AD680: Global Supply Chains Lecture 1: Introduction to Global Supply Chains Boston University Metropolitan College Fall 2019 1 1 Topics Supply Chain Background Definitions Manufacturing vs. Service Supply Chains Operations Management Background Manufacturing vs. Service Operations Push vs. Pull, Buffering and Forecasting 2 2 Definitions: Supply Chain A supply chain is the entire system that a firm uses to provide goods and services to its customers: Firm’s suppliers (raw material, component, etc) Firm’s own operating systems (manufacturing processes or service providers) Storage systems (where materials and product are held) Distribution systems (trucking, shipping etc) Customers (may include retailers or consumers – any entity receiving output from a business process is called a customer.) 3 3 Definitions: Manufacturing vs. Service A first classification of a supply chain is either a manufacturing or service supply chain: Distinguishing characteristic: Tangible vs. intangible products Examples of service supply chains: Functions that provide services internally such as information technology, human resources, and marketing External customers include those found in healthcare (radiology), banking (call center). 4 4 Definitions: Members of a Supply Chain A supply chain consists of “members” which may be Departments, divisions Suppliers, vendors Partners, or Any other entity that plays a role in delivering products or services. These members are called “suppliers” A member of a manufacturing supply chain would generally be classified in a hierarchical structure called “tiers” Tier 1 supplier provides goods to the firm directly Tier 2 supplier provides goods to Tier 1 suppliers Tier 3 supplier provides goods to Tier 2 suppliers. 5 5 Definition: Outsourcing vs. Offshoring When a supplier is not owned by the firm, the work performed is said to be outsourced. Outsourced entities may physically be located within the firm itself: Food services (e.g., the firm’s cafeteria) Information technology (e.g., contract workers) Security (e.g, video system monitoring) When a facility is located in another country, the work performed is said to be offshored. 6 6 Definition: Global Supply Chains A global supply chain is one in which some work is done at an international location. Examples of global supply chains: Many call centers are outsourced and often offshored to low-wage countries. Even small firms operate outsourced (and offshored) supply chains -- a florist in the US may purchase tulips from a supplier in The Netherlands and roses from a supplier in Ecuador. 7 7 Suppliers (e.g., foil, cardboard) Raw Material Suppliers (e.g., multiple vendors) ABS plastic Logistics (land) Logistics (air) Packing (Mexico) Logistics (sea) Small Customer Large Customer (e.g., Wal-Mart) Consumers Plastics Molding (E. Europe) A Global (Manufacturing) Supply Chain Warehouse 8 8 ABS Plastic – t ...

1. AD680: Global Supply Chains
Lecture 1: Introduction to Global Supply Chains
Boston University
Metropolitan College
Fall 2019
1
1
Topics
Supply Chain Background
Definitions
Manufacturing vs. Service Supply Chains
Operations Management Background
Manufacturing vs. Service Operations
Push vs. Pull, Buffering and Forecasting
2
2
Definitions: Supply Chain
A supply chain is the entire system that a firm uses to provide
goods and services to its customers:
Firm’s suppliers (raw material, component, etc)
Firm’s own operating systems (manufacturing processes or
service providers)
Storage systems (where materials and product are held)
Distribution systems (trucking, shipping etc)

2. Customers (may include retailers or consumers – any entity
receiving output from a business process is called a customer.)
3
3
Definitions: Manufacturing vs. Service
A first classification of a supply chain is either a manufacturing
or service supply chain:
Distinguishing characteristic: Tangible vs. intangible products
Examples of service supply chains:
Functions that provide services internally such as information
technology, human resources, and marketing
External customers include those found in healthcare
(radiology), banking (call center).
4
4
Definitions: Members of a Supply Chain
A supply chain consists of “members” which may be
Departments, divisions
Suppliers, vendors
Partners, or
Any other entity that plays a role in delivering products or
services.
These members are called “suppliers”
A member of a manufacturing supply chain would generally be
classified in a hierarchical structure called “tiers”
Tier 1 supplier provides goods to the firm directly
Tier 2 supplier provides goods to Tier 1 suppliers
Tier 3 supplier provides goods to Tier 2 suppliers.

