higher customer service

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Objectives of Supply Chain Management (SCM)

• To improve
• the profitability and efficiency of the supply
  chain and all organizations involved
• By
• Optimizing
• the speed and certainty and
• Maximizing
• the net value added by all relevant processes.

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Decision phases in a supply chain

• Depending on the time frame over which the
  decisions made apply
• Supply chain strategy or design next few years
• Supply chain planning yearly or monthly
• Supply chain operation weekly or daily
• Some key fields
• Supply chain design and product development
• Demand forecasting and customer relationship
• Production planning and scheduling
• Inventory management
• Transportation management
• Location and Facilities management
• Information management and Information Technology
• .

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• ???????(S/T/O)
• ???????(T/O)
• ??????????(S)
• ???? (S)
• ???? (S)

S-???? T-???? O-????
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?? Petri? ???? ???? (PA) Markov?
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???? ???? ???? Lagrangian?? ???? ?Agent??
(DAI)
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The Virtual Enterprise
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Key Elements In Supply Chain Uncertainty

• DEMAND
• Timing of Order - How predictable is this?
• Size and Composition of Order - Are there
  unexpected elements, and is it subject to change?
  
• Data Accuracy on Products Required, Delivery
  Points and
  Timings
• SUPPLY
• Lead Time to Supply - How predictable is this?
• Quantity Supplied - Can the delivery be accepted
  without being counted?
• Quality of Supply - Can the supplies be used
  without testing?
• Data Accuracy on Products Supplied and Prices

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Good, Bad or Optimum Inventory

• Once uncertainty is stripped away to the maximum
  practicable degree, inventory can then be
  determined at the correct (optimal) level (for
  each stage of the supply chain and overall)
• Profit (or performance enhancement) from
  holding stock
• equals potential lost sales (or lost
  performance)
• times the gross profit margin on sales (or
  added value)
• less the cost of holding stock (interest
  plus holding costs,
• which can be substantial in real
  terms and are often
• underestimated)

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Old Order Driven Supply Chain
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Supply Planning Across the Virtual Enterprises
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SCM vs. OR/MS/DS

• Operations Research and Management Science
  (OR/MS)
• The professional disciplines that deal with the
  application of information technology for
  informed decision-making
• Provide rational bases for decision making by
  seeking to understand and structure complex
  situations and to use this understanding to
  predict system behavior and improve system
  performance.
• Much of this work is done using analytical and
  numerical techniques to develop and manipulate
  mathematical and computer models of
  organizational systems composed of people,
  machines, and procedures.
• The field is closely related to several other
  fields in the "decision sciences" -- applied
  mathematics, computer science, economics,
  industrial engineering, and systems engineering.

From http//www.informs.org/Join/Orms.html
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SCM vs. OM

• What is Operations Management (OM)?
• ?????????(???)???????????????????????????
• OM is the set of activities that creates goods
  and services by transforming inputs into outputs.
• OM is the business function that manages that
  part of a business that transforms raw materials
  and human inputs into goods and services of
  higher value. (narrow view)

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OM????
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????
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OM vs. OR/MS/DS vs. SS/SE vs. IE/EM

• ????????????(????)
• OR/MS/DS????????????????????
• SS/SE?????????????
• IE/EM????????????????,??????(???????)

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• ???? ? ????????????

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The Heritage of OM
? ?

• 1776-1880 ????
• ??? ??????
• 1880-1910??????
• Gantt???/???????????
• 1910-1980???????
• ???????????PERT/CPMMRP
• 1980-1995??????
• JITTQMEDICAD/CAM/CAPP
• 1995-2005???????????
• ??????(INTERNETE-Commerce)
• ????BPRERP???????
• ?????(SCM)

??
??
????, OM???50???60???
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What Operations Managers do?(Top 10 Research
Directions)

• Goods and services design
• What product should we offer?
• How should we design these products and services?
• Managing quality
• Who is responsible for quality?
• How do we define the quality we want in our
  service or product?
• Process and capacity design
• What process will these products require and in
  what order?
• What equipment and technology is necessary for
  these processes?

