Supply Chain Management: Issues and Models Lecture 1: Introduction

1. Supply Chain Management:Issues and ModelsLecture 1: Introduction Dr. Jinxing Xie Department of Mathematical Sciences Tsinghua University, Beijing 100084, China http://faculty.math.tsinghua.edu.cn/~jxie Email: jxie@ math.tsinghua.edu.cn Voice: (86-10)62787812 Fax: (86-10)62785847 Office: Rm. 1308, New Science Building

2. Course Information • Objective: • Understanding the supply chain and related issues • Introducing some models and technologies for supply chain management • Project / Assignment (choose any one) • A review of literatures on a topic you are interested • A report which is a generalization to a paper • References: • Course notes at http://www.csiam.edu.cn/scm • Some journal papers from Management Sciences et. al. • Focus on: • Issues (Problems) and Models

3. Example: Stages of a Detergent Supply Chain Customer wants detergent and goes to Wal-Mart Wal-Mart Store P&G or other manufacturer Wal-Mart Or third-party DC Plastic producer Tenneco packaging Chemical manufacturer Chemical manufacturer Paper manufacturer Timber industry

4. WHAT IS A SUPPLY CHAIN? A Supply Chain consists of organizations that successively transform raw materials into intermediate goods, then to final good, and finally deliver them to customers. A Supply Chain consists of all stages involved, directly or indirectly, in fulfilling a customer request.

5. WHAT IS A SUPPLY CHAIN? The global network used to deliver products and services from raw materials to the end customer through engineered flows of information, physical distribution and cash. The Supply Chain Information Systems World-Wide Requirements Planning Relationship Management Logistics Network Distribution Processes

6. Understanding the Supply Chain:Supply Network, Supply Web • Not only manufacturer and supplier, but also transporters, warehouses, retailers and customers themselves. • All functions involved in filling a customer request within each organization: new product development, marketing, operations, distribution, finance, and customer service. • SCM vs. Logistics (物流）

7. Supply Chain Stages Manufacturer Distributor Supplier Retailer Customer Supplier Retailer Customer Distributor Manufacturer Supplier Customer Retailer

8. Connect Supply With Demand Information SUPPLY DEMAND Product Cash

9. 计划决策 采购 生产 分销 生产 分销 采购 生产 分销 采购 生产 分销 采购 生产 计划调度 客户的 客户 客户 供应商的 供应商 供应商 过程控制 生产过程 供应链概念模型 企业

10. 采购 生产 配送 营销 作业管理 战术管理 战略管理 供应链管理的三个层面 工厂和仓库等生产资源的数量、布局和能力；产品设计；市场开发等。 采购和生产决策；库存策略；运输与配送策略；联盟关系等。 库存控制；生产计划与调度；运输路线等。

11. Example 1: Typical U.S. Apparel Industry Supply Chain Average inventory and elapsed time (weeks): • Materials: 6.5 • In-process: 9 6 • Finished goods: 7.5 9.5 • In-transit: 4 4 12 Retailers Fiber suppliers Textile makers Apparel makers Agents Agents Agents

12. Discussion of Issues and opportunities for improvement to U.S. Apparel Industry • Issues • Supply chain is too long and too slow • 58.5 weeks (excludes processing time & international transit times) • Little of this time is spent in processing • Only 15 of the 58.5 weeks are in-process inventory • Even in processing, the ratio of processing time to wait time is notoriously low • Thus, American apparel industry was reduced enormously during the last 25 years • Opportunities • Faster response to customer orders • Eliminating unnecessary inventory, stockouts and markdowns • $25 billion can be saved annually

13. Example 2: HP DeskJet Printer Supply Chain Integrated circuit manufacturing Asia-Pacific distribution center Supplier Dealers Vancouver final assembly & test 4-5 weeks Printed circuit assembly & test California distribution center Supplier 1 day Dealers 4-5 weeks Printed mechanism manufacturing European distribution center Supplier Supplier Dealers

14. Discussion of Example 2: Improvement during the early 1980s • Manufacturing cycle time reduced • 8-12 weeks ==> 1 weeks • Average inventory reduced • 3.5 months ==> 0.9 months • All finished goods inventory eliminated • Importance of response time and transportation time increased • Further improvements should be made on supply chain

15. Discussion of Example 2: Improvement of supply chain in 1990 • Time between order and delivery reduced • Europe & Asia: 5.25 months ==> 1.25 months • North-America: 4.25 months ==> 0.2 months • Importance of transportation time increased • Europe & Asia: 1% ==> 12% • North-America: 20% ==> 80%

16. Hints from Examples 1 and 2 • Further reduction in manufacturing cycle time is not highly beneficial after the improvements of 1980s • Example 1: Only 15 of the 58.5 weeks are WIP inventory • Improvements in supply chain is very beneficial • Inventory cost reduced • HP Case: 4 months inventory reduced, total cost reduces up to 5% • Time between order and delivery reduced • Better sales forecasts, reduced wrong orders, markdowns, stockouts and delays in delivery • Lower total cost & higher customer service

17. Objectives of Supply Chain Management (SCM) • To improve the profitability and efficiency of the supply chain and all organizations involved • By • Optimizing the speed and certainty and • Maximizing the net value added by all relevant processes.

