Defense Supply Chain
A Logistics Lifecycle Management for TACOM’s
Extended Enterprise
A Short Workshop on Developing and I...
Main Topics
     Module I: Supply Chain Management -
     Concepts and Applications
     Module II: Supply Chain Informati...
Module I:
Supply Chain Management
Concepts and Applications
Presentation Outline
     Supply Chain: Background and
     Perspectives
     Supply Chain Applications
       – Logistics...
Supply Chain
Background and Perspectives
Supply chain

     Definition:
     A network of independent business
     organizations with common goals
     formed to ...
A supply chain
                                                                          Customers,
                      ...
Supply chain network: A
    general representation
                                                       Trans-shipment
 ...
Supply chain management
     Definition:
     Supply Chain Management is primarily
     concerned with the efficient integ...
Supply chain management
                 Supply Echelon                                                           Demand F...
Conflicting objectives in
the supply chain
                                           Minimum Total System Cost


        ...
Supply chain costs
                                                             Management Costs


                       ...
Supply chain: the magnitude

     In 1998, American companies spent $898
     billion in supply-related activities (or 10....
Supply chain: the magnitude
(continued)

      It is estimated that the grocery industry could
      save $30 billion (10%...
Supply chain: the magnitude
(continued)

   Compaq computer estimates it lost $500 million to $1
   billion in sales in 19...
Supply chain: the potential

    Procter & Gamble estimates that it saved retail
    customers $65 million through logisti...
Supply chain: the potential
(continued)


       Dell Computer has outperformed the
       competition in terms of shareho...
Supply chain: the potential
(continued)


     In 10 years, Wal-Mart transformed
     itself by changing its logistics
   ...
Supply chain: the complexity
National Semiconductors:
      • Production:
         – Produces chips in six different locat...
Supply chain challenges

     Achieving Global Optimization
       – Conflicting Objectives
       – Complex network of fa...
Sequential Optimization vs.
 Global Optimization
 Sequential Optimization


              Procurement       Manufacturing ...
What’s New in Logistics?
    Global competition

    Shorter product life cycle

    New, low-cost distribution channels

...
New Concepts
     Push-Pull strategies
     Direct-to-Consumer
     Strategic alliances
     Manufacturing postponement
  ...
Supply Chain Management
Key Issues
     Distribution Network                          Outsourcing and
     Configuration  ...
Supply Chain Management
Problem-Solving Approaches
Issues                                    Problem-Solving Approaches
Di...
Supply Chain Applications
Logistics Network
Design
The Logistics Network
The Logistics Network consists of:

     Facilities:Vendors, Manufacturing Centers,
     Warehouse/ ...
Decision Classifications

   Strategic Planning: Decisions that involve major
   capital investments and have a long term ...
Decision Classifications
   Tactical Planning: Effective allocation of
   manufacturing and distribution resources over a
...
Decision Classifications
    Operational Control: Includes day-to-day
    operational decisions

    1. The assignment of ...
Network Design: Key
Issues
     Pick the optimal number, location, and size
     of warehouses and/or plants
     Determin...
Network Design: Key
Issues
The objective is to balance service level against
     Production/ purchasing costs
     Invent...
Aggregating Customers

        Customers located in close proximity are
        aggregated using a grid network or cluster...
Comparing Output
    Total Cost:$5,796,000                                          Total Cost:$5,793,000
    Total Custom...
Product Grouping

      Companies may have hundreds to thousands of
      individual items in their production line
      ...
Within Each Source Group,
 Aggregate Products by
 Similar Characteristics
                        70.0



                ...
Sample Aggregation Test:
Product Aggregation
 Total Cost:$104,564,000                                   Total Cost:$104,59...
A Typical Network Design
Model
     Several products are produced at several plants.
     Each plant has a known productio...
A Typical Location Model

    There may be an upper bound on the distance between a
    distribution center and a market a...
Inventory Management
Inventory
     Where do we hold inventory?
       – Suppliers and manufacturers
       – Warehouses and distribution cente...
Goals: Reduce Cost,
Improve Service
     By effectively managing inventory:
       – Xerox eliminated $700 million invento...
Goals: Reduce Cost,
Improve Service
     By not managing inventory successfully
       – In 1994, “IBM continues to strugg...
Understanding Inventory

     The inventory policy is affected by:
       –    Demand Characteristics
       –    Lead Tim...
Cost Structure
     Order Costs
       – Fixed
       – Variable
     Holding Costs
       –    Insurance
       –    Main...
Types of inventory

                                Supplier 1                                                      Custom...
Inventory / Production
policies
                                         Postponement
                   Supplier 1       ...
Factors that Drive
Reduction in Inventory
     Top management emphasis on inventory reduction
     (19%)
     Number of SK...
Inventory Management:
Supply Contracts
Supply Contracts
Fixed Production Cost

Variable Production Cost

                            Wholesale Price

           ...
Supply Contracts
   Fixed Production Cost

   Variable Production Cost

                                    Wholesale Pric...
Supply Contracts
    Fixed Production Cost
    Variable Production Cost

                                Wholesale Price

...
Supply Contracts: Key
Insights
   Effective supply contracts allow supply
   chain partners to replace sequential
   optim...
Supply Contracts (Risk
                  Pooling)
                                          Supplier 1                    ...
Inventory Management:
Managing the Bullwhip
Effect
The Dynamics of the
                   Supply Chain
Order Size




                                                       ...
The Bullwhip Effect and its
Impact on the Supply Chain
    Consider the order pattern of a single color
    television mod...
The Bullwhip Effect and its
 Impact on the Supply Chain

                                                   Point-of-sales...
The Bullwhip Effect and its
Impact on the Supply Chain




        POS Data After Removing Promotion & Trend

            ...
Higher Variability in Orders Placed
by Computer Retailer to
Manufacturer Than Actual Sales




    Lee, H, P. Padmanabhan ...
Increasing Variability of
Orders Up the Supply Chain




 Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Revi...
The Bullwhip Effect:
Managerial Insights
     Exists, in part, due to the retailer’s need to estimate
     the mean and va...
Coping with the Bullwhip
Effect in Leading Companies
    Reduce Variability and Uncertainty
    - Point-of-Sales (POS)
   ...
Distribution Strategies

     Warehousing
     Direct Shipping
       – No Distribution Centers needed
       – Lead times...
Supply Chain Integration:
Dealing with Conflicting Goals

     Lot Size vs. Inventory
     Inventory vs. Transportation
  ...
What are the Causes….

     Promotional sales
     Volume and Transportation discounts
     Inflated orders
     Demand Fo...
Consequences….

