Supply Chain: Basic Concepts

What is a Supply Chain?

What are the problems involved in Supply
Chain Management?
What are the levels of planning in Supply
Chain Management?

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
What is a Supply Chain?
It is not a one-way chain, but a network
of stages
Consists of all stages involved in fulfilling
customer demand
Includes: Manufacturers, External
Suppliers, Vendors, Transporters,
Warehouses, Retailers, Customers

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Schematic of a Nationwide
Supply Chain
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Another Schematic
Representation
Suppliers Pre-
assembly
Manfr
Plants
Warehouses Customers
Upstream
Downstream
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Example: Dell
Customer
Website
Assembly Plants
Warehouses
Dells suppliers and their suppliers
Dell builds-to-order
Dell does not have retailers, wholesalers
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Example: Toyota
Produces nearly 900,000 vehicles annually
Over 35 manufacturing plants in 25 countries
outside of Japan
For plants in the U.S., supply parts are shipped
across the Pacific, and transported on rail
Deliveries are scheduled to the minute to keep
inventories low (Just-in-time)
Complicated network with uncertainties

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Problems in Managing the
Supply Chain
Customer Service Goals
Facility Location
Inventory Decisions
Transportation
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Decision Levels
Strategic:
Long term, permanence of many years
Tactical
Intermediate time range, usually three months
to a year
Operational
Short range, week or less
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Decision Levels: Examples
Transportation
Strategic: Mode Selection
Tactical/Operational: Routing, scheduling
Location
Strategic: No. of plants and locations
Tactical: Assigning inventory positions
Warehouse
Strategic: Layout, site selection
Operational: Order picking
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Logistics in Economy
(1990, 1996)
Freight Transportation: $352, $455
Billion
Inventory Expense : $221, $311 Billion
Administrative Expense: $27, $31 Billion
Logistics related activity: 11%, 10.5% of
GNP

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Cost Break-up for a
Manufacturing Firm
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Profit 4%
Logistics Cost 21%
Marketing Cost 27%
Manufacturing Cost 48%
Profit
Logistics
Cost
Marketing
Cost
Manufacturing
Cost
Logistics: True Magnitude
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
Compaq estimates it lost $0.5 billion to $1 billion in
sales in 1995 because laptops were not available when
and where needed
P&G estimates it saved retail customers $65 million
by collaboration resulting in a better match of supply
and demand
When the 1 gig processor was introduced by AMD,
the price of the 800 meg processor dropped by 30%
Kmart versus Walmart