Week 1 – August 22, 2024

Supply chain is a complex logistics system that

consists of facilities that convert raw materials
into finished products and distribute them to
end consumers or end customers, distribution,
finance, and customer service
- Wikipedia
Supply chain is the network of the involved
companies, through upstream and downstream
linkages, in the different processes and
activities that produce value in the form of
products and services in the hands of the
ultimate consumer.
- Basic Supply Chain Management by Y.Serroukh – Anglais Commercial
 A supply chain consists of all parties involved, directly or
indirectly, in fulfilling a customer request.
 The supply chain includes, not only the manufacturer and
suppliers, but also transporters, warehouses, retailers, and
even customers themselves .
 Within each organization, such as a manufacturer, the
supply chain includes all functions involved in receiving and
filling a customer request.
 These functions include, but are not limited to, new
product development , marketing, operations, distribution,
finance, and customer service
A typical supply chain may involve a variety of stages, including
the following:

 Customers
 Retailers
 Wholesalers/distributors
 Manufacturers
 Component/raw material suppliers

Supply chain may imply that only one player is involved at each
stage, but in reality, a manufacturer may receive material from
several suppliers and then supply several distributors.
The supply chain stages may include: suppliers,
producers, wholesale/distributors, retailers, and
customers
A supply chain is dynamic and involves the constant
flow of:

 Information,
 Product, and
 Funds, between different stages.

Each stage in a supply chain is connected through the flow of

products, information, and funds. These flows often occur in
both directions and may be managed by one of the stages or an
intermediary.
Flow of Product, Information and Money
THANK YOU
Week 2 – August 25-27, 2024
 Supply chain management means the management
of upstream and downstream relationships with
suppliers and customers to deliver superior
customer value at less cost to the supply chain as a
whole.
- Wikipedia
The design and management of seamless, value-added
process across organizational boundaries to meet the real
needs of the end customer
-- Institute for Supply Management

Managing supply and demand, sourcing raw materials and

parts, manufacturing and assembly, warehousing and
inventory tracking, order entry and order management,
distribution across all channels, and delivery to the
customer
-- The Supply Chain Council
 With SCM, companies can cut excess costs and
deliver products to the consumer faster and
more efficiently.
 Good SCM can help prevent expensive product
recalls and lawsuits as well as bad publicity.
 The five most critical phases of SCM are
planning, sourcing, production, distribution,
and returns.
 A supply chain manager is tasked with
controlling and reducing costs and avoiding
supply shortages.
Supply chain management is concerned with the efficient
integration of suppliers, factories, warehouses and stores so that
merchandise is produced and distributed:
– In the right quantities
– To the right locations
– At the right time

In order to:
– Minimize total system cost
– Satisfy customer service requirements
– Face global competition
– Improve standardization
 It can help achieve several business objectives. For
instance, controlling manufacturing processes can
improve product quality, reducing the risk of recalls
and lawsuits while helping to build a strong
consumer brand.
 Control over shipping procedures can improve
customer service by avoiding costly shortages or
periods of inventory oversupply.
 Overall, supply chain management provides
multiple opportunities for companies to improve
their profit margins and is especially important for
businesses with large and international operations.
Firms have discovered value-enhancing and long term
benefits
* Who benefits most? Firms with:
 Large inventories
 Large number of suppliers
 Complex products
 Customers with large purchasing budgets
* Benefits - Lower purchasing/inventory costs, higher
quality/customer service
*Cost savings and better coordination of resources are
reasons to employ Supply Chain Management
Bullwhip Effect- the magnification of safety stocks and costs
based on separate forecasts and uncoordinated planning
and sharing of information along the supply chain
*Reducing the bullwhip effect occurs through:
Process integration - Interdependent activities can lead to
improved quality, reduced cycle time, better production
methods, better forecasts, less safety stock, etc.
 1960’s - Inventory Management Focus, Cost Control
 1970’s - MRP & BOM - Operations Planning
 1980’s - MRPII, JIT – Materials Management, Logistics
 1990’s - SCM - ERP - “Integrated” Purchasing,
Financials, Manufacturing, Order Entry
 2000’s - Optimized “Value Network” with Real-Time
Decision Support; Synchronized & Collaborative
Extended Network
 Lower inventories/increase inventory turnover
 Higher productivity
 Greater agility
 Shorter lead times
 Higher profits
 Greater customer loyalty
 Integrates separate organizations into a
cohesive operating system
1. Globalization: Consumers have benefited due to
greater product choice, higher quality, and lower
cost. The distance factor presents special
challenges to supply chain managers.
2. Outsourcing: is hiring a third party to perform a
set of tasks for a fee. An organization creates
superior value for its customers by managing
their core competencies better than their
competitors. This has helped companies be
more efficient by focusing on what they do best
3. Technology: Technological advances have enabled
companies to produce faster with better quality, at a
lower cost, and this trend will continue.
4. Postponement: The challenge for a global company is
to achieve the cost advantage of standardization while
still catering to local taste. This is sometimes called
postponement where completion of the final product
is postponed to the last possible moment till local
demands are known with greater certainty.
Postponement is a n important strategy for companies
to reach diverse geographic areas while still providing
customization.
5. The Lean Supply Chain: Waste in the supply chain is passed
on to the consumer and everyone in the supply chain pays
for it. In the lean supply chain all organizations work
collaboratively to reduce cost and waste by analyzing
processes and identifying areas of improvement..
6. Managing Supply Chain Disruptions: Some strategies
include having access to backup suppliers, building excess
capacity into the system, screening and monitoring
suppliers for supply chain risks, requiring suppliers of
critical items to develop detailed disruption plans, and
including the expected costs of disruption in the total cost
of sourcing.
7. Supply Chain Security: Tighter security and
inspection at ports can significantly increase transit
time and increase costs. Other concerns are theft
and product tampering. Electronic seals can be used
to prevent tampering and RFID and GPS
technologies can be used to track product location.
8. Sustainability and the Green Supply Chain: This
means designing processes to use environmentally
friendly inputs and create outputs that can be
recycled and that do not contaminate the
environment. Companies are realizing that they are
good business practices.
9. Innovation: This can include designing new
products to satisfy customer demands,
designing new cost cutting production
processes, or coming up with more efficient
product delivery mechanisms.
10. The Financial Supply Chain: The push is to
redesign the supply chain and search for less
costly sources of supply. Identifying the risks
and challenges of the financial supply chain
will continue to be a significant trend in the
future.
THANK YOU
Week 3 – September 5, 2024
A. Logistical Drivers B. Cross Functional Drivers
•Facilities • Information
•Inventory • Sourcing
•Transportation • Pricing

 Interactions determine overall supply chain

performance
 Each driver affects the balance between responsiveness and
efficiency and the resulting strategic fit.
1. Facilities
- The physical locations in the supply chain network
where product is stored, assembled, or fabricated
2. Inventory
- All raw materials, work in process, and finished
goods within a supply chain
3. Transportation
- Moving inventory from point to point in the supply
chain
4. Information
- Data and analysis concerning facilities, inventory,
transportation, costs, prices, and customers
throughout the supply chain
5. Sourcing
- Who will perform a particular supply chain activity
6. Pricing
- How much a firm will charge for the goods and
services that it makes available in the supply chain
Facilities are the actual physical locations
in the supply chain network where
product are stored, assembled or
fabricated.

The two major types of facilities are :

1. Production sites or Factories
2. Storage sites or Warehouses
Factories can be built to accommodate one of two
approaches to manufacturing:

 Product Focus: A factory that performs the range of

different operations required to make a given
product line from fabrication of different product
parts to assembly of these parts.