     Increased safety stock
     Reduced service level
     Inefficient allocation of resources
     Incre...
Inventory Management:
e-Business Models
The Future is Not What it
Used to Be
     A new e-Business Model
       – Reduce cost
       – Increase Profit
       – In...
Reality is Different…..

     Amazon (Book)
     Peapod (Grocery)
     Dell (Computers)
     Cisco (Network Management)


...
The e-Business Model
      e-Business is a collection of business models
      and processes motivated by Internet
      t...
A new Supply Chain
Paradigm
     A shift from a Push System...
       – Production decisions are based on
         forecas...
From Make-to-Stock
 Model….
Suppliers            Assembly                                    Configuration




           ...
Push-Pull Supply Chains
                               The Supply Chain Time Line




                                    ...
….to Assemble-to-Order
 Model
Suppliers                 Assembly                               Configuration




         ...
Business models in the
Book Industry
     From Push Systems...
       – Barnes and Noble
     ...To Pull Systems
       – ...
e-Business in the Retail
Industry
     Brick-&-Mortar companies establish Virtual
     retail stores
       – Wal-Mart, K-...
e-Fulfillment Requires a
New Logistics Infrastructure

                        Traditional Supply Chain                   ...
Matching Supply Chain
Strategies with Products
                    Demand
                   uncertainty



Pull          ...
Locating the Push-Pull
Boundary




                                                                      81
January 11, 2...
Organizational Skills
Needed
 Raw
Material                                                                 Customers
     ...
e-Business Opportunities:

     Reduce Facility Costs
       – Eliminate retail/distributor sites
     Reduce Inventory Co...
e-Business Opportunities:

     Supply Chain Visibility
       – Reduction in the Bullwhip Effect
                   Reduc...
Design for Logistics
Design for Logistics
Concept
Design for Logistics addresses three key
components to manage trade-offs
between inventory an...
Economic packaging and
transportation
     Products that can be packed
     compactly
       – are cheaper to transport,
 ...
Concurrent and Parallel
Processing
     Modifying the manufacturing processes from
     sequential and dependent structure...
Standardization

     Standardization can lower inventory costs
     and increase forecast accuracy.
     Standardization ...
Approaches to
Standardization
     Part Standardization
     Process Standardization
     Product Standardization
     Pro...
Part Standardization

     Commonality among parts.
     Common parts are introduced among
     products.
     Common part...
Process Standardization
     Involves standardizing as much of the
     process as possible for different products,
     a...
Product Standardization

     A large variety of products may be
     offered, but only a few kept in
     inventory.
    ...
Procurement
Standardization
     Standardizing processing equipment
     and approaches, even when the
     product itself...
Selecting a Standardization
Strategy
                                    Operational Strategies for
                      ...
Supplier Integration into
New Product Development
     Involve suppliers in the design process.
     Potential benefits:
 ...
Spectrum of Supplier
Integration
     None
       – Supplier is not involved in design.
                   Materials and s...
Strategic Planning Process
for Supplier Integration
     Proposed by the study at Michigan
     State University (1997):
 ...
Keys to Effective Supplier
Integration
     Select suppliers and build relationships
     with them.
     Align objectives...
Mass Customization
Mass Customization
Concept
     Mass customization involves the
     delivery of a wide variety of
     customized goods o...
Attributes for Implementing
Mass Customization Strategy
     Rapid response to customer demands
     through quick linkage...
Techniques to Manage Inventories
due to Product Proliferation
  Build-to-Order Model utilizing product
  postponement and ...
Module II:
Supply Chain Informatics
Theory and Concepts
Presentation outline
     System and System Design
     Supply Chain Informatics
     Reconfigurable systems
     Motivati...
System and System
Design
System: A Definition

     A system may be defined as an
     assemblage of sub-systems
     (components, modules, etc.), ...
General Systems Theory
Background
     Ludwig von Bertalanffy formulated a new discipline,
     General System Theory (GST...
Concept of System in GST
Unity, Parts, and Relationship

     Unity (‘consistent
     whole’, ‘complex                    ...
Role of System in an
Organization
     System gives organization a formal structure, a
     purpose, a goal (s) [objective...
How do System and
Organization complement
each other?
     System has a structure (or organization).
     Organization is ...
Issues Related to System
Design
     How should a complex system be designed?
       – Top-down vs. bottom-up
     How sho...
Domain of System Design



     CAs             FRs                        DPs                         PVs




Customer   ...
Design Axioms

     Axiom 1: The Independence Axiom
       Maintain the independence of the
        Functional Requirement...
Inferences from Design
Axioms
     Uncoupled Design: When each of the FRs can be satisfied
     independently by means of ...
Influence of GST on
System Design
     The biggest influence that GST has had on System Design is in its
     formalizatio...
Influence of GST on System
Design
Some key principles
     Unity: All system (and its components) is whole (or unity) depe...
Supply Chain
Informatics
Concepts
     Supply Chain Informatics is the basis for
     applying Information Science to supply chain
     problems.
 ...
Motivation
                                                                                Application
       Explore
    ...
Support Integrated
 Product Life Cycle System
                                    Cyber-Infrastructure
                   ...
Enable Co-Design of Product
Systems




                            Virtual Systems Design
                            (Pr...
Reconfigurable Systems
     Manufacturing Systems that
     can be:
       – Designed, modeled, and                Reconfi...
Reconfigurable supply
chain
Triggers                                             Issues
     Introduction of new product(s...
General guiding principles
     Supply chain is a System;                        Application of system
     hence General ...
General guiding principles
     Supply chain is an organization                      System integration comprises
     sys...
Problem solving
Principles                                   Strategies
       Scalability of
       system(s)            ...
Taxonomy of supply chain
reconfiguration models
                                                                        SC...
Supply chain modeling
system
                                             Supply chain
                                   ...
Modeling overview
Information Support System (ISS)
Motivation

     Make decision support system effective
            Develop systematic approaches for information modeling...
Information support system
Scope




                                                                      132
January 11,...
Information support system
Thrust areas
    Information modeling
          System taxonomy – standardization of domain str...
Information modeling
framework




                                                                      134
January 11, 2...
“System” behind system
        taxonomy
                                                                       Input: info...
Problem taxonomy

    Classification of supply chain problems
    Classification of problem solving
    methodologies for ...
Ontology modeling

    Ontology
          Ontology is a domain or problem knowledge formulated in the form
          of co...
ISS Reference Model
     Proposition 1. System consists of things (entities) related to
     each other.
     Proposition ...
ISS Reference Model:
     notations I
   Notations related to system taxonomy                       WWi – Set of possible ...
ISS Reference Model:
notations II

                   Notations for Ontology

        M          –––   Data model for SC d...
ISS Reference Model:
System Taxonomy

                                                                            Thing
  ...
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Defense Supply Chain

