CTL.SC1x -Supply Chain & Logistics Fundamentals
Introduction to Logistics & Supply
Chain Management
MIT Center for
Transportation & Logistics
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CTL.SC1x
- Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Five Questions
1.
2.
3.
4.
5.
What is a supply chain?
What are logistics and supply chain management?
How should you view SCM?
What are the challenges
Why should you care?
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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What is a Supply Chain?
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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What is a Supply Chain?
Two or more parties linked by a flow of resources –
typically material, information, and money – that ultimately
fulfill a customer request.
Information (order)
Information (status)
Material (delivery)
Money (payment)
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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What is a supply chain?
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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What is a Supply Chain?
Customer
Rubber
Mfg
Tire
Supplier
Supplier
Gear
Supplier
Retailer
Hardware
Supplier
Wholesaler
Customer
Supplier
Smelter
Pedal
Supplier
Bicycle
Casting
Plant
Retailer
Wholesaler
Frame
Supplier
Pigment
Supplier
Customer
Retailer
Paint
Supplier
Retailer
Customer
Chemical
Mfg
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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What is a Supply Chain?
•  The primary purpose of a SC is to satisfy customer needs.
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n
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Only one source of revenue – the customer
Payments between parties are just fund exchanges
Division of intra-SC payments are a function of power, market
conditions, etc.
•  Supply Chains try to maximize the total value generated
n
= [What customer pays] – [Total effort expended to fulfill]
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Logistics versus Supply Chain Mgmt
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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What is Supply Chain Management?
Logistics involves . . . “managing the flow of items, information, cash
and ideas through the coordination of supply chain processes and
through the strategic addition of place, period and pattern values.”
MIT Center for Transportation & Logistics
“Supply Chain Management deals with the management of materials,
information, and financial flows in a network consisting of suppliers,
manufacturers, distributors, and customers.“
Stanford Supply Chain Forum
“Call it distribution or logistics or supply chain management. By
whatever name it is the sinuous, gritty, and cumbersome process by
which companies move material, parts, and products to customers.”
Fortune (1994)
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Logistics vs. SCM
According to the Council of Supply Chain Management Professionals . . .
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Logistics management is that part of supply chain management that
plans, implements, and controls the efficient, effective forward and reverse
flow and storage of goods, services and related information between the
point of origin and the point of consumption in order to meet customers'
requirements.
Supply chain management encompasses the planning and
management of all activities involved in sourcing and procurement,
conversion, and all logistics management activities. Importantly, it also
includes coordination and collaboration with channel partners, which can
be suppliers, intermediaries, third party service providers, and customers.
In essence, supply chain management integrates supply and demand
management within and across companies.
Source: Used by permission, Council of Supply Chain Management Professionals, http://cscmp.org/.
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Supply Chain Management
Perspectives
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Supply Chain Perspectives
Image Source: Arntzen, B. MIT Center for Transportation & Logistics, Hi-Viz Research Project (2013)
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Supply Chain Perspectives
Customers
Manufacturers
Suppliers
CTL.SC1x - Supply Chain and Logistics Fundamentals
Distributors
Lesson: Introduction to Supply Chains
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Process View of Supply Chains
Customer
•  Four Primary Cycles
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n
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Customer Order Cycle
Customer Order Cycle
Replenishment cycle
Manufacturing Cycle
Procurement Cycle
Retailer
•  Cycles Occur Between Stages
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Interactions differ at each stage
•  Not every SC will have all 4 Cycles
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Adapted from Chopra & Meindl “Supply Chain Management”
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
Supplier
15
Supplier
Firm
SRM
“source”
Supplier Relationship
Management
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n
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Sourcing
Negotiation
Buying
Design and Supply
Collaboration
ISCM
“make, move, store”
