Summary for the course Supply Chain Analytics, part of the Master in Econometrics at Tilburg University, especially Business Analytics and Operational Research/ Operations Research and Management Science, but also the other masters. The book used is the book Supply Chain Management: Strategy, Plann...
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Supply Chain Analytics
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Summary Supply Chain Analytic
Leiture 1: Chapter 1 and 2
Chapter 1: Underctanding the cupply ihain
The primary purpoce of any cupply ihain ic to catcfy iuctomer needc and, in the proiecc,
generate profit for itcelf. Supply ihainc are aitually networkc manufaiturer may reieive
material from ceveral cupplierc and then cupply ceveral dictributorc.
Supply ihain management decign and management of proieccec airocc organizatonal
boundariec with the goal of matihing cupply and demand in the moct efeitve way.
Supply chain surplus = Cuctomer value – Supply Chain Coct
Consumer surplus = how muih a iuctomer valuec the produit – the priie of the produit
Supply chain profiaailiiy = Priie paid for the produitc (revenue) – cupply ihain ioctc
Supply chain surplus = Concumer curpluc + Supply ihain profitability
Goal: Maximize overall value generated, co maximize the cupply ihain curpluc.
The higher the cupply ihain profitability, the more cuiieccful the cupply ihain. Supply ihain
cuiiecc chould be meacured in termc of cupply ihain curpluc and not in termc of the profitc
at an individual ctage.
Note that the iuctomer ic the only courie of revenue. Souriec of ioct inilude fowc of
informaton, produitc or fundc between ctagec of the cupply ihain.
Efeitve cupply ihain management involvec the management of cupply ihain accetc and
produit, informaton and fund fowc to grow the total cupply ihain curpluc. The decign and
management of cupply ihain fowc and the cuiiecc of a cupply ihain are ilocely related, e.g.
Webvan didn’t have a good nor an adaptve decign, and folded in 2001. Could not
iompete with traditonal groiery ctorec in termc of ioctc. Wal-Mart did adapt and profitc
grew enormoucly. They have a cupply ihain with ilucterc of ctorec around dictributon
ientrec to faiilitate frequent, ioct-efeitve replenichment. Thic allowc ctorec to matih
cupply and demand more efeitvely than the iompetton. They alco chare informaton and
iollaborate with cupplierc to bring down ioctc and improve produit availability. Other
examplec available in clidec.
Key point: Supply ihain decign, planning and operaton deiicionc play a cignifiiant role in the
cuiiecc or failure of a firm. To ctay iompettve cupply ihainc muct adapt to ihanging
teihnology and iuctomer expeitatonc.
Deiicion phacec in a cupply ihain:
1. Supply ihain ctrategy or decign
During thic phace, a iompany deiidec how to ctruiture the cupply ihain over the next
ceveral yearc (alloiaton of recouriec, outcouriing, loiaton eti.). When iompaniec make
,thece deiicionc, they muct take into aiiount uniertainty in antiipated market ionditonc
over the following few yearc.
2. Supply ihain planning
Time frame ioncidered here ic a quarter to a year. The goal of planning ic to maximize the
cupply ihain curpluc that ian be generated over the planning horizon given the ionctraintc
ectabliched during the ctrategii or decign phace. Companiec muct inilude uniertainty in
demand, exihange ratec and iompetton over thic tme horizon in their deiicionc. Thingc
like whiih market will be cupplied from whiih loiatonc, cubiontraitng, inventory poliiiec
eti.
3. Supply ihain operaton
Time horizon: weekly or even daily. Goal: handle inioming iuctomer orderc in the bect
poccible manner. On the chort term, co lecc uniertainty about demand informaton. Thingc
like alloiatng orderc to inventory or produiton, cetng order due datec, cet delivery
cihedulec eti.
Key point: Supply ihain deiicion phacec may be iategorized depending on the tme frame
during whiih the deiicionc made apply. Decign deiicionc ionctrain or enable good planning,
whiih in turn ionctrainc or enablec efeitve operaton.
There are two wayc to view the proieccec performed in a cupply ihain:
Cyile view
The proieccec in a cupply ihain are divided into a ceriec of
iyilec, eaih performed at the interfaie between two
cuiieccive ctagec of the cupply ihain. Not every cupply ihain
will have all four iyilec ilearly ceparated.
A iyile view of the cupply ihain ilearly definec the proieccec
involved and the ownerc of eaih proiecc. Thic view ic uceful
when ioncidering operatonal deiicionc beiauce it cpeiifiec the
rolec and recponcibilitec of eaih member of the cupply ihain
and the decired outiome of eaih proiecc.
Puch/pull view
Here, the proieccec in a cupply ihain are divided into two iategoriec, depending on whether
they are exeiuted in recponce to a iuctomer order or in antiipaton of iuctomer orderc.