 Functional focus: A functional focus approach

concentrates on performing just a few operations
such as only making a select group of parts or doing
only assembly
Warehouse – a building where delivered materials or
manufactured goods are kept with appropriate
product parameters.
There are three main approaches to use in warehousing:
1. Stock Keeping Unit (SKU) storage - In this approach all of
a given type of product is stored together.
2. Job lot storage - In this approach all the different
products related to the needs of a certain type of
customer or related to the needs of a particular job are
stored together.
There are three main approaches to use in warehousing:
3. Crossdocking - In this approach, product is not actually
stored in the facility, instead the facility is used to house
a process where trucks from suppliers arrive and unload
large quantities of different products. These large lots are
then broken down into smaller lots. Smaller lots of
different products are recombined according to the needs
of the day and quickly loaded onto outbound trucks that
deliver the product to their final destination.
 The major facility related decisions include
identifying the number of facilities, the
extent of flexibility, the level of capacity,
and the markets served by each facility.
 Increasing the number of facilities, their
flexibility, or their excess capacity increases
responsiveness but hurts efficiency.
Inventory - encompasses all the
raw materials, work in process, and
finished goods within a supply chain
Overall Trade Off
 Increasing inventory generally makes the supply
chain more responsive
 A higher level of inventory facilitates a reduction in
production and transportation costs
 Inventory holding costs increase
Basic decisions to make regarding the creation
and holding of inventory:
1. Cycle Inventory - amount of inventory needed
to satisfy demand for the product in the period
between purchases of the product.
2. Safety Inventory - inventory that is held as a
buffer against uncertainty. If demand
forecasting could be done with perfect accuracy,
then the only inventory that would be needed
would be cycle inventory.
3. Seasonal Inventory - inventory that is built up
in anticipation of predictable increases in
demand that occur at certain times of the year.
4. Level of Product Availability - the fraction of
demand that is served on time from product
held in inventory
5. Inventory Related Metrics – i.e c2c time,
obsolete inventory, average inventory, returns,
etc
 The major inventory related decisions include
identifying the batch size, the safety inventory, the
seasonal inventory, and the level of product
availability.
 Increasing the safety inventory and level of product
availability increases responsiveness but hurts
efficiency.
 Increasing the batch size and seasonal inventory
increases holding costs but may decrease
production, transportation, and purchasing costs.
Transportation entails moving inventory
from point to point in the supply chain .
Transportation can take the form of many
combinations of modes & routes, each
with its own performance characteristics.
 Moves inventory between stages in the supply
chain
 Affects responsiveness and efficiency
 Faster transportation allows greater
responsiveness but lower efficiency
 Allows a firm to adjust the location of its facilities
and inventory to find the right balance between
responsiveness and efficiency
There are six basic modes of transport that a company
can choose from:
1. Ship which is very cost efficient but also the
slowest mode of transport. It is limited to use
between locations that are situated nest to
navigable waterways & facilities such as harbor &
canals.
2. Rails which is also very cost efficient but can be
slow. This mode is also restricted to use between
locations that are served by rail lines.
3. Pipelines can be very efficient but are restricted to
commodities that are liquid or gases such as water,
oil & natural gas. Trucks are a relatively quick &
very flexible mode of transport.
4. Trucks can go almost anywhere. The cost of this
mode is prone to fluctuations though, as the cost of
fuel fluctuates and the condition of road varies.
5. Airplanes are a very fast mode of transport and are
very responsive. This mode is also very expensive
mode & is somewhat limited by the availability of
appropriate airport facilities.
6. Electronic transport is the fastest mode of
transport and it is very flexible & cost efficient.
However , it can be only be used for movement of
certain types of products such as electric energy,
data, & products composed of data such as music,
pictures & text.
Overall Trade off - Responsiveness Versus Efficiency
 The cost of transporting a given product (efficiency) and
the speed with which that product is transported
(responsiveness)
 Faster modes of transport are more expensive but can
improve responsiveness while helping decrease inventory
and facility costs
 Using fast modes of transport raises responsiveness and
transportation cost but lowers the inventory holding cost
Information serves as the connection between
various stages of a supply chain, allowing them to
coordinate & maximize total supply chain
profitability.

Uses of Information in a supply chain:

 Coordinating daily activities related to the functioning of
other supply chain drivers:
 Forecasting & planning to anticipate& meet future
demands.
 Enabling technologies
 Improve the utilization of supply chain assets and the
coordination of supply chain flows to increase
responsiveness and reduce cost
 Information is a key driver that can be used to
provide higher responsiveness while simultaneously
improving efficiency
 Improves visibility of transactions and coordination of
decisions across the supply chain
 More information increases complexity and cost of
both infrastructure and analysis exponentially while
marginal value diminishes
Sourcing is the set of business processes
required to purchase goods & services.
Managers must first decide which tasks will
be outsourced & those that will be
performed within the firm.
Pricing determines how much a firm will charge
for goods & services that it makes available in
the supply chain.
Pricing affects the behavior of the buyer of the
good or services. This directly affects the supply
chain in terms of the level of responsiveness
required as well as the demand profile that the
supply chain attempts to serve.
Pricing is also a lever that can be used to match
supply & demand.
THANK YOU
Week 3 – September 3 & 5, 2024
A supply chain is a sequence of processes and flows that take
place within and between different stages and combine to fill a
customer need for a product. There are two ways to view the
processes performed in a supply chain.
1. Cycle View: The processes in a supply chain are divided into a
series of cycles, each performed at the interface between two
successive stages of a supply chain.
2. Push/Pull View: The processes in a supply chain are divided
into two categories depending on whether they are executed
in response to a customer order or in anticipation of
customer orders.
Given the 5 stages of a Supply Chain, all processes can be
broken down into the following four (4) process cycles namely:
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
 Each cycle occurs at the interface between two successive stages of the
supply chain.
 Not every supply chain will have all four cycles clearly separated.
 A cycle view of supply chain clearly define
the process involved and the owners of each
process.
 This view is very useful when considering
operational decisions because it specifies
the roles and responsibilities of each
member
 Supply chain processes fall into one of
two categories depending on the timing
of their execution relative to customer
demand
 Pull - execution is initiated in response to a
customer order (reactive)
 Push - execution is initiated in anticipation of
customer orders (speculative)
 Push / Pull view is useful in considering strategic
decisions relating to supply chain design more
global view of how supply chain processes relate to
customer orders.
 The relative proportion of push and pull processes
can have an impact on supply chain performance
 Can combine the push/pull and cycle views.
 Classical manufacturing supply chain strategy
 Manufacturing forecasts are long-range
 Orders from retailers’ warehouses
 Longer response time to react to marketplace
changes
 Unable to meet changing demand
patterns
 Supply chain inventory becomes obsolete
as demand for certain products disappears
 Increased variability (Bullwhip effect) leading to:
 Large inventory safety stocks
 Larger and more variably sized production
batches
 Unacceptable service levels
 Inventory obsolescence
 Inefficient use of production facilities (factories)
 How is demand determined? Peak? Average?
 How is transportation capacity determined?
 Production and distribution are demand-driven
 Coordinated with true customer demand

 None or little inventory held

 Only in response to specific orders

 Fast information flow mechanisms

 POS data

 Decreased lead times

 Decreased retailer inventory
 Decreased variability in the supply chain and
especially at manufacturers
 Decreased manufacturer inventory
 More efficient use of resources
 More difficult to take advantage of scale
opportunities
 Combination of “push” and “pull” strategies to
overcome disadvantages of each
 Early stages of product assembly are done in a
“push” manner
 Final product assembly is done based on
customer demand for specific product
configurations
 Supply chain timeline determines “push-pull
boundary
THANK YOU
Supply Chain Planning
 Supply Chain Planning

Supply chain planning – management process

which optimizes the manufacturing and
delivery of goods from raw materials to
finished products, and from suppliers all the
way to customers,
• Also include returns, recycling, and reverse
logistics.
• Essentially, it’s a demand-driven balancing
act between shortage and surplus.
Planning Sequence
 Plan Levels

➢ Short-range plans (Detailed plans)

➢ Intermediate plans (General levels)
➢ Long-range plans
 Components of the
Supply Chain Planning Process
1. Demand Forecasting - helps businesses avoid
costly surplus and anticipate customer needs
to maximize profits.
2. Inventory management - allows you to meet
service level targets without carrying or
paying for more inventory than you actually
need. This helps in giving more precise
predictive recommendations.
 Components of the
Supply Chain Planning Process
3. Response and supply planning (Aggregate
Planning) - helps organizations meet their
operational challenges through data analytics .
This creates a business supply chain that is
more resilient, efficient, and adaptable.
4. Sales and operations planning (S&OP) - Sales
and operations planning offers you the
opportunity to make better decisions that are
informed by key supply chain drivers
 Components of the
Supply Chain Planning Process
5. Demand-driven replenishment (DDMRP) -
helps organizations become more agile and
adaptable without compromising the quality
of their product.
6. Supply chain monitoring - provides insights
that can improve every stage of your supply
chain and manufacturing process.
 Demand Forecasting
Forecasting is the art and science of predicting the
future events
➢ Demand Forecasting (DF) is a projection of past
information and/or experience into expectation of
demand in the future.
➢ DF is necessary for developing plans to make
deliveries in reasonable time and satisfy future
demand.
➢ Once a demand forecast is at hand, plans for
capacity and other resources could be established.
 Demand Forecasting

Components and Methods

Companies must identify the factors that influence
future demand and then ascertain the relationship
between these factors and future demand
• Past demand
• Lead time of product replenishment
• Planned advertising or marketing efforts
• Planned price discounts
• State of the economy
• Actions that competitors have taken
 Demand Forecasting
5 Important Points in Forecasting
1. Understand the objective of forecasting.
2. Integrate demand planning and forecasting
throughout the supply chain.
3. Identify the major factors that influence the
demand forecast.
4. Forecast at the appropriate level of aggregation.
5. Establish performance and error measures for
the forecast.
 Inventory Management
➢ Inventories - raw materials, work-in-
process products and finished goods
that are considered to be the portion of
a business's assets that are ready or will
be ready for sale.
➢ Inventory represents one of the most
important assets of a business.
 Inventory Management
➢ Part of SCM that plans, implements and controls the
efficient, effective, forward, and reverse flow and storage of
goods, services, and related information between the point
of origin and the point of consumption in order to meet
customer’s requirements
➢ Continuing process of planning, organizing and controlling
inventory that aims at minimizing the investment in
inventory while balancing supply and demand”
➢ Specifically, the process is a supervision of supply, storage
and accessibility of items in order to ensure an adequate
supply without excessive oversupply
 Inventory Management issues

• Maintenance policies
• Transportation Cost
• Holding Cost
• Ordering Cost
 Aggregate Planning
Aggregate Planning - process by which a
company determines levels of capacity,
production, subcontracting, inventory,
stockouts, and pricing over a specified time
horizon.
• goal is to maximize profit
• decisions made at a product family (not
SKU) level
• time frame of 3 to 18 months
• Determine use of its facilities
Aggregate Planning
 Sales and Operations Planning