  1. 1. Defense Supply Chain A Logistics Lifecycle Management for TACOM’s Extended Enterprise A Short Workshop on Developing and Implementing Supply Chain 5th Annual U.S. Army Vetronics Institute Winter Workshop Series U.S. Army, TACOM, Warren, Michigan January 9-12, 2006 Presenter: Charu Chandra, Ph.D. Associate Professor Industrial and Manufacturing Systems Engineering Department The University of Michigan-Dearborn Engineering Complex 2230 4901 Evergreen Road, Dearborn, MI 48128-1491 Phone: 313-593-5258; Fax: 313-593-3692; E-mail: charu@umich.edu URL: http://www-personal.engin.umd.umich.edu/~charu/ January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  2. 2. Main Topics Module I: Supply Chain Management - Concepts and Applications Module II: Supply Chain Informatics - Theory and Concepts Module III: Military Supply Chains - Issues and Perspectives Wrap-up 2 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  3. 3. Module I: Supply Chain Management Concepts and Applications
  4. 4. Presentation Outline Supply Chain: Background and Perspectives Supply Chain Applications – Logistics Network Design – Inventory Management Supply Contracts Managing the Bullwhip Effect e-Business Models – Design for Logistics – Mass Customization 4 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  5. 5. Supply Chain Background and Perspectives
  6. 6. Supply chain Definition: A network of independent business organizations with common goals formed to optimize their resources to meet customers’ needs through sharing of information, expertise (technology), and resources for mutual benefits. 6 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  7. 7. A supply chain Customers, Field demand Sources: Regional Warehouses: centers plants Warehouses: stocking sinks vendors stocking points ports points Supply Inventory & warehousing costs Production/ Transportation costs purchase Transportation costs Inventory & costs Warehousing costs Time 7 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  8. 8. Supply chain network: A general representation Trans-shipment node(s) Supplier 1 Customer 1 Distribution center 1 Plant 1 Supplier 2 Customer 2 Demand Node(s) Distribution Supply Node(s) center 2 Supplier 3 Customer 3 Plant 2 (source) (sink) Dj (-) j ti Distribution Si (+) ) c, ij center 3 ,u ij Supplier 4 Customer 4 (f ij Independent business Supply stage Production stage Distribution stage Consumption stage Entity (with unique OEM END-PRODUCT DISTRIBUTOR / END-CONSUMER objectives and independent MANUFACTURER WAREHOUSER / RETAILER resources) Notations: cij, = cost of movement of goods from node i to node j tij = time elapsed in movement of goods from node i to node j fij = flow of goods (in units) from node i to node j uij = capacity of arc connecting node i to node j 8 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  9. 9. Supply chain management Definition: Supply Chain Management is primarily 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 and at the right time, so as to minimize total system cost subject to satisfying service requirements. 9 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  10. 10. Supply chain management Supply Echelon Demand Forecasts Supplier 1 Customer 1 Distribution center 1 Vertical Integration Plant 1 Supplier 2 Customer 2 Distribution center 2 Supplier 3 Customer 3 Plant 2 Distribution center 3 Supplier 4 Customer 4 Inventory Replenishment Supply stage Production stage Distribution stage Consumption stage OEM END-PRODUCT DISTRIBUTOR / END-CONSUMER MANUFACTURER WAREHOUSER / Supply Networks Demand Networks RETAILER Horizontal Integration 10 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  11. 11. Conflicting objectives in the supply chain Minimum Total System Cost Supplier 1 Customer 1 Distribution center 1 Plant 1 Supplier 2 Customer 2 Distribution center 2 Supplier 3 Customer 3 Plant 2 Distribution center 3 Supplier 4 Customer 4 Function Supply stage Production stage Distribution stage Consumption stage Purchasing Manufacturing Warehousing Customers •Stable Volume Reqmts. •Long Production Run •Low Inventory •Short Order Lead Time •Flexible DeliveryTime •High Quality •Reduced Transportation •High in Stock •Little Variations in Mix •High Productivity Costs •Large Product Variety •Larger Order Quantities •Low Production Cost •Quick Replenishment •Low Prices 11 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  12. 12. Supply chain costs Management Costs Supplier 1 Customer 1 Distribution center 1 Plant 1 Supplier 2 Customer 2 Distribution center 2 Supplier 3 Customer 3 Plant 2 Distribution center 3 Supplier 4 Customer 4 Supply stage Production stage Distribution stage Consumption stage •Production / Assembly •Production Costs •Warehousing Costs •Marketing Costs Costs •Purchase Costs •Finished Goods Cost •Raw Materials Purchase •Set-up Costs Inventory Holding Costs Costs •Start-up Costs (Fixed •Ordering Costs Classification •Transportation Costs Costs) •Transportation Costs •Raw Materials Inventory •Transportation Costs Holding Costs •Work-in-Process Inventory Holding Costs 12 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  13. 13. Supply chain: the magnitude In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product). – Transportation 58% – Inventory 38% – Management 4% Third party logistics services grew in 1998 by 15% to nearly $40 billion. 13 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  14. 14. Supply chain: the magnitude (continued) It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies. – A typical box of cereal spends 104 days getting from factory to supermarket. A typical new car spends 15 days traveling from the factory to the dealership. 14 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  15. 15. Supply chain: the magnitude (continued) Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them. Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce write-downs of $2.6 billion in October 1997. The reason? “Raw material shortages, internal and supplier parts shortages…”. (Wall Street Journal, Oct. 23, 1997) 15 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  16. 16. Supply chain: the potential Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months. “According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”. (Journal of Business Strategy, Oct./Nov. 1997) 16 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  17. 17. Supply chain: the potential (continued) Dell Computer has outperformed the competition in terms of shareholder value growth over the eight years period, 1988-1996, by over 3,000% using - Direct business model - Build-to-order strategy 17 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  18. 18. Supply chain: the potential (continued) In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer. 18 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  19. 19. Supply chain: the complexity National Semiconductors: • Production: – Produces chips in six different locations: four in the US, one in Britain and one in Israel. – Chips are shipped to seven assembly locations in Southeast Asia. • Distribution – The final product is shipped to hundreds of facilities all over the world. – 20,000 different routes. – 12 different airlines are involved. – 95% of the products are delivered within 45 days. – 5% are delivered within 90 days. 19 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  20. 20. Supply chain challenges Achieving Global Optimization – Conflicting Objectives – Complex network of facilities – System Variations over time Managing Uncertainty – Matching Supply and Demand – Demand is not the only source of uncertainty 20 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  21. 21. Sequential Optimization vs. Global Optimization Sequential Optimization Procurement Manufacturing Distribution Demand Planning Planning Planning Planning Global Optimization Supply Contracts/Collaboration/Information Systems and DSS Procurement Manufacturing Distribution Demand Planning Planning Planning Planning Source: Duncan McFarlane 21 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  22. 22. What’s New in Logistics? Global competition Shorter product life cycle New, low-cost distribution channels More powerful well-informed customers Internet and E-Business strategies 22 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  23. 23. New Concepts Push-Pull strategies Direct-to-Consumer Strategic alliances Manufacturing postponement Mass Customization Dynamic Pricing E-Procurement 23 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  24. 24. Supply Chain Management Key Issues Distribution Network Outsourcing and Configuration Procurement Strategies Inventory Control Information Supply Contracts Technology and Distribution Strategies Decision Support Systems Supply Chain Integration and Customer Value Strategic Partnering 24 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  25. 25. Supply Chain Management Problem-Solving Approaches Issues Problem-Solving Approaches Distribution Network Configuration Network Flow Optimization Inventory Control Forecasting and Inventory Management Supply Contracts Global Optimization Distribution Strategies Warehousing and Transportation Costs Management Supply Chain Integration and Collaborative Planning, Forecasting and Replenishment Strategic Partnering (CPFR) Outsourcing and Procurement Managing risk, payoff tradeoffs with Outsourcing vs. Strategies Buying Information Technology and Decision Implementing Enterprise Resource Planning (ERP) Support Systems Decision Support Systems Customer Value Statistical Process Control, Total Quality Management, Service Level Maximization 25 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  26. 26. Supply Chain Applications