18. Decision phases in a supply chain • Depending on the time frame over which the decisions made apply • Supply chain strategy or design: next few years • Supply chain planning: yearly or monthly • Supply chain operation: weekly or daily • Some key fields • Supply chain design and product development • Demand forecasting and customer relationship • Production planning and scheduling • Inventory management • Transportation management • Location and Facilities management • Information management and Information Technology • ….

19. 供应链管理的主要问题 • 网络结构设计与选址 (S) • 库存控制 (S/T) • 生产计划与调度(S/T/O) • 运输与物流管理(T/O) • 供应链联盟与合作关系(S) • 信息价值 (S) • 产品设计 (S) S－战略决策 T－战术决策 O－作业决策

20. 供应链管理的主要困难 • 复杂且庞大的网络和过程结构 • 复杂的产品结构 • 分布的管理和组织结构 • 动态系统，存在多种不确定因素

21. 概念/定性模型方法 定量模型方法 面向实例的经验方法 分析模型和方法 优化模型和方法 确定性模型 随机性模型 启发式方法 供应链管理理论和技术 供应链管理 仿真 Petri网 排队网络 扰动分析 (PA) Markov链 线性规划 非线性规划 目标规划 网络流 博弈论 确定性动态规划 随机动态规划 随机库存控制 排队优化 Markov决策 禁忌搜索 模拟退火 遗传算法 Lagrangian松弛 约束理论 多Agent技术 (DAI)

22. The Virtual Enterprise

23. Key Elements In Supply Chain Uncertainty • DEMAND • Timing of Order - How predictable is this? • Size and Composition of Order - Are there unexpected elements, and is it subject to change? • Data Accuracy on Products Required, Delivery Points and Timings • SUPPLY • Lead Time to Supply - How predictable is this? • Quantity Supplied - Can the delivery be accepted without being counted? • Quality of Supply - Can the supplies be used without testing? • Data Accuracy on Products Supplied and Prices

24. Good, Bad or Optimum Inventory • Once uncertainty is stripped away to the maximum practicable degree, inventory can then be determined at the correct (optimal) level (for each stage of the supply chain and overall) Profit (or performance enhancement) from holding stock equals potential lost sales (or lost performance) times the gross profit margin on sales (or added value) less the cost of holding stock (interest plus holding costs, which can be substantial in real terms and are often underestimated)

25. “Old” Order Driven Supply Chain

26. Supply Planning Across the Virtual Enterprises

27. SCM vs. OR/MS/DS Operations Research and Management Science (OR/MS) • The professional disciplines that deal with the application of information technology for informed decision-making • Provide rational bases for decision making by seeking to understand and structure complex situations and to use this understanding to predict system behavior and improve system performance. • Much of this work is done using analytical and numerical techniques to develop and manipulate mathematical and computer models of organizational systems composed of people, machines, and procedures. • The field is closely related to several other fields in the "decision sciences" -- applied mathematics, computer science, economics, industrial engineering, and systems engineering. From http://www.informs.org/Join/Orms.html

28. SCM vs. OM What is Operations Management (OM)? • 运作管理就是对公司（或组织）的提供主要产品或服务的系统进行设计、运行、评价和改进。 • OM is the set of activities that creates goods and services by transforming inputs into outputs. • OM is the business function that manages that part of a business that transforms raw materials and human inputs into goods and services of higher value. (narrow view)

29. OM概要模型 市场 企业战略 财务战略 运作战略 营销战略 运作管理 输入 原料 顾客 输出 产品 服务 人力 工厂 部件 工艺 计划与控制系统 生产系统(5P) 其他名称：生产管理 工业管理 工厂管理

30. OM IE/EM OR/MS/DS SS/SE OM vs. OR/MS/DS vs. SS/SE vs. IE/EM • 运作管理是管理的一个领域（管理职能） • OR/MS/DS是各领域在制定决策时都可能遇到的定量方法 • SS/SE强调的是系统观点、系统方法 • IE/EM主要关注如何更好地利用企业的资源，解决工程问题（如工业自动化等）