The goal is to equip business decision

makers with the true insight of current
and future performance of the portfolio
so that the right portfolio choices can be
made on investments, execution course
correction, the balance of service, cash
performance and manufacturing
productivity
Sales and Operations Planning

The S&OP process includes

forecasting, demand and supply
planning, and executive review.
The goal is to coordinate sales
and operations planning across
business functions so they're all
on the same page. The exact
steps can vary depending on the
company, its products, and its
industry.
Role of Aggregate Planning in SC
 Responding to Predictable Variability
in a Supply Chain
➢ Predictable variability is change in demand
that can be Forecasted
➢ Can cause increased costs and decreased
responsiveness in the supply chain

Two broad options:

1. Manage supply using capacity, inventory,
subcontracting, and backlogs
2. Manage demand using short term price
discounts and promotions
 Sales and Operations Planning
➢ Managing Supply ➢ Managing Supply
Managing capacity Managing inventory
• Time flexibility from • Using common
workforce components across
• Use of seasonal
multiple products
workforce
• Use of dual facilities • Build inventory of high
specialized and flexible demand or predictable
• Use of subcontracting demand products
• Designing product
flexibility into
production processes
 Sales and Operations Planning
Managing Demand
With promotion, three factors lead to increased demand
• Market growth
• Stealing share
• Forward buying
Factors influencing timing of a promotion
• Impact of promotion on demand
• Cost of holding inventory
• Cost of changing the level of capacity
• Product margins
Sales and Operations Planning
Sales and Operations Planning
➢ Demand-driven replenishment (DDMRP)
- helps organizations become more agile
and adaptable without compromising
the quality of their product.
➢ Supply chain monitoring - provides
insights that can improve every stage of
your supply chain and manufacturing
process
Questions?
THANK YOU
Network Design in
Supply Chain
 Framework for
Supply Chain Decisions
➢ Maximize the overall profitability of the supply
chain network while providing customers with the
appropriate responsiveness
➢ Many trade offs during network design
➢ Network design models used
• to decide on locations and capacities
• to assign current demand to facilities and identify
transportation lanes
Distribution
Network
 Framework for
Supply Chain Decisions

➢ Each driver affects the balance between responsiveness and

efficiency and the resulting strategic fit.
 Distribution Network Design
in the Supply Chain
Distribution - refers to the steps taken to move and
store a product from the supplier stage to the
customer stage in a supply chain.

Drives profitability by directly affecting supply chain

cost and the customer value

Choice of distribution network can achieve supply

chain objectives from low cost to high responsiveness
 Factors Influencing
Distribution Network Design
➢ Distribution network performance evaluated along
two dimensions:
• Value provided to the customer
• Cost of meeting customer needs

➢ Evaluate the impact on customer service and cost for

different distribution network options
➢ Profitability of the delivery network determined by
revenue from met customer needs and network
costs
 Factors Influencing
Distribution Network Design

➢ Elements of customer service influenced by network structure:

⁻ Response time - Product variety
⁻ Product availability - Customer experience
⁻ Time to market - Order visibility
⁻ Returnability

➢ Supply chain costs affected by network structure:

⁻ Inventories -Transportation
⁻ -Facilities -Information
 Design Options for a
Distribution Network

Considerations for key decision on

distribution network choices from the
manufacturer to the end consumer:
a) Will product be delivered to the customer
location or picked up from a prearranged site?
b) Will product flow through an intermediary (or
intermediate location)?
 Design Options for a
Distribution Network
Six design options to be used.
1. Manufacturer storage with direct
shipping
2. Manufacturer storage with direct
shipping and in transit merge
3. Distributor storage with carrier delivery
4. Distributor storage with last mile delivery
5. Manufacturer/distributor storage with
customer pickup
6. Retail storage with customer pickup
Design Options for a
Distribution Network
Design Options for a
Distribution Network
 Design Options for a
Distribution Network

➢ Distribution networks that ship directly to the

customer are better suited for a large variety
of high value products that have low and
uncertain demand.

➢ These networks incur lower facility costs and

carry low levels of inventory but incur high
transportation cost and provide a slow
response time.
Design Options for a
Distribution Network
Design Options for a
Distribution Network
Design Options for a
Distribution Network
Design Options for a
Distribution Network
 Design Options for a
Distribution Network

➢ Distribution networks that carry local

inventory are suitable for products with high
demand, especially if transportation is a large
fraction of total cost.

➢ These networks incur higher facility and

inventory cost but lower transportation cost
and provide a faster response time.
 Performance of Channels

➢ Response time to customers

• Picking up physical products faster than other channels
• Online channel may be fastest for information goods

➢ Product variety
• Easier to offer larger selection remotely

➢ Product availability
• Aggregating inventory improves product availability

➢ Customer experience
• Channels have complementarity strengths

➢ Faster time to market

• Online/showrooms are quicker than retailing
 Performance of Channels
➢ Order Visibility
• Critical for showrooms or online
• Automatic in retail
➢ Returnability
• Easier with physical locations
• Proportion of returns likely to be higher when information
exchange is remote
➢ Direct Sales to Customers
• Manufacturers can use remote information exchange for direct
access to customers
➢ Efficient Funds Transfer
• Internet and smartphones
Global Supply Chain
Network
 Impact of Globalization on
Supply Chain Networks

➢ Opportunities to simultaneously increase

revenues and decrease costs
➢ Accompanied by significant additional risk and
uncertainty
➢ Difference between success and failure often the
ability to incorporate suitable risk mitigation into
supply chain design
➢ Uncertainty of demand and price drives the value
of building flexible production capacity
 Framework for
Global Site Location
Questions?
THANK YOU
Supply Chain
DECISIONS
 OBJECTIVE OF SCM

Supply chain management is concerned with the efficient

integration of suppliers, factories, warehouses and stores so that
merchandise is produced and distributed:
– In the right quantities
– To the right locations
– At the right time
In order to:
– Minimize total system cost and maximize the overall
value generated
– Satisfy market demand and customer service
requirements
– Face global competition
– Increase supply chain profitability
 Supply Chain Decisions

DESIGN PLANNING EXECUTION CONTROL MOITORING

 Supply Chain Decisions

➢ Ensure effective flow of goods and information

➢ Clusters of store near the distribution center.
➢ Collaboration with suppliers.
➢ Active efforts to steer customer at real time.
➢ Centralized manufacturing
➢ Worth of inventory.
➢ Manage cash flow
➢ Should be flexible.
 Framework for
Supply Chain Decisions

➢ Each driver affects the balance between responsiveness and

efficiency and the resulting strategic fit.
 Decision Phases in a
Supply Chain

1. Supply Chain Strategy or Design

• How to structure for next several years
• What is the chain configuration
• How resources allocated
• What process each stage will perform
• Outsourcing or In house functions
• Locations and capacities of production and
warehouses
• Mode of transportation
• Type of information system
 Decision Phases in a
Supply Chain

2. Supply Chain Planning

• For several months.
• Forecast for the coming year
• Analyses demand in different markets
Which market? Location?
• Sub - contracting
• Inventory policies Timing
• Price promotions
 Decision Phases in a
Supply Chain
3. Supply Chain Operations
• weekly or daily operation decisions
• Individual customer orders
• Allocation of inventory and production
• Set dates for activities
• Generate lists for warehouses
• Allocation of shipments
• Schedules of trucks.
NETWORK DESIGNS
 Role of Network Design
1. Facility role: What role should each
facility play? What processes are
performed at each facility?
2. Facility location: Where should facilities
be located?
3. Capacity allocation: How much capacity
should be allocated to each facility?
4. Market and supply allocation: What
markets should each facility serve? Which
supply sources should feed each facility
 Factors Influencing
Distribution Network Design
➢ Distribution network performance evaluated along
two dimensions:
• Value provided to the customer
• Cost of meeting customer needs

➢ Evaluate the impact on customer service and cost for

different distribution network options
➢ Profitability of the delivery network determined by
revenue from met customer needs and network
costs
 Factors Influencing
Distribution Network Design

➢ Elements of customer service influenced by network structure:

⁻ Response time - Product variety
⁻ Product availability - Customer experience
⁻ Time to market - Order visibility
⁻ Returnability

➢ Supply chain costs affected by network structure:

⁻ Inventories -Transportation
⁻ -Facilities -Information
 Design Options for a
Distribution Network

Considerations for key decision on

distribution network choices from the
manufacturer to the end consumer:
a) Will product be delivered to the customer
location or picked up from a prearranged site?
b) Will product flow through an intermediary (or
intermediate location)?
 Design Options for a
Distribution Network
Six design options to be used.
1. Manufacturer storage with direct
shipping
2. Manufacturer storage with direct
shipping and in transit merge
3. Distributor storage with carrier delivery
4. Distributor storage with last mile delivery
5. Manufacturer/distributor storage with
customer pickup
6. Retail storage with customer pickup
SUPPLY CHAIN PLANNING
 Supply Chain Planning

Supply chain planning – management process

which optimizes the manufacturing and
delivery of goods from raw materials to
finished products, and from suppliers all the
way to customers,
• Also include returns, recycling, and reverse
logistics.
• Essentially, it’s a demand-driven balancing
act between shortage and surplus.
Planning Sequence
 Plan Levels

➢ Short-range plans (Detailed plans)