  27. 27. Logistics Network Design
  28. 28. The Logistics Network The Logistics Network consists of: Facilities:Vendors, Manufacturing Centers, Warehouse/ Distribution Centers, and Customers. Materials: Raw materials and finished products that flow between these facilities. 28 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  29. 29. Decision Classifications Strategic Planning: Decisions that involve major capital investments and have a long term effect 1. Determination of the number, location and size of new plants, distribution centers and warehouses 2. Acquisition of new production equipment and the design of working centers within each plant 3. Design of transportation facilities, communications equipment, data processing means, etc. 29 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  30. 30. Decision Classifications Tactical Planning: Effective allocation of manufacturing and distribution resources over a period of several months 1. Work-force size 2. Inventory policies 3. Definition of the distribution channels 4. Selection of transportation and trans-shipment alternatives 30 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  31. 31. Decision Classifications Operational Control: Includes day-to-day operational decisions 1. The assignment of customer orders to individual machines 2. Dispatching, expediting and processing orders 3. Vehicle scheduling 31 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  32. 32. Network Design: Key Issues Pick the optimal number, location, and size of warehouses and/or plants Determine optimal sourcing strategy – Which plant/vendor should produce which product Determine best distribution channels – Which warehouses should service which customers 32 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  33. 33. Network Design: Key Issues The objective is to balance service level against Production/ purchasing costs Inventory carrying costs Facility costs (handling and fixed costs) Transportation costs That is, we would like to find a minimal-annual-cost configuration of the distribution network that satisfies product demands at specified customer service levels. 33 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  34. 34. Aggregating Customers Customers located in close proximity are aggregated using a grid network or clustering techniques. All customers within a single cell or a single cluster are replaced by a single customer located at the centroid of the cell or cluster (referred to as a customer zone). 34 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  35. 35. Comparing Output Total Cost:$5,796,000 Total Cost:$5,793,000 Total Customers: 18,000 Total Customers: 800 Cost Difference < 0.05% 35 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  36. 36. Product Grouping Companies may have hundreds to thousands of individual items in their production line 1. Variations in product models and style 2. Same products are packaged in many sizes Collecting all data and analyzing it is impractical for so many product groups 36 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  37. 37. Within Each Source Group, Aggregate Products by Similar Characteristics 70.0 60.0 50.0 Weight (lbs per case) 40.0 30.0 Rectangles 20.0 illustrate how to cluster SKU’s. 10.0 0.0 0.000 0.010 0.020 0.030 0.040 0.050 0.060 0.070 0.080 0.090 0.100 Volume (pallets per case) 37 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  38. 38. Sample Aggregation Test: Product Aggregation Total Cost:$104,564,000 Total Cost:$104,599,000 Total Products: 46 Total Products: 4 Cost Difference: 0.03% 38 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  39. 39. A Typical Network Design Model Several products are produced at several plants. Each plant has a known production capacity. There is a known demand for each product at each customer zone. The demand is satisfied by shipping the products via regional distribution centers. There may be an upper bound on total throughput at each distribution center. 39 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  40. 40. A Typical Location Model There may be an upper bound on the distance between a distribution center and a market area served by it A set of potential location sites for the new facilities was identified Costs: – Set-up costs – Transportation cost is proportional to the distance – Storage and handling costs – Production/supply costs 40 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  41. 41. Inventory Management
  42. 42. Inventory Where do we hold inventory? – Suppliers and manufacturers – Warehouses and distribution centers – Retailers Types of Inventory – Raw materials – Work-in-process (WIP) – Finished goods Why do we hold inventory? – Economies of scale – Uncertainty in supply and demand 42 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  43. 43. Goals: Reduce Cost, Improve Service By effectively managing inventory: – Xerox eliminated $700 million inventory from its supply chain – Wal-Mart became the largest retail company utilizing efficient inventory management 43 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  44. 44. Goals: Reduce Cost, Improve Service By not managing inventory successfully – In 1994, “IBM continues to struggle with shortages in their ThinkPad line” (WSJ, Oct 7, 1994) – In 1993, “Liz Claiborne said its unexpected earning decline is the consequence of higher than anticipated excess inventory” (WSJ, July 15, 1993) – In 1993, “Dell Computers predicts a loss; Stock plunges. Dell acknowledged that the company was sharply off in its forecast of demand, resulting in inventory write downs” (WSJ, August 1993) 44 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  45. 45. Understanding Inventory The inventory policy is affected by: – Demand Characteristics – Lead Time – Number of Products – Objectives Service level Minimize costs – Cost Structure 45 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  46. 46. Cost Structure Order Costs – Fixed – Variable Holding Costs – Insurance – Maintenance and Handling – Taxes – Opportunity Costs – Obsolescence 46 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  47. 47. Types of inventory Supplier 1 Customer 1 Distribution center 1 Plant 1 Supplier 2 Customer 2 Fixed (Ordering) Distribution center 2 Supplier 3 Customer 3 Plant 2 Distribution center 3 Supplier 4 Customer 4 Supply stage Production stage Distribution stage Consumption stage Criteria Inventory Costs •Demand Pattern •Raw Materials / •Raw Materials / •Finished Goods •Shelved Goods •Fixed (Ordering) •Lead Time Assembly Assembly •Variable •No. of Products •Work-in-Process •Holding •Objectives •Finished Goods Insurance Service Level Maintenance and Holding Minimum Costs Taxes Opportunity Obsolescence 47 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  48. 48. Inventory / Production policies Postponement Supplier 1 Customer 1 Distribution center 1 Plant 1 Supplier 2 Customer 2 Fixed (Ordering) Distribution center 2 Supplier 3 Customer 3 Plant 2 Distribution center 3 Supplier 4 Customer 4 Supply stage Production stage Distribution stage Consumption stage •Push •Make-to-Stock •Consolidation •Pull •Make-to-Order •Cross Docking •Push - Pull •Third-party Logistics 48 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  49. 49. Factors that Drive Reduction in Inventory Top management emphasis on inventory reduction (19%) Number of SKUs in the warehouse (10%) Improved forecasting (7%) Use of sophisticated inventory management software (6%) Coordination among supply chain members (6%) Others 49 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  50. 50. Inventory Management: Supply Contracts
