DEFINITION SUPPLY CHAIN=> A sequence of operations and organizations involved in producing and

delivering goods and services. It is about Physical flow and information and cash flow. A supply chain
consists of all parties involved, directly or indirectly, in fulfilling a customer request.

 Raw material=> supplier => Manufacturing => Distribution=> retailer => customer

OBJECTIVE= MAXIMIZE VALUE. Value is the net profit, so Revenue – Cost, Price of the product – cost of the
product. To maximize the value and have an efficient process is necessary to take into consideration (Ex
DARTy= Retailer of electronic devices):

 Forecasting=> look at the trends, if the prevision are not correct= unsold
 Purchasing=> quality, price, quantity, contract, time
 Inventory management = problem= electronic devices
 Distribution=> costumer experiences, delivery time. How to manage distribution, lot of different shop or
selective and where.

DESIRE CAPABILITIES TO CREATE VALUE: PRICE, QUANTITY, RESPONSIVENESS, FLEXIBILITY

 Price
 quality, brand image
 responsiveness= time
 flexibility (variety).

No firm can ensure all these things at the same time. Some firms care about the price, some others about
quality depends on corporate strategy. What is the responsibility of Supply chain?? Based on the corporate
strategy the supply chain must find the perfect way to achieve strategic goal. COMPROMISE IS
INVEVITABLE= strategic trade off, these goals are conflictive.

Effective SCM ensures that products/services have the desired characteristics by managing the business
processes used to design, distribute and deliver them in a manner that they are: • Cost effective (price) •
Flexible (variety) • Responsive (time) • Of high quality

Ex WALMART One of the best companies, by choosing one of the 4 ways to satisfy costumer. It is
necessary to compromise, so Walmart to be so successful find the best solution to satisfy its costumer.

EFFICIENT FRONTIER

Trade off quality vs price. In the efficient frontier we

have all the firm that are efficient and have the best
combination of quality and price, firms that cannot be
overpass by other companies. If we are not to the
efficient frontier we are dealing to failure.

 Focusing on flexibility compromise

responsiveness=> customization +time
 Focus on responsiveness compromise flexibility.
 Focus on Time (responsiveness)= EXPENSIVE
 Focus on quality and design= EXPENSIVE (Hermes),
NOT RESPOSIVE (Restaurant Michelin guide)

-PRICE -QUALITY. + RESPONSIVENESS - FLEXIBILITY

SHOULDICE HOSPITAL= EXAMPLE OF A SPECILIZED COMPANY, THAT OFFER ONLY ONE SERVICE. No
flexibility= one unique operation, acting like a machine. Focusing strategy=> FOCUS= ECONOMY OF SCALES.
RESPONSIVENESS (SPEED)= SO ONLY ONE SERVICE AND LARGE NUMBER OF SERVICE PER DAY, BUT
STANDARDIZATION

LOW PRICE= FOCUS ON ECONOMIES OF SCALE, SO MINOR QUALITY BUT THEY ACHIEVE CUSTOMER
SATISFACTION It is an example of SPECIALIZATION= ONLY ONE PRODUCT/SERVICE STANDARDIZED

 Specialization / focus: Only hernia operations AND only “easy” hernias (carefully screened)
 Scale economies (1000 hernia operations/doctor-year versus 10 in general hospital)
 Optimized process (continuously improve one standardized process; focus provides more opportunities
for learning)
 Predictable demand (scheduled operations only; allows for high capacity utilization of expensive
operating room)
 Low resource needs (nurses etc.) due to patient involvement in process (eating, hygiene,…)
 New technique

CONS:

 Market: • Targets only fraction of market

 Limits growth Technology: Overlook new type of technology due to focus and become obsolete
 Organizational: • Personal development • Hiring and motivating staff

So, if a company wants to focus on responsiveness it needs to offer one standardized product or service and
try to use economies of scale. So, offering large quantities at a low price reducing quality to keep costs
down. It works like a chain, an assembly line. This kind of organization are perfect to take costs under
control and offer one perfect product or service, but it is risky in an unstable market, because if the
environment changes you need to adapt and specialized organization; If conditions change, a specialist is
almost always far less adaptable than a generalist. They are more vulnerable. What Else Makes SCM
Difficult? CHALLENGES

 COMPETITION
 DIVERSITY OF PRODUCT RANGES
 NEW CHALLENGES sustainability, digital transformation, social responsibility
 NEW TECHOLOGIES Reduction of product life cycle, so problem about inventory and trying to find
the best way to satisfy costumer needs.

