through operation research
TRANSCRIPT
MARIUS M. SOLOMON
CRT, University of MontrealMarch, 2000
CRT, University of MontrealMarch, 2000
Logistics Evolution
NationalRegional
Local
Global
Progression of Competitive AdvantageProgression of Competitive Advantage
Low WageRates
Low WageRates
ScaleFacilities
ScaleFacilities
FocusedProduction
FocusedProduction
Increased Variety
Increased Variety
Fast ResponseTime
Fast ResponseTime
Quality
Quality
Cost BasedManagement
Cost BasedManagement
Time BasedManagement
Time BasedManagement
‘50s
‘60s
‘70s
‘80s‘80s
‘90s E-BusinessE-Business
Technology Enabled
Management
Technology Enabled
Management
2000
Source: Adapted from Stalk and Hout, Competing Against Time, 1991
Competitive Advantage
Source: Adapted from Gunn, Manufacturing for Competitve Advantage, Ballinger, 1987
Global MarketsGlobal Competitors
World-Class Manufacturing
Technology
Quality
People
Planning
Strategic Vision
Management Resources
DistributionProduction Process
Planning and ControlProduct and Process Design
Aftersale Service and Support
Supp
liers
TQC JIT
Integration
Customers
CIM/CIL
Speed
Recent Evolution
Demand Forecasting Purchasing
Requirements Planning
Manufacturing Inventory
Materials Handling
Distribution Planning
Production Planning
Warehousing
Industrial Packaging
Inventory
Order ProcessingTransportation
Customer Service
Materials Management
Supply Chain
Physical Distribution
Fragmentation
1960s
Evolving Integration
1980s
Total Integration
2000s
Source: Adapted from Coyle, Bardi, and Langley, The Management of Business Logistics, West 1992
Logistics Integration
Demand Forecasting Purchasing
Requirements Planning
Production Planning
Manufacturing Inventory
Warehousing
Materials Handling
Industrial Packaging
Inventory
Distribution Planning Order
Processing
Transportation
Customer ServiceInformation
Technology
The physical, financial, and information networks thatmove the materials, funds, and related information through the full logistics process ... from acquisition of raw materials to delivery of finished products to the end user.
Jim Kelly, Chairman and CEO of United Parcel Service, American Chamber of Commerce, Beijing, China, May 4, 1999
Production Storage Customer
Material Flow and Storage
Information Flow and Storage
Plan Implement Control
The Supply Chain
Raw Materials
Nodes and Linksin a Logistics System
Retailer
Plant
Warehouse
Retailer
Warehouse
Node
Node
Node
Node
Node
Link
Link
Link
LinkLink
Typical Supply Chain Network
Suppliers Plants
DistributionCenters
Customers
Throughput levels Employment levels Distribution routes
Vehicle scheduling Order tracking Inventory replenishment
Hierarchy of Logistics Management Decisions
STRATEGIC
TACTICAL
OPERATIONAL
Location Choice Transport Mode Selection Vendor Choice
Uncertainty
Scope
Time frame
Logistics Environments
External -Macro Intrafirm-Micro
Value-added Role Time Utility Place Utility Economic Impacts Economic Importance
Interfirm - Distribution Channels
Channel Structure Relationships
Competitive Advantage Value Chain Logistics Interfaces
with Value Activities
Source: Adapted from Coyle, Bardi, and Langley, The Management of Business Logistics, West , 1992.
ProductionForm Utility
Logistics
Place Utility
Marketing
Possession Utility
Fundamental Utility Creation in the Economy
Time Utility
Source: Adapted from Coyle, Bardi, and Langley, The Management of Business Logistics, West, 1992.
Human Resource Management
The Generic Value Chain
Source: Michael E. Porter, Competitive Advantage, Free Press, 1985.
Support Activities
Inbound Logistics
OperationsOutbound Logistics
Marketing and Sales
Service
Procurement
Technology Development
Firm Infrastructure
Primary Activities
Margin
Margin
Cost leadership Differentiation Focus
Conflicting Objectives
Fewer
Objectives
High revenues through:
High levels of product availability
Sales and Marketing
Cost-effective production through:
High, capacity utilizationLong production runs
Production
Reduce investments and costs through:
Fewer facilitiesLower inventory levels
Finance and
accounting
Implications
Customer Service
Disrupting factors in
production
Inventories
Higher
Higher
Lower
Lower
More
Source: Magee, Copacino, Rosenfield, Modern Logistics Management, Wiley, 1985.
Few set-ups
Logistics
Cost Trade-offs in Logistics Product
Price Promotion
Place / Customer Service Levels
Total Cost =Transportation costs + Inventory carrying costs +...
Source: Lambert and Stock, Strategic Logistics Management, Irwin, 1993.
Inventory carrying costs
Lot quantity costOrder processing and information
costs
Warehousing costs (throughput cost
not storage)
Transportation costs
Log
isti
csM
arketing
Distribution Channels
Retailers
Farm and Raw
Materials
Wholesalers
Consumers and
Government
Manufacturers and Industrial Users
Inventory Repositioning
Distribution Channel -- Loose Links, Independent Businesses
Source: Adapted from Bowersox and Closs, Logistical Management McGraw-Hill, 1996.
