Welcome to
IT Enabled Supply Chain Management
Bent Steenholt Kragelund
benk@itu.dk
Today's Agenda
• Understanding the
Supply Chain
• The Beer Game
Course material
• Textbook: Chopra, S & Meindl, P (2012) Supply Chain Management,
Strategy, planning and Operation (5th edition), Pearson
• Global edition of the book will work as well
• Selected readings to be provided
Understanding the Supply Chain
What is a Supply Chain?
• All stages involved, directly or indirectly, in fulfilling a
customer request
• Includes manufacturers, suppliers, transporters,
warehouses, retailers, and customers
• Within each company, the supply chain includes all
functions involved in fulfilling a customer request
(product development, marketing, operations,
distribution, finance, customer service)
What is a Supply Chain?
• Customer is an integral part of the supply chain
• Includes movement of products from suppliers to
manufacturers to distributors and information, funds, and
products in both directions
• May be more accurate to use the term “supply network”
or “supply web”
• Typical supply chain stages: customers, retailers,
distributors, manufacturers, suppliers
• All stages may not be present in all supply chains (e.g.,
no retailer or distributor for Dell)
Beer supply chain example
Hops
supplier
Malt
supplier
Yeast
supplier
Product flow
Brewery
Distributor
Regional
Wholesaler
Grocery
Store
Aluminum
supplier
Funds & information flows
Can / bottle
producer
Glass
supplier
Packaging materials flow
Consumer
Flows in a Supply Chain – the supply web
The Objective of a Supply Chain
• Maximize overall value created
Supply Chain Surplus
= Customer Value – Supply Chain Cost
The Objective of a Supply Chain
• Customer the only source of revenue
• Sources of cost include flows of information, products, or
funds between stages of the supply chain
• Effective supply chain management is the management
of flows between and among supply chain stages to
maximize total supply chain surplus
Decision Phases of a Supply Chain
Supply Chain Phase
Frequency
1. Supply chain strategy or design Several years
2. Supply chain planning
Quarterly / yearly
3. Supply chain operation
Daily / weekly
Cycle View of Supply Chain Processes
• Processes in a supply
chain are divided into a
series of cycles, each
performed at the
interfaces between two
successive supply chain
stages
Cycle View of Supply Chain Processes
Push/Pull View of Supply Chains
Processes in a supply chain are divided into two categories depending
on whether they are executed in response to a customer order (pull reactive) or in anticipation of a customer order (push - speculative)
Push/Pull View of – L.L. Bean
Push/Pull View – Dell
The beer game
Introduction to the Beer Game
•
The purpose of the Beer Game is to experience systemic effects and to introduce the need for
supply chain and network management. Specifically it shows:
– How single parts in a system influence each other.
– How individual thinking differs from systemic thinking (network thinking).
– Potentials for systems optimization and the use of information systems.
•
The Beer Game setup
– The Beer Game supply chain consists of four stages:
– The retailer (orange) has to fulfil the end consumer’s orders.
– The wholesaler (yellow) has to fulfil the retailer’s orders.
– The distributor (green) has to fulfil the wholesaler’s orders.
– The factory (blue) has to produce the beer to fulfil the distributor’s orders.
•
The Beer Game is played in groups of 3, each of these groups sits around one table and plays
one supply chain stage (see figure).
Delay
Delay
Factory
Factory
Delay
Distributor
Distributor
Delay
Wholesaler
Wholesaler
Retailer
Retailer
Table layout
•
Every table has the same layout that
shows four different areas (see figure):
– The place for incoming orders
(inbox) – coming from the
downstream stage
– The place for outgoing orders
(outbox) – going to the upstream
stage
– The place for incoming deliveries
(receiving) – coming from the
upstream stage
– The place for outgoing deliveries
(dispatch) – going to the
downstream stage
•
Deliveries are “on the road” for 2
weeks (lead time); production also
takes 2 weeks. This lead time delay is
represented by 2 two extra fields
between the tables that hold the
deliveries and are moved forward in
each week.
Outgoing
order
Incoming
order
Distributor
Distributor
Delay
Factory
Incoming
delivery
Outgoing
delivery
Wholesaler
Delay
General playing procedure
•
The game runs in weeks and it starts in week 1. In each week, each supply chain
group has to proceed with the following steps:
– Receive new deliveries and update the play sheet (“incoming” and “available”).
– Receive orders in the inbox and update the play sheet (“new order” and “to ship”)
– Calculate the total amount that will be shipped (“your delivery”), note down the
amount, and place it in a box in the dispatch area on your table.
– Agree on a new order amount, note down the number, and put it in an envelope in the
outbox field.
•
The goal
– Your goal is to minimize your cost!
– (Remember that you compete against the same stage in the other supply chains –
retailer against retailer, distributor against distributor etc.)
•
There are two different kinds of cost:
– Inventory cost: Items in stock cost € 0,50 per week in holding costs.
– Backorder cost: If an incoming order cannot be (fully) fulfilled, items are outstanding
and have to be put on “backorder” to be fulfilled in the following week(s). Each item on
backorder costs € 1,00 per week.
What is a backorder?
• If an incoming order cannot be fully fulfilled due to a lack
of available items in the inventory, items go on
backorder. In this case your inventory is empty and a
number of items have to appear as backorder in your
play sheet.