  51. 51. Supply Contracts Fixed Production Cost Variable Production Cost Wholesale Price Selling Price Salvage Value Manufacturer Manufacturer DC Retail DC Stores 51 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  52. 52. Supply Contracts Fixed Production Cost Variable Production Cost Wholesale Price Selling Price Salvage Value Manufacturer Manufacturer DC Retail DC Stores 52 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  53. 53. Supply Contracts Fixed Production Cost Variable Production Cost Wholesale Price Selling Price Salvage Value Manufacturer Manufacturer DC Retail DC Stores 53 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  54. 54. Supply Contracts: Key Insights Effective supply contracts allow supply chain partners to replace sequential optimization by global optimization Buy Back and Revenue Sharing contracts achieve this objective through risk sharing 54 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  55. 55. Supply Contracts (Risk Pooling) Supplier 1 Customer 1 Distribution center 1 Plant 1 Supplier 2 Customer 2 Fixed (Ordering) Distribution center 2 Supplier 3 Customer 3 Plant 2 Distribution center 3 Supplier 4 Customer 4 t y e bili Supply stage Production stage g rin Distribution stage b at Consumption stage e xi Sh a Re Fl e les tit y enu ck Sa u an ev -Ba R y Q Bu 55 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  56. 56. Inventory Management: Managing the Bullwhip Effect
  57. 57. The Dynamics of the Supply Chain Order Size Customer Customer Demand Demand Retailer Orders Retailer Orders Distributor Orders Distributor Orders Production Plan Production Plan Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998 57 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  58. 58. The Bullwhip Effect and its Impact on the Supply Chain Consider the order pattern of a single color television model sold by a large electronics manufacturer to one of its accounts, a national retailer. Order Stream Huang at el. (1996), Working paper, Philips Lab 58 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  59. 59. The Bullwhip Effect and its Impact on the Supply Chain Point-of-sales Data- Original POS Data After Removing Promotions 59 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  60. 60. The Bullwhip Effect and its Impact on the Supply Chain POS Data After Removing Promotion & Trend 60 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  61. 61. Higher Variability in Orders Placed by Computer Retailer to Manufacturer Than Actual Sales Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review 61 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  62. 62. Increasing Variability of Orders Up the Supply Chain Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review 62 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  63. 63. The Bullwhip Effect: Managerial Insights Exists, in part, due to the retailer’s need to estimate the mean and variance of demand. The increase in variability is an increasing function of the lead time. The more complicated the demand models and the forecasting techniques, the greater the increase. Centralized demand information can reduce the bullwhip effect, but will not eliminate it. 63 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  64. 64. Coping with the Bullwhip Effect in Leading Companies Reduce Variability and Uncertainty - Point-of-Sales (POS) - Sharing Information - Year-round low pricing Reduce Lead Times - Electronic-Data-Interchange (EDI) - Cross Docking Alliance Arrangements – Vendor managed inventory – On-site vendor representatives 64 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  65. 65. Distribution Strategies Warehousing Direct Shipping – No Distribution Centers needed – Lead times reduced – “smaller trucks” – no risk pooling effects Cross-Docking 65 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  66. 66. Supply Chain Integration: Dealing with Conflicting Goals Lot Size vs. Inventory Inventory vs. Transportation Lead Time vs. Transportation Product Variety vs. Inventory Cost vs. Customer Service 66 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  67. 67. What are the Causes…. Promotional sales Volume and Transportation discounts Inflated orders Demand Forecast Long cycle times Lack of Visibility to demand information 67 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  68. 68. Consequences…. Increased safety stock Reduced service level Inefficient allocation of resources Increased transportation costs 68 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  69. 69. Inventory Management: e-Business Models
  70. 70. The Future is Not What it Used to Be A new e-Business Model – Reduce cost – Increase Profit – Increase service level – Increase flexibility 70 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  71. 71. Reality is Different….. Amazon (Book) Peapod (Grocery) Dell (Computers) Cisco (Network Management) 71 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  72. 72. The e-Business Model e-Business is a collection of business models and processes motivated by Internet technology, and focusing on improving the extended enterprise performance – e-commerce is part of e-Business – Internet technology is the driver of the business change – The focus is on the extended enterprise: Intra-organizational Business to Consumer (B2C) Business to Business (B2B) 72 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  73. 73. A new Supply Chain Paradigm A shift from a Push System... – Production decisions are based on forecast …to a Push-Pull System – Parts inventory is replenished based on forecasts – Assembly is based on accurate customer demand 73 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  74. 74. From Make-to-Stock Model…. Suppliers Assembly Configuration 74 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  75. 75. Push-Pull Supply Chains The Supply Chain Time Line Customers Suppliers PUSH STRATEGY PULL STRATEGY Low Uncertainty High Uncertainty Push-Pull Boundary 75 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  76. 76. ….to Assemble-to-Order Model Suppliers Assembly Configuration 76 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  77. 77. Business models in the Book Industry From Push Systems... – Barnes and Noble ...To Pull Systems – Amazon.com, 1996-1999 And, finally to Push-Pull Systems – Amazon.com, 1999-present 7 warehouses, 3M sq. ft., 77 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  78. 78. e-Business in the Retail Industry Brick-&-Mortar companies establish Virtual retail stores – Wal-Mart, K-Mart, Barnes and Noble Use a hybrid approach in stocking – High volume/fast moving products for local storage – Low volume/slow moving products for browsing and purchase on line Channel Conflict Issues 78 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  79. 79. e-Fulfillment Requires a New Logistics Infrastructure Traditional Supply Chain e-Supply Chain Supply Chain Strategy Push Push-Pull Shipment Type Bulk Parcel Inventory Flow Unidirectional Bi-directional Reverse Logistics Simple Highly Complex Destination Small Number of Stores Highly Dispersed Customers Lead Times Depends Short 79 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  80. 80. Matching Supply Chain Strategies with Products Demand uncertainty Pull H I II Computer IV III Delivery cost Unit price Push L L H Economies of Scale Pull Push 80 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  81. 81. Locating the Push-Pull Boundary 81 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  82. 82. Organizational Skills Needed Raw Material Customers Push Pull Low Uncertainty High Uncertainty Long Lead Times Short Cycle Times Cost Minimization Service Level Resource Allocation Responsiveness 82 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  83. 83. e-Business Opportunities: Reduce Facility Costs – Eliminate retail/distributor sites Reduce Inventory Costs – Apply the risk-pooling concept Centralized stocking Postponement of product differentiation Use Dynamic Pricing Strategies to Improve Supply Chain Performance 83 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  84. 84. e-Business Opportunities: Supply Chain Visibility – Reduction in the Bullwhip Effect Reduction in Inventory Improved service level Better utilization of Resources – Improve supply chain performance Provide key performance measures Identify and alert when violations occur Allow planning based on global supply chain data 84 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  85. 85. Design for Logistics