Inventory management by each channel
participant
Distributor
Retailer
Company Truck
Common Carrier
Local Delivery
Manufacturer
Manufacturer
The Supply Chain
Textile Production
Apparel Retail
Raw
Materials Customers
Apparel Pipeline
Information sharing Joint planning
Pipeline inventory management
Organization of Production-Distribution System
Organization of Production-Distribution System
3
2
2
6
Inventory
Inventory
Inventory
1 1
1
1
1
0.5
0.5
Factory
FactoryWarehouse
Distributors
Retailers
Orders FromCustomers Delivery of Goods
To Customers
Weeks
Forrester, J.W. (1958) Industrial Dynamics: A Major Breakthrough for Decision Makers. Harvard Business Review.
The Apparel PipelineThe Apparel Pipeline
TextileProduction
Apparel Retail
Material
CustomerRaw
Source: Blackburn, Time Based Competition, 1991
Average Time:66 Weeks
Pipeline inventory management
Pipeline inventory management
Information sharing
Joint planning
Information sharing
Joint planning
Effect of Lead Time on Retailer’s Stocking Decision
Effect of Lead Time on Retailer’s Stocking Decision
FO
RE
CA
ST
ER
RO
R (
%)
FO
RE
CA
ST
ER
RO
R (
%)
TIMETIME
+/-20% +/-40%
+40
-40
+20
-20
0 +/-10%
-26 Weeks
-16Weeks
Start ofSeason
Source: Blackburn, Time Based Competition, 1991
Two-Way Flows in Apparel ChainTwo-Way Flows in Apparel Chain
Textiles Apparel RetailPoint of
Sale
Product
Orders andCapacity
Commitments
Inventory andOrder Information
SalesInformation
Source: Blackburn, Time Based Competition, 1991
Keys to Fast-Cycle Logistics
InformationSharing
InformationSharing
CulturalChange From
Top Down
CulturalChange From
Top Down
InformationTechnology
InformationTechnology
PartnershipsPartnerships ShorterManufacturing
Cycles
ShorterManufacturing
Cycles
Fast CycleLogistics
Fast CycleLogistics
Source: Blackburn, Time Based Competition, 1991
OR Contributions
Economics Game theory Information Management
Inventory Models Inventory Control and Vehicle Routing Distribution Requirements Planning Enterprise Resource Planning Multiobjective Decision Support Systems
Economics
Capacity Choice and Allocation: Strategic Behavior and Supply Chain Performance, G. Cachon and M. Lariviere, Management Science/Vol. 45, No. 8, August 1999 Truth telling provides some advantages to the supply chain that
should be weighed against the costs of inducing it
Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain, G. Cachon and P. Zipkin, Management Science/Vol. 45, No. 7, July 1999 Competition generally lowers supply chain inventory relative to the
optimal solution
Economics
The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods Authors: H. Emmons and S. Gilbert, Management Science /Vol. 44, No. 2, February 1998 Relationship of such policies return policies on both retailer’s and
manufacturer’s profits
Capacity Allocation Using Past Sales: When to Turn-and-Earn G. Cachon and M Lariviere, Management Science/Vol. 45, No. 5, May 1999 Turn-and-earn allocation does not generally coordinate the system, and
in certain cases is a means for the supplier to increase profits at the expense of retailers
Economics
Centralization of Stocks: Retailers vs. Manufacturer, R. Anupindi and Y. Bassok, Management Science/Vol. 45, No. 2, February 1999 Shows that centralizing stocks by retailers increases profits for the
manufacturer up to a certain level of “market search” in the supply chain
Value of Information in Capacitated Supply Chains, S. Gavirneni, et al., Management Science/Vol. 45, No. 1, January 1999 Examine benefits of partial vs complete information sharing in a
supplier-retailer setting
Economics
The Quantity Flexibility Contract and Supplier-Customer Incentives, A. Tsay, Management Science/Vol. 45, No. 10, October 1999Quantity Flexibility (QF) contract and its implications for the
behavior and performance of suppliers and customers
Quantity Flexibility Contracts and Supply Chain Performance, A. Tsay and W. Lovejoy, Manufacturing & Service Operations Management Vol 1, No 2, 1999 Analysis extended to multiple time periods
Economics
Coordinating Investment, Production, and Subcontracting, J. Van Mieghem, Management Science/Vol. 45, No. 7, July 1999Analysis of the role of transfer prices and of the bargaining
power of buyer and supplier
Decentralized Multi-Echelon Supply Chains: Incentives and Information : H. Lee and S. Whang, Management Science/Vol. 45, No. 5, May 1999Desirable properties of performance measurement schemes
that align the incentives and interests of the multiple managers in decentralized supply chains
Economics
Echelon Reorder Points, Installation Reorder Points, and the Value of Centralized Demand Information, F. Chen, Management Science /Vol. 44, No. 12, Part 2 of 2, December 1998
Examine cost difference between an echelon stock and an installation stock policy.