Internal Supply Chain
Management
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n
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Strategic Planning
Demand Planning
Supply Planning
Fulfillment
CRM
“sell”
Customer
Macro Process (Software) Perspective
Customer Relationship
Management
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n
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Marketing
Selling
Call Centers
Order Management
Different macro processes should be aligned
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Fall under different groups (Marketing-CRM, ManufacturingISCM, Purchasing-SRM)
Forecasts, schedules, design, etc. should be coordinated
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Supply-Chain Operations Reference (SCOR) Model
Plan
P1 Plan Supply Chain
P3 Plan Make
Source
S1 Source Stocked Products
S2 Source MTO Products
S3 Source ETO Products
P4 Plan Deliver
P5 Plan Returns
Make
Deliver
D1 Deliver Stocked Products
M1 Make-to-Stock
M2 Make-to-Order
M3 Engineer-to-Order
D2 Deliver MTO Products
D3 Deliver ETO Products
Customers
Suppliers
P2 Plan Source
Return
Deliver
Return
Source
Enable
Source: Supply Chain Council
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Traditional Functional Perspective
•  Purchasing / Procurement •  Order Processing
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What to buy from who
Corporate vs Group
n
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•  Inventory Control
n
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How much to stock where
Trigger points
Replenishment plan
•  Warehousing
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Storage, Mixing, Break bulk
Pick Pack and Ship
What to stock where in WH
•  Materials Handling
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How to move product
Packaging, containerization
Storage layout
CTL.SC1x - Supply Chain and Logistics Fundamentals
Receiving, Entry & Status
Order Management
•  Transportation
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Inbound versus Outbound
Domestic versus International
Modal control (Rail, TL, LTL,
Parcel, Air, etc.)
•  Customer Service
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Geographic
Product Line Specific
•  Planning Group
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Facility Location
Network Design
Demand Planning
Lesson: Introduction to Supply Chains
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Systems Perspective
of Supply Chains
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Supply Chain as a System
•  Take an Engineering Systems Perspective
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What is a variable and what is a constraint?
Continuous expansion of decision variables
Increases potential for improvement but increases both
complexity and coordination requirements
Customer Svc
Transportation
Order Processing
Material Handling
Inventory Mgmt
Warehousing
Purchasing
Objective: Deliver at lowest transport cost
Variable:
w Select carrier to tender each load to
Constraints:
w Ship everything each day
w Must deliver within specified windows
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Supply Chain as a System
•  Take an Engineering Systems Perspective
n
n
n
What is a variable and what is a constraint?
Continuous expansion of decision variables
Increases potential for improvement but increases both
complexity and coordination requirements
Customer Svc
Transportation
CTL.SC1x - Supply Chain and Logistics Fundamentals
Order Processing
Material Handling
Inventory Mgmt
Warehousing
Purchasing
Objective: Deliver at lowest total cost
Variables:
w Select carrier to tender each load to
w Select time windows to deliver
w Select when to ship what from where
Constraints:
w Deliver within negotiated time frame
Objective: Deliver at lowest transport cost
Variables:
w Select carrier to tender each load to
w Select time windows to deliver
Constraints:
w Ship everything each day
Lesson: Introduction to Supply Chains
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Supply Chain as a System
•  Take an Engineering Systems Perspective
n
n
n
What is a variable and what is a constraint?
Continuous expansion of decision variables
Increases potential for improvement but increases both
complexity and coordination requirements
Customer Svc
Transportation
Order Processing
Material Handling
Inventory Mgmt
Warehousing
Purchasing
Manufacturing
Product Design
CTL.SC1x - Supply Chain and Logistics Fundamentals
Objective:
w Design, build, and deliver at lowest total cost
Variables:
w Select carrier to tender each load to
w Select time windows to deliver
w Select when to ship what from where
w Select where to stock which form of product
Constraints:
w Deliver within negotiated time frame
Lesson: Introduction to Supply Chains
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Supply Chain as a System
•  Take an Engineering Systems Perspective
n
n
n
What is a variable and what is a constraint?
Continuous expansion of decision variables
Increases potential for improvement but increases both
complexity and coordination requirements
Retailer
CTL.SC1x - Supply Chain and Logistics Fundamentals
Customer Svc
Transportation
Order Processing
Material Handling
Inventory Mgmt
Warehousing
Purchasing
Manufacturing
Product Design
Supplier
Why is this so hard to do?
