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Lecture 10

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21 views5 pages

Lecture 10

Uploaded by

mohammadhraja0829
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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A Course Material on

LOGISTICS AND SUPPLY CHAIN


MANAGEMENT

Subject : LOGISTICS AND SUPPLY CHAIN MANAGEMENT


Subject Code : BBA404

Class : BBA 4th Semester/ 2nd Year

Prepared by:
Dr. Chaitali Bhattacharya
Faculty of Commerce and Management
Rama University, Kanpur
2021
LECTURE – 10
1.6 Supply Chain Decisions

We classify the decisions for supply chain management into two broad categories --
strategic and operational. As the term implies, strategic decisions are made typically over a
longer time horizon. These are closely linked to the corporate and guide supply chain
policies from a design perspective. On the other hand, operational decisions are short term,
and focus on activities over a day-to-day basis. The effort in this type of decisions is to
effectively and efficiently manage the product flow in the "strategically" planned supply
chain.

There are four major decision areas in supply chain management: 1) location, 2) production,
3) inventory, and 4) transportation (distribution), and there are both strategic and
operational elements in each of these decision areas.

1) Location Decisions
The geographic placement of production facilities, stocking points, and sourcing points is
the natural first step in creating a supply chain. The location of facilities involves a
commitment of resources to a long-term plan. Once the size, number, and location of these
are determined, so are the possible paths by which the product flows through to the final
customer. These decisions are of great significance to a firm since they represent the basic
strategy for accessing customer markets, and will have a considerable impact on revenue,
cost, and level of service. These decisions should be determined by an optimization routine
that considers production costs, taxes, duties and duty drawback, tariffs, local content,
distribution costs, production limitations, etc. ( Arntzen, Brown, Harrison and Trafton
[1995]) Although location decisions are primarily strategic, they also have implications on
an operational level.

2) Production Decisions
The strategic decisions include what products to produce, and which plants to produce them
in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As
before, these decisions have a big impact on the revenues, costs and customer service levels
of the firm. These decisions assume the existence of the facilities, but determine the exact
path(s) through which a product flows to and from these facilities. Another critical issue is
the capacity of the manufacturing facilities--and this largely depends the degree of vertical
integration within the firm. Operational decisions focus on detailed production scheduling.
These decisions include the construction of the master production schedules, scheduling
production on machines, and equipment maintenance. Other considerations include
workload balancing, and quality control measures at a production facility.

3) Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every stage of
the supply chain as either raw materials, semi-finished or finished goods. They can also be
in-process between locations. Their primary purpose is to buffer against any uncertainty that
might exist in the supply chain. Since holding of inventories can cost anywhere between 20
to 40 percent of their value, their efficient management is critical in supply chain
operations. It is strategic in the sense that top management sets goals. However, most
researchers have approached the management of inventory from an operational perspective.
These include deployment strategies (push versus pull), control policies --- the
determination of the optimal levels of order quantities and reorder points, and setting safety
stock levels, at each stocking location. These levels are critical, since they are primary
determinants of customer service levels.

4) Transportation Decisions
The mode choice aspect of these decisions is the more strategic one. These are closely
linked to the inventory decisions, since the best choice of mode is often found by trading-
off the cost of using the particular mode of transport with the indirect cost of inventory
associated with that mode. While air shipments may be fast, reliable, and warrant lesser
safety stocks, but they are expensive. Meanwhile shipping by sea or rail may be much
cheaper, but they necessitate holding relatively large amounts of inventory to buffer against
the inherent uncertainty associated with them. Therefore customer service levels, and
geographic location play vital roles in such decisions. Since transportation cost is more than
30 percent of the logistics costs, operating efficiently makes good economic sense.
Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of
equipment are keys in effective management of the firm's transport strategy.

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