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What Operations Managers do?(Top 10 Research
Directions)

• Location strategies
• Where should we put the facility?
• On what criteria should we bas the location
  decision?
• Layout design
• How should we arrange the facility?
• How large must the facility be to meet our plan?
• Human resources and job design
• How do we provide a reasonable work environment?
• How much can we expect our employees to produce?
• Supply chain management
• Should we buy or produce the component?
• Who are our suppliers and who can integrate into
  our e-commerce program?

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What Operations Managers do?(Top 10 Research
Directions)

• Inventory control
• How much inventory of each item should we have?
• When do we reorder?
• Intermediate, short-term, and project scheduling
• Is subcontracting production a good idea?
• Are we better off keeping people on the payroll
  during slowdowns?
• Maintenance
• Who is responsible for maintenance?

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Exciting New Trends in OM
Local or national focus
Global focus, international OM
Batch (large) shipments
Just-in-time shipments
Supply chain partners, ERP, e-Commerce
Low-bid purchasing
Rapid product development, alliances
Lengthy product development
Standardized products
Mass customization
Empowered employees, teams, and lean production
Job specialization
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Important Research Field - Service Operations
Management

• Intangible
• Produced and consumed simultaneously
• Unique
• High customer interaction
• Inconsistent product definition
• Knowledge-based
• Dispersed
• Difficult to automate
• Difficult to measure quality
• .

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Research Methods
Strategic
Qualitative
Tactic
Quantitative
Operational
Levels of Decision
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Research Methods

• Empirical
• Case study
• Survey
• Panel study
• Database
• Theoretic models
• Deterministic models
• Uncertainty models
• Simulation
• Expert system (knowledge model)

• Simulation
• Motivation and Objective
• Experiment design
• Independent variables
• Dependent variables
• Simulation run
• Data analysis
• Findings
• Insights

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? ? OR/MS ? ? ? ? ? ? ? ? ?
????
????
????
????
????
????
????
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Applied Mathematics Mathematical
Modeling Motivation,Formulation,Solution,Validati
on
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Manufacturing and Service Operations Management
Society

• Established March 1999, Newest within INFORMS
• Membership 950, Largest within INFORMS
• Society Webpage http//msom.society.informs.org
• The methods which MSOM members apply in order to
  help the operations function add value to
  products and services are derived from a wide
  range of scientific fields, including operations
  research and management science, mathematics,
  economics, statistics, information systems and
  artificial intelligence.

INFORMS Institute for Operations Research and
Management Science Merged from ORSA (1952) and
TIMS (1953) in 1994
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Source of References

• Top journal
• Operations Research (OR)
• Management Science (MS)
• Quasi-Top journal
• Operations Research Letters (ORL)
• IIE Transactions (IIET)
• Naval Research Logistics (NRL)
• Mathematics of Operations Research (MOR)
• Journal of operations management (JOM)
• Major journal
• European Journal of Operational Research (EJOR)
• International Journal of Production Research
  (IJPR)
• International Journal of Production Economics
  (IJPE)
• Journal of the Operational Research Society
  (JORS)

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OM Related Journals
?Relevance Ranks (1999, JOM)
Quality?

• JOM (J. of OM)
• IJOPM (Int. J. Op. Prod. Mgmt.)
• POM (Prod. OM)
• IJPR (Int. J. of Prod. Research)
• IJPE (Int. J. of Prod. Economics)
• PIMJ (Prod. Invent. Mgmt. J.)
• MS (Management Sciences)
• HBR (Harvard Business Rev.)
• EJOR
• Sloan Mgmt. Review

• MS (SSCI, SCI)
• OR (SCI)
• JOM
• IJOPM
• IJPR (SCI)
• POM (SCI)
• EJOR(SCI, SSCI)
• HBR
• Academy of Mgmt. Journal
• DS (Decision Sciences) (SSCI)

• MSOM

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Summary

• What is Supply chain / SCM?
• What kinds of issues SCM concern?
• What are the Theory and Techniques which can be
  possibly potential in SCM?
• SCM vs. OR/MS/DS/OM/IE/EM/SS/SE?
• Top journals publishing SCM studies

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• Thank you very much for your attendance!

• THE END