Supply Chain

Management:
Optimizing your operations to
maximize speed and efficiency
 Case:
customer
An actual demand from a customer is 8
units, the retailer may then order 10 units
from the distributor (an extra 2 units are to
ensure that they don’t run out of the floor
stock). Then the distributor orders 20 units retailer
from the manufacturer; allowing them to distributor
buy in bulk so they have enough stock to
guarantee timely shipment of goods to
the retailer. The manufacturer then
receives the order from the distributor and
then orders from their supplier in bulk;
ordering 40 units to ensure economy of
scale in production to meet demand.
manufacturer
 Case: No of Orders
40

The actual demand

An actual demand from a customer is 8
units, the retailer may then order 10 units gets distorted
from the distributor (an extra 2 units are to going down the
ensure that they don’t run out of the floor supply chain
stock). Then the distributor orders 20 units 20

from the manufacturer; allowing them to

buy in bulk so they have enough stock to
guarantee timely shipment of goods to 8
10

the retailer. The manufacturer then

receives the order from the distributor and
then orders from their supplier in bulk; CUSTOMER RETAILER DISTRIBUTOR MANUFACTURER
ordering 40 units to ensure economy of
scale in production to meet demand.
BULLWHIP EFFECT
No of Orders
 No of Orders
40
▪ Inventory oscillations become
The actual demand
progressively larger looking
gets distorted
back through the supply
chain. going down the
supply chain
▪ Disorganization between each 20
supply link;
▪ Lack of communication
between supply link; 10
8
▪ Free return policies;
▪ Order batching;
CUSTOMER RETAILER DISTRIBUTOR MANUFACTURER
▪ Price variations; and
▪ Demand information. BULLWHIP EFFECT
No of Orders
 Logistics Management includes:
is the part of a
supply chain involved with
the and
of goods, services,
cash, and information.
◦ Management of inbound and
outbound transportation
◦ Materials handling
◦ Warehousing
◦ Inventory
◦ Order fulfillment and
distribution
◦ Third-party logistics
◦ Reverse logistics
 • movement within a facility;

is the part of a
supply chain involved with • overseeing incoming and
the and outgoing shipments of
of goods, services, goods and materials; and
cash, and information.
TRAFFIC MANAGEMENT
• information flow throughout
the supply chain.
 Shipping Alternatives:
Determine which shipping
alternative, one day or three
days, is best when holding cost
of an item is $1,000.00 per year,
the one day shipping is $40,
and three-day shipping cost is:
a. $35 b. $30

customer
 Shipping Alternatives:
𝑯 (𝒅)
Determine which shipping 𝑰𝒏𝒄𝒓𝒆𝒎𝒆𝒏𝒕𝒂𝒍 𝑯𝒐𝒍𝒅𝒊𝒏𝒈 𝑪𝒐𝒔𝒕 =
𝟑𝟔𝟓
alternative, one day or three where:
days, is best when holding cost
of an item is $1,000.00 per year, H = annual potential earning of
the one day shipping is $40, shipped item
and three-day shipping cost is: d = difference (in days) between
shipping alternatives
a. $35 b. $30

customer
 Shipping Alternatives:
$𝟏, 𝟎𝟎𝟎 (𝟑 − 𝟏 𝒅𝒂𝒚𝒔)
Determine which shipping 𝑰𝑯𝑪 =
𝟑𝟔𝟓 𝒅𝒂𝒚𝒔
alternative, one day or three
days, is best when holding cost $𝟐, 𝟎𝟎𝟎 − 𝒅𝒂𝒚𝒔
of an item is $1,000.00 per year, 𝑰𝑯𝑪 =
𝟑𝟔𝟓 𝒅𝒂𝒚𝒔
the one day shipping is $40,
and three-day shipping cost is: 𝑰𝑯𝑪 = $𝟓. 𝟒𝟖
a. $35 b. $30 Cost Saving is $5.00 ($40-
$35). Because the actual
savings of $5.00 is less than
the holding cost of $5.48,
use one-day shipping
customer alternative.
 Shipping Alternatives:
$𝟏, 𝟎𝟎𝟎 (𝟑 − 𝟏 𝒅𝒂𝒚𝒔)
Determine which shipping 𝑰𝑯𝑪 =
𝟑𝟔𝟓 𝒅𝒂𝒚𝒔
alternative, one day or three
days, is best when holding cost $𝟐, 𝟎𝟎𝟎 − 𝒅𝒂𝒚𝒔
of an item is $1,000.00 per year, 𝑰𝑯𝑪 =
𝟑𝟔𝟓 𝒅𝒂𝒚𝒔
the one day shipping is $40,
and three-day shipping cost is: 𝑰𝑯𝑪 = $𝟓. 𝟒𝟖
a. $35 b. $30 Cost Saving is $10.00 ($40-
$30). Because the actual
savings of $10.00 exceeds
the holding cost of $5.48,
use three-day shipping
customer alternative.
 Shipping Alternatives:
$𝟏𝟎 𝒙 𝟐, 𝟎𝟎𝟎 𝒙 (𝟓 − 𝟐 𝒅𝒂𝒚𝒔)
A manager must choose between two 𝑰𝑯𝑪 =
shipping alternatives: two-day or five- 𝟑𝟔𝟓 𝒅𝒂𝒚𝒔
day freight. Using five-day freight would $𝟐𝟎, 𝟎𝟎𝟎𝒙 𝟑 𝒅𝒂𝒚𝒔
cost $135 less than using two-day 𝑰𝑯𝑪 =
𝟑𝟔𝟓 𝒅𝒂𝒚𝒔
freight. The primary consideration is
holding cost, which is $10 per unit a
year. Two thousand items are to be 𝑰𝑯𝑪 = $𝟏𝟔𝟒. 𝟑𝟖
shipped. What alternative is to be used?
Cost Saving is $135.00. Because
the actual savings of $135.00 is
less than the holding cost of
$164.38, use two-day freight
customer alternative.
 Managing Returns:
• Defective products • Parts replaced in the field
• Recalled products • Items for recycling
• Obsolete products • Waste
• Unsold products returned
from retailers

Gatekeeping & Avoidance

customer
REVERSE LOGISTICS
1. Develop strategic objectives and
tactics
2. Integrate and coordinate activities
in the internal supply chain
3. Coordinate activities with suppliers
and customers
4. Coordinate planning and execution
across the supply chain
5. Form strategic partnerships
 Trust Effective
Communication

Performance Metrics Information

Velocity

Supply Event Management

Chain Capability
Visibility
 ▪ identify & prioritize critical business elements
Managing Risks: ▪ map the entire supply chain to determine
interdependencies
• Supply ▪ identify potential failure points along the chain
• Cost
• Demands
 Benefits & Problem
Potential
Benefits Possible Drawbacks
possible Improvement
drawbacks of Traffic congestion,
Large • Smaller, more frequent
potential inventories deliveries, cross-docking
Reduced holding cost increased ordering cost,
improvement to a increased supplier costs
Supply Chain Long lead • Delayed differentiation
May not be feasible
Quick response May need to absorb
times • Disintermediation
function
Large number Fewer parts to keep track
• Modular construction Less variety
of parts of, simpler ordering
Reduced cost, higher
quality, fewer internal
Cost, Quality • Outsourcing Loss of control
problems, remaining
operations more focused

• Shorter lead times, better

Better able to match
Variability forecasts, reduction in
supply and demand
Less variety
product/ service variety
END