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  • 1. MARIUS M. SOLOMON CRT, University of Montreal March, 2000 Tighter Supply Chains through Operations Research
  • 2. Logistics Evolution National Regional Local Global
  • 3. Progression of Competitive Advantage Low Wage Rates Scale Facilities Focused Production Increased Variety Fast Response Time Quality Cost Based Management Time Based Management ‘ 50s ‘ 60s ‘ 70s ‘ 80s ‘ 80s ‘ 90s E-Business Technology Enabled Management 2000 Source: Adapted from Stalk and Hout , Competing Against Time, 1991
  • 4. Competitive Advantage Source: Adapted from Gunn, Manufacturing for Competitve Advantage , Ballinger, 1987 Global Markets Global Competitors World-Class Manufacturing Technology Quality People Planning Strategic Vision Management Resources Distribution Production Process Planning and Control Product and Process Design Aftersale Service and Support Suppliers TQC JIT Integration Customers CIM/CIL Speed
  • 5. Recent Evolution Demand Forecasting Purchasing Requirements Planning Manufacturing Inventory Materials Handling Distribution Planning Production Planning Warehousing Industrial Packaging
          • Inventory
    Order Processing Transportation Customer Service Materials Management Supply Chain Physical Distribution Fragmentation 1960s Evolving Integration 1980s Total Integration 2000s Source: Adapted from Coyle, Bardi, and Langley, The Management of Business Logistics , West 1992
  • 6. Logistics Integration Demand Forecasting Purchasing Requirements Planning Production Planning Manufacturing Inventory Warehousing Materials Handling Industrial Packaging Inventory Distribution Planning Order Processing Transportation Customer Service Information Technology
  • 7. The physical, financial, and information networks that move the materials, funds, and related information through the full logistics process ... from acquisition of raw materials to delivery of finished products to the end user. So what exactly is this Supply Chain? Jim Kelly, Chairman and CEO of United Parcel Service, American Chamber of Commerce, Beijing, China, May 4, 1999
  • 8. Production Storage Customer Material Flow and Storage Information Flow and Storage
    • Plan
    • Implement
    • Control
    The Supply Chain Raw Materials
  • 9. Nodes and Links in a Logistics System Retailer Plant Warehouse Retailer Warehouse Node Node Node Node Node Link Link Link Link Link
  • 10. Typical Supply Chain Network Suppliers Plants Distribution Centers Customers
  • 11. Throughput levels Employment levels Distribution routes Vehicle scheduling Order tracking Inventory replenishment Hierarchy of Logistics Management Decisions STRATEGIC TACTICAL OPERATIONAL Location Choice Transport Mode Selection Vendor Choice Uncertainty Scope Time frame
  • 12. Logistics Environments External -Macro Intrafirm-Micro Value-added Role Time Utility Place Utility Economic Impacts Economic Importance Interfirm - Distribution Channels Channel Structure Relationships Competitive Advantage Value Chain Logistics Interfaces with Value Activities Source: Adapted from Coyle, Bardi, and Langley, The Management of Business Logistics , West , 1992.
  • 13. Production Form Utility Logistics Place Utility Marketing Possession Utility Fundamental Utility Creation in the Economy Time Utility Source: Adapted from Coyle, Bardi, and Langley, The Management of Business Logistics , West, 1992.
  • 14. Human Resource Management The Generic Value Chain Source: Michael E. Porter, Competitive Advantage , Free Press, 1985. Support Activities Inbound Logistics Operations Outbound Logistics Marketing and Sales Service Procurement Technology Development Firm Infrastructure Primary Activities Margin Margin Cost leadership Differentiation Focus
  • 15. Conflicting Objectives Fewer Objectives High revenues through: High levels of product availability Sales and Marketing Cost-effective production through: High, capacity utilization Long production runs Production Reduce investments and costs through: Fewer facilities Lower inventory levels Finance and accounting Implications Customer Service Disrupting factors in production Inventories Higher Higher Lower Lower More Source: Magee, Copacino, Rosenfield, Modern Logistics Management , Wiley, 1985. Few set-ups Logistics
  • 16. Cost Trade-offs in Logistics Product Price Promotion Place / Customer Service Levels Total Cost =Transportation costs + Inventory carrying costs +... Source: Lambert and Stock , Strategic Logistics Management, Irwin, 1993 . Inventory carrying costs Lot quantity cost Order processing and information costs Warehousing costs (throughput cost not storage) Transportation costs Logistics Marketing
  • 17. Distribution Channels Retailers Farm and Raw Materials Wholesalers Consumers and Government Manufacturers and Industrial Users Inventory Repositioning
  • 18. Distribution Channel -- Loose Links, Independent Businesses Source: Adapted from Bowersox and Closs, Logistical Management McGraw-Hill , 1996. Inventory management by each channel participant Distributor Retailer Company Truck Common Carrier Local Delivery Manufacturer Manufacturer
  • 19. The Supply Chain Textile Production Apparel Retail Raw Materials Customers Apparel Pipeline Information sharing Joint planning Pipeline inventory management
  • 20. Organization of Production-Distribution System 3 2 2 6 Inventory Inventory Inventory 1 1 1 1 1 0.5 0.5 Factory Factory Warehouse Distributors Retailers Orders From Customers Delivery of Goods To Customers Weeks Forrester, J.W. (1958) Industrial Dynamics: A Major Breakthrough for Decision Makers. Harvard Business Review.
