Supply Chain Basic Concepts

							            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
  Upstream
                           Representation
                                                                   Downstream




       Suppliers        Pre-
                                        Manfr    Warehouses   Customers
                        assembly
                                        Plants
ISyE 3103 Supply Chain Modeling: Logistics                      Siddhartha Maheshwary
                                Example: Dell
       •   Customer
       •   Website
       •   Assembly Plants
       •   Warehouses
       •   Dell’s 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
    • Profit                                 4%     Profit
                                                     Logistics
                                                       Cost

    • Logistics Cost                         21%    Marketing
                                                      Cost


    • Marketing Cost                         27%
                                                   Manufacturing
                                                       Cost
    • Manufacturing Cost                     48%
ISyE 3103 Supply Chain Modeling: Logistics              Siddhartha Maheshwary
                 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       Siddhartha Maheshwary