Supply Chain Management

COSC643

E-Commerce Supply Chain Management

Sungchul Hong

Logistics and Supply Chain

• Logistics and supply chain management refer to the art of managing the flow of materials and products from source to user.

• The logistics system includes the total flow of materials, from the acquisition of raw materials to delivery of finished products to the ultimate users

Supply Chain Activities

• sourcing and purchasing • conversion (manufacturing)

– Capacity planning, technology solution, operations management, production scheduling, and materials planning (MRP II)

• Distribution planning and management industry warehouse operation

• Inventory management and inbound and outbound transportation

• Linkage with the customer service, sales, promotion, and marketing activities.

Physical Distribution

• Portion of a logistics system concerned with the outward movement of productions from the seller to customer or consumer.

Physical Supply

• The portion of a logistics system concerned with inward movement of materials or products from sources or the suppliers.

Manufacturing Planning and Control

• The management of materials through a manufacturing facility.

• Generally involves raw-material inventory control, capacity planning, production scheduling, shop-floor control, work-in-process inventory control, and purchasing.

Distribution

• The combination activities and institutions associated with the advertising, sale, and physical transfer of products and services.

• It is concerned with broader matters than logistics alone.

Extended supply chain

• The integrated set of activities completed by the full supply chain participants. – suppliers, manufacturers, distributors,

retailers/customers, and consumers/end users

Integrated Logistics

• Integrated logistics management can improve both cost and customer service performance.

• The total cost concept of logistics is based on the interrelationship of supply, manufacturing, and distribution costs. – Ordering, inventory, transportation,

production setup, warehousing, customer service and other logistics costs are interdependent

Example

• Seasonal demand (400, 700, 500, 300)• Inventory level (450, 750, 550, 350)

– To meet the inventory level, the production should be changed. (450, 700, 500, 300)

– Inventory cost $10 per 50 units

• Level of production – Production costs $1,000 per 600 units

• Decide the method either inventory level model or level of production model.

Seasonal Demmand 400 700 500 300Inventory Level 450 750 550 350Seasonal Production 450 700 500 300Inventory Amount 50 50 50 50Inventory Costs 10.00$ 10.00$ 10.00$ 10.00$ production cost 1,000.00$ 2,000.00$ 1,000.00$ 1,000.00$

Level Production 600 600 600 600Level Production Cost 1,000.00$ 1,000.00$ 1,000.00$ 1,000.00$ Inventory Amount 200 100 200 500Inventory Cost 40.00$ 20.00$ 40.00$ 100.00$

Example 2

• Regional stocking– Warehouse cost vs. bulk transportation price

• Transportation cost

Functional Integration

• Businesses manage their activities through “functional groupings” – sales, marketing, manufacturing,

finance, distribution

• The functional excellence could be measured by higher sales, lower transportation costs, lower inventories, or better control of operations.

Two types of business environments

• Stable environment – demand certainty, low seasonality, longer

product life cycles, and low competitive intensity

– it is best to organize for functional excellence.

• Dynamic environment – Demand uncertainty, significant seasonality,

short product life cycles, or high competitive intensity

– Companies that organize for functional integration tend to outperform those that are organized for functional excellence.

Strategies for Better Performance

• Mange the process, not the function. • Align measurement systems and

incentives with overall goals. • Utilize integrating mechanisms such as

the sales and operations planning meeting, cross-functional teams, and team problem- solving approaches.

• Work to develop a culture that encourages teaming and cross-functional collaboration.

Managing the Pipeline

• Activities in an integrated pipeline

• Supply: sourcing, purchasing, inbound transportation, raw materials, and parts inventory.

• Operations: production planning, production scheduling, work-in-process inventory.

• Distribution: forecasting, customer service, finished-goods inventory, warehousing, outbound transportation.

Variables for Integrated Pipeline

• Cost – The full cost of processing and moving materials from source to point of use.

• Service-Including issues such as delivery reliability, in-stock performance, and delivery lead time.

• Velocity-The time it takes to move products through the logistics pipeline.

Pipeline Analysis

• The effect of long production runs and manufacturing lead times on system inventory.

• The impact of marketing promotions on operating costs and on effective net margins.

• The cost of or savings available from transportation consolidations.

• The cost of multiple handling through a multi-echelon warehouse network.

Fluid Distribution

• Inventory visibility – point-of-sale information to monitor usage

rtes at the retail level

• Manage flow, not replenishment • Flexible distribution

– Cross-dock operations and plant-direct shipments

– Delivery lead time, amount of freight

• JIT (Just in Time) manufacturing • Advanced information systems

Seven Principles of Supply Chain Management

1. Begin with the customer by understanding the customer’s values and requirements.

2. Mange logistics assets across the supply chain, not just within the enterprise.

3. Organize customer management so that it provides one “face’ to the customer for information and customer service.

4. Integrate sales and operations planning as the basis for a more responsive supply chain.

Seven Principles of Supply Chain Management

5. Leverage manufacturing and sourcing for flexible and efficient operations.

6. Focus on strategic alliances and relationship management across channel partners.

7. Develop customer-driven performance measures.

What Is Logistics Strategy?

• Logistics strategy involves the determination of what performance criteria the logistics system must maintain-more specifically, the service levels and cost objectives the logistics system must meet.

Logistics strategy development and planning • Critical inputs

• Visioning session

• Logistics strategic analysis

• Logistics planning – summarized, outlining objectives,

programs, milestones, and key measures of performance

The Logistics Strategy Pyramid

• Strategic – What are the basic and distinctive

service needs of your customers? – What must logistics do to meet those

needs? – Can we use our logistics capabilities

to provide unique services to our customers?

The Logistics Strategy Pyramid

• Structural – Should we serve the market directly or

should we use distributors or other intermediaries to reach our customers?

– What should our logistics network look like? – What products should be sourced from

which manufacturing locations? – How many warehouses should we have? – Where should they be located, and what is

the mission of each facility?

The Logistics Strategy Pyramid

• Functional – Achieving functional excellence

requires that they design optimal operating practices for transportation management, warehouse operations, and materials management