Supply Chain Management: Issues and Models Lecture 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

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

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

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

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.

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. Information Systems World-Wide Requirements Planning Relationship Management Logistics Network Distribution Processes The Supply Chain

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）

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）

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

Connect Supply With Demand SUPPLY DEMAND Information Product Cash

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

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。 采购 生产 配送 营销 作业管理 战术管理 战略管理

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

Average inventory and elapsed time (weeks):

Materials: 6.5

In-process: 9 6

Finished goods: 7.5 9.5

In-transit: 4 4 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

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

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

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

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

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%

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%

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

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

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 .

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 .

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 … .

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

… .

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

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)

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

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

供应链管理理论和技术 供应链管理 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) 仿真 Petri 网 排队网络 扰动分析 (PA) Markov 链 确定性模型 随机性模型 启发式方法 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

The Virtual Enterprise

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

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

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)

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)

“ Old” Order Driven Supply Chain

Supply Planning Across the Virtual Enterprises

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

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.

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)

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)

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

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） OM OR/MS/DS SS/SE 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）

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 运筹学 分布 人工智能 经济学 供应链管理

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

The Heritage of OM 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 ） 成 本 质量 顾客 作为学科， OM 诞生于 50 年代末 60 年代初

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 ）

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?

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?

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?

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?

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?

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?

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

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 …… .

Intangible

Produced and consumed simultaneously

Unique

High customer interaction

Inconsistent product definition

Knowledge-based

Dispersed

Difficult to automate

Difficult to measure quality

…… .

Research Methods Strategic Tactic Operational Levels of Decision Qualitative Quantitative

Research Methods Empirical Case study Survey Panel study Database Theoretic models Deterministic models Uncertainty models Simulation Expert system (knowledge model) 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)

Simulation

Motivation and Objective

Experiment design

Independent variables

Dependent variables

Simulation run

Data analysis

Findings

Insights

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

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

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.

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) …

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)

…

OM Related Journals 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)  Relevance Ranks (1999, JOM) Quality  MSOM

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

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

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

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