  • 21. The Apparel Pipeline Material Customer Raw Source: Blackburn, Time Based Competition, 1991 Average Time: 66 Weeks Pipeline inventory management Information sharing Joint planning Textile Production Apparel Retail
  • 22. Effect of Lead Time on Retailer’s Stocking Decision FORECAST ERROR (%) TIME +40 -40 +20 -20 0 -26 Weeks -16 Weeks Start of Season Source: Blackburn, Time Based Competition, 1991 +/-20% +/-40% +/-10%
  • 23. Two-Way Flows in Apparel Chain Textiles Apparel Retail Point of Sale Product Orders and Capacity Commitments Inventory and Order Information Sales Information Source: Blackburn, Time Based Competition, 1991
  • 24. Keys to Fast-Cycle Logistics Information Sharing Cultural Change From Top Down Information Technology Partnerships Shorter Manufacturing Cycles Fast Cycle Logistics Source: Blackburn, Time Based Competition, 1991
  • 25. OR Contributions
    • Economics
      • Game theory
      • Information Management
    • Inventory Models
    • Inventory Control and Vehicle Routing
    • Distribution Requirements Planning
    • Enterprise Resource Planning
    • Multiobjective Decision Support Systems
  • 26. Economics
    • Capacity Choice and Allocation: Strategic Behavior and Supply Chain Performance , G. Cachon and M. Lariviere, Management Science /Vol. 45, No. 8, August 1999
      • Truth telling provides some advantages to the supply chain that should be weighed against the costs of inducing it
    • Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain, G. Cachon and P. Zipkin, Management Science /Vol. 45, No. 7, July 1999
      • Competition generally lowers supply chain inventory relative to the optimal solution
  • 27. Economics
    • The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods Authors: H. Emmons and S. Gilbert, Management Science /Vol. 44, No. 2, February 1998
      • Relationship of such policies return policies on both retailer’s and manufacturer’s profits
    • Capacity Allocation Using Past Sales: When to Turn-and-Earn G. Cachon and M Lariviere, Management Science /Vol. 45, No. 5, May 1999
      • Turn-and-earn allocation does not generally coordinate the system, and in certain cases is a means for the supplier to increase profits at the expense of retailers
  • 28. Economics
    • Centralization of Stocks: Retailers vs. Manufacturer, R. Anupindi and Y. Bassok, Management Science /Vol. 45, No. 2, February 1999
      • Shows that centralizing stocks by retailers increases profits for the manufacturer up to a certain level of “market search” in the supply chain
    • Value of Information in Capacitated Supply Chains, S. Gavirneni, et al., Management Science /Vol. 45, No. 1, January 1999
      • Examine benefits of partial vs complete information sharing in a supplier-retailer setting
  • 29. Economics
    • The Quantity Flexibility Contract and Supplier-Customer Incentives, A. Tsay, Management Science /Vol. 45, No. 10, October 1999
      • Quantity Flexibility (QF) contract and its implications for the behavior and performance of suppliers and customers
    • Quantity Flexibility Contracts and Supply Chain Performance, A. Tsay and W. Lovejoy, Manufacturing & Service Operations Management Vol 1, No 2, 1999
      • Analysis extended to multiple time periods
  • 30. Economics
    • Coordinating Investment, Production, and Subcontracting, J. Van Mieghem, Management Science /Vol. 45, No. 7, July 1999
      • Analysis of the role of transfer prices and of the bargaining power of buyer and supplier
    • Decentralized Multi-Echelon Supply Chains: Incentives and Information : H. Lee and S. Whang, Management Science /Vol. 45, No. 5, May 1999
      • Desirable properties of performance measurement schemes that align the incentives and interests of the multiple managers in decentralized supply chains
  • 31. Economics
    • Echelon Reorder Points, Installation Reorder Points, and the Value of Centralized Demand Information, F. Chen, Management Science /Vol. 44, No. 12, Part 2 of 2, December 1998
      • Examine cost difference between an echelon stock and an installation stock policy.