➢ Intermediate plans (General levels)
➢ Long-range plans
 Components of the
Supply Chain Planning Process
1. Demand Forecasting - helps businesses avoid
costly surplus and anticipate customer needs
to maximize profits.
2. Inventory management - allows you to meet
service level targets without carrying or
paying for more inventory than you actually
need. This helps in giving more precise
predictive recommendations.
 Components of the
Supply Chain Planning Process
3. Response and supply planning (Aggregate
Planning) - helps organizations meet their
operational challenges through data analytics .
This creates a business supply chain that is
more resilient, efficient, and adaptable.
4. Sales and operations planning (S&OP) - Sales
and operations planning offers you the
opportunity to make better decisions that are
informed by key supply chain drivers
 Components of the
Supply Chain Planning Process
5. Demand-driven replenishment (DDMRP) -
helps organizations become more agile and
adaptable without compromising the quality
of their product.
6. Supply chain monitoring - provides insights
that can improve every stage of your supply
chain and manufacturing process.
 Demand Forecasting
Forecasting is the art and science of predicting the
future events
➢ Demand Forecasting (DF) is a projection of past
information and/or experience into expectation of
demand in the future.
➢ DF is necessary for developing plans to make
deliveries in reasonable time and satisfy future
demand.
➢ Once a demand forecast is at hand, plans for
capacity and other resources could be established.
 Demand Forecasting

Components and Methods

Companies must identify the factors that influence
future demand and then ascertain the relationship
between these factors and future demand
• Past demand
• Lead time of product replenishment
• Planned advertising or marketing efforts
• Planned price discounts
• State of the economy
• Actions that competitors have taken
 Demand Forecasting
5 Important Points in Forecasting
1. Understand the objective of forecasting.
2. Integrate demand planning and forecasting
throughout the supply chain.
3. Identify the major factors that influence the
demand forecast.
4. Forecast at the appropriate level of aggregation.
5. Establish performance and error measures for
the forecast.
 Inventory Management
➢ Inventories - raw materials, work-in-
process products and finished goods
that are considered to be the portion of
a business's assets that are ready or will
be ready for sale.
➢ Inventory represents one of the most
important assets of a business.
 Aggregate Planning
Aggregate Planning - process by which a
company determines levels of capacity,
production, subcontracting, inventory,
stockouts, and pricing over a specified time
horizon.
• goal is to maximize profit
• decisions made at a product family (not
SKU) level
• time frame of 3 to 18 months
• Determine use of its facilities
Aggregate Planning
 Sales and Operations Planning

The goal is to equip business decision

makers with the true insight of current
and future performance of the portfolio
so that the right portfolio choices can be
made on investments, execution course
correction, the balance of service, cash
performance and manufacturing
productivity
Sales and Operations Planning

The S&OP process includes

forecasting, demand and supply
planning, and executive review.
The goal is to coordinate sales
and operations planning across
business functions so they're all
on the same page. The exact
steps can vary depending on the
company, its products, and its
industry.
Role of Aggregate Planning in SC
SALES OPERATIONS
 Responding to Predictable Variability
in a Supply Chain
➢ Predictable variability is change in demand
that can be Forecasted
➢ Can cause increased costs and decreased
responsiveness in the supply chain

Two broad options:

1. Manage supply using capacity, inventory,
subcontracting, and backlogs
2. Manage demand using short term price
discounts and promotions
 Sales and Operations Planning
➢ Managing Supply ➢ Managing Supply
Managing capacity Managing inventory
• Time flexibility from • Using common
workforce components across
• Use of seasonal
multiple products
workforce
• Use of dual facilities • Build inventory of high
specialized and flexible demand or predictable
• Use of subcontracting demand products
• Designing product
flexibility into
production processes
 Sales and Operations Planning
Managing Demand
With promotion, three factors lead to increased demand
• Market growth
• Stealing share
• Forward buying
Factors influencing timing of a promotion
• Impact of promotion on demand
• Cost of holding inventory
• Cost of changing the level of capacity
• Product margins
Sales and Operations
Sales and Operations
➢ Demand-driven replenishment (DDMRP)
- helps organizations become more agile
and adaptable without compromising
the quality of their product.
➢ Supply chain monitoring - provides
insights that can improve every stage of
your supply chain and manufacturing
process
Questions?
THANK YOU
 Procurement and
Sourcing Processes
Week 7 – October 1 and 3, 2024
 Cycle View of
2 Supply Chain Processes
Given the 5 stages of a Supply Chain, all processes can be
broken down into the following four (4) process cycles namely:
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
➢ Each cycle occurs at the interface between two successive stages of the
supply chain.
➢ Not every supply chain will have all four cycles clearly separated.
 Purchasing

Purchasing or Procurement - the process by

which companies acquire raw materials,
components, products, services, or other
resources from suppliers to execute their
operations .
➢ responsible for obtaining the materials,
parts, and supplies and services needed to
produce a product or provide a service
 Purchasing
Purchasing cycle:
Series of steps that begin with a request
for purchase and end with notification of
shipment received in satisfactory
condition.
 Purchasing Cycle
 Requisition received
 Supplier selected

 Order is placed

 Monitor orders

 Receive orders

Value analysis: Examination of the function

of purchased parts and materials in an effort
to reduce cost and/or improve performance
 Goal of Purchasing

“ Develop and implement purchasing plans

for products and services that support
operations strategies ”
 Duties of Purchasing

➢ Identifyingsources of supply
➢ Negotiating contracts

➢ Maintaining a database of suppliers

➢ Obtaining goods and services

➢ Managing supplies
 Centralized vs
Decentralized Purchasing
Centralized Decentralized
purchasing purchasing
➢ Purchasing is ➢ Individual
handled by one departments or
special department separate locations
handle their own
purchasing
requirements
Purchasing Interfaces
 Suppliers Management

➢ Choosing suppliers
➢ Evaluating sources of supply

➢ Supplier audits

➢ Supplier certification

➢ Supplier relationships

➢ Supplier partnerships
 Sourcing

Sourcing - entire
set of business
processes
required to
purchase goods
and services
 Factors in Choosing a Supplier
➢ Quality and quality assurance
➢ Flexibility
➢ Location
➢ Price
➢ Product or service changes
➢ Reputation and financial stability
➢ Lead times and on-time delivery
➢ Other accounts
 Evaluating Sources of Supply

Vendor analysis - evaluating the sources

of supply in terms of:
• Price
• Quality
• Services
• Location
• Inventory policy
• Flexibility
Supplier as a Partner
 Supplier Partnerships
➢ Ideas from suppliers could lead to improved
competitiveness;
➢ Reduce cost of making the purchase
➢ Reduce transportation costs
➢ Reduce production costs
➢ Improve product quality
➢ Improve product design
➢ Reduce time to market
➢ Improve customer satisfaction
➢ Reduce inventory costs
➢ Introduce new products or services
 Critical Issues

➢ Strategic importance
 Cost
 Quality
 Agility
 Customer service
 Competitive advantage
 Critical Issues
➢ Technology management
 Benefits
 Risks
➢ Purchasing function
 Increased outsourcing
 Increased conversion to lean
production
 Just-in-time deliveries
 Globalization
 Outsourcing

Outsourcing - the strategic use of outside

resources to perform activities traditionally
handled by internal staff and resources,”

Outsourcing questions:
1. Will the third party increase the supply chain surplus
relative to performing the activity in-house?
2. To what extent do risks grow upon outsourcing?
3. Are there strategic reasons to outsource?
Outsourcing
 Why do companies Outsource
▪ Reduces administrative ▪ Avoid major investments
burdens ▪ Handle overflow situation
▪ Focus on strategic areas ▪ Improve flexibility
▪ Reduce costs ▪ Improve ratios
▪ Focus on core functions ▪ Jump on to bandwagon
▪ Acquire new skills ▪ Enhance credibility
▪ Acquire better ▪ Maintain old functions
management
▪ Improve performance
▪ Assist a fast growth
situation ▪ Begin a strategic initiative
▪ Avoid labor problems
▪ Focus on strategy
Range of Outsourcing Activities in SCM
 Concerns about
Outsourcing in SCM

➢ Fear of losing control

➢ Lack of confidence
➢ Lack of outsourcing education
➢ Management philosophy and tradition
 Benefits Of
Effective Sourcing Decision
➢ Performing higher quality at lower lost
➢ Achieving better economic scale
➢ Reducing cost of purchasing
➢ Design collaboration
➢ Co ordination of supplier
➢ Achieving lower purchase price
Questions?
THANK YOU
 Inventory
Management

Week 8 – October 10, 2024

 INVENTORY

Inventory - A physical resource that an

organization holds in stock with the
intent of selling it or transforming it into
a more valuable state. It encompasses
all the raw materials, component parts,
supplies, work in process, and finished
goods within a supply chain
 INVENTORY

Supplier Manufacturer Distributor Retailer Consumer

• Goods in-transit
• Raw materials / parts
• Work-in process • Finished goods
• Finished goods

Inventories are held in various stages of Supply Chain

 Purposes of Inventory

➢ To maintain independence of operations.

