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INBS 510. Supply Chain October 24, 2005 Myron Feinstein Supply Chain. SC management is a set of approaches to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and

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INBS 510

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Inbs 510

INBS 510

Supply Chain October 24, 2005

Myron Feinstein

Supply chain

Supply Chain

SC management is a set of approaches to efficiently

integrate suppliers, manufacturers, warehouses and

stores, so that merchandise is produced and

distributed in the right quantities, to the right

locations, and at the right time, in order to

minimize system-wide costs while satisfying service

level requirements.

Supply chain1

Supply Chain

  • Customer demand is variable

  • Supply is uncertain

    Balancing supply and demand is difficult

    To set up a Supply Chain which functions properly, it is

    necessary to know the “capabilities” of the system:

    capacities, cycle times, reliabilities.

    Supply Chain participants (different companies) can have

    conflicting performance metrics.

Supply chain2

Supply Chain

  • Strategic

    • major capital investments; long-term effect

    • number, size and location of new plants, d.c.’s, etc.

  • Tactical

    • allocation of manufacturing and distribution resources over a period of several months

    • workforce size, inventory policies

  • Operational Control

    • day-to-day decisions

    • vehicle scheduling, assignment of customer orders to individual production machines

Supply chain3

Supply Chain

Shareholder Value depends upon return on assets

Supply Chain management is concerned with:

  • Customer Service

    • Typical metrics: out-of-stock on shelf, total SC lead time

  • Total SC Cost

  • Asset Utilization

    • Typical metric: % capacity utilization

  • Working Capital - Typical metrics: total SC inventory, inventory

    turns, cash-to-cash cycle,

Supply chain issues

Supply Chain Issues

  • Supply Chain partners agonize over

    • Forecasting demand

    • Deploying assets (what to make when)

    • Planning inventory

    • Agreeing joint performance metrics

Bullwhip effect

“Bullwhip Effect”

  • Variability increases as you go upstream the Supply Chain

  • Babies use diapers with little variation (say 10 per day)

  • Parents buy diapers in large batches (when they are on sale)

  • Retail stores place larger orders when a manufacturer has a promo

  • Distribution Centers/Wholesalers order full truckloads

  • Manufacturers order material (from suppliers) in “economic”


  • From the orders material suppliers get from the manufacturer,

  • it looks to them as though babies use diapers very erratically!

  • Sharing information with SC partners (“transparency”)

  • can significantly reduce this distortion of true demand



  • Inventory = waste

  • Replace inventory with information

  • WalMart has a strategic advantage

  • Uses cross-docking

  • Uses suppliers’ money!

Vmi smi


  • Many Supply Chain partners have agreed to manage

  • aggregated demand upstream

    • Vendor-Managed Inventory (VMI)

    • Supplier-Managed Inventory (SMI)

  • The supplier manages the inventory of the customer

  • The customer sends information about sales

    (or warehouse withdrawal) and current inventory position

  • The supplier agrees to increase customer’s inventory turns

  • and reduce the percent out-of-stock



Collaborative planning, forecasting and replenishment


Collaborative Manufacturer/Retailer partnerships

Jointly forecast demand and plan replenishment

  • Partners do joint business planning

  • Share promotional event calendars

  • Share point-of-sale (POS) data

  • Develop joint forecasts of demand

    This process improves forecast error, reduces Supply Chain inventory

    and increases inventory turns and store service levels

Supply chain4

Supply Chain

Some Decision Support Systems (software)

  • Physical network design (algorithms)

  • Demand forecasting

  • Capacity planning

  • Transportation planning

  • Inventory management

  • Production scheduling

  • Lead time quotation

    SAP, i2, Manugistics

Grocery shopping 4 approaches

Grocery Shopping - 4 Approaches

  • Peapod

    • “Just a delivery bag for big supermarket chains.”

    • Subscription fee/mo. + delivery charge/order

    • People need to be home to accept order

  • Net Grocer

    • FedEx from NJ warehouse (pantry staples)

    • Delivery charge by $ brackets

  • Streamline

    • Chores; time-shifting; Share of Customer

  • Webvan

    • Purpose-built distribution centers

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