LESSON 2= We need different process for different type of product to achieve different goals: price, quality
resp, flexi..

DIFFERENT TYPE OF PRODUCTS:

 VERY HIGH VARIABILITY, LOW VOLUME one of a kind  PROJECT

 HIGH VARIABILITY BUT VERY LOW VOLUME ROLS ROYCE
JOB SHOP
 MEDIUM VOLUME, MEDIUM VARIABILITY JEANS BATCH
 HIGHT VOLUME, STANDARD PROD NO VARIAB RENAULT
ASSEMBLY LINE
 HIGH VOLUME, ZERO VARIABILITY= COMMODITIES OIL
CONTINOUS FLOW

Based on this characteristic more is the variety more we need

complex process; more is the quantity more we need standardized process. PROCESS

 FLOW SHOP In a flow shop, the manufacturing process follows a fixed linear structure. That means
that all orders need to be manufactured in the same way on the same machines. Focus on the process,
 we use the same machines to produce different products. Focus on the product. Each product has its
own process.
 PREDICTABLE DEMAND
 LOW PRODUCT VARIETY
 SIMPLE AND STAND PROCESS
 HIGH VOLUME (importance of stocking
 LOW PRICE, ECONOMIES OF SCALE
 RESPONSIVENESS

 JOB SHOP in a job shop, the routing of each job can be individual. That means that all orders
(potentially) need to be manufactured differently on the same machines or a certain part of the same
machines.
 NOT PREDICTABLE DEMAND= volatility
 CUSTOMIZED PRODUCT
 LOW VOLUME
 HIGH VARIETY
 COMPLEX PROCES
 FLEXIBILITY

IS IT THE CORRECT PROCESS?? We have to analyse it and it can depend also on the product lifecycle.
Because at the beginning it is necessary to have customization and variety to find the best combination,
after when the demand is stable it is possible to standardized and have flow shop.

PROCESS A process is a collection of tasks connected by a flow of goods and information that transforms
inputs to outputs. (also for services)

1. PROCESS FLOW DIAGRAM= the main goal is to recognise the bottlenecks through some steps
We can have PARALLEL LINE OR
ASSEMPBLY LINE
 DETERMINE THE INPUTS AND OUTPUTS
 DERMINE THE TASKS AND THEIR SEQUENCE
 DERMINE WHICH RESOURCES ARE USED FOR
EACH TASK
 DETERMINE WHERE INVENTORY IS KEPT IN THE PROCESS

2. BOTTLENECK ANALYSIS It is necessary to find the bottle neck or critical path because represent of all
those activities that—if delayed—would lead to a delay in the overall completion time of the project.
1) CICLE TIME=>THE AVARAGE TIME BETWEEN THE COMPLETITION OF SUCCESSIVE UNITS
2) FLOW TIME= The time it takes a flow unit to get through the process. THE LEGHT OF TIME A UNIT
SPENSA AT A GIVEN STAGE/ PROCESS (if we considered one step CT= FT)
3) FLOW RATE => the rate at which the process is delivering output, MINIMUM (DEMAND; CAPACITY)
UTILIZATION = FLOW RATE / CAPACITY
4) CAPACITY =>RATE WITH WHICH UNITS FLOW THROUGH THE PROCESS
1/ CT
3. IMPROVEMENT DECISIONS
NB=How Long Does It Take to Produce a Certain Amount of Supply?

RECEIPE TO SOLVE PROBLEM:

1) FIND THE CAPACITY = 1/CT

2) FIND BOTTLE NECK= stage with minimum capacity
 3) MINIMUM FLOW TIME
4) FLOW RATE= if run at capacity, 1 bunch every 2 hours,…

HOW WE EVALUATE THE PROCESS?? THE MEASURE OF PORCESS PERFORMANCE

1) FLOW TIME=> time to do products, how much time we make them wait? Time to serve customers
2) THROUGHPUT RATE=> consistent of the actual demand. Output that we can have as a company
3) INVENTORY=> product not sale, so no money holding costs. Tied up money
We want it as little as possible

THE CONNECTION BETWEEN ALL THIS 3 (LITTLE’S LAW)

 Provides a relationship between the inventory, throughput rate and flow time of a process
 Always holds (on average)
 Can be applied to any part of the process
 Provides insight into how to improve system responsiveness:
 Allows one to identify what causes inventory / flow time to grow
 Allows one to identify the levers on which improvement efforts should be focused

What are the root causes of having INVENTORY?? Why people wait??

