Supply Chain Basics
Supply Chain Management
IEEM 341
Fall, 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
appointment, drop by
• Teaching assistant: Mr. Miao Zhaowei, Email: 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
management, second edition, Prentice Hall.
• Reference
– Nahmias: Production and operation analysis,
Irwin.
– Thomas: Quantitative methods for business
studies, Prentice Hall
Grade Distribution
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•
•
•
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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
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•
•
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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
Manufacturer
Wholesaler
Detergent
manufacturer
P&S or third
party DC
Supplier
Plastics
Producer
Chemical
Manufacturer
(e.g. Oil Company)
Retailer
Customer
P&S
Supermarket
Customer wants
detergent and goes
To Supermarket
Supplier
Packaging
Firm
Paper
Manufacturer
Supplier
Chemical
Manufacturer
(e.g. Oil Company)
Timber
Industry
Dell Computer
Direct Shipment
Master Board
Hard disk
Dell Assembly
Plant
Website
or Phone
Customer’s Order
SRAM
Customer wants
To buy computer
Different Names
• Supply network, supply network
management
• Demand chain, demand network
management, demand network integration
• Value chain, value chain management
Supply Chain Flows
Information
Material
Finance
Suppliers
Capacity, promotion plans, delivery schedules
Raw materials, in-process products, finished goods
Credits, payment terms, invoices
manufacturer
Distributors
Resellers
Customers
Sales, orders, inventory, quality, promotion plans
Returns, repairs, servicing, recycling, disposal
Payments, consignment
Information
Material
Finance
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
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–
–
–
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
Demand
Orders 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
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–
–
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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
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•
•
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•
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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
chain management