  86. 86. Design for Logistics Concept Design for Logistics addresses three key components to manage trade-offs between inventory and service levels: – Economic packaging and transportation. – Concurrent and parallel processing. – Standardization. 86 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  87. 87. Economic packaging and transportation Products that can be packed compactly – are cheaper to transport, – Use up less storage space, – Facilitate cross-docking operations, – Impact handling costs because of lesser handling needed. 87 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  88. 88. Concurrent and Parallel Processing Modifying the manufacturing processes from sequential and dependent structures to concurrent and parallel processing. – Implement decoupling of manufacturing processes so as to make them more flexible. Benefits: reduced manufacturing lead time, lower inventory costs through improved forecasting, and reduced safety stock. 88 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  89. 89. Standardization Standardization can lower inventory costs and increase forecast accuracy. Standardization involves introducing concepts of: – Product Modularity Product assembled in modules allowing flexibility. – Process Modularity Allows implementing discrete manufacturing operations so that inventory can be stored in partially manufactured form between operations. 89 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  90. 90. Approaches to Standardization Part Standardization Process Standardization Product Standardization Procurement Standardization 90 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  91. 91. Part Standardization Commonality among parts. Common parts are introduced among products. Common parts reduce required part inventories due to risk pooling and reduce part costs. 91 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  92. 92. Process Standardization Involves standardizing as much of the process as possible for different products, and then customizing products as late as possible. Manufacturing process starts by making a generic or family product that is later differentiated into a specific end-product. – Also termed as postponement or delayed product differentiation strategy. Most of the time requires redesigning the process, such as re-sequencing. 92 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  93. 93. Product Standardization A large variety of products may be offered, but only a few kept in inventory. Resort to downward substitution when a product not kept in stock is ordered. – Product is substituted with product offering a superset of features. 93 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  94. 94. Procurement Standardization Standardizing processing equipment and approaches, even when the product itself is not standardized. – Example: Integrated Circuits. 94 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  95. 95. Selecting a Standardization Strategy Operational Strategies for Standardization Part Process Modular Standardization Standardization Product Product Procurement Non-Modular Standardization Standardization Non-Modular Modular Process IMSE 565, Winter 2003 Instructor: C. Chandra, University of Michigan-Dearborn 95 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  96. 96. Supplier Integration into New Product Development Involve suppliers in the design process. Potential benefits: – Reduced Purchased Materials costs – Increase in Purchased Materials quality – Decline in development time and cost – Decline in manufacturing cost – Increase in final product technology levels 96 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  97. 97. Spectrum of Supplier Integration None – Supplier is not involved in design. Materials and subassemblies are supplied according to customer specification and design. White Box – Informal consultations between supplier and buyer when designing products and specifications. Grey Box – Formal supplier integration into the design process. Formal supplier / buyer teams work on joint development. Black Box – Supplier independently designs the product according to requirements given by the buyer. 97 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  98. 98. Strategic Planning Process for Supplier Integration Proposed by the study at Michigan State University (1997): – Determine internal core competencies – Determine current and future new product developments – Identify external development and manufacturing needs 98 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  99. 99. Keys to Effective Supplier Integration Select suppliers and build relationships with them. Align objectives with selected suppliers. 99 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  100. 100. Mass Customization
  101. 101. Mass Customization Concept Mass customization involves the delivery of a wide variety of customized goods or services quickly and efficiently at low cost. 101 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  102. 102. Attributes for Implementing Mass Customization Strategy Rapid response to customer demands through quick linkages of production modules and processes. Linkages should be costless, that is, add very little cost to processes. Linkages should be seamless so customer service does not suffer. Networks or collections should be formed with little overhead. 102 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  103. 103. Techniques to Manage Inventories due to Product Proliferation Build-to-Order Model utilizing product postponement and push-pull strategies Keep large inventories at major distribution centers Offer fixed set of options that cover most customer requirements 103 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  104. 104. Module II: Supply Chain Informatics Theory and Concepts
  105. 105. Presentation outline System and System Design Supply Chain Informatics Reconfigurable systems Motivation and general guiding principles of research Problem solving framework Algorithmic modeling of reconfigurable supply chain – Information support system – Decision modeling system – Decision support systems prototype Examples of representative research problems 105 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  106. 106. System and System Design
  107. 107. System: A Definition A system may be defined as an assemblage of sub-systems (components, modules, etc.), and agents and mechanisms (people, technology, and resources) designed to perform a set of tasks to satisfy specified functional requirements and constraints. 107 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  108. 108. General Systems Theory Background Ludwig von Bertalanffy formulated a new discipline, General System Theory (GST), and defined its subject matter as “formulation and derivation of those principles which are valid for systems in general whatever the nature of the component elements and the relations or forces between them”. GST enunciated the principle of unification of science, and its essence was interdisciplinarity. It produced a new type of scientific knowledge: interdisciplinary knowledge. According to Bertalanffy, there is some element of isomorphism (state of similarity), which allows extension of one scientific discipline to other sciences. 108 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  109. 109. Concept of System in GST Unity, Parts, and Relationship Unity (‘consistent whole’, ‘complex Environment Unity whole’, ‘wholeness’, ‘synergy’, etc.). Parts (‘elements’, ‘constituents’, ‘components’, etc.). Relationship Relationship (‘interrelationship’, ‘interactions’, ‘structure’, and Part ‘organization’). Source: Dubrovsky (2004). 109 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  110. 110. Role of System in an Organization System gives organization a formal structure, a purpose, a goal (s) [objectives], and above all a basis for integration. Such a structure is beneficial for an organization in managing its complexity, integration of its functions, and aligning its product- process-resource structure. System provides the framework that an organization needs for designing and implementing models, methodologies, tools and techniques for aligning its business (es) and improving productivity. 110 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  111. 111. How do System and Organization complement each other? System has a structure (or organization). Organization is a class of system and thus inherits its (system’s) structure. System needs an organization (and its structure) for a formal representation of an enterprise. On the other hand, organization needs a system (and its framework) for formalization. 