 INBALANCE BETWEEN SUPPLY AND DEMAND=> random nature of arrivals (VAR IN THE DEMAND)
 VARIABILITY OF THE SERVICE=> you don’t know what type of service you can offer (VAR IN SERVICE T)

VARIABILITY IS THE MAIN PROBLEM=> Because we cannot predict exactly the number of customers, the
time to spend to serve them and the type of service (Hospital emergency). We can calculate it with
standard deviation.
Nb

 AIT = 1/l  AIT AVARAGE TIME OF ARRIVE

 T= AVARAGE TIME TO PRODUCE OR SERVE h/unit
 M= Average unit in 1 hour= Units/1 hour
 POISSON DISTRIBUTION CV=1 (l’altra sarà uguale a 0)= Assume arrival are poisson= CVa=1 Cvs=0

HOW TO REDUCE WAINTING??

1) SPEED UP SERVICE TIME

Ex=> short menu, fast eating, uncomfortable seats
2) ADD CAPACITY
IT IS USEFUL ONLY IF THE UTILIZATION IS HIGH (because it is expensive)
3) REDUCE VARIABILITY
4) RESOURCE POOLING=> we use pooled resources. Resource pooling in the supply chain refers to the
practice of consolidating resources, such as inventory, production capacity, or transportation, to
reduce variability and improve overall efficiency. Wq is reduced .
 Centralized Inventory Management. This allows for better visibility and control over inventory levels,
reducing the risk of stockouts or excess inventory.
 Shared Production Capacity: Utilize shared production facilities or contract manufacturing to pool
production capacity.
 Collaborative Forecasting and Planning
 Flexible Transportation Networks
 Buffer Inventory and Safety Stock: Maintain buffer inventory and safety stock at strategic points in the
supply chain to absorb variability and reduce the impact of demand fluctuations or supply disruptions.
By pooling safety stock across multiple locations, you can achieve economies of scale and minimize the
overall inventory investment.

EXAMPLE= BENIHANIA

1) Reduce the variability of arrival=> Buffer space, space in which customers wait
2) Reduce coefficient of variation of service=> Fast ordering, fast eating
INVENTORY MANAGEMENT= THE GOAL IS TO ORDER THE RIGHT QUANTITY, AT THE RIGHT PLACE AT THE
TIGH TIME WHILE MINIMIZING THE OVERALL OPERATING COSTS.

 How much to order?

 How often to order?

PRO AND CONS

1) DEAL VARIABILITY
 To meet predictable variability in demand (in summer the demand is higher so during the winter we
produce more to satisfy the future demand)
 Provide a safeguard for unpredictable variability in demand. (add a safety stock)
 Deal with variability in production or service operation. (deal with problem in production like
malfunction of a machine, buffer inventory to avoid stop of production)
2) ECONOMIES OF SCALE
 Caused by fixed cost=> the transportation cost is independent from the quantity, so it could be cheaper
to order more product to reduce the impact of fixed costs
 Caused by fixed set up time=> we cannot move from a product to another, so we produce product in
advance when we don’t need them

INVENTORY MODEL EOQ MODEL

 Fixed demand, known and continuous.

 Lead time= instantaneous (time I order= time I receive it)= LEAD TIME IS ZERO
 Review time= continuous
 Illimited capacity
 No excess of demand
 Infinite planning horizon
 One items

COST COMPONENT (EOQ MODEL)

 PURCHASE COST= PRICE PER UNIT

 ORDERING COST = PER ORDER REGARDLESS OF THE ORDER SIZE
 HOLDING COST= PER UNIT PER UNIT TIME (+ storage cost)

There is a trade off between +q +holding cost but – ordering cost= we need to find the perfect balance.

NB

 Deviating from Q don’t change a lot the

costs= so if we have a discount we can
deviate from Q* without a huge change in
costs.
 Q is the perfect balance between ordering
cost and holding cost (intersection point)
THE PROBLEM OF EOQ MODEL CONSTANT, KNOW AND CONTINOUS DEMAND= UNREALISTIC

NB= NEGLI ESERCIZI CHIEDE ANCHE

NO EOQ MODELIf the LEAD TIME IS LONG VARIABILITY leads to excess of inventory or shortage
because it is difficult to exactly predict the demand (in particular in the fashion industry).

