Management of supply networks & flows

Everything you need to know

Session 1 : Introduction
Supply chain management is all about having the right product in the right place, at the right
price, at the right time and in the right condition. Blackweel (199!
The supply chain perspective takes into account different internal functions
and external partners.
Internal Supply Chain Management (SCM) = your company (purchasing manufacturing
maketing customer service)
External SCM = !nternal SCM " your supplier " your customer
#eatures of SCM $
Global vision of the production
Starts from the very beginning of a process
Cares a%out the final customer
Com%ines sourcing manufacturing inventory management order handling distri%ution
&egards place time price and quality of a product delivery
Supply chain networks = comple' systems %etween suppliers manufacturers arehouses
! distribution centers and customers"
(lmost every company must $ Source (=%uy) materials ) Ma#e (=produce) a product )
$eliver it to the customer
( SC manager has to consider the donstream (supplier " your company " customer) flo of
products = physical flows (raw materials components products)
%ut also the upstream flos (customer " your company " supplier) = information flows
(customer orders demand forecasts product re*uirements) and financial flows (payments)
SCM needs to cope with a high degree of uncertainty $
) market uncertainty
) long time lags
) glo%ali+ation
,ne of the most fundamental decisions is to decide whether to Ma#e%to%order (e'$ -urger
.ing) or to Ma#e%to%stoc# (e' Mc/onald0s).
1 conflicting goals $ improvement of customer responsiveness and cost reduction.
Impact of supply chain levers on financial performance &' connaitre(:
Sales 2 ,perating cost = )perating income
#i'ed assets " 3orking capital = Capital employed
,perating income 4 Capital employed = *)CE
#orking capital $ inventories % accounts receivable % accounts payable
Session + : Manufacturing ,ootprint Strategy
Choosing the location of production sites means finding a compromise %etween netor# cost and
customer response time.
Strategic priorities$ 3hat are the trade)offs %etween time cost and distance 5
Role in network: 3hat role should each facility play5 3hat processes are performed in each
location 5
1( - he $emand .llocation Model &$.M( (production sites are fi'ed(
Input
/ production &acilities M demand points
$0 = 'nnual demand o& demand point ( 1i = )a*imum capacity o& &acility i
ci0 = +roduction and transportation cost o& 1 unit produced in &acility i, shipped to demand point 0
Output
-C = ,otal cost xi0 = -nits produced in &acility i and shipped to demand point 0
Minimi+e TC = su%6ect to and
Solution with Excel solver (optimisation sous contrainte) linear model.
+( - he Capacitated 2lant 3ocation 2roblem &C23M( &several production sites can %e
opened or closed(
#hat plants to open.
/ow much to produce in each &acility &or each demand point.
Input
/ M $0 1i ci0 fi = 'nnual &i*ed cost o& keeping &acility i open
Output
xi0 = 7nits produced in facility ! and shipped to demand point 6
yi = 1 if facility i is open and 0 if it is closed
Minimi+e TC = su%6ect to and
Solution with Excel solver (optimisation sous contrainte) 8o linear model (%ecause of fi'ed costs).
4( -he Center of Gravity Model &CGM( & ,ne single supply facility has to %e %uilt)
Input
0ne &acility located at point (x5y) M demand points at points (a!")
$0 = 'nnual 1uantity to be shipped c = 2ost o& shipping one unit &or one km
&rom &acility to demand point ( &rom &acility to a demand point
Minimi+e
# non$linear optimi%ation pro"lem&
Session 4 : 6eteen the ,los
1( 2roduct platforms
( platform where different products are made.
Mi' %etween differentiation and standardi7ation $
/ifferentiation in features visi%le to the customer
Standardi+ation in bac#ground architecture
+( -he Experience curve
3earning curve
The num%er of direct la%or hours re*uired to produce one unit of a product declines as
the cumulative num%er of products produced increases
Experience curve
Marginal production cost declines as the cumulative num%er of products (services) produced
increases
3earning curve
c8 2ost o& producing the &irst unit
c&x( -nit cost o& the *th unit
a 3ate at which cost declines (not learning rate!
'earning rate '
The cost of unit 1' is 9 times the cost of unit '
(s the cumulative production dou%les unit cost decreases %y : 2 9
4( Inventory Management
4nventory is at the heart o& supply chain management and has a signi&icant impact on the success o&
a business.
The different types of inventory (and their drivers) $
(ransit stock (transportation time)
)ycle stock (production lot si+e or purchase order si+e)
Safety stock (demand varia%ility)
Excess stock
Costs in inventory management $
Storage costs
Stoc#out costs
;aria%le or fi'ed ordering costs
9( Economic order quantity (focus on cycle stock)
<uestion $ :o much and ho often re%order ;
#inding an optimal trade)off %etween administrative order cost and inventory holding cost
8otation
x 0rder 1uantity 5units6
< 7emand rate 5units per year6
- 2ycle length 5years6
/ 8umber o& orders per year 596
(o minimi%e costs : derive cost function *it is given in the wording+ and optimi%e it&
Session 9 : Inventory Management
1( $emand forecasts (focus on time series)%ased forecasting)
(ll %usiness planning is %ased on forecasts.
-he moving average method &M.(
-he Exponential Smoothing Method &ES(
Measuring forecast performance
Should %e around = for good forecast.
Mean Squared Error &MSE(
*elative ,orecast Error
+( Safety stoc# planning (focus on the ,ewsvendor model)
7emand - is uncertain
7istribution . o& the demand - is known
)ean demand is /, standard deviation o& demand is 0 (8ormal distri%ution)
,he newsvendor "uys the newspapers at a cost o& c per unit
8ewspapers are sold to the end customer at a price o& r per unit
1nsold newspapers can be salvaged (sold after sales season) at a price o& v per unit
S = 0rder 1uantity
The order *uantity has to %e determined prior to the selling period
,%6ective is to determine the order *uantity that maximi7es expected profit.
= >rofit function
-he optimal order quantity S=
) -ecause of the characteristics of the 8ormal /istri%ution you only need values for 8(=:) to
calculate the optimal *uantity for any ? and @1.
) Aou can use the ta%le of ,ormal 2istri"ution to find the 7%value.
-he service level for the optimal quantity S=
-he optimal expected profit
Safety stock =