Objective:
w Maximize on-shelf availability
Variables:
w Select carrier to tender each load to
w Select time windows to deliver
w Select when to ship what from where
w Select where to stock which form of
product
w Select contract relationships
w Select who should control replenishment
w Which channel member should perform
which function
Constraints:
w Total delivered cost to shelf
Lesson: Introduction to Supply Chains
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What are the major challenges?
(Why is it so hard?)
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Why is it so difficult? 1/2
•  Metrics – How do you measure a system?
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Trade-off of Breadth vs. Validity of metrics
Outcome Based Logistics - Perfect order, Perfect Shelf
•  Politics and Power of Players - Who wins?
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Mom & Pop Shop versus Mega-Stores
Mega Retailers vs. Mega CPG Manufacturers
•  Visibility – Who can see what and how quickly?
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Data are stored separately
All parties do not have equal access to data
Massive data ≠ Shared & accessible information
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Why is it so difficult? 2/2
•  Uncertainty - Who knows what is going to happen?
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Variable demand of product (shorter lifecycles)
Variable manufacturing yield
Unreliable sourcing of raw materials
Inconsistent transit lead times
•  Increased complexity – Why is it getting harder?
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Exploding number of Stock Keeping Units (SKUs)
Higher and diverging customer demands
New & merging channels (Omni-Channel)
•  Global operations – Why don’t we ever close?
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Most firms source & sell across globe
Multiple regions, time zones, languages, & cultures
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Why do we care?
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Why do we care?
•  Supply Chains . . .
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Span the globe and cannot be managed as an isolated function,
Have become critical to any organization’s operations, and
Connect functions, divisions, and business units within a firm
as well as across firms.
Evolved into being both a Bridge and a Shock Absorber
By Wsvan; cropped by Beyond My Ken (talk) 01:29, 14 October 2013 (UTC) (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (
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CTL.SC1x
- Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
File:Mini_Shocks.JPG#mediaviewer/File:Mini_Shocks.JPG
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Example: Variability of #2 Diesel Pricing
4.8
4.6
On Highway Price of #2 Diesel ($/gallon)
4.4
4.2
4
3.8
3.6
3.4
3.2
3
2.8
2.6
2.4
2.2
2
Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 May-14 Nov-14
Data Source: U.S. Energy Information Administration, http://www.eia.gov/petroleum/gasdiesel/diesel_proc-methods.cfm
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Logistics Costs per GDP
16.0%
Percentage of US GDP
14.0%
Year 1981 1985 1990 1995 2000 2005 2010 2013 GDP Inv Cost Trans Cost ($T) ($B) ($B) 3.21 259 228 4.35 227 274 5.98 283 351 7.66 302 441 10.29 385 594 13.1 410 739 14.96 429 769 16.8 469 862 12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
1980
1985
1990
1995
2000
2005
2010
2015
Year
US Inventory Holding Cost
US Transportation Cost
Total US Logistics Cost
Data Sources: Council of Supply Chain Management (2014) 25th Annual State of Logistics Report
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
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Still, why do we care?
Functional
Logistics
Supply Chain
Key Skills
Technically Narrow
Influence
Local & Controllable
Across entire Supply Chain
Leadership
Hierarchical, Direct,
‘Hard’
Influential, Indirect, ‘Soft’
Risk Management
Measurement
Robust or Reactionary
Coordination
Planned Response & Flexibility
Single Focus
Technology
Approach
Isolated Optimization
Technology
Platform
Self-Hosted, On-site
Scope / Reach
Regional / National
Multi-faceted
Visibility & Coordination
Cloud or SaaS
Global / Multi-National
Supply Chain Management is a growing and evolving discipline.
CTL.SC1x - Supply Chain and Logistics Fundamentals
Lesson: Introduction to Supply Chains
31
CTL.SC1x -Supply Chain & Logistics Fundamentals
Questions, Comments, Suggestions?
Use the Discussion!
caplice@mit.edu
MIT Center for
Transportation & Logistics
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