    • Decentralized Supply Chains Subject to Information Delays, F. Chen, Management Science /Vol. 45, No. 8, August 1999
      • Information lead times play the same role as the production/transportation counterparts in the determination of the optimal replenishment strategies, but they are less costly
  • 32. Inventory Models
    • Managing Supply Chain Demand Variability with Scheduled Ordering Policies, G. Cachon, Management Science /Vol. 45, No. 6, June 1999
      • Identify two strategies that reduce the supplier’s demand variance and also reduce total supply chain costs
    • The Stabilizing Effect of Inventory in Supply Chains, M. Baganha and M. Cohen, Operations Research Vol. 46, Supp. No. 3, May–June 1998
      • Model helps to explain the “bullwhip” effect and indicates mechanisms that can promote stabilization
  • 33. Inventory Models
    • A Single-Item Inventory Model for a Nonstationary Demand Process, S. Graves, Manufacturing & Service Operations Management Vol. 1, No. 1, 1999
      • Demand process for the upstream stage is more variable than that for the downstream stage
  • 34. Probabilistic Analyses and Algorithms for Three-Level Distribution Systems
    • Wal-Mart’s cross-docking strategy
    • Integrate inventory control and vehicle routing for a distribution system consisting of a single vendor, a fixed number of warehouses, and many retailers
    • Warehouses receive fully loaded trucks from the vendor but never hold inventory
    • Warehouses serve only to coordinate the frequency, time and sizes of deliveries to retailers
    Source: L. Chen and D. Simchi-Levi , MANAGEMENT SCIENCE/Vol. 44, No. 11, Part 1 of 2, November 1998
  • 35. Distribution Requirements Planning
    • A Dynamic Model For Requirements Planning With Application To Supply Chain Optimization, S. Graves, et al., Operations Research Vol. 46, Supp. No. 3, May–June 1998
      • Use a model for a single production stage as a building block for modeling a network of stages
      • Apply the DRP model to strategic inventory placement in the film manufacturing processes at Kodak
  • 36. Extended-Enterprise Supply-Chain Management at IBM Personal Systems Group and Other Divisions Source: G. Lin et al., ITERFACES 30: 1 January–February 2000 (pp. 7–25)
  • 37. Cooperative Multiobjective Decision Support for the Paper Industry Source: S. Murthyet al., I TERFACES 29: 5 September–October 1999 (pp. 5–30) The A-team architecture
  • 38. Unifi: Begin at Home - ERP
    • Keys to competing: Automation and process control systems
    • Message to supply chain: Cooperate as if vertically integrated
    • Companywide program of linkages among processes and machines
      • Exchanging production and quality information with suppliers over the Internet
      • Daily WIP information to make-to-order customers
    • Computer to computer exchanges
    • Allow partners to come in, rather than pushing data out
    • Spin off as Manufacturing-Systems Consultant
    Source: How a Tighter Supply Chain Extends the Enterprise , Fortune , November 8, 1999 .
  • 39. Mercury Marine: Dealer focus
    • Vertically integrated
    • Supplier consigns truckload loads to factory and gets paid as used
    • MercNet - Private electronic network for parts ordering moved to the Internet
    • Share forecasts and collaborate with dealers on promotions
    • Resistance from sales on electronic ordering
    Source: How a Tighter Supply Chain Extends the Enterprise , Fortune , November 8, 1999 .
  • 40. Rocketdyne: Suppliers Beyond the Firewall
    • Brought engineering, manufacturing and suppliers together from the start
    • Alleviated job-shop problems with Manufacturing Execution System (MES)
      • Computer connections to work areas
    • Linked with MRP and Product Data Management
      • Included suppliers via the Internet
      • Dedicated server, control on depth of system access
    Source: How a Tighter Supply Chain Extends the Enterprise , Fortune , November 8, 1999 .
  • 41. Adaptec: Value Added Cycle Time
    • 100 day cycle time
      • Manually entered information
      • Different computer systems
    • Treat suppliers as partners
      • Incompatible systems: SAP vs homemade ERP
    • Extricity Internet Software
      • Fast orders, drawings, confirmations
      • Cycle time dropped to 55 day
      • WIP shrank from $18 M to $9 M
      • If customers would share forecasts, Adaptec could deliver directly rather than from the current 22 FG warehouses
    Source: How a Tighter Supply Chain Extends the Enterprise , Fortune , November 8, 1999 .
  • 42. Nimbus: Streamlined Supply Chain by Merging
    • Most studios outsource production, distribution, and packaging of VHS tapes and DVDs
    • Technicolor - largest converter of movies to VHS
      • People, systems, and facilities capability to handle distribution
      • Nimbus’ sales rose to $89 M in first six months of 1999
      • Consolidation of production facilities and other supply chain moves - $10.2 M savings for the first half of 1999
  • 43. Conclusions
    • Integration and coordination
      • Production and Distribution
      • Routing and Location
      • Routing and Inventory
    • Dynamic Problems
    • Real Time
  • 44. Conclusions
    • Increase in fast-cycle logistics for companies of all size
    • Doing business faster, and especially smarter
      • replacing inventory with information
    • With real-time information companies can manage inventory in motion, rather than at rest
    • Supply chains are increasingly moving online
    • Can dramatically reduce overhead and obsolescence while speeding time to market
    Source: Fedex Corporation, 1999 Annual Report