Decentralized Supply Chains Subject to Information Delays, F. Chen, Management Science/Vol. 45, No. 8, August 1999 Information lead times play the same role as the
production/transportation counterparts in the determination of the optimal replenishment strategies, but they are less costly
Inventory Models
Managing Supply Chain Demand Variability with Scheduled Ordering Policies, G. Cachon, Management Science/Vol. 45, No. 6, June 1999 Identify two strategies that reduce the supplier’s demand variance and
also reduce total supply chain costs
The Stabilizing Effect of Inventory in Supply Chains, M. Baganha and M. Cohen, Operations Research Vol. 46, Supp. No. 3, May–June 1998 Model helps to explain the “bullwhip” effect and indicates
mechanisms that can promote stabilization
Inventory Models
A Single-Item Inventory Model for a Nonstationary Demand Process, S. Graves, Manufacturing & Service Operations Management Vol. 1, No. 1, 1999Demand process for the upstream stage is more variable than that
for the downstream stage
Probabilistic Analyses and Algorithms for Three-Level Distribution Systems
Wal-Mart’s cross-docking strategy Integrate inventory control and vehicle routing for a
distribution system consisting of a single vendor, a fixed number of warehouses, and many retailers
Warehouses receive fully loaded trucks from the vendor but never hold inventory
Warehouses serve only to coordinate the frequency, time and sizes of deliveries to retailers
Source: L. Chen and D. Simchi-Levi, MANAGEMENT SCIENCE/Vol. 44, No. 11, Part 1 of 2, November 1998
Distribution Requirements Planning
A Dynamic Model For Requirements Planning With Application To Supply Chain Optimization, S. Graves, et al., Operations Research Vol. 46, Supp. No. 3, May–June 1998
Use a model for a single production stage as a building block for modeling a network of stages
Apply the DRP model to strategic inventory placement in the film manufacturing processes at Kodak
Extended-Enterprise Supply-ChainManagement at IBM Personal
Systems Groupand Other Divisions
Source: G. Lin et al., ITERFACES 30: 1 January–February 2000 (pp. 7–25)
Cooperative Multiobjective Decision Support
for the Paper Industry
Source: S. Murthyet al., I TERFACES 29: 5 September–October 1999 (pp. 5–30)
The A-team
architecture
Unifi: Begin at Home - ERP
Keys to competing: Automation and process control systems Message to supply chain: Cooperate as if vertically integrated
Companywide program of linkages among processes and machines Exchanging production and quality information with suppliers over the
Internet Daily WIP information to make-to-order customers
Computer to computer exchanges Allow partners to come in, rather than pushing data out Spin off as Manufacturing-Systems Consultant
Source: How a Tighter Supply Chain Extends the Enterprise, Fortune, November 8, 1999.
Mercury Marine: Dealer focus
Vertically integrated Supplier consigns truckload loads to factory and gets
paid as used
MercNet - Private electronic network for parts ordering moved to the Internet
Share forecasts and collaborate with dealers on promotions Resistance from sales on electronic ordering
Source: How a Tighter Supply Chain Extends the Enterprise, Fortune, November 8, 1999.
Rocketdyne: Suppliers Beyond the Firewall
Brought engineering, manufacturing and suppliers together from the start
Alleviated job-shop problems with Manufacturing Execution System (MES)Computer connections to work areas
Linked with MRP and Product Data ManagementIncluded suppliers via the InternetDedicated server, control on depth of system access
Source: How a Tighter Supply Chain Extends the Enterprise, Fortune, November 8, 1999.
Adaptec: Value Added Cycle Time
100 day cycle time Manually entered information Different computer systems
Treat suppliers as partners Incompatible systems: SAP vs homemade ERP
Extricity Internet Software Fast orders, drawings, confirmations
Cycle time dropped to 55 day WIP shrank from $18 M to $9 M If customers would share forecasts, Adaptec could deliver
directly rather than from the current 22 FG warehouses
Source: How a Tighter Supply Chain Extends the Enterprise, Fortune, November 8, 1999.
Nimbus: Streamlined Supply Chain by Merging
Most studios outsource production, distribution, and packaging of VHS tapes and DVDs
Technicolor - largest converter of movies to VHSPeople, systems, and facilities capability to handle
distribution
Nimbus’ sales rose to $89 M in first six months of 1999Consolidation of production facilities and other supply
chain moves - $10.2 M savings for the first half of 1999
Conclusions
Integration and coordinationProduction and DistributionRouting and LocationRouting and Inventory
Dynamic Problems
Real Time
Conclusions
Increase in fast-cycle logistics for companies of all size Doing business faster, and especially smarter
replacing inventory with information
With real-time information companies can manage inventory in motion, rather than at rest
Supply chains are increasingly moving online Can dramatically reduce overhead and obsolescence
while speeding time to market
Source: Fedex Corporation, 1999 Annual Report