3. 5
5
Definition: Outsourcing vs. Offshoring
When a supplier is not owned by the firm, the work performed
is said to be outsourced.
Outsourced entities may physically be located within the firm
itself:
Food services (e.g., the firm’s cafeteria)
Information technology (e.g., contract workers)
Security (e.g, video system monitoring)
When a facility is located in another country, the work
performed is said to be offshored.
6
6
Definition: Global Supply Chains
A global supply chain is one in which some work is done at an
international location.
Examples of global supply chains:
Many call centers are outsourced and often offshored to low-
wage countries.
Even small firms operate outsourced (and offshored) supply
chains -- a florist in the US may purchase tulips from a
supplier in The Netherlands and roses from a supplier in
Ecuador.
7
7

4. Suppliers (e.g., foil, cardboard)
Raw Material
Suppliers (e.g., multiple vendors)
ABS plastic
Logistics (land)
Logistics (air)
Packing
(Mexico)
Logistics (sea)
Small Customer
Large Customer
(e.g., Wal-Mart)
Consumers
Plastics Molding
(E. Europe)

5. A Global (Manufacturing) Supply Chain
Warehouse
8
8
ABS Plastic – the raw material used to mold LEGO bricks.
A LEGO “die” – used to shape melted plastic into bricks (made
in Germany).
A LEGO mold – placed in an injection molding machine and
used to produce bricks in large quantities (mainly in Eastern
Europe).
LEGO headquarters in Billund, Denmark.
9
9

6. LEGO bricks produced in large batches.
LEGO bricks shipped to Mexico.
LEGO bricks stored prior to shipment to Mexico.
LEGO bricks moved to the packing facility.
10
10
LEGO bricks stored prior to packing.
Pre-pack packing into foil bags.
Packing into various sized boxes.
Pre-packs stored in warehouse.
11
11
LEGO sets stored in distribution center.
LEGO sets shipped to customers (i.e., retailers).
LEGO sets purchased by consumers.

7. LEGO sets transported to distribution facility.
12
12
Payers/Insurance
Companies
(Mid West)
Claims Processing
(Ireland)
Radiology
Services
(India)
Hospitals
(CA)
Pharmaceuticals (Canada)
Device Manufacturing
A Global Supply Chain (Healthcare)
13
13
Operations Management Background
Operations management vs. Supply Chain Management
Operations management (OM) is the operations related
activities that takes place within a single manufacturing or
service facility
Supply chain management is the operations and related
activities that concern the coordination of operations among
several facilities.
14

8. have traditionally been
14
OM Background: Manufacturing vs. Service
15CharacteristicsManufacturingServiceActivity Time Duration
Fixed VariableFlow Unit Tangible Intangible Role of
Information Supports Flow Is the Flow UnitProcess Flow
Within a DepartmentAcross DepartmentsQuality Definitions
Formal SpecificationsInformal & SubjectiveQuality
ControlInspection Plans Management Reviews Contact w/
Customers Minor MajorPriority SettingFormal
Plans/SchedulesNo Explicit Priority SettingMain Resource
Machinery Labor Buffering MechanismInventory or Capacity
Buffers Capacity BuffersCost StructurePrimarily Visible Mostly
Hidden
15
Outputs are tangible for manufacturing, but intangible for
services.
Activity times for services vary, but they are constant for
manufacturing.
16
*Source: Maleyeff, J. (2008), “Analysis of Service Processes
Across a Range of Enterprises,” Journal of Service Science and
Management, 2(1,) pp. 28-35.
16