What happens in the next week?
• In the following week, you will add the old backorder to
the new incoming order to calculate the amount “to ship”.
Again, if the available inventory is too little to fulfil the
amount “to ship”, items have to be put on backorder and
will cost $ 1,00 per item.
Some general rules
• No communication is allowed between supply chain
groups, supply chain groups must not talk to each other
at any time!
• If stock is available, an order has to be fulfilled.
• Every order has to be fulfilled, either in the current week
(if enough stock is available) or in one of the next weeks
(items go on backorder).
• Either the inventory or the backorder, one of them is
always zero (0)!
Delay
Delay
Factory
Delay
Distributor
Delay
Wholesaler
Retailer
Outgoing
order
Incoming
order
Distributor
Delay
Factory
Incoming
delivery
Outgoing
delivery
Wholesaler
Delay
The initial table set-up
Delay
D
Delay
Factory
D
D
Delay
Distributor
D
D
Delay
Wholesaler
D
D
Retailer
D
D
D
D
D
The play-sheet
Distributor
Week
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Incoming
Available
New Order
To Ship
Your Delivery
Backorder
Inventory
Your Order
(Coming in from
factory)
(Inventory +
incoming)
(coming in from
wholesaler)
(backorder + new
order)
(=to ship, unless
no full availability)
(To ship - Your
delivery)
(Available - your
delivery)
(Your decision)
15
Cost
Fill out play slips
Delivery
Order
Step 1: Delivery IN
Outgoing
order
Incoming
order
5
Distributor
Delay
Incoming
delivery
Delay
Outgoing
delivery
Distributor
Week
0
1
2
3
Incoming
Available
New Order
To Ship
Your Delivery
Backorder
Inventory
Your Order
(Coming in from
factory)
(Inventory +
incoming)
(coming in from
wholesaler)
(backorder + new
order)
(=to ship, unless
no full availability)
(To ship - Your
delivery)
(Available - your
delivery)
(Your decision)
15
5
20
Cost
Fill out play slips
Delivery
Order
Step 2: Order IN
Outgoing
order
4
5
Incoming
order
Distributor
Delay
Incoming
delivery
Delay
Outgoing
delivery
Distributor
Week
0
1
2
3
Incoming
Available
New Order
To Ship
Your Delivery
Backorder
Inventory
Your Order
(Coming in from
factory)
(Inventory +
incoming)
(coming in from
wholesaler)
(backorder + new
order)
(=to ship, unless
no full availability)
(To ship - Your
delivery)
(Available - your
delivery)
(Your decision)
5
20
4
15
Cost
Fill out play slips
Delivery
Order
Step 3: Prepare delivery
Outgoing
order
Incoming
order
5
Distributor
Delay
Incoming
delivery
4
Delay
Outgoing
delivery
Distributor
Week
0
1
2
3
Incoming
Available
New Order
To Ship
Your Delivery
Backorder
Inventory
Your Order
(Coming in from
factory)
(Inventory +
incoming)
(coming in from
wholesaler)
(backorder + new
order)
(=to ship, unless
no full availability)
(To ship - Your
delivery)
(Available - your
delivery)
(Your decision)
5
20
4
4
4
0
15
16
Cost
Fill out play slips
Delivery
8
4
Order
Backorder
Outgoing
order
Incoming
order
5
Distributor
Delay
Incoming
delivery
Delay
Outgoing
delivery
Distributor
Incoming
Available
New Order
To Ship
Your Delivery
Backorder
Inventory
Your Order
Week
(Coming in from
factory)
(Inventory +
incoming)
(coming in from
wholesaler)
(backorder + new
order)
(=to ship, unless
no full availability)
(To ship - Your
delivery)
(Available - your
delivery)
(Your decision)
22
23
24
25
8
4
31
23
12
25
12
25
12
23
0
2
19
0
14
Cost
205
207
Fill out play slips
Delivery
Order
12
23
14
Step 4: Place your order
Outgoing
order
This is entirely your decision
Keep your cost low !
Incoming
order
Distributor
Delay
Incoming
delivery
Delay
Outgoing
4
delivery
Distributor
Week
0
1
2
3
Incoming
Available
New Order
To Ship
Your Delivery
Backorder
Inventory
Your Order
(Coming in from
factory)
(Inventory +
incoming)
(coming in from
wholesaler)
(backorder + new
order)
(=to ship, unless
no full availability)
(To ship - Your
delivery)
(Available - your
delivery)
(Your decision)
5
20
4
4
4
0
15
16
3
Cost
Fill out play slips
Delivery
8
4
Order
3
The initial table set-up
Delay
D
Delay
Factory
D
D
Delay
Distributor
D
D
Delay
Wholesaler
D
D
Retailer
D
D
D
D
D
Between weeks - Logistics
Delay
D
Delay
Factory
D
D
Delay
Distributor
D
D
Delay
Wholesaler
D
D
Retailer
D
D
D
D
D
Ready to play?
• Three assistants needed
• Form groups of 3
– Each group should have a Laptop / Tablet capable of
running excel
• Download the play-sheet from the course blog
• Rename to Table-n where n is 1,2 or 3
• Open the right tab depending on your role