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David Simchi-Levi
Professor of Engineering Systems
Massachusetts Institute of Technology
Customers demand centers sinks Sources: Plants vendors ports Regional warehouses: Stocking points Field warehouses: Stocking points
Supply
Inventory & warehousing costs Production/purchase costs Transportation costs Transportation costs
Distributor Orders
Production Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Copyright 2003 D. Simchi-Levi
Customer Demand
Production Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Copyright 2003 D. Simchi-Levi
Global supply chain with long lead times Rising and shifting customer expectations Increase in labor costs in developing countries Increase in logistics costs
13
12
15% increase
11
10
8 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Rising energy prices Rail capacity pressure Truck driver shortage Security requirements
Total Cost
52%
1400
1200
1000
47%
800
Transportation
600 400
62%
Inventory
200
Admin
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Inv Carrying Transportation Admin Total
10
Global supply chain with long lead times Rising and shifting customer expectations Increase in labor costs in developing countries Increase in logistics costs Importance of sustainability Unprecedented Volatility
11
Unprecedented Volatility
Year
In 2008 the price of oil changed 5% or more from its previous close on 39 days making it the most volatile year since 1990.
Source: NYT
12
Sequential Optimization
Procurement Planning Manufacturing Planning Distribution Planning Demand Planning
Global Optimization
Supply Contracts / Collaboration / Information Systems and DSS
Procurement Planning
Manufacturing Planning
Distribution Planning
Demand Planning
10
Managing Uncertainty
Matching Supply and Demand Demand is not the only source of uncertainty
Copyright 2003 D. Simchi-Levi
Plan/Design
Source
Supply
Produce
Distribute
Sell
11
Innovative vs. functional products Make vs. buy Modular vs. integral
Plan/Design
Core competencies
Product architecture Make/buy Early supplier involvement Strategic partnerships Supplier selection Supply contracts
Product design
Source
Supply
Produce
Distribute
Sell
Lead time
Economies of scale
12
%
60% 57% 50% 40% 34% 30% 24% 20% 16% 10% 0%
1993
60% 54%
28% 22%
Machinary Computer and telecom Food manufacturing Telecom services
1996
New Concepts
Push Pull strategies Push-Pull Direct-to-Consumer Strategic alliances Manufacturing postponement gp p Dynamic Pricing E-Procurement
Copyright 2003 D. Simchi-Levi
13
14
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