9. OM Background: Push versus Pull
17
PUSH
Forecast

11. PULL
Almost all services are classified as pull systems.

12. Push systems are usually associated with cost efficient supply
chains – they tend to rely on inventory buffers to guard against
uncertainty.
Pull systems are usually associated with responsive supply
chains – they tend to rely on capacity buffers to guard against
uncertainty.
17
OM Background: Push vs. Pull
Push system characteristics:
Push systems seek cost efficiencies, so they often create large
batch sizes so that economies of scale are realized.
Push systems are more robust (they work well in the presence of
long lead times, poor quality or poor system reliability) so they
cannot highlight problems.
In the presence of high demand uncertainty, push systems can
result in both high overstock costs for some items and high
understock costs for others.
Pull system characteristics:
Operate with lower inventory levels and are less robust.
Works under high process reliability and short production lead
times
Can highlight problems so quality is improved.
18
18
Push–Pull (Hybrid) Supply Chain

13. Initial forecast & determination of inventory buffer by product
(large batches)
e.g., make
“safe” quantities
for each product
“Push” Production
Revised forecast & determination of capacity buffer by resource
(small batches)
e.g., weekly
replenishment
cycle
“Pull” Production
Jan
Dec
19
19
OM Background: Dealing with Uncertainty (Buffering)
“Buffering” is how operating systems minimize the impact of
demand and other uncertainties.
Buffering can be found in both push and pull systems; it is done
in one of two ways:
With INVENTORY, at a targeted level of product
manufacturing:
raw material (most desirable)

14. work-in-process (i.e., partially made products)
final products (least desirable)
With CAPACITY, for critical resources:
labor
equipment, facilities.
20
20
Background: Forecasting
21
A forecast can be based on judgements (i.e., by humans),
models (i.e., by mathematical equations), or collaboration (i.e.,
by organizations).
A forecasting model is chosen based on its ability to accurately
predict the past
and therefore less than effective when the future is not perfectly
aligned with the past.
To be most effective, those providing forecasts should be
integrated with those who use forecasts to make decisions,
but this sometimes is not the case, especially in large
organizations.
21
Uses of Forecasts
Long range facility planning (many years)
e.g., buildings, major equipment, location.
Medium range capacity planning (many months)
e.g., machines, labor, tools.

15. Short term scheduling (many weeks or days)
e.g., personnel, supplies.
The most obvious applications of forecasting are for products
that may be manufactured in global supply chains, but
forecasting is also important in services.
22
Forecasts: Characteristics
23
The forecast will be wrong,
A forecast is more accurate for larger groups,
Forecast accuracy is inversely proportional to the time horizon,
and
A forecast is useful only when a range of uncertainty is
provided.
Average Forecast Error ≈ 40%

19. 0
Forecast of Annual Sales (made Week 0)
Actual Annual Sales
Accuracy of Annual Forecast
(Made Week 0)
Each point represents one product.
24
Average Forecast Error ≈ 20%
Forecast of Annual Sales (made Week 13)
Actual Annual Sales
Accuracy of Annual Forecast
(Made Week 13)
Each point represents one product.

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AD680: Global Supply Chains
Lecture 2: Manufacturing & Service Supply Chain Strategy
Boston University
Metropolitan College
Fall 2019
1
1

26. Lecture 2: Topics
Supply Chain Planning Game
Supply Chain Design
New Realities in US-Based Supply Chain Management
Responsive vs Efficient Supply Chains
Key Concepts in Global Supply Chain Strategy
Supply Chain Strategy
Supply Chain Costs
Serving Multiple Markets
Supply Chain Complexity
Bullwhip Effect
2
Supply Chain Planning Game
Mimics the job of a supply chain planner
five products available for sale
product life cycle is one season
Orders placed with supplier twice during season
Initial order is based on preliminary sales forecast
replenishment order based on updated sales forecast
3
Production Details
Revenue is $30/unit sold.
Costs are materials and labor (with small “skeleton” labor crew
paid even if not used, and available overtime).
Materials cost per unit produced = $10.
Labor cost per unit produced:
Regular time = $5/unit
Overtime = $6 (producing an order more than 600 units requires

