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

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

Schematic of a Nationwide Supply Chain

ISyE 3103 Supply Chain Modeling: Logistics

Upstream

Another Schematic Representation

Downstream

Suppliers

Preassembly

Manfr Plants

Warehouses

Customers

ISyE 3103 Supply Chain Modeling: Logistics

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

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

Problems in Managing the Supply Chain

Customer Service Goals Facility Location Inventory Decisions Transportation

ISyE 3103 Supply Chain Modeling: Logistics

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

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

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

Cost Break-up for a Manufacturing Firm

Profit Logistics Cost Marketing Cost Manufacturing Cost
ISyE 3103 Supply Chain Modeling: Logistics

4% 21% 27% 48%

Profit Logistics Cost Marketing Cost

Manufacturing Cost

Logistics: True Magnitude

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
ISyE 3103 Supply Chain Modeling: Logistics