Supply Chain Integration

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Supply Chain Integration

  1. 1. SE 492: Supply Chain Systems Modeling Supply Chain Integration Dr. Mohamed Ben Daya Professor of Industrial Engineering & Operations Research
  2. 2. Introduction <ul><li>SCM revolves around efficient integration of suppliers manufacturers, warehouses, and stores. </li></ul><ul><li>Challenge: coordinate activities across the SC to improve performance: </li></ul><ul><ul><ul><li>Reduce cost </li></ul></ul></ul><ul><ul><ul><li>Increase service level </li></ul></ul></ul><ul><ul><ul><li>Reduce the bullwhip effect </li></ul></ul></ul><ul><ul><ul><li>Better utilization of resources </li></ul></ul></ul><ul><ul><ul><li>Effectively respond to changes in the market place </li></ul></ul></ul>
  3. 3. Objective <ul><li>Illustrate the opportunities and challenges associated with SC integration </li></ul><ul><ul><ul><li>SC strategies: push, pull and push-pull systems </li></ul></ul></ul><ul><ul><ul><li>Demand-driven strategies </li></ul></ul></ul><ul><ul><ul><li>Effective distribution strategies </li></ul></ul></ul>
  4. 4. Push-Based SC <ul><li>Production decisions based on forecasts </li></ul><ul><li>Manual purchase orders and invoices are employed </li></ul><ul><li>Ordering decisions based on inventory & forecasts. </li></ul>
  5. 5. Takes longer to react the changing marketplace <ul><li>Excess finished goods inventory </li></ul><ul><li>Inefficient production </li></ul><ul><li>Inefficient operations, high costs, low service levels </li></ul><ul><li>- Excess capacity </li></ul><ul><li>- Low utilization of resources </li></ul><ul><li>- High transportation cost </li></ul>
  6. 6. Pull Strategies <ul><li>Production is demand driven </li></ul><ul><ul><ul><li>Coordinated with true customer demand rather than forecast demand </li></ul></ul></ul><ul><li>Faster information flow mechanisms are used </li></ul><ul><li>Inventory levels are reduced </li></ul><ul><li>Distribution facilities are transformed from storage points to coordinators of flow. </li></ul>
  7. 7. But … <ul><li>Pull systems are difficult to implement when lead times are so long that it is impractical to react to demand information </li></ul><ul><li>Harder to leverage economies of scale </li></ul><ul><li>Advantages and disadvantages of push and pull systems led to push-pull SC strategy that takes advantage of the best of both </li></ul>
  8. 8. Push-Pull SC End customer Push Strategy Pull Strategy Push-pull boundary Raw Materials Supply chain time line
  9. 9. Examples <ul><li>PC manufacturers </li></ul>Push Strategy Pull Strategy Push-pull boundary Raw Materials Assembly Components inventory Aggregate forecasts more accurate End customer
  10. 10. Examples <ul><li>Delayed differentiation in product design </li></ul>End customer Push Strategy Pull Strategy Push-pull boundary Raw Materials Prior to differentiation after differentiation
  11. 11. Identifying the Appropriate SC Strategy <ul><li>Framework for matching SC strategies with products and industries </li></ul>Economies of scale IV Books and CDs I Computer III Grocery II Furniture L L H H Pull Push Demand uncertainty
  12. 12. Implementing a push pull strategy <ul><li>Characteristics of the push and pull </li></ul><ul><li>portions of the SC </li></ul><ul><li> Pull </li></ul><ul><li>Objective Minimize cost Maximize service level </li></ul><ul><li>Complexity High Low </li></ul><ul><li>Focus Resource allocation Responsiveness </li></ul><ul><li>Lead time Long Short </li></ul><ul><li>Processes SC planning Order fulfillment </li></ul>Portion Push Pull
  13. 13. Demand driven strategy <ul><li>Processes for generating demand information: </li></ul><ul><ul><ul><li>Demand forecast </li></ul></ul></ul><ul><ul><ul><li>Demand shaping </li></ul></ul></ul><ul><li>How to increase forecast accuracy? </li></ul><ul><ul><ul><li>Select push-pull boundary so that demand is aggregated (aggregate forecasts are more accurate) </li></ul></ul></ul><ul><ul><ul><li>Use market analysis </li></ul></ul></ul><ul><ul><ul><li>Incorporate collaborative planning and forecasting processes </li></ul></ul></ul>
  14. 14. Distribution Strategies Direct Shipment Warehousing Cross-docking

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