Week 1: Introduction to Supply Chain Management (SCM)
SCM is primarily concerned with the efficient integration of suppliers, factories, warehouses and
stores so that merchandise is produced and distributed in the right quantities, to the right locations
and at the right time, and so as to minimise total system cost to satisfying service requirements.
Conflicting objectives in the supply chain
Purchasing
- Stable volume requirements
- Flexible delivery time
- Little variation in mix
- Large quantities
Manufacturing
- Long run production
- High quality
- High productivity
- Low production cost
Warehousing
- Low inventory
- Reduced transportation costs
- Quick replenishment capability
Customers
- Short order lead time
- High in stock
- Enormous variety of products
- Low prices
Dynamics of the supply chain: [Least fluctuations] customer demand, retailer order, distributor
order, production plan [Most fluctuations] bullwhip effect
Management wants the production plan to be followed as closely as possible to the customer
demand.
What is new in logistics?
- Global competition
- Shorter product life cycle (products soon will not have historical data demand will be harder
to predict)
- Increasing product variety
- New, low-cost distribution channels
- More powerful well-informed customers
- New communications and information technologies wireless technology
- Decision support systems
- Integrated systems
- Multi-modal transportation
,New concepts in logistics
- Push VS pull strategies
- Cross docking
- Strategic alliances
- Manufacturing postponement
- Design for logistics
- Remanufacturing supply chain
- New trend for E-businesses
, Week 2: Inventory Management and Risk Pooling
Where do we hold inventories? Ans: along the entire supply chain
- Suppliers and manufacturers
- Warehouses and distribution centres
- Retailers
Types of inventories
- Work in progress (WIP)
- Raw materials
- Finished goods
Why do we hold inventory?
- Economies of scale: big bulk discount, cheaper decrease in unit production cost
- Uncertainty in SS and DD variation/fluctuation
Goals: reduce cost, improve service
By effectively managing inventory
- Xerox eliminated $700m inventory from its supply chain
- Wal-Mart became the largest retail company utilising efficient inventory management
- GM has reduced parts inventory and transportation costs by 26% annually
By not managing inventory successfully
- In 2013, Microsoft took $900m write-off on Tablet
- In 2001, Cisco took a $2.25b excess inventory charge due to declining sales
Inventory policy is affected by
- Demand characteristics- whether it is uncertain/trends/peak etc
- Lead time- the longer the lead time, the more the uncertainty
- Number of products
- Objectives- service level/minimise cost etc
- Cost structure
- Type of products- perishable or not
Cost structure
- Order cost: fixed and variable
- Holding cost: insurance, maintenance & handling, taxes, opportunity costs and obsolescence
Economic order quantity
- The order quantity that minimises the total inventory holding costs and ordering costs
- Purchase cost constant: $c per unit of product x demand during a period of time
- Holding cost: average inventory x holding cost h x period of time
- Ordering cost: number of orders x order cost K
- Goal: find the order quantity that minimises these costs
E* = √ 2 KD /h = SQRT (2 x order cost x demand / holding cost)
SCM is primarily concerned with the efficient integration of suppliers, factories, warehouses and
stores so that merchandise is produced and distributed in the right quantities, to the right locations
and at the right time, and so as to minimise total system cost to satisfying service requirements.
Conflicting objectives in the supply chain
Purchasing
- Stable volume requirements
- Flexible delivery time
- Little variation in mix
- Large quantities
Manufacturing
- Long run production
- High quality
- High productivity
- Low production cost
Warehousing
- Low inventory
- Reduced transportation costs
- Quick replenishment capability
Customers
- Short order lead time
- High in stock
- Enormous variety of products
- Low prices
Dynamics of the supply chain: [Least fluctuations] customer demand, retailer order, distributor
order, production plan [Most fluctuations] bullwhip effect
Management wants the production plan to be followed as closely as possible to the customer
demand.
What is new in logistics?
- Global competition
- Shorter product life cycle (products soon will not have historical data demand will be harder
to predict)
- Increasing product variety
- New, low-cost distribution channels
- More powerful well-informed customers
- New communications and information technologies wireless technology
- Decision support systems
- Integrated systems
- Multi-modal transportation
,New concepts in logistics
- Push VS pull strategies
- Cross docking
- Strategic alliances
- Manufacturing postponement
- Design for logistics
- Remanufacturing supply chain
- New trend for E-businesses
, Week 2: Inventory Management and Risk Pooling
Where do we hold inventories? Ans: along the entire supply chain
- Suppliers and manufacturers
- Warehouses and distribution centres
- Retailers
Types of inventories
- Work in progress (WIP)
- Raw materials
- Finished goods
Why do we hold inventory?
- Economies of scale: big bulk discount, cheaper decrease in unit production cost
- Uncertainty in SS and DD variation/fluctuation
Goals: reduce cost, improve service
By effectively managing inventory
- Xerox eliminated $700m inventory from its supply chain
- Wal-Mart became the largest retail company utilising efficient inventory management
- GM has reduced parts inventory and transportation costs by 26% annually
By not managing inventory successfully
- In 2013, Microsoft took $900m write-off on Tablet
- In 2001, Cisco took a $2.25b excess inventory charge due to declining sales
Inventory policy is affected by
- Demand characteristics- whether it is uncertain/trends/peak etc
- Lead time- the longer the lead time, the more the uncertainty
- Number of products
- Objectives- service level/minimise cost etc
- Cost structure
- Type of products- perishable or not
Cost structure
- Order cost: fixed and variable
- Holding cost: insurance, maintenance & handling, taxes, opportunity costs and obsolescence
Economic order quantity
- The order quantity that minimises the total inventory holding costs and ordering costs
- Purchase cost constant: $c per unit of product x demand during a period of time
- Holding cost: average inventory x holding cost h x period of time
- Ordering cost: number of orders x order cost K
- Goal: find the order quantity that minimises these costs
E* = √ 2 KD /h = SQRT (2 x order cost x demand / holding cost)
