Supply Chain Design and
Planning
Lecture mar 10
The objective of a supply chain
Maximize net value generated
Supply chain surplus = customer value – supply chain cost
The difference between the revenue and the costs that the supply chain incurs is
the supply chain profitability. This is the total profit to be shared across all stages
of the supply chain. Success should be measured by total supply chain surplus,
not profits at an individual stage.
Effective supply chain management involves the management of supply chain
assets and product, information and fund flows to grow the total supply chain
surplus.
Exploring supply chains
- Different players involved:
o Suppliers, manufacturers, warehouses, stores, customers
- Different processes involved:
o Sourcing, production, transportation, …
- What is the objective of supply chain management?
o Integrating SC players involved
o Minimize system-wide costs, while meeting customer requirements
o Maximizing supply chain value
- All parties involved in fulfilling a customer request
o Trade-offs and conflicting objectives
- Dynamic, involving the constant flow of product, information and funds
between and among different stages
o Variations over time
o Matching demand-supply difficult
o Different levels of inventory and backorders
- Geographically dispersed complex network
o Lean production/off-shoring/outsourcing increase complexity and
risks
- Actually a supply network or supply web
Supply chain management
(SCM): managing flows
,The design and planning of supply chains…
- Plays a significant role in the success or failure of a firm
o Success: impact on profit, sales, stock price, …
o Failure: according to McKinsey, damage from 40 weather disasters
Managing supply chains
- 3 decision phases depending on scope and time frame (intertemporal
aggregation)
o Strategic: supply chain design
o Tactical: supply chain planning
o Operational: supply chain operations
- Supply chain logistics – logistics management
o Focus is on managing the physical flow
o Information and financial flows are key inputs
Useful tools for SCM: mapping processes – process views
- Cycle view: processes in a supply chain are divided into a series of cycles,
each performed at the interfaces between two successive supply chain
stages.
- Push/pull view: processes in a supply chain are divided into 2 categories
depending on whether they are executed in response to a customer
order/use of inventory in chain (pull) or in anticipation (vooruitkijkend) of a
customer order (push).
,Customer Order Decoupling Point (CODP): tells you where in the production
process a customer’s order becomes the trigger for production or delivery.
- Before the CODP: production is based on forecast (make to stock)
o Planning driven activity: focus on efficiency
- After the CODP: production is based on a specific customer order (make to
order)
o Customer order driven activity: focus on responsiveness
Specific characteristics CODP
- Production order
o Upstream CODP: anonymous
o Downstream CODP: customer related
- Basis for planning
o Upstream CODP: forecasts
o Downstream CODP: customer orders
- Availability of free stock
o Upstream CODP: yes
o Downstream CODP: no
- Batch size
o Upstream CODP: determined by efficiency or production capacity
o Downstream CODP: mainly determined by customer order
- Throughput time
o Upstream CODP: independent of lead time
o Downstream CODP: determines lead time
Factors that determine position CODP
Trade off between demand and feasibility
- Market characteristics
o Requirements on lead time, product quality, flexibility
o Demand uncertainty, assortment
, - Product characteristics
o Options for modular products
o Perishability of products (tendency of a product/service to lose value
over time)
- Production and distribution (process) characteristics
o Production time, distribution time, frequency, flexibility
o Supply uncertainty, transport unit & mode
Push/pull view of supply chain processes
- Useful in considering strategic decisions relating to supply chain design –
more global view of how supply chain processes relate to customer orders
- Can combine the push/pull and cycle views
- The relative proportion of push and pull processes can have an impact on
supply chain performance
Supply chain macro processes in a firm
- Supply chain processes discussed in the 2 views can be classified into
o Customer relationship management (CRM)
o Internal supply chain management (ISCM)
o Supplier relationship management (SRM)
- Their integration is critical for effective and successful supply chain
management
The AAA-supply chain
- Agile
o Respond to short-term changes in demand/supply quickly
o Handle external disruptions smoothly
- Adaptable
o Adjust supply chain design to meet structural shifts in markets
o Modify supply network to strategies, products and technologies
- Aligned
o Create incentives (rewards/penalties) for better performance
Why an efficient supply chain is not successful per se
- High speed low costs supply chains are unable to quickly respond to
unexpected changes in demand
- Efficiency focus leads to large batch sizes, which leads to overstock that
needs to be marked down
- An efficiency focus is detrimental (causes harm) during new product launch
- Adapting to changing market conditions is complicated
A company with an agile supply chain:
- Promotes flow of information with suppliers and customers
- Develop collaborative relationships with suppliers
- Design for postponement
- Build inventory buffers by stockpiling inexpensive but key components
- Have a dependable logistics system or partner
Planning
Lecture mar 10
The objective of a supply chain
Maximize net value generated
Supply chain surplus = customer value – supply chain cost
The difference between the revenue and the costs that the supply chain incurs is
the supply chain profitability. This is the total profit to be shared across all stages
of the supply chain. Success should be measured by total supply chain surplus,
not profits at an individual stage.