111 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  112. 112. Issues Related to System Design How should a complex system be designed? – Top-down vs. bottom-up How should the complex relationships between various components of a system be coordinated and managed? – Modular with process flow interface How can the stability and controllability of a system be guaranteed? – Satisfying the Design Axioms 112 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  113. 113. Domain of System Design CAs FRs DPs PVs Customer Functional Physical Process Domain Domain Domain Domain Source: Suh, 1998 113 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  114. 114. Design Axioms Axiom 1: The Independence Axiom Maintain the independence of the Functional Requirements (FRs). Axiom 2: The Information Axiom Minimize the information content of the design. 114 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  115. 115. Inferences from Design Axioms Uncoupled Design: When each of the FRs can be satisfied independently by means of one DP. Decoupled Design: When the independence of FRs can be guaranteed, iff the DPs are changed in the proper sequence. Coupled Design: When the design violates the Independence Axiom (or Axiom 1). When several functional requirements must be satisfied, designers must develop designs that are either uncoupled or decoupled. Among all the designs that satisfy the Independence Axiom (or Axiom 1), the design that has the least information content is the best design. 115 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  116. 116. Influence of GST on System Design The biggest influence that GST has had on System Design is in its formalization. For example, system is designed to recognize its whole-part relationship instantiated in its environment (both internal and external). The concept of isomorphism has facilitated system design by recognizing similarity (or commonness) across entities, relationships, and environmental variables. Similarity implicitly recognizes relationships, thereby improving a system’s representation and eventually impacting its performance (quality, reliability etc.). Another useful feature of GST in system design is separating information needs (and associated knowledge) at the domain independent (or generic) level from that of domain dependent (or specific / problem) level. Such an approach ensures that the system captures both breadth and depth of knowledge. Since the latter is embedded in the former, the captured knowledge has a larger context, thereby ensuring interactions and thus larger relevance. It also ensures that the knowledge does not become redundant. 116 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  117. 117. Influence of GST on System Design Some key principles Unity: All system (and its components) is whole (or unity) depending on the context where they are represented. Commonality: All systems in the universe of systems share common universal characteristics. Isomorphism: Similarity (and therefore commonality) among system components and associated relationships. Reuse: Commonality leads to reuse and eventually standardization, conformity and reliability. Abstraction: Enables managing complexity by abstracting features of system’s components. It also allows representation of relationships such as, whole-part, and generalization-specialization. Polymorphism: Creates classes of systems and reusing them for specialized functions. Encapsulation: Enables encapsulating knowledge and information-hiding on objects (and classes) to create uniqueness of objects (and classes). Independence: Domain independent vs. domain dependent knowledge creation. Inheritance: Enables avoiding information redundancy and information-hiding by clustering information representation where they rightfully belong. 117 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  118. 118. Supply Chain Informatics
  119. 119. Concepts Supply Chain Informatics is the basis for applying Information Science to supply chain problems. The primary thrust of this area is on investigating design and modeling issues in information management of logistics in production networks. Specifically, it applies the concept of Information Economics to managing technology, aided by knowledge from multi-disciplinary topics in seeking solutions for supply chain problems. 119 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  120. 120. Motivation Application Explore Theory research in cross- cutting Systems Engineering areas Systems Science Apply this knowledge to investigating Management Science emerging Decision Science Industrial Engineering public policy Operations Research areas / issues Tools & Techniques 120 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  121. 121. Support Integrated Product Life Cycle System Cyber-Infrastructure (Internet, eBusiness) Product-Life-Cycle PDM Systems (CAD/CAM/CAE, ERP Systems Expert Systems) Supply Chain Process-Life-Cycle Suppliers Customers (Plan, Source, Make, Deliver, Return) 121 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  122. 122. Enable Co-Design of Product Systems Virtual Systems Design (Product Delivery Configuration) Logical Systems Design (Designing Inbound/Outbound Logistics) Physical Systems Design (Designing Product-Process Interface) Integrating consumer-supplier interface requirements concurrently at design time 122 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  123. 123. Reconfigurable Systems Manufacturing Systems that can be: – Designed, modeled, and Reconfigurable supply chain configured according to specific applications flexibly and with agility, Supplier 1 Distribution Customer 1 and Plant 1 center 1 – Upgraded and reconfigured Supplier 2 Customer 2 rather than replaced. Distribution center 2 With a reconfigurable Supplier 3 Customer 3 Plant 2 system, new products and Supplier 4 Distribution center 3 Customer 4 processes can supposedly be introduced with Supply stage Production stage Distribution stage Consumption stage considerably less expense and ramp-up time. 123 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  124. 124. Reconfigurable supply chain Triggers Issues Introduction of new product(s), or Assessing impacts of one or more of upgrade for existing product(s). following factors / activities in order to Introduction of new, or make (economic) decisions to improvement in existing implement reconfigurable systems: process(es). –Flows due to materials, inventory, information, and cash. Allocation of new, or re-allocation –Throughput due to movement of of existing resource(s). product. Selection of new supplier(s), or de- –Capacity utilization. selection of existing ones. –Costs at various stages of product Changes in demand patterns for development life cycle. product(s) manufactured. –Lead time in product development. Changes in lead times for product –Batch and lot sizing. and / or process during its life –Process redesign. cycle in the supply chain. –Product development strategies. Changes in commitments within –Procurement and / or allocation of and between supply chain resources. members. –Strategic, tactical, and operational policies on the supply chain. 124 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  125. 125. General guiding principles Supply chain is a System; Application of system hence General System design theory principles to Theory principles can be develop an axiomatic applied for its study system design for supply through an inter-disciplinary chain focus – Designing configurable – Managing complexity system architectures – Isomorphic frameworks through integrating FRs/DPs/PVs, Cs and – Formal theoretical flows, while maintaining reference models design axioms – System research and design 125 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  126. 126. General guiding principles Supply chain is an organization System integration comprises system with a set of integration of information managerial issues at: resources and collaboration – Technical level based on common problems – Organizational level – Horizontal collaboration vs. – Institutional level hierarchical management – Shared understanding of Supply chain knowledge common problems and tasks representation is carried out – Distributed environment for through process modeling of linking diverse information its workflows systems – Modeling supply chain workflows Systematically capturing organization and problem – Capturing and organizing knowledge for workflow knowledge management – Ontology for supply chain – Delivering process / problem knowledge modeling knowledge to decision – Semantic Web Services for modeling tools knowledge share and reuse 126 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  127. 