➢ To meet variation in product demand.
➢ To allow flexibility in production scheduling.
➢ To provide a safeguard for variation in raw
material delivery time.
➢ To take advantage of economic purchase-
order size.
 Role of Inventory
in Supply Chain

Understocking : Demand
exceeds amount available -
Lost margin and future sales Overstocking : Amount available
exceeds demand - Liquidation,
Obsolescence, Holding

Matching Supply and

Demand
 Role of Inventory
in Supply Chain
Overall Trade Off
➢ Increasing inventory generally makes the supply
chain more responsive
➢ A higher level of inventory facilitates a reduction
in production and transportation costs
➢ Inventory holding costs increase
 Inventory Management

➢ Process of planning, controlling, and

optimizing inventory levels to meet
customer demand, minimize costs, and
increase efficiency.
 Inventory Management

➢ Focuses on activities such as purchasing,

storing, tracking, and managing inventory
to ensure that stock levels are sufficient
➢ It allows you to meet service level targets
without carrying or paying for more
inventory than you actually need.
 Benefits of Inventory
Management

➢ Improve customer service

➢ Reduce inventory investment
➢ Increase the profitability of business
➢ Increase productivity
➢ Inventory is insurance
 COMPONENTS OF
INVENTORY DECISIONS

Basic decisions to make regarding the creation

and holding of inventory:
1. Cycle Inventory - amount of inventory needed
to satisfy demand for the product in the period
between shipment or purchases of the product .
2. Safety Inventory - inventory that is held as a
buffer against uncertainty. If demand
forecasting could be done with perfect accuracy,
then the only inventory that would be needed
would be cycle inventory.
 COMPONENTS OF
INVENTORY DECISIONS

3. Seasonal Inventory - inventory that is built up

in anticipation of predictable increases in
demand that occur at certain times of the year.
4. Level of Product Availability - the fraction of
demand that is served on time from product
held in inventory
 INVENTORY DECISIONS

➢ The major inventory related decisions include

identifying the batch size, the safety inventory,
the seasonal inventory, and the level of product
availability.
➢ Increasing the safety inventory and level of
product availability increases responsiveness but
hurts efficiency.
 INVENTORY DECISIONS

➢ Increasing
the batch size and seasonal inventory
increases holding costs but may decrease
production, transportation, and purchasing costs.
➢ Overall trade-off: Responsiveness ( to customer
needs ) versus efficiency of supply chain
• more inventory: greater responsiveness but greater
cost
• less inventory: lower cost but lower responsiveness
 Techniques in Inventory

Manual Count Method Identifying and removing broken items

Method
Cycle Counting a physical inventory-taking technique in which
inventory is counted on a frequent basis rather
than once or twice a year. (e.g. class A in
particular)
Periodic Methods Less upfront costs
Perpetual Methods most up to date information
LIFO Ideal for heavy products and producer of
homogenous products
FIFO Ideal for products that have expiration dates and
with relatively short demand cycles
 all costs associated with ordering
Ordering
inventory, correcting mistakes,
Cost determining when/how much to order
costs of downtime and lost efficiency
Setup
when a machine is changed to produce
Cost different kinds of inventory

Holding cost of keeping inventory until it is

Cost used or sold

Stockout costs when a company runs out of

Costs a product
Cost Curve
 a system of formulas that helps determine
EOQ - Economic how much and how often inventory should
Order Quantity be ordered.

a system in which component parts arrive

JIT - Just-in-Time
from suppliers just as they are needed at
Inventory each stage of production

a production and inventory system that, from

MRP – Materials beg. to end, precisely determines the
Requirement Planning production schedule, batch sizes, and
inventories needed to complete final products
EOQ Model
 Inventory System

Inventory System - A set of policies and controls

that monitors levels of inventory and
determines what levels should be maintained,
when stock should be replenished, and how
large orders should be
 Characteristics of
inventory systems
➢ Demand
• Constant Vs. Variable
➢ Lead time
• External order: time between
placement of an order until
arrival of goods
• Internal production: amount
of time required to produce a
batch of items
 Characteristics of
inventory systems
➢ Replenishment
• How does the order arrive? uniform over time,
instantaneous batches
➢ Review time
• Continuous review: inventory level is known at all times
• Periodic review: inventory level is known only discrete
points in time
➢ Excess demand
• Back ordering: excess is satisfied in the future
• Lost sales: excess demand is lost
➢ Changing inventory
• Inventory may change over time: limited shelf life
(perishable good –food), obsolescence (e.g. automotive
parts)
 Design of Inventory
Mgmt. Systems
Macro Issues
➢ Need for Finished Goods Inventories ◦
• Need to satisfy internal or external customers? ◦ Can someone else
in the value chain carry the inventory?
➢ Ownership of Inventories - proper accountability to minimize losses
➢ Specific Contents of Inventories - knowing your inventory - visibility
➢ Locations of Inventories - Placing inventory at the right place for quick
order
➢ Tracking - Locating where your inventory is to eliminate uncertainty
and timely delivery

Micro Issues •
➢ Order Quantity Economic Order Quantity
➢ Order Timing
➢ Reorder Point
Questions?
THANK YOU
EXAMPLE Demand for the desktop computer at
Best buy is 1,000 units per month. Best Buy
incurs a fixed order placement, transportation
and receiving cost of $ 4,000 each time an
order is placed . Each computer costs Best Buy
$ 500 and the retailer has a holding cost of 20
percent. Evaluate the number of computers
that the store manager should order in each
replenishment lot
BULLWHIP EFFECT
 The Bullwhip Effect
An observed phenomenon in forecast
driven distribution channels. It refers
to larger and larger swing in inventory
in response to changes in customer
demand, as one looks at firms further
back in the supply chain of the
product.
 The Bullwhip Effect
➢ The concept first appeared in Jay Forrester's
Industrial Dynamics (1961) and thus it is also
known as the Forrester effect.
➢ Since the oscillating
demand magnification
upstream of a supply chain
is reminiscent of a cracking
whip, it became known as
the bullwhip effect
 Disrupted Supply Chain

As demand increases, the distributor decides to

accommodate the forecasted demand and increase
inventory to buffer against unforeseen problems in
demand. Each step along the supply chain increases
their inventory to accommodate demand fluctuations.
The top of the supply chain receives the harshest
impact of the whip effect
Demand Fluctuations
Demand Fluctuations
 Impact of Bullwhip Effect
• Excess Inventory
• Unnecessary costs
• Insufficient or excess capacities
• Expedited transportation S Poor customer
service
• Poor forecast accuracy
• Poor quality
• Lengthened and inaccurate lead time
• Loss of sales
 Causes of Bullwhip Effect
➢ Because customer demand is rarely perfectly stable,
businesses must forecast demand to properly position
inventory and other resources.
➢ Forecasts are based on statistics, and they are rarely
perfectly accurate.
➢ Because forecast errors are given, companies often
carry an inventory buffer called "safety stock”
➢ Moving up the supply chain from end-consumer to
raw materials supplier, each supply chain participant
has greater observed variation in demand and thus
greater need for safety stock.
 How to cope up with
Bullwhip Effect
➢ Improve communication along the supply
chain
➢ Aligning goals and incentives
➢ Improving information accuracy
➢ Improving operational performance
➢ Designing pricing strategies to stabilize
orders
➢ Building strategic partnerships and trust
Questions?
THANK YOU
Warehouse
Management

Week 9 – October 15-17, 2024

 What is a Warehouse

Warehouse - building or an open space facility

where the supply chain holds or stores goods.
➢ typically viewed as a place to store
inventory.
➢ However, in many logistical system designs,
the role of the warehouse is more properly
viewed as a switching facility to mix
inventory assortments to meet customer
requirements
Objectives of a Warehouse
 better customer service
 low operating cost

 maximum utilization of storage space

 higher labor productivity

 maximum asset utilization

 reduction in material handling

 increase in inventory turnover

 reduce order filing time

 Types of Warehouses
1. Private warehouse
– operated by a company for shipping, and
storing its own products. Owned and
managed by manufacturers or traders
2. Public warehouse
– provide storage and physical distribution
services on rental basis. These are used by
small and large firms.
 Types of Warehouse

3. Contract Warehouse
– Companies offer to build, own and operate
warehouse facilities for the benefit of clients
who do not want to undertake those
responsibilities themselves
4. Co-operative warehouse
– owned, managed, and controlled by
cooperative societies.
 Types of Warehouses

5. Bonded warehouse
– licensed to accept imported goods for storage
before payment of customs duty
6. Distribution centers
– designed to move goods, highly automated.
– Receive goods and efficiently deliver to
customers.
7. Cold storage
– temperature is controlled here for sensitive
products.
 Types of Warehouses

7. Export/ Import warehouse

– located near ports where international trade
is undertaken. These provide storage facilities
for goods awaiting onward movements.
8. Climate – controlled warehouse
– provide storage of many products which
need special handling conditions.
 Warehousing
 Warehousing refers to the activities
involving storage of goods on a large-
scale in a systematic and orderly manner
and making them available conveniently
when needed
 important goal
in warehousing
is to maximize
flexibility
 Warehousing Management
Warehouse management encompasses the principles
and processes involved in running the day-to-day
operations of a warehouse.
 this includes receiving and organizing warehouse
space, scheduling labor, managing inventory and
fulfilling orders.
 involves optimizing and integrating each of the
processes to ensure all aspects of a warehouse
operation work together to increase productivity
and keep costs low
Basic Warehousing Operation
 Basic Warehousing Operation
1. Receiving and Unloading
 Inbound shipments must be received and
unloaded from the transportation vehicles
 Part of this activity may also involve checking
the shipment for the correct quantities and for
potential damage to products
2. In-Storage Handling (Put Away)
 Once unloaded the goods must be moved to the
desired destination within the facility, whether
this is an actual storage location or a shipping
area in the case of a cross-dock facility
 Basic Warehousing Operation