Effective supply chain management involves the management of supply chain
assets and product, information and fund flows to grow the total supply chain
surplus.
Exploring supply chains
- Different players involved:
o Suppliers, manufacturers, warehouses, stores, customers
- Different processes involved:
o Sourcing, production, transportation, …
- What is the objective of supply chain management?
o Integrating SC players involved
o Minimize system-wide costs, while meeting customer requirements
o Maximizing supply chain value
- All parties involved in fulfilling a customer request
o Trade-offs and conflicting objectives
- Dynamic, involving the constant flow of product, information and funds
between and among different stages
o Variations over time
o Matching demand-supply difficult
o Different levels of inventory and backorders
- Geographically dispersed complex network
o Lean production/off-shoring/outsourcing increase complexity and
risks
- Actually a supply network or supply web
Supply chain management
(SCM): managing flows
,The design and planning of supply chains…
- Plays a significant role in the success or failure of a firm
o Success: impact on profit, sales, stock price, …
o Failure: according to McKinsey, damage from 40 weather disasters
Managing supply chains
- 3 decision phases depending on scope and time frame (intertemporal
aggregation)
o Strategic: supply chain design
o Tactical: supply chain planning
o Operational: supply chain operations
- Supply chain logistics – logistics management
o Focus is on managing the physical flow
o Information and financial flows are key inputs
Useful tools for SCM: mapping processes – process views
- Cycle view: processes in a supply chain are divided into a series of cycles,
each performed at the interfaces between two successive supply chain
stages.
- Push/pull view: processes in a supply chain are divided into 2 categories
depending on whether they are executed in response to a customer
order/use of inventory in chain (pull) or in anticipation (vooruitkijkend) of a
customer order (push).
,Customer Order Decoupling Point (CODP): tells you where in the production
process a customer’s order becomes the trigger for production or delivery.
- Before the CODP: production is based on forecast (make to stock)
o Planning driven activity: focus on efficiency
- After the CODP: production is based on a specific customer order (make to
order)
o Customer order driven activity: focus on responsiveness
Specific characteristics CODP
- Production order
o Upstream CODP: anonymous
o Downstream CODP: customer related
- Basis for planning
o Upstream CODP: forecasts
o Downstream CODP: customer orders
- Availability of free stock
o Upstream CODP: yes
o Downstream CODP: no
- Batch size
o Upstream CODP: determined by efficiency or production capacity
o Downstream CODP: mainly determined by customer order
- Throughput time
o Upstream CODP: independent of lead time
o Downstream CODP: determines lead time
Factors that determine position CODP
Trade off between demand and feasibility
- Market characteristics
o Requirements on lead time, product quality, flexibility
o Demand uncertainty, assortment
, - Product characteristics
o Options for modular products
o Perishability of products (tendency of a product/service to lose value
over time)
- Production and distribution (process) characteristics
o Production time, distribution time, frequency, flexibility
o Supply uncertainty, transport unit & mode
Push/pull view of supply chain processes
- Useful in considering strategic decisions relating to supply chain design –
more global view of how supply chain processes relate to customer orders
- Can combine the push/pull and cycle views
- The relative proportion of push and pull processes can have an impact on
supply chain performance
Supply chain macro processes in a firm
- Supply chain processes discussed in the 2 views can be classified into
o Customer relationship management (CRM)
o Internal supply chain management (ISCM)
o Supplier relationship management (SRM)
- Their integration is critical for effective and successful supply chain
management
The AAA-supply chain
- Agile
o Respond to short-term changes in demand/supply quickly
o Handle external disruptions smoothly
- Adaptable
o Adjust supply chain design to meet structural shifts in markets
o Modify supply network to strategies, products and technologies
- Aligned
o Create incentives (rewards/penalties) for better performance
Why an efficient supply chain is not successful per se
- High speed low costs supply chains are unable to quickly respond to
unexpected changes in demand
- Efficiency focus leads to large batch sizes, which leads to overstock that
needs to be marked down
- An efficiency focus is detrimental (causes harm) during new product launch
- Adapting to changing market conditions is complicated
A company with an agile supply chain:
- Promotes flow of information with suppliers and customers
- Develop collaborative relationships with suppliers
- Design for postponement
- Build inventory buffers by stockpiling inexpensive but key components
- Have a dependable logistics system or partner