127. Problem solving Principles Strategies Scalability of system(s) Developing: Meta modeling of 1. Domain independent system(s) solution(s) [templates] at the macro level Coordination within 2. Capability models for and between application specific system(s) domain dependent Information sharing problems at micro level. within and between 3. Coordination models to system(s) integrate models developed in (1) and (2) 127 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  128. 128. Taxonomy of supply chain reconfiguration models SC Reconfiguration Model Types Domain Independent • SC System Taxonomy Model S-C STRUCTURAL MODEL Modeling Context • SC Organization Structure Model S-C ARCHITECTURE Domain Independent Methodological Constructs • SC Process Model REPRESENTATION MODEL • SC Ontology Model • SC Database Model S-C WASTE MANAGEMENT Domain Independent • SC Multi Agent Model MODELS Problem-Solving Context • SC Agreement Model S-C PROBLEM SPECIFIC Domain Dependent • SC Forecast Management Model MODELS Problem-Solving Context • SC Inventory Management Model • SC Capacity Planning Model 128 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  129. 129. Supply chain modeling system Supply chain modeling system Information Decision support modeling system system Process Information Knowledge Forecasting Simulation Modeling & Agent & Inventory Optimization Modeling modeling Modeling Management Information support system provides supply chain information support. Decision modeling system is used to investigate and solve supply chain management problems. 129 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  130. 130. Modeling overview Information Support System (ISS)
  131. 131. Motivation Make decision support system effective Develop systematic approaches for information modeling Use the best breed of available information technologies and resources Integrate information system with decision modeling system Support supply chain management activities Design information systems to meet supply chain management requirements Integrate processes and activities across the supply chain Integrate information resources across the supply chain 131 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  132. 132. Information support system Scope 132 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  133. 133. Information support system Thrust areas Information modeling System taxonomy – standardization of domain structure and content Problem taxonomy – systematic representation of supply chain managerial issues Ontology – Organization and problem knowledge conceptualization with formal models Information system architecture Knowledge intensive information system design Ontology utilization by information system components in both temporal dimensions (development and run-time) Knowledge portal and Ontology server design 133 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  134. 134. Information modeling framework 134 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  135. 135. “System” behind system taxonomy Input: information, Resources Materials Agents Mechanisms Output: Designed System, Paradigm, Product, Service Mechanisms: Control, Action, Performance, Behavior, Program, Management, Strategy, Structure, and Input Output Feedback. Processes Processes: Information flow, Energy flow, Material flow, Transformation, Synthesis, Event. Objectives: Goals, Means. Agents: Owner, Role, Actor, and Customer. Objectives Environment Environment: Relevant systems, Dependencies, Constraints, Boundaries. Supply chain system taxonomy development objectives • System taxonomy provides standardization of terms and definition, thus ensuring shared vocabulary across the supply chain system domain. • System taxonomy also provides unified structure for a formal representation, ensuring that data and knowledge can be represented in a format consumable by supply chain system members’ software applications. 135 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  136. 136. Problem taxonomy Classification of supply chain problems Classification of problem solving methodologies for supply chain management Identification of problem requirements Problem model projection from system taxonomy 136 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  137. 137. Ontology modeling Ontology Ontology is a domain or problem knowledge formulated in the form of concepts and relationships with a set of axioms, used in problem reasoning algorithms, and implemented in a common language understandable by software development tools. Ontology conceptualization Components (1) Data, (2) Axioms (constraints, rules) and (3) Algorithms (problem solving methods) Stages (1) Business process modeling, (2) problem domain requirements identification, (3) analysis, (4) design, (5) implementation and evaluation 137 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  138. 138. ISS Reference Model Proposition 1. System consists of things (entities) related to each other. Proposition 2. Supply Chain problems can be introduced as a combination of two formalisms, viz., problem object model and problem formal model . Proposition 3. To better serve the needs of problem solving tools and provide reusability of problem models, the information representing their content is captured at different levels of abstractions. Particularly, problem formal model is proposed to have two representation levels: generic and specific. Proposition 4. Relationships in Supply Chain problem domain can be classified into two types: vertical and horizontal. The former is for building domain structure. The latter is for linking outputs of some problems with inputs of others. 138 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  139. 139. ISS Reference Model: notations I Notations related to system taxonomy WWi – Set of possible states of observation channels wwi S – System T – Thing symbolizing the elements of a system Notations related to specific problem representation R – Relationships among things of a system defined on T Ob – Object model bi – Backdrop Notations related to problem taxonomy Bi – Set of backdrop states bi Tw – Set of thing pertinent to a specific state of the SC SP – Specific problem model system vi – Variable that can be assigned to attribute ati for Rw – Set of relationships pertinent to a specific state of specific problems the SC system among things of a system state defined on Tw Vi – Set of possible values that variable vi may have wi – Observation channel for backdrop b PR– Problem representation i Wi – Set of possible states of channels w RV – Vertical representation i oi – Observation channel for attributes ati RH– Horizontal representation Õ – Relationship between object system and problem system Notations related to general problem representation W – Class instances of S for SC domain (general GP – Generic problem model representation of Wi ) ati – Attribute Ati – Set of instances of at attribute i Notations common for specific and general problem vvi – Variable that can be assigned to attribute ati for representations generic problems Ê – Relationship between specific and generic systems VVi – Set of possible values that variable ati may have ei – Relationship between Vi ,VVi wwi – Observation channels for vvi k j – Relationship Charu Chandra, University of Michigan - Dearborn between W j ,WW j 139 January 11, 2006
  140. 140. ISS Reference Model: notations II Notations for Ontology M ––– Data model for SC domain I – Ontological commitments. Functions interpreting characteristics into variables V – Set of variables Bc , Bw, B – Observation channels for defining variables, constraints, and algorithms respectively h – Set of Interpretation functions J Mw – Data model for SC problem C – Constraints on data O – Ontology model A – Set of axioms H – Algorithm or heuristics G – Set of equations 140 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
  141. 141. ISS Reference Model: System Taxonomy Thing System S = (T , R) Relationships T ⊆ ( I × O × E × A × F × M × P) I = {i1 , i2 ,..., in } I = {i : i _ has _ properties, I1 I 2 ,...} Input Output R( I , O) ⊆ {(i, o) : (i, o) ∈ I × O} Thing X Thing Y R( X , Y ) = {( x, y ) : y ∈ {Y }^ x = { X }^ ∀x y} 141 January 11, 2006 Charu Chandra, University of Michigan - Dearborn
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