COMMERCE 2OC3 Lecture Notes - Exponential Distribution, Car Wash, Random Variable
5 Jun 2018
School
Department
Course
Professor
SUPPLY CHAIN MANAGEMENT & ANALYTICS
Supply chain management is the management of activities that procure materials and services, transform them in to
intermediate and final products, and deliver them in the distribution system
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Supply chain analytics are set of quantitative tools used to manage, consisting of data analytics used to understand
SC patterns and performance optimization
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Supply chain (SC) is a coordinated network of people, organizations, resources that move a product from suppliers to
consumers.
Supply Chain Strategy
Many suppliers strategy based on large supplier base that allows them to compete against one another - no desire
to create long-term relationships
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Few suppliers strategy based on small supplier base and creating long-term relationships, reducing procurement
costs but increasing the cost of changing partners, and captive risk
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Low cost strategy
Response strategy
Differentiation strategy
Supplier goals
Demand at lowest cost
Quick response to changing demand
to minimize stockouts
Share market research, jointly
develop products
Decisions based on
Cost
Options that provide speed, capacity,
flexibility
Options that enhance product
development
Process
characteristics
High average utilization
Invest in excess capacity and flexible
processes
Use modular processes that lend
themselves to mass customization
Inventory
characteristics
Minimize inventory to
decreases costs
Develop responsive system with
buffer to ensure supply
Minimize inventory to avoid
obsolescence
Lead-time
characteristics
Shorten as long as costs
do not increase
Invest aggressively to reduce
production lead-time
Invest aggressively to reduce
development lead-time
Product-design
characteristics
Maximize performance
and minimize cost
Use product designs that lead to low
setup time and rapid production
Use modular design to postpone
product differentiation
Vertical integration forward and backward and joint ventures
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Keiretsu networks consisting of company coalitions with share holding between members
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Virtual companies provide services on-demand
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Profit sharing where wholesaler and retailer set "integrated optimal retail price" and split profits
○
Revenue sharing where wholesaler and retailer set integrated optimal price and split revenue
○
Supply chain coordination contracts through profit sharing, revenue sharing, buy-back
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Collaboration in Supply Chain
Reducing risk leads to mitigated disruption in: processes (material, quality, logistics), controls (management,
communications, designs, logistics scheduling), environment (duties, tariffs, security, natural disaster, currency
fluctuations, political issues)
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Opportunity for personal, SC standard, and environmental ethic violations
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Reducing SC costs increases profit by the same margin that a greater proportion of additional sales does
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Supply Chain Risk, Ethics, and Sustainability
Local optimization sees greater fluctuations between optimal demand and supply - slight upturns and downturns are
overcompensated for
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Incentives push merchandise into SC for sales that have not yet occurred
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Large lots reduce unit costs but don't reflect actual sales and increase holding costs
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Managing the Supply Chain
Pull data is accurate sales data that initiates transactions to pull products through the SC, generated by sharing
point-of-sale (POS) data and computer-assisted ordering (CAO)
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Lot size reduction occurs with aggressive management that emphasizes economical shipments, discounts based on
volume rather than size, and reducing cost of ordering
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Single-stage control of replication fixes responsibility on a member of the SC for monitoring inventory for the retailer
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Opportunities in an Integrated Supply Chain
Operations Management
February 15, 2018
2:30 PM
Operations Management Page 1
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Single-stage control of replication fixes responsibility on a member of the SC for monitoring inventory for the retailer
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Vendor-managed inventory uses local suppliers to maintain inventory for a manufacturer or retailer and delivers to
the buyer's using department
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Collaborative planning, forecasting, and replenishment (CPFR) is a joint effort of members in a SC to share
information to reduce costs
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Blanket orders are contracts/long-term commitments to a supplier for items to be delivered against short-term
releases to ship - these are not authorizations to release shipment
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Standardization
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Postponement withholds modification or customization for as long as possible, minimizing internal variety and
maximizing external variety
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Drop shipping/special packaging ships products from the supplier directly to the customer
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Pass-through facilities are distribution centers that expedite shipment by holding merchandise and delivering from
shipping hubs
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Channel assembly is an extension of a pass-through facility that postpones final assembly so the distribution channel
can assemble it
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E-procurement uses the internet to facilitate purchasing, integrating the Sc and reducing costs
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Provides use of advanced shipping notices (ASN) delivered from vendors to purchasers
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Electronic data interchange (EDI) is a standardized data-transmittal format for computerized communications
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Catalogues, auctions, requests for quotes (RFQ) and real-time inventory tracking simplify the SC and reduce time
used in traditional methods
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Role of the Internet
Vendor Selection
Vendor evaluation involves finding potential vendors and determining their likelihood of being good suppliers
1.
Vendor development includes training, engineering and production help, and procedures for information transfer
2.
