SUPPLY CHAIN

MANAGEMENT

Introduction
Supply chain management (SCM) encompasses the planning and management of all
activities involved in sourcing and procurement, conversion, and all logistics
management activities. Importantly, it also includes coordination and collaboration with

channel partners, which can be suppliers, intermediaries, third party service providers,
and customers. In essence, supply chain management integrates supply and demand
management within and across companies.

(CSCMP Definition)

Supply chain management is a set of approaches utilized to efficiently integrate suppliers,

manufacturers, warehouses, and stores, so that merchandise is produced and distributed at
the right quantities, to the right locations, and at the right time, in order to minimize system
wide costs while satisfying service level requirements. (Simchi-Levi et al., 2014)
Supply Chain Management & Logistics

Rhetoric & Reality

80% of SC managers dont believe that their

SC enables business strategy

55% of the managers dont regard the SC as a

fundamental source of value

29% see SC as purely an operational function

Only 50% believe the SC would deliver

increased profitability over the next five years
(Hitachi Consulting Survey, 2013)

Source: SCM World (2012)

Supply Chain Management & Logistics

Supply Chain Management & Logistics

Logistics Network Design

Supply Chain Management & Logistics

Perspectives
Bitter experience in war has taught the maxim that the art of war is the art of the

logistically feasible

Amateurs talk about strategy, but professionals study logistics

Behind every great leader there was an even greater logistician

The essence of flexibility is in the mind of the commander; the substance of

flexibility is in logistics

An army marches on its stomach

My logisticians are a humorless lot ... they know if my campaign fails, they are the

first ones I will slay

The line between disorder and order lies in logistics

Supply Chain Management & Logistics

Supply Chain Management & Logistics

Why Network Planning?

Find the right balance between inventory, transportation and manufacturing costs,
Match supply and demand under uncertainty by positioning and managing inventory

effectively,
Utilize resources effectively by sourcing products from the most appropriate
manufacturing facility
Efficiency vs. Effectiveness?

Supply Chain Management & Logistics

3-Stage Process
Network
Design

Inventory
Positioning

Resource
Allocation
Identifying
stocking points

Determine whether
production and
packaging of
different products
is done at the right
facility

Assignment of
retail outlets to
warehouses

Selecting facilities
that will produce
to stock and thus
keep inventory

What should be
the plants sourcing
strategies?

Major sourcing
decisions

Facilities that will

produce to order
and hence keep
no inventory

How much
capacity each
plant should have
to meet seasonal
demand?

Typical planning
horizon is a few
years

Related to the
inventory
management
strategies

Number, locations
and size of
manufacturing
plants and
warehouses

Supply Chain Management & Logistics

Network Design
Physical configuration and infrastructure of the supply chain.
A strategic decision (?) with long-lasting effects on the firm.
Decisions relating to plant and warehouse location as well as distribution and
sourcing
Network for RIL?

Supply Chain Management & Logistics

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Why Re-Evaluate Your Network?

Changes in:
demand patterns
product mix
production processes
sourcing strategies
cost of running facilities
legislation
Mergers and acquisitions may mandate the integration of different logistics
networks
Case Study

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Some Key Decisions

Determining the appropriate number of facilities such as plants and warehouses.
Determining the location of each facility.
Determining the size of each facility.
Allocating space for products in each facility.
Determining sourcing requirements.
Determining distribution strategies, i.e., the allocation of customers to warehouse

Supply Chain Management & Logistics

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Factors Affecting the Decision

Strategic Factors

Offshore facility low cost facility for export production

Source facility low cost facility for global production
Server facility regional production facility
Contributor facility regional production facility with production skills
Lead facility leads in development and process technologies

Macroeconomic Factors
Tariffs and tax incentives
Exchange rate & demand risks
Political & infrastructure factors
Competitive Factors
Positive externalities
Logistics & Facility Costs
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What You Should Know Before

Locations of customers, retailers, existing warehouses and distribution centers,
manufacturing facilities, and suppliers.
All products, including volumes, and special transport modes (e.g., refrigerated).
Annual demand for each product by customer location.
Transportation rates by mode.
Warehousing costs, including labor, inventory carrying charges, and fixed operating
costs.

Shipment sizes and frequencies for customer delivery.

Order processing costs.
Customer service requirements and goals.

Production and sourcing costs and capacities

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An Inherent Trade-Off
Increasing the number of warehouses typically yields:
An improvement in service level due to the reduction in average travel time to
the customers

An increase in inventory costs due to increased safety stocks required to protect

each warehouse against uncertainties in customer demands.
An increase in overhead and setup costs

A reduction in outbound transportation costs: transportation costs from the

warehouses to the customers
An increase in inbound transportation costs: transportation costs from the
suppliers and/or manufacturers to the warehouses.
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No. of Warehouses & Change in Cost

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