31. 运筹学 供应链管理 分布人工智能 经济学 供应链协调问题 • 目标冲突  分布决策结构：不一致决策激励 • 信息扭曲  非对称信息结构：不完全信息

32. The Heritage of OM 成 本 • 1776-1880: 早期概念 • 专业化； 标准化零部件 • 1880-1910：科学管理时代 • Gantt图；动作/时间研究；过程分析；排队论 • 1910-1980：大批量生产时代 • 流水线；经济批量；线性规划；PERT/CPM；MRP • 1980-1995：精益生产时代 • JIT；TQM；EDI；CAD/CAM/CAPP • 1995-2005：大批量、顾客化生产时代 • 全球化；信息化（INTERNET；E-Commerce) • 敏捷制造；BPR；ERP；主动学习的组织 • 供应链管理（SCM） 质量 顾客 作为学科， OM诞生于50年代末60年代初

33. What Operations Managers do?(Top 10 Research Directions) • Goods and services design • What product should we offer? • How should we design these products and services? • Managing quality • Who is responsible for quality? • How do we define the quality we want in our service or product? • Process and capacity design • What process will these products require and in what order? • What equipment and technology is necessary for these processes?

34. What Operations Managers do?(Top 10 Research Directions) • Location strategies • Where should we put the facility? • On what criteria should we bas the location decision? • Layout design • How should we arrange the facility? • How large must the facility be to meet our plan? • Human resources and job design • How do we provide a reasonable work environment? • How much can we expect our employees to produce? • Supply chain management • Should we buy or produce the component? • Who are our suppliers and who can integrate into our e-commerce program?

35. What Operations Managers do?(Top 10 Research Directions) • Inventory control • How much inventory of each item should we have? • When do we reorder? • Intermediate, short-term, and project scheduling • Is subcontracting production a good idea? • Are we better off keeping people on the payroll during slowdowns? • Maintenance • Who is responsible for maintenance?

36. Exciting New Trends in OM Local or national focus Global focus, international OM Batch (large) shipments Just-in-time shipments Supply chain partners, ERP, e-Commerce Low-bid purchasing Rapid product development, alliances Lengthy product development Standardized products Mass customization Empowered employees, teams, and lean production Job specialization

37. Important Research Field - Service Operations Management • Intangible • Produced and consumed simultaneously • Unique • High customer interaction • Inconsistent product definition • Knowledge-based • Dispersed • Difficult to automate • Difficult to measure quality • …….

38. Research Methods Strategic Qualitative Tactic Quantitative Operational Levels of Decision

39. Research Methods Simulation • Motivation and Objective • Experiment design • Independent variables • Dependent variables • Simulation run • Data analysis • Findings • Insights • Empirical • Case study • Survey • Panel study • Database • Theoretic models • Deterministic models • Uncertainty models • Simulation • Expert system (knowledge model)

40. 建 立 OR/MS 理 论 模 型 的 一 般 步 骤 模型假设 模型构成 模型准备 模型分析 模型求解 模型检验 模型应用 “源”远“流”长 Applied Mathematics – Mathematical Modeling: Motivation,Formulation,Solution,Validation

41. Manufacturing and Service Operations Management Society • Established March 1999, Newest within INFORMS • Membership: 950, Largest within INFORMS • Society Webpage: http://msom.society.informs.org • The methods which MSOM members apply in order to help the operations function add value to products and services are derived from a wide range of scientific fields, including operations research and management science, mathematics, economics, statistics, information systems and artificial intelligence. * INFORMS: Institute for Operations Research and Management Science Merged from ORSA (1952) and TIMS (1953) in 1994

42. Source of References Top journal: Operations Research (OR) Management Science (MS) Quasi-Top journal: Operations Research Letters (ORL) IIE Transactions (IIET) Naval Research Logistics (NRL) Mathematics of Operations Research (MOR) Journal of operations management (JOM) Major journal: European Journal of Operational Research (EJOR) International Journal of Production Research (IJPR) International Journal of Production Economics (IJPE) Journal of the Operational Research Society (JORS) …

43. OM Related Journals Relevance Ranks (1999, JOM)Quality • JOM (J. of OM) • IJOPM (Int. J. Op. Prod. Mgmt.) • POM (Prod. & OM) • IJPR (Int. J. of Prod. Research) • IJPE (Int. J. of Prod. Economics) • PIMJ (Prod. Invent. Mgmt. J.) • MS （Management Sciences) • HBR (Harvard Business Rev.) • EJOR • Sloan Mgmt. Review • MS (SSCI, SCI) • OR (SCI) • JOM • IJOPM • IJPR (SCI) • POM (SCI) • EJOR(SCI, SSCI) • HBR • Academy of Mgmt. Journal • DS (Decision Sciences) (SSCI) • MSOM

44. Summary • What is Supply chain / SCM? • What kinds of issues SCM concern? • What are the Theory and Techniques which can be possibly potential in SCM? • SCM vs. OR/MS/DS/OM/IE/EM/SS/SE? • Top journals publishing SCM studies

45. Thank you very much for your attendance! THE END