27. overtime)
Capacity limitations per production cycle:
skeleton labor crew capacity = 300 units (even if less than 300
units are ordered, producing an order of 300 units must be paid)
Unsold items bought by discounters at $3/unit.
4
5
Preliminary Forecast & Its Uncertainty
Forecast Error: The actual sales may go from 0 to twice of the
forecast.
For example, Product A is forecasted to sell 40 units during the
initial production cycle but the actual sales may range between
between 0 and 80 units during the initial production cycle and
between 0 and 400 units for the entire season.
Part 1: (a) Planner chooses initial production quantities for each
product.
(b) Demand is simulated (consistent with forecast).
(c) Sales, overstocks, and understocks are calculated.
(d) Forecast for the remainder of the year is generated, with an
improved uncertainty level.
6
Example:
Updated Forecast:

28. Average Forecast Error = 25% (uniformly distributed)
Product A
Remainder of
Year Demand Expectation
120
180
60
Actual Sales
7
Part 2: (a) Planner chooses replenishment production quantities
for each product.
(b) Demand is simulated (consistent with forecast).
(c) Sales, overstocks, and understocks are calculated.
(d) Operating profit is compared with the “best case” (if
demand were known with certainty).
Results show both profit achieved and max profit that would
have been achieved if demand was known with certainty (that
is, if perfect planning decisions were made).
9
Revenue & Costs:
For this example, “perfect” ordering decisions would have
resulted in an operating profit of $13,050.
The $8,970 operating profit is 69% of the maximum operating
profit that could have been realized.

29. Test your ability to create superior supply chain order
quantities.
10
Supply Chain Planning Exercise: Execution
Typically, max operating profit is not known within the
organization. Hence, supply chain management can require
“leaps of faith” that only become visible in the long run.
11
SUPPLY CHAIN
DESIGN CRITERIA
PRODUCT
TYPE
Cost efficiency
responsiveness
“commodity”
(functional)
“fashion”
(innovative)
match
mismatch
mismatch
match
Main Supply Chain Design Options
12
Supply Chain Design

30. 12
13
Supply Chain Design Product ClassificationForecast
UncertaintyBest SC DesignProduction Lead TimesOperations
ApproachMain BufferCommodityLowCost
EfficientLongPushInventoryInnovativeHighResponsiveShortPull
Capacity
13
14
Is hybrid supply chain design possible?
How about service supply chains? Is it possible to achieve a
cost effective service supply chain?
[Class Discussion]
14
Supply Chain Strategy
Long term approach a firm uses to match supply with demand in
the most effective way possible.
Marketing Strategy Goals:

31. Maintain competitive advantages and improve a firm’s
profitability by identifying new markets and finding ways to
increase market share in existing markets.
The integration of marketing and supply chain design ensures
that when a firm undertakes a fundamental change in any
element of its marketing (supply chain) strategy, a
corresponding supply chain (marketing) analysis would need to
be undertaken.
15
15
Supply Chain Costs
Highly visible
direct labor
direct materials
Moderately visible
transportation
capacity (labor, tooling, machines, supplies, facilities)
Primarily hidden
preparation (machine setup, order processing)
inventory carrying (also known as holding)
overstocks (obsolescence, scrap, discounting)
understocks (stockout, backlog, lost sales)
coordination (planning, tracking, expediting)
16
Preparation Cost
Setup costs for manufacturing
processing, expenses, labor, materials
Ordering cost for purchasing
processing, expenses, overhead, shipping

32. Generally, these costs are used to create a “standard unit cost”
for an item.
17
17
Inventory Carrying Cost
Storage costs (annually, 5%-10% of an item’s cost)
rent, depreciation, storage expenses, taxes, energy, handling,
recordkeeping
Risk costs (annually, 5%-10% of an item’s cost)
pilferage, insurance, damage
18
Overstock & Understock Cost
Overstock: discounts, discards, donations, scrap
Understock: backorders, lost sales opportunity, lost customer,
poor reputation
Often, these costs are monitored by calculating obsolete cost
Often, these costs are monitored by calculating service level
19
Coordination Cost
ERP (enterprise resource planning) systems are comprehensive
software packages that plan, coordinate, and track labor,
materials, and capital resources
often used to coordinate supply chain activities

