tighter supply chain

1. MARIUS M. SOLOMON
CRT, University of Montreal
March, 2000
CRT, University of Montreal
March, 2000

2. Logistics Evolution
National
Regional
Local
Global

3. Progression of Competitive AdvantageProgression of Competitive Advantage
Low Wage
Rates
Low Wage
Rates
Scale
Facilities
Scale
Facilities
Focused
Production
Focused
Production
Increased
Variety
Increased
Variety
Fast Response
Time
Fast Response
Time
Qualit
y
Qualit
y
Cost Based
Management
Cost Based
Management
Time Based
Management
Time Based
Management
‘50s
‘60s
‘70s
‘80s
‘80s
‘90s E-BusinessE-Business
Technology
Enabled
Management
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.

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
LinkLink

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
accountin
g
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
L
o
g
i
s
t
i
c
s

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
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 PipelineThe Apparel Pipeline
Textile
Production
Apparel Retail
Material
CustomerRaw
Source: Blackburn, Time Based Competition, 1991
Average Time:
66 Weeks
Pipeline inventory
management
Pipeline inventory
management
Information
sharing
Joint planning
Information
sharing
Joint planning

22. Effect of Lead Time on Retailer’s
Stocking Decision
Effect of Lead Time on Retailer’s
Stocking Decision
FORECASTERROR(%)FORECASTERROR(%)
TIMETIME
+/-20%+/-40%
+40
-40
+20
-20
0
+/-10%
-26
Weeks
-16
Weeks
Start of
Season
Source: Blackburn, Time Based Competition, 1991

23. Two-Way Flows in Apparel ChainTwo-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
Information
Sharing
Cultural
Change From
Top Down
Cultural
Change From
Top Down
Information
Technology
Information
Technology
PartnershipsPartnerships Shorter
Manufacturing
Cycles
Shorter
Manufacturing
Cycles
Fast Cycle
Logistics
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–

37. Cooperative Multiobjective Decision
Support
for the Paper Industry
Source: S. Murthyet al., I TERFACES 29: 5 September–October 1999 (pp. 5–
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