3. Storage
 Products are held, even if for only a few
minutes in a storage area
4. Order-Picking
 The products are removed from storage and
assembled into appropriate quantities and
assortments to fill customer orders
 Basic Warehousing Operation
5. Staging (Packing)
 The assembled orders are moved to an
area in the warehouse in readiness for
loading into a transportation vehicle
bound for customer locations
6. Shipping
 Involves verifying that the assembled orders
are correct and the actual loading of the
transportation vehicles
Diagrams
 Primary Functions of
Warehousing
1. Trans-Shipment Point
– A facility where products are received, sorted,
sequenced and selected into loads consistent
with the customers’ needs
2. Stockpiling
– The storage of inventories in warehouses to
protect against seasonality either in supply or
demand
3. Production Support
– A warehouse dedicated to storing parts and
components needed to support a plant’s
operations
 Primary Functions
of Warehousing
4. Break-Bulk
– Splitting a large shipment into individual orders
and arranging for local delivery to customers
– occurs when a warehouse receives a single large
shipment and arranges for delivery to multiple
destinations
 Primary Functions
of Warehousing
5. Warehouse Consolidation
– Combining shipments from a number of sources
into one larger shipment going to a single
location
– occurs when a warehouse receives materials
from a number of sources and combines them
into exact quantities for a specific destination
 Primary Functions
of Warehousing
6. Cross-Docking
– Combines inventory from multiple origins into a
prespecified assortment for a specific customer
– used extensively by retailers to replenish store
inventories
 Primary Functions of
Warehousing
7. Reverse Logistics Support
– The logistics needed to send products or
packaging materials back to disassembly,
reclamation or disposal sites
– Returned products can be remanufactured or
updated for resale
 Primary Functions of
Warehousing

8. Value-Added Services
– Any work that creates greater value for customers
– Services may change the physical features or
configuration of products so they are presented
to customers in a unique or customized manner
 Warehousing decisions

 Site Selection
 Design
 Product-Mix Analysis
 Expansion
 Materials Handling
 Layout
 Sizing
 Warehouse management system
 Accuracy and audit
 Security
 Safety and maintenance
 Site Selection
 Site selection is driven by service availability
and cost factors
 Identify broad geography where an active
warehouse meets service, economic and
strategic requirements
 Selection and number of retail outlets drives
location of support warehouses
 Final selection should be preceded by
extensive analysis
 Warehouse Layout and Design
 Develop a demand forecast.
 Determine each item’s order
quantity.
 Convert units into cubic
footage requirements.
 Allow for growth.
 Allow for adequate aisle
space for materials handling
equipment.
 Principles for
Warehouse Design
 Use one story facilities where possible.
 Move goods in a straight-line.
 Use the most efficient materials handling
equipment.
 Minimize aisle space.
 Use full building
height.
 Warehouse Management System

 Warehouse management systems (WMS)-

a software solution that aims to simplify
the complexity of managing a warehouse
storage and handling work procedures
 Often provided as part of an integrated
enterprise resource planning (ERP) suite
of business applications, a WMS can
support and help to optimize every
aspect of warehouse management
 Warehouse Management System
Key Features of WMS:
 Leverage data and automation to conduct demand analyses,
forecast sales and create efficient daily operating plans.
 Provide real-time insight into inventory location and quantity.
 Share data with other ERP modules or standalone software
products, such as accounting software and transportation
management solutions, to increase the efficiency of business
operations.
 Monitor and report productivity to offer a deeper
understanding of how efficiently your warehouse is operating
and where you can make improvements to warehouse
geography and optimize space.
 Create step by step directions to guide users through daily
processes—such as receiving, picking and packing orders—
using predefined rules.
 MODERN TRENDS
➢ JUST IN TIME (JIT) system promotes product
delivery directly from suppliers to consumers
without the use of warehouse
➢ Retailing trends led to development of
WAREHOUSE- STYLE RETAIL STORES
➢ INTERNET BASED STORES do not require
physical retail space but still require
warehouse to store goods
 MODERN TRENDS

➢ Warehousing Companies are transforming

into third- party logistics providers or 3PLs .
➢ RADIO FREQUENCY IDENTIFICATION (RFID)
➢ TRANSPORTATION MANAGEMENT SYSTEMS
➢ PICK-TO-LIGHT TECHNOLOGY
➢ VOICE-ACTIVATED RECEIVING ANG
PACKAGING
Questions?
THANK YOU
Logistics Management
– Materials Handling
 What is Logistics
Logistics - the flow of goods, information and
other resources, including energy and
people, between the point of origin and
the point of consumption in order to meet
the requirements of consumers.
Logistics involve the integration of information,
transportation, inventory, warehousing,
material- handling and packaging.
 Logistics Management
➢ Logistics Management is the process of planning,
implementing and controlling the efficient, effective
flow and storage of goods, services and related
information from point of origin to point of
consumption for the purpose of conforming the
customer requirement”.
➢ Logistic management includes the design and
administration of systems to control the flow of
material, work- in – process, and finished inventory to
support business unit strategy.
Evolution of Logistics

"To coordinate all efforts of the company to

maintain a cost effective flow of goods."
 Phases of Logistics

1. Materials Management - the timely

movement of raw materials, parts,
and supplies.
2. Physical Distribution - the movement
of the firm's finished products to the
customers.
 Physical Distribution
➢ The area of physical distribution
concerns movement of a finished
product to customers.
➢ In physical distribution, the customer is
the final destination of a marketing
channel.
➢ Physical distribution links a marketing
channel with its customers
 Physical Distribution
➢ Allphysical distribution systems have
one common feature:
• they link manufacturers, wholesalers,
and retailers into marketing channels
that provide product availability as an
integral aspect of the overall
marketing process
 Materials Handling
➢ Material handling is an important activity in
the logistics system.
➢ According to American society of material
engineers:
▪ Material handling is an art & science
involving the moving, packing & storing of
substances in any form.
▪ It involves movement of material
mechanically & manually in batches or one
by one within the plant.
 Concept of Material Handling
➢ Material handling is focused on the
efficiency and speed of warehousing
operations, which ultimately result in
elongated or compressed order
completion cycles.
➢ Material handing is strategic in nature
and is always based on long term
requirements, considering product
volumes and varieties
 Functions of Material Handling

1. Loading & unloading

2. Material Movement
3. Order filing
 Objectives of Material Handling

➢ Inventory Reduction
➢ Reliable
and consistent delivery
performance
➢ Freight economy
➢ Minimum product damage
➢ Quick Response
 Importance of Material Handling

➢ Material handling system enhance the

speed and throughput of material
movement through the supply chain.
➢ The efficiency of material handling
equipment adds to the performance level
of the warehouse.
➢ Material handling system ensure
reliability and productivity for both
consumers and producers
 Tools of Materials Handling

1. Manual
2. Mechanized
3. Semiautomatic
4. Automatic
5. Information guided
 Manual System
➢ The cheapest and the most common method
of material movement used in warehousing.
➢ The limitations of this system are low
volumes, slow speed, physical characteristics
of the product, and distances.
➢ In warehouses where cartoons do not weigh
more than 20 kg and volume handled are not
large, material loading, unloading, and
movement are done manually.
 Mechanized System
➢ Mechanized equipment requires space for
free movement across the warehousing.
➢ Mechanization enhances system
productivity.
➢ Helps to improve space utilization,
reduction of time taken for material
movement, speeding up the overall material
flow, reduction in material damages during
material handling.
 Mechanized System
➢ The equipment most commonly used are:
• Wheeled trolley,
• Forklift,
• Pallet truck,
• Tractor-trailer device,
• Conveyors, cranes and carousels etc.
Mechanized System
 Overview of
Materials Handling Equipment
Material handling equipment includes:
▪ Transport Equipment: industrial trucks,
Automated Guided vehicles (AGVs),
monorails, conveyors, cranes and hoists.
▪ Storage Systems: bulk storage, rack systems,
shelving and bins, drawer storage, automated
storage systems.
▪ Unitizing Equipment: palletizers
▪ Identification and Tracking systems
 PACKAGING
➢ Packaging is the science, art and technology of enclosing or
protecting products for distribution, storage, sale or use.
➢ Packaging also refers to the process of design, evaluation
and production of packages.
➢ Packaging can be described as a coordinated system of
preparing goods of transport, warehousing, logistics, sale
and end use.
➢ Packaging contents, protects, preserves, transports, informs
and sells.
➢ Packaging is a marketing tool and is related to the
performance of marketing function.
 Concept of Packaging
➢ Packaging is the essential for the success
of any product which can make the
difference between an expensive failure
or a big win.
➢ The most important aspects of
Packaging is for the product to reach the
consumer in the same condition as it
left the manufacturer.
 Concept of Packaging

➢ Self-Service-Packaging helps the buyer

to buy the product individually without
the help of anyone.
➢ Consumer Affluence- A good consumer
who is ready to pay a good amount for a
product is easily attracted by the
packing style.
 Concept of Packaging
➢ Company/Brand Image- Packaging helps
build an image of the product as well as
the brand. It distinguishes the product
from other competitive products in the
market.
➢ Innovation Opportunity- Packaging also
gives the brand an opportunity to make
its products attractive to the buyers
with new and innovative packaging.
 Functions of Packaging
• Physical Protection
• Barrier Protection
• Containment or Agglomeration
• Information Transmission
• Marketing
• Security
• Convenience
Types of Logistical Packaging
 Types of Packaging