Cost-based price models require suppliers to open their books to purchasers with contract prices based on
time, materials, or fixed cost with an escalation clause to accommodate change in vendor labour and material
costs
○
Market-based price models base price on published, auctioned, or index prices
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Competitive bidding used when suppliers are unwilling to discuss costs
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Negotiations are approaches taken by SC personnel to develop contractual supplier relationships
3.
This considers strategic fit, competence, delivery, and quality. A three-stage process is used:
Probabilistic Model
Risks to supplier disruption from natural causes makes it important to assess the impact of disruption events to decide the
number of suppliers.
Probability of
total disruption
= number of suppliers
= probability of super event (all suppliers)
= probability of unique event (1 supplier)
= financial loss if all suppliers disruption/total disruption
= marginal cost of managing supplier
Variability in demand (increase or decrease) amplified moving upstream in supply chain
○
1990s - Procter and Gamble (P&G) examined demand data and determined that despite uncertainty, it was usually
stable at retailers, but retailer orders exhibited more variability, and distributor orders were even more variable
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Can result from order batching, forecasting errors, lack of communication that can be solved with information
sharing, vendor managed inventory
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Behavioural causes demonstrated in increased need for safety and security lead to worse performance than risk-
takers
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Bullwhip Effect
Bullwhip effect
(at a link in supply
chain)
Present if
Smoothening/dampening effect if
No amplification if
Logistics Management
Outsourcing logistics can decrease inventory investment and cost, while improving reliability and speed
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Logistics management is an approach that seeks operational efficiency through integration of all material acquisition,
movement, and storage.
800/900 KFC locations in UK closed in 02/2018 due to failure to deliver chicken by DHL
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A single centralized warehouse and a serious accident on M6 motorway led to collapse of distribution system
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Case study: KFC Chicken Shortage
Operations Management Page 2
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A single centralized warehouse and a serious accident on M6 motorway led to collapse of distribution system
exacerbated by improper vehicle temperatures
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Amazon has warehouses within 20 miles of 50% of the US population
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Fulfillment centres have random item placement that is "picked" by robots, "packed using a SLAM line - scan,
label, apply manifest", and "packaged" by workers
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Cast Study: Amazon
Trucking is the most-used method due to its flexibility but demonstrates a capacity utilization of only 50%
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Railroads are made more efficient with double-decker containerization, can ship more with less traffic and have
lower emissions, but do not aid with JIT SCs
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Airfreight is the fastest mode that focuses on emergency supplies, electronics, and perishable goods
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Waterways are the oldest means, and have high volume capacity with lost cost, though they have high warehousing
fees at ports and are slow
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Pipelines transport mostly energy and chemical products
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Modes of Distribution
Applications of Cross-Docking
Cross-docking is the practice of unloading materials from an incoming vehicle and loading them directly into outbound
vehicles. In a hub and spoke distribution, a hub distributes outwards like the spokes of a wheel. In consolidations, trucks A
and B split portions of their materials so that some remains in each truck, and some is switched. In deconsolidation, truck
AB splits into trucks A and B.
Performance Metrics
Supply-chain performance metrics focus on procurement and vendor performance
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Assets committed to inventory can be measure by:
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More than 500 metrics have been established by the Supply Chain Council (SCC). The Supply-Chain Operations Reference
Model (SCOR) is composed of five parts: plan, source, make, deliver, and return.
Percentage invested in inventory
Inventory turnover
Weeks of supply
Outsourcing as a Supply Chain Strategy
Core competencies indicate where a comparative advantage lies in outsourcing
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The theory of comparative advantage suggest that countries benefit from exporting specialized products and
services where they have a relative advantage, and importing those where there is a relative disadvantage
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Backsourcing describes the return of activity to the original firm
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Nearshoring involves choosing an outsource provide in the home or neighbouring country
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Electronic Industry Code of Conduct (EICC) sets environmental, labour, and auditing standards to ensure compliance
with outsourcing providers
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Outsourcing is the procuring from external sources services/products normally part of an organization. Offshoring is the
moving of a business process to a foreign country, but retaining control of it. It is an example of a make-or-buy decision.
Selecting Outsource Providers
Factor-weighting
weights = 1
•
Choose highest final sum
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Define evaluation criteria and
provide a score, then assign a weight
based on their relevance.
Cost savings derived from reduced labour costs, downsizing, or reengineering firm performance
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Outside expertise creates a broader skillset not in-house while outside technology can replace legacy systems
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Quality may decline (150 American companies found a decrease in score on the American Consumer Satisfaction
Index) and long-term changes may hinder corporate growth in the long-run
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Transportation costs may rise substantially
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Political backlash resulting from job loss, loss of managerial control, future competition
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Benefits and Risks to Outsourcing
Operations Management Page 3
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