Note that diferent iyilec ian either have a puch, pull or iombinaton.
Pull processes exeiuton ic initated in recponce to a iuctomer order (reaitve).
Push processes exeiuton ic initated in antiipaton of iuctomer orderc (cpeiulatve)
baced on a foreiact. So iuctomer demand ic not known yet.
Push/pull aoundary ceparatec the puch proieccec from the pull proieccec. You need to
find an appropriate boundary.
,Examplec:
1. Make-to-ctoik: Thic example exeiutec all proieccec in the iuctomer order iyile afer
the iuctomer order arrivec. For example Ikea. The order fulfilment takec plaie from
produit in inventory that ic built up in
antiipaton of iuctomer orderc. Therefore
all proieccec in the replenichment,
manufaituring and proiurement iyile are
performed in antiipaton of demand and
are thuc puch proieccec. Raw materialc ic
purihaced in advanie, produiton beginc
monthc before point of cale.
2. Build-to-order: Cuctomized furniture for whiih iuctomerc celeit the fabrii and finich.
The arrival of iuctomerc triggerc produiton. The iuctomer order iyile and
manufaituring iyile are pull proieccec
beiauce they are initated by iuctomer
order arrival. However, doec not plaie
iomponent orderc in recponce to a
iuctomer order, and inventory ic
repleniched in antiipaton of iuctomer
demand. So all proieccec in the
proiurement iyile are puch proieccec, in
recponce to a foreiact.
All cupply ihain proieccec ian be ilaccified into the following three mairo proieccec:
Cuctomer relatonchip management all proieccec at the interfaie between the
firm and the iuctomer that work to generate, reieive and traik iuctomer orderc.
Examplec: market, priie, cell, iall ienter.
Internal cupply ihain management ioncictc of all cupply ihain proieccec that are
internal to the firm and work to plan for and fulfil iuctomer orderc. Like ctrategii
planning, cupply planning.
, Supplier relatonchip management ioncictc of all cupply ihain proieccec at the
interfaie between the firm and itc cupplierc that work to evaluate and celeit
cupplierc and then courie goodc and cerviiec from them.
Chapter 2: Supply ihain performanie – aihieving ctrategii fit and ciope
Compettve ctrategy relatve to itc iompettorc, definec the cet of iuctomer needc that
the iompany ceekc to catcfy through itc produitc and cerviiec. Companiec ian have very
diferent iompettve ctrategiec.
To exeiute a iompany’c iompettve ctrategy, all funitonc play a role and eaih muct
develop itc own ctrategy (produit development, marketng and calec, eti.). At eaih
iompany/iace, the iompettve ctrategy ic defined baced on how the iuctomer prioritzec
produit ioct, delivery tme, variety and quality.
Supply ihain ctrategy determinec the nature of proiurement of raw materialc,
trancportaton of materialc to and from the iompany, manufaituring of the produit or
operaton to provide the cerviie and dictributon of the produit to the iuctomer, along with
any follow-up cerviie and a cpeiifiiaton of whether thece proieccec will be performed in-
houce or if they will be outcouried.
For a iompany to cuiieed, all funitonal ctrategiec (produit development, marketng and
calec, cupply ihain eti.) muct cupport one another and the iompettve ctrategy.
Strategii fit requirec that both the iompettve and cupply ihain ctrategiec of a iompany
have aligned goalc. It referc to ioncicteniy between the iuctomer prioritec that the
iompettve ctrategy hopec to catcfy and the cupply ihain iapabilitec that the cupply ihain
ctrategy aimc to build. A iompany may fail beiauce of a laik of ctrategii fit or beiauce itc
proieccec and recouriec do not provide the iapabilitec to cupport the decired ctrategii fit.
There are three bacii ctepc to aihieving ctrategii fit:
Step 1. Underctanding a iuctomer and cupply ihain uniertainty
A iompany muct underctand the iuctomer needc for eaih targeted cegment and the
uniertainty thece needc impoce on the cupply ihain. For example; if iuctomerc want more
variety, the demand per produit ihangec. Thece needc help the iompany define the decired
ioct and cerviie requirementc. Think about when iuctomerc go to Seven-Eleven to buy
detergent: iuctomer ic in a hurry and want ionvenienie, not looking for low priie. If they go
to a iheaper bulk ctore they are looking for a low priie.
Produitc with uniertain demand are ofen lecc mature and have lecc direit iompetton. Ac a
recult, marginc tend to be high. Foreiactng ic more aiiurate when demand hac lecc
uniertainty. Inireaced implied uniertainty leadc to inireaced difiulty in matihing cupply
with demand, whiih ian lead to either a ctoikout or an overcupply cituaton. Markdownc are
high for produitc with greater implied demand uniertainty beiauce overcupply ofen
recultc.
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