We cannot predict the exact demand= SO HOW WE CAN EXTIMATE IT IN THE BEST WAY? Probability
distribution= discrete or continuous (normal distribution calculating the probability D>< n)

 DEMAND < ORDER= excess of stock. Value loss due to discount sales when actual demand is lower then
expected. UNSOLD
 DEMAND > ORDER= Stockouts. Value loss due to missed sales when actual demand is higher than
expected. UNSATIFIED CUSTOMERS
They are both bad, so we have to find the best Q NEWSVENDON PROBLEM= find the best solution for the
trade-off between shortage and excess (have unsold product or miss a customer). We have to choose
depend on the costs of having too many and too few= making the decision less costly.

 COST OF OVERAGE= costs of buy more than the demand

 COST OF UNDERAGE= costs of buy less than the demand

MARGINAL ANALYSIS=> SOLVE THE TRADE OFF for an additional unit what are the costs and the benefits.

CAN WE BUY 88 PAPERS??

 Yes because the probability to not sold them is the probability to sold 87 units. The probability to sell
them is 1- the prob of not sell them
 COST OF PROD NOT SOLD= 0.5 (overage cost) x 0.03
COST OF TOO MANY PROD= 1 (underage cost) x 0.97
 We can continue buy products until cost is less than the benefit, so the optimal number of resources is
90, because at 91 ben<costs

GENERALIZED ANALYSIS

C0= cost overage, Cu =cost underage

WE CAN FIND THE RECEIPE IN CASE OF DISCRET DEMAND

When we stop ordering?? We stop ordering at Q where the probability that the demand is lower than
orders is greater than cu/cu+co.

WHAT IS THE SERVICE LEVEL?? It rappresent th

 Q IS THE SMALL QUANTITY AT WITH THE SERVICE LEVEL IS HIGHER THAN CU/CU+C0
SO ANALYTICALLY
1) FIND SL*= cu/cu + c0
2) Find the cumulative probabilities
3) Q* is the smallest quantity at which the service level exceeds SL* (optimal sev level)

WE CAN FIND THE RECEIPE IN CASE OF NORMAL DEMAND DISTRIBUTION

With the normal demand Q* is the quantity at which SL= CU/CU+C0

1) FIND THE SL* = CU/CU+C0

2) We can find z using the tab searching for the z number corresponding
to Cu/cu+c0

3) NB= Zs is the SAFETY STOCK

REVENUE MANAGEMENT

 Understand how to balance underage and overage costs in the context of capacity and revenue
management. INVENTORY matching supply to demand. REVENUE MAN, how demand can be
adjusted to match supply

1 hotels and 1 airline what they have in common? Dynamic price, personalization, different segments, third
parties involved, different WTP, capacity management, seasonality fluctuation, competition, perishability.
The price of airline depends on the demand, substitutability, the remaining time, willingness to pay, time of
the flight, personalize, remaining capacity
 PRICE BASED RM=> A strategy that adjusts prices based on product availability, customer demand, and
remaining duration of the sales period.
 CAPACITY BASED RM=> A strategy for allocating limited resources to different customer segments at
different price points. How many seats will be available for each price. (backet)

LOW FAIR VS HIGH FARE= how to balance overprotecting cost and under protecting cost

 PROTECTION LEVEL=> number of room reserved for high fare clients

 BOOKING LIMIT= CAPACITY – Q => the room that we are willing to sell to low fair costumer because we
are reserved Q room for high fare.
 IF WE WANT TO UNDERSTAND PROTECTION AND BOOKING LIMIT

OPTIMAL SERVICE LEVEL probability that the high fare demand is less than or equal to Q
OVERBOOKING= SOLUTION TO NO SHOW PROBLEM= CAPACITY + Y

In many service settings, customers are allowed to make reservations and then either are allowed to cancel
their reservations with relatively short notice, or just fail to show up to receive their service. The problem is
that we can have number of no shows greater then number or overbooked reservation or the contrary and
in this case how you satisfy your costumer?

NUMER OF OVERBOOK SEATS= extra capacity that we want to allow to book (because we know that
sometimes clients cancelled).