33. most popular package is SAP
A recent survey of 63 companies with annual revenues ranging
from $12 million to $63 billion indicated that the average
implementation cost $10.6 million and took 23 months to
complete
source: www.entrepreneur.com
20
[Class Discussion]
21
Serving Multiple Markets
What are the challenges faced by companies that serve to
multiple markets?
How does serving multiple markets affect the supply chain
design?
21
Supply Chain Complexity
22
Uncertainties increase as the supply chain grows.
What are the uncertainties in a supply chain?
Global supply chain expansion also increases the uncertainties
that must be considered when designing a supply chain.
22
Supply Chain Complexity
23

34. 23
Bullwhip Effect
The “bullwhip” (also called whiplash) effect refers to
distortions in perceived demand that increase as decisions move
upstream (i.e., away from consumers).
The bullwhip effect is characterized by two elements:
distortion of perceived demand, and
propagation of demand variance as decisions go upstream.
As a result, inventory and backlogs dominate, even though
demand variation is not excessive.
24
The “beer game” has been used for many years to illustrate this
phenomenon.
Example: Variance Propagation
retailer
wholesaler
distributor
factory
0

35. 0
0
0
NET INVENTORY
TIME
25
downstream
upstream
25
Example: Quantity Discounts
A retailer experiences a short term increase in sales, but within
normal range of demand variation:
planners over-react when placing orders with wholesalers, and
combined with quantity discounts, these orders include an
additional increase to receive bulk a quantity discount.
The wholesaler sees a sudden increase in order quantities and
becomes concerned about future shortages:
planners increase order quantities from its distributors,
including additional quantities to take advantage of additional
bulk discounts.
And so on, as we proceed upstream in the supply chain.
26
26
Causes of Bullwhip Effect
Individual decision making

36. supply planners see a “threat” of shortages.
Types of incentives
generally based on service level goals.
Demand forecasting methods
over-reaction to short term demand variances.
Pricing strategies
order batching, price fluctuations, promotions.
Gaming of orders
especially when shortage potential exists.
27
Bullwhip Remedies
Coordination among supply chain members
e.g., real time information exchange.
Culture change
e.g., decrease pressure to always achieve lower price targets for
purchases.
Lead time reduction
mitigates effect of demand uncertainty by allowing forecasts to
be made within a shorter time frame.
28
Discussion Assignment
Discussion #1 – Article: What It Takes to Reshore
Manufacturing Successfully by Willy C. Shih, MIT Sloan
Management Review, Vol. 56, No. 1, Fall 2014
For this group discussion, read the article and provide insight
that will add value to the topics it addresses. For example, you
may agree or disagree with one or more points being made
regarding the benefits and challenges of reestablishing
manufacturing in the U.S. Or, you may wish to provide
additional information related to other topics addressed (e.g.,
more recent but highly relevant information, more relevant
examples, etc.). You should provide justification for your

37. arguments by detailing your experiences or those that have been
recently published (e.g., peer reviewed articles, magazine
stories, or newspaper accounts).
You are required to create one post (using 150-250 words) and
respond to the post of one other student (using 100-200 words).
Your main post is due by Day 5 at 11:59 PM, and your response
to another student’s post must be completed by Day 7 at 11:59
PM.
Grades will be based on the criteria described in the Discussion
Participation Grades table found in the syllabus.
29
Case Study: Amazon
Please see the questions on BB.
Your team should submit one Word file, with a title page
containing your names and the case study name.
Please submit a printed copy.
30
ProductInitial PeriodFull Year
A40200
B60300
C20100
D50250
E30150
Total2001000
Preliminary Forecast
ProductProductionDemandSalesOverstocksUnderstocks
A
B
C
D

38. E
Total00000
ProductProductionDemandSalesOverstocksUnderstocks
A
B
C
D
E
Total00000
Initial Production
Replenishment Production