1. Primary packaging The

material that first envelops
the product and hold it. This
usually is the smallest unit of
distribution or use and is the
package which is in direct
contact with the contents.
 Types of Packaging

2. Secondary packaging
Secondary Packaging is
outside the primary
packaging – perhaps used
to group or unitize
primary packages
together.
 Types of Packaging

3. Tertiary packaging Tertiary Packaging is

used for bulk handling, warehouse storage
and transport shipping. The most common
form is a palletized unit load that packs
tightly into containers.
 Role of Packaging in
Physical Distribution
 Packing is the ‘indispensable’ for shopping as
we know it today – supermarkets could not
exist without it.
 Product wastage in supply chain is now
minimal.
 Product presentation and information are key .
 Many markets owe their existence to
developments in packaging, i.e.,
 Packaged fruit juices
 Packaged milk with longer shelf life
 Paradigm Shift in Logistics
➢ Trade is expanding at an exponential rate,
technologies are advancing and becoming
integrating force, customers are demanding
value for money; marketers are experiencing
competitive pressure; and businesses are
struggling, not just for growth but even for
survival.
➢ Business firms across the world have started
looking beyond organizational boundaries to
improve costs, quality, reliability,
responsiveness, and relationships with
customers to manage uncertainty.
 Paradigm Shift in Logistics
➢ Business firms are focusing on production,
marketing, and finance, greater attention
should be focused towards achieving
customer satisfaction through effective and
efficient logistics.
➢ Today, Business firms can not afford to
ignore the crucial role of logistics in the
supply chain of business. If ignored it will
probably be suicidal for the business firm,
not only in terms of its growth but even for
its very survival.
 Major Areas in Paradigm Shift

 Logistics management is based on the

system concept and cost approach.
 Efficiency and effectiveness in material
and information movement is possible
with integrated logistics operations only.
 Major Areas in Paradigm Shift
 Logistics cover the following functional areas,
and are termed as ‘Logistics Mix’
Questions?
THANK YOU
 Logistics and
Transportation
Management
 What is Logistics
Logistics - the flow of goods, information and
other resources, including energy and
people, between the point of origin and
the point of consumption in order to meet
the requirements of consumers.
Logistics involve the integration of information,
transportation, inventory, warehousing,
material- handling and packaging.
 Logistics Management
➢ Logistics Management is the process of planning,
implementing and controlling the efficient, effective
flow and storage of goods, services and related
information from point of origin to point of
consumption for the purpose of conforming the
customer requirement”.
➢ Logistic management includes the design and
administration of systems to control the flow of
material, work- in – process, and finished inventory to
support business unit strategy.
 Difference between
Logistics Mgmt and SCM
 Logistics Management

 The efficient management of the flow of materials

inbound-through and outbound of an organization.
 Two primary product flows:
 Physical supply (materials management): Flows
that provide raw materials, components, and
supplies to the production process.
 Physical distribution management (transportation
management): Flows that deliver the completed
product to customers and channel intermediaries
Evolution of Logistics

"To coordinate all efforts of the company to

maintain a cost effective flow of goods."
 Phases of Logistics

1. Materials Management - the timely

movement of raw materials, parts,
and supplies.
2. Physical Distribution - the movement
of the firm's finished products to the
customers.
Logistics Management
 Physical Distribution

 Physical Distribution or Transportation is

the movement of goods and people
between two points.
 Physical distribution cost can represent
20% or more of the selling price of a
production
 Physical Distribution
➢ Transportation influences or is influenced
by the following logistics activities:
▪ Transportation costs are affected by
location of the firm’s plants, warehouses,
vendors, retail locations, and customers.
▪ Inventory requirements are influenced by
the mode of transport used.
▪ Packaging requirements and materials
handling equipment and design of the
docks are dictated by the mode of
transportation used
 Definition of Terms
 Cargo

 Container

 Carrier

 Courier

 Freight

 Forwarder

 Shipment
 Transportation management
decisions
The overall goal in transportation is to connect
sourcing locations with customers at the lowest
possible transportation cost within the constraints of
the customer service policy.

Transport Management decisions involves:

▪ How much to move?
▪ When to move?
▪ Where to move?
▪ By what mode, or combination of modes to
move?
 Transportation management
decisions
The considerations in making these
decisions are:
▪ The lead time for stock replenishment
▪ Sales expected in the territory in the
intervening time
▪ The normal cycles of inventory build
up at the warehouse/dealer points
 Transportation management
decisions
 If a firm can estimate these factors fairly
accurately, it can make the basic decisions on
transportation.
 In a fundamental sense, transportation has to
be based on the sales forecast.
 Decisions on when to move, how much to
move and where to move will essentially
depend on the sales forecast
 Mode of Transportation

 A mode identifies the basic transportation method

or form.
 Bulk goods are typically transported in large
shipment sizes. Therefore, dedicated vehicles and
specialized modes of transport and handling are
important. Industrial goods have high value and are
often critical. Therefore, there is a need for speedier
transport of goods.
 Transportation Mode
Basic mode of transportation includes:
 Railroads

Rail Network have handled the largest number of

ton-miles continental.
As a result of the early establishment of a
comprehensive rail network connecting almost all
cities and towns, railroads dominated intercity
freight tonnage until after World War II.
The capability to transport large shipments
economically and to offer frequent service.
 Railroads

Railroad operations incur high fixed costs

because of expensive equipment, right of way
(railroads must maintain their own track),
switching yards, and terminals.
However, rail experiences relatively low
variable operating costs
 Motor Trucks

 Highway/Motor Carriers/Trucks
 Motor Carriers Highway transportation has
expanded rapidly since the end of World War II.
 Motor carriers have flexibility because they are
able to operate on all types of roadways.
Motor Trucks
 Motor Trucks

 In comparison to railroads, motor carriers

have relatively small fixed investments and
operate on publicly maintained highways.
 Although the cost of license fees, user fees
and tolls is considerable
 The variable cost per mile is high
 Water Transport
 A distinction is generally made between deep-
water and navigable inland water transport.
 The main advantage of water transportation is
the capacity to move extremely large
shipments.
 Water transport ranks between rail and motor
carrier in respect to fixed cost.
 The right-of-way is developed and maintained
by the government and results in moderate
fixed costs compared to rail and highway
 Water Transport

Larger container ships can hold 4,000 to 6,000 containers.

 Air Transport
➢ Air transport still remains more of a potential
opportunity than a reality. Although the mileage
is almost unlimited, airfreight accounts for
significantly less than 1 percent of all intercity
ton miles.
➢ Air transport capability is limited by lift capacity
(i.e., load size constraints) and aircraft
availability. Traditionally, most intercity
airfreight utilized scheduled passenger flights.
 Air Transport

➢ While this practice was economical, it resulted in

a reduction of both capacity and flexibility
➢ Its significant advantage lies in the speed with
which a shipment can be transported. A coast-
to-coast shipment via air requires only a few
hours contrasted to days with other modes of
transportation.
 Air Transport

➢ One prohibitive aspect of air transport is the

high cost. However, this can be traded off for
high speed, which allows other elements of
logistical design, such as warehousing or
inventory, to be reduced or eliminated.
➢ Best suited for high-value, lower-volume urgent,
perishable or time-specific deliveries
 Pipelines

It operates on a twenty-four-hour, seven days, and

is limited only by commodity changeover and
maintenance.
There is no empty “container” or “vehicle” that
must be returned.
Pipelines have the highest fixed cost and lowest
variable cost among transport modes.
Pipelines are not labor-intensive.
 Pipelines

An obvious disadvantage is that pipelines are

not flexible and are limited with respect to
commodities that can be transported: only
products in the form of Gas, Liquid, Slurry
 Intermodal

Use of more than one mode of transportation to

move a shipment
 Grown considerably with increased use of
containers
 May be the only option for global trade
 More convenient for shippers one entity
 Key issue exchange of information to facilitate
transfer between different modes
Major Advantages by Mode
Major Advantages by Mode
 Factors in Transportation/
Choosing Transportation Modes
1. Cost of transport is the payment for shipment
between two geographical locations and the
expenses related to maintaining in-transit
inventory. Logistical systems should utilize
transportation that minimizes total system
cost.
Least expensive method of transportation
may not result in the lowest total cost of
logistics
 Factors in Transportation/
Choosing Transportation Modes
2. Speed of transportation is the time required
to complete a specific movement.
▪ Transport firms capable of offering faster
service typically charge higher rates.
▪ Second, the faster the transportation service is,
the shorter is the time interval during which
inventory is in transit and unavailable.
▪ Thus, a critical aspect of selecting the most
desirable method of transportation is to balance
speed and cost of service.
 Factors in Transportation/
Choosing Transportation Modes
3. Consistency of transportation refers to
variations in time required to perform a
specific movement over a number of
shipments.
Consistency reflects the dependability,
capability and availability of transportation.
 Controlling Transportation Costs

➢ Optimizing the mix of the transport modes

➢ Reducing the transport lead-time through
effective routing and other means, and
➢ Eliminating multiple and wasteful transfer,
and handling of products
 Transportation Infrastructure
and Policies
Transportation infrastructure consists of the
rights-of-way, vehicles, and carrier organizations
that offer transportation services on a for-hire or
internal basis.
Governments generally take full responsibility or
played a significant role in building and
managing infrastructure elements
Pricing should reflect the marginal impact on the
cost to society
Questions?
THANK YOU
 Pricing and Revenue
Management
in Supply Chain

Week 12 – July 4, 2024

 Pricing

 Pricing is the process by which a firm

decides how much to charge customers
for its goods and services.
 Pricing
is a factor that gears up profits in
supply chain through an appropriate
match of supply and demand
 Pricing

 Pricing affects the customer segments

that choose to buy the product, as well
as influencing the customer’s
expectations.
 Revenue Management
➢ Revenue management is the use of
pricing to increase the profit generated
from a limited supply of supply chain
assets
▪ Supply assets exist in two forms:
• capacity and inventory
 Revenue Management
➢ Revenue management can be defined as
the application of pricing to increase the
profit produced from a limited supply of
supply chain assets
➢ Revenue management may also be defined
as the use of differential pricing based on
customer segment, time of use, and
product or capacity availability to increase
supply chain profits
 Role of Revenue Management
in the Supply Chain
Revenue management has a significant impact on
supply chain profitability when one or more of the
following four conditions exist:
1. The value of the product varies in different market
segments
2. The product is highly perishable, or product
wastage occurs.
3. Demand has seasonal and other peaks
4. The product is sold both in bulk and on the spot
market
 REVENUE MANAGEMENT FOR
MULTIPLE CUSTOMER SEGMENTS

In the concept of revenue management, we need to

take care of two fundamental issues.
 The first one is how to distinguish between two
segments and design their pricing to make one
segment pay more than the other.
 Secondly, how to control the demand so that the
lower price segment does not use the complete
asset that is available.
 REVENUE MANAGEMENT FOR
MULTIPLE CUSTOMER SEGMENTS

 To gain completely from revenue management, the

manufacturer needs to minimize the volume of
capacity devoted to lower price segment even if
enough demand is available from the lower price
segment to utilize the complete volume.
 The general trade-off is in between placing an order
from a lower price or waiting for a high price to
arrive later on.
 REVENUE MANAGEMENT FOR
MULTIPLE CUSTOMER SEGMENTS

 These types of situations invite risks like spoilage

and spill. Spoilage appears when volumes of goods
are wasted due to demand from high rate that does
not materialize.
 Similarly, spill appears if higher rate segments need
to be rejected due to the commitment of volume
goods given to the lower price segment.
 REVENUE MANAGEMENT
FOR PERISHABLE ASSETS
 Any asset that loses its value in due course of time is
considered as a perishable item, for example, all fruits,
vegetables and pharmaceuticals. We can also include
computers, cell phones, fashion apparels, etc.; whatever
loses its value after the launch of new model is considered as
perishable.
 We use two approaches for perishable assets in the revenue
management. These approaches are:
o Fluctuate cost over time to maximize expected revenue.
o Overbook sales of the assets to cope or deal with
cancellations.
 REVENUE MANAGEMENT
FOR PERISHABLE ASSETS
 The first approach is highly recommended for goods like
fashion apparels that have a precise date across which
they lose a lot of their value; for example, apparel
designed for season doesn’t have much value in the end
of the season.
 The manufacturer should try using effective pricing
strategy and predict the effect of rate on customer
demand to increase total profit. Here the general trade-
off is to demand high price initially and allow the
remaining products to be sold later at lower price.
 REVENUE MANAGEMENT
FOR SEASONAL DEMANDS

 One of the major applications of revenue

management can be seen in the seasonal
demand. Here we see a demand shift from
the peak to the off-peak duration; hence a
better balance can be maintained between
supply and demand.
 It also generates higher overall profit.
 REVENUE MANAGEMENT
FOR SEASONAL DEMANDS
 The commonly used effective and efficient
revenue management approach to cope with
seasonal demand is to demand higher price
during peak time duration and a lower price
during off-peak time duration.
 This approach leads to transferring demand
from peak to off-peak period.
 REVENUE MANAGEMENT FOR
BULK AND SPOT DEMANDS
 When we talk about managing revenue for
bulk and spot demand, the basic trade-off is
somewhat congruent to that of revenue
management for multiple customer
segments.
 The company has to make a decision
regarding the quantity of asset to be booked
for spot market, which is higher price.
 REVENUE MANAGEMENT FOR
BULK AND SPOT DEMANDS
 The booked quantity will depend upon the
differences in order between the spot market
and the bulk sale, along with the distribution
of demand from the spot market.
 There is a similar situation for the client who
tends to make the buying decision for
production, warehousing and transportation
assets.
 Tactics for
Multiple Customer Segments
 Separate segments effectively on some
service dimension (e.g. response time)
 Charge different prices based on the value
assigned by each segment
 Forecast demand at the segment level
 Save appropriate amount of the asset for the
late arriving high price segments
 Dynamic Pricing and
Overbooking for Perishable Assets

Any asset that loses value over time is perishable

Two basic approaches:
 Vary price dynamically over time to maximize
expected revenue, dynamic pricing
 Overbook sales of the asset to account for
cancellation
 Dynamic Pricing

Effective differential pricing generally increases

the level of product availability for the
consumer willing to pay full price and total
profits for the retailer
 Overbooking in the
Presence of Cancellation

Basic trade-off is between having wasted

capacity because of excessive cancellations or
having a shortage of capacity because of few
cancellations requiring expensive backup
 Discounting and Peak Pricing
for Seasonal Demand

 Seasonal peaks of demand common in many supply

chains
 Off-peak discounting can shift demand from peak to
non-peak periods
 Charge higher price during peak periods and a lower
price during off-peak periods
 Increases profits for the owner of assets, decreases
the price paid by a fraction of customers, and brings
in new customers during the off-peak discount
period
 Constructing a Portfolio of
Bulk Contracts and Spot Buying
 Problems constructing a portfolio of long-
term bulk contracts and short-term spot
market contracts
 Decide what fraction of the asset to sell in
bulk and what fraction of the asset to save
for the spot market
 The amount reserved for the spot market
should be such that the expected marginal
revenue from the spot market equals the
current revenue from a bulk sale
 Using RM in Practice
Evaluate your market carefully
– Understand customer requirements for
services and products
– Price, flexibility (time, specs), value-added
services, etc.
– Based on requirements identify customer
segments (groups)
– Differentiate products/services and their
pricing according to customer segments
 Using RM in Practice
 Quantify the benefits of revenue
management
 Implement a forecasting process

 Apply optimization to obtain the revenue

management decision
 Involve both sales and operations

 Understand and inform the customer

 Integrate supply planning with revenue

management
 Some Practical Challenges When
Using Revenue Management
Potential pitfalls if not used carefully
 Consumer preference must be accounted
for
 Salesforce and operations must be fully
informed and trained to deal with the
consequences of revenue management
 Inform the customer when implementing
revenue management
 Keep revenue management techniques
simple
Questions?
THANK YOU
 Differential Pricing for
Multiple Customer Segments
➢ Differential pricing increases total profits for a
firm
➢ Two fundamental issues must be handled in
practice
 How can the firm differentiate between the two
segments and structure its pricing to make one
segment pay more than the other?
 How can the firm control demand such that the
lower paying segment does not utilize the entire
availability of the asset?
 Differential Pricing for
Multiple Customer Segments

Two problems to solve when using revenue

management across multiple segments
 What price should be charged for each
segment?
 How should limited capacity be allocated
among the segments?
 Allocating Capacity to
Segments under Uncertainty

Basic trade-off is between committing to an

order from a lower-price buyer or waiting for a
higher-price buyer to arrive which can result to
Spoilage and Spill
 RM for Multiple
Customer Segments
 If a supplier serves multiple customer segments
with a fixed asset, the supplier can improve
revenues by setting different prices for each
segment
– Must figure out customer segments
Prices must be set with barriers such that the
segment willing to pay more is not able to pay the
lower price
– Barriers: Time, location, prestige, inconvenience,
extra service
In the case of time barrier,
– The amount of the asset reserved for the higher
price segment is such that quantities below are equal
 RM for Perishable Assets
Any asset that loses value over time is perishable
Examples: high-tech products such as computers and
cell phones, high fashion apparel, underutilized
capacity, fruits and vegetables
Two basic approaches:
– Dynamic Pricing: Vary price over time to maximize
expected revenue
– Overbooking: Overbook sales of the asset to account
for cancellations
– Dynamic pricing belongs to RM while overbooking can
be said to more within the domain of Yield
management.
 RM for Perishable Assets
 Overbooking or overselling of a supply chain asset is
valuable if order cancellations occur and the asset is
perishable
 The level of overbooking is based on the trade-off
between the cost of wasting the asset if too many
cancellations lead to unused assets (spoilage) and
the cost of arranging a backup (offload) if too few
cancellations lead to committed orders being larger
than the available capacity Spoilage and offload are
actually terms used in the airline industry
 RM for Bulk and Spot Customers
Most consumers of production, warehousing, and
transportation assets in a supply chain face the
problem of constructing a portfolio of long-term
bulk contracts and short-term spot market
contracts
– Long-term contracts for low cost
– Short-term contracts for flexibility
The basic decision is the size of the bulk contract
The fundamental trade-off is between wasting a
portion of the low-cost bulk contract and paying
more for the asset on the spot market.