QT Cung NG

DESIGNING
Lecture DISTRIBUTION
DESIGNINING THE NETWORKS AND
3 DISTRIBUTION APPLICATIONS TO
NETWORK ONLINE SALES
BAJJonker Supply Chain Management: strategy, planning, and operation 56
DESIGNING DISTRIBUTION NETWORKS DESIGNING DISTRIBUTION NETWORKS

Introduction Example importance of network
• Distribution impacts for 35% of the
revenue. Wal-Mart and Seven-
• What do we express when we use
Eleven have build their success of
term “distribution”?
their entire business around
outstanding distribution, design and
• Are all products distributed in the operation.
same way?
• What distribution patterns do you • Dell choose to distribute directly to

recognize? customers in stead of HP who sells
via wholesale/retail.
BAJJonker Supply Chain Management: strategy, planning, and operation 57 BAJJonker Supply Chain Management: strategy, planning, and operation 58
The role of distribution Factors influencing distribution networks
• Distribution refers to the steps taken to move and • Important service factors:
store a product from the supplier stage to a customer – Response time: high response time -> more facilities
stage. – Product variety: number of different products
– Product availability: level of products available in stock
• Factors influencing distribution networks along two – Customer experience: easy of placing orders
dimensions: – Time to market: time to bring a new product to the
– Customer needs are met market
– Cost of meeting customer needs – Order visibility: ability to track and trace orders
– Returnability: easy of returning the product by
customer

Distribution networks and costs Customer expectations
• Total logistics costs are the sum inventory, • Customer do not always expect the highest level of
transportation and facility costs: performance, it depends:
Total logistics costs

Costs
Facilities costs
Inventories costs
Transportation costs
Barnes & Noble: The Amazon.com: The
customer want to pickup a customer is willing to wait
Number of facilities book direct up in a book for a delivery of a book
shop (some or more days)
Design options Design options
• Key decisions related to design options are: • 6 typical distribution networks:
– Will product be delivered to the customer location or – Manufacturer storage with direct shipping
picked up from a pre arrange site – Manufacturer storage with direct shipping and in-
– Will product flow through an intermediary (or transit merge
intermediary location) – Distributor storage with carrier delivery
– Distributor storage with last-mile delivery
– Manufacturer/distributor storage with customer pickup
– Retail storage with customer pickup
• These networks will be discussed in the next slides.
E-SUPPLY CHAIN CONCEPTS E-SUPPLY CHAIN CONCEPTS

Distribution networks #1 Distribution networks #2
• Manufacturer storage with direct shipping • In-transit merge network
Manufacturers Factories
Retailer Retailer In-transit merge by carrier
Customer Customer
Product flow Product flow
Information flow Information flow
• Distributor storage with carrier delivery • Distributor storage with last-mile delivery
Factories Factories
Warehouse storage by Distributor/retailer

Distributor/retailer warehouse
Customer Customer

• Manufacturer/distributor warehouse storage with • Retail storage with customer pickup
consumer pickup
Factories Factories
Retailer Cross-dock DC Distributors
Pickup sites Retailers
Online sales and distribution network Online sales and distribution network
• Impact of online sales to customer: • Impact of online sales on cost
– Response time to customers – Inventory: can be lower because of centralizing,
– Product variety depending on business
– Product availability – Facilities: can be lower by centralizing
– Customer experience – Transportation: can be higher
– Faster time to market – Information: can be shared
– Order visibility
– Returnability
– Direct sales to customer
– Flexible pricing, product portfolio and promotions
– …

Dell: selling online computer hardware Amazon: selling online books
• Impact of online sales on costs in • Impact of online sales on costs in
the PC industry: the book industry:
– Customer: online order -> longer – Customer: online order -> longer
response time response time
– Inventory costs: lower, because of – Inventory costs: lower, because of
aggregation of stocks aggregation of stocks
– Facility costs: growing because of – Facility costs: lower because no
growing business finished products warehouses
– Transportation costs: higher – Transportation costs: higher
because of outbound costs because of outbound costs
– Information costs: (slightly) higher – Information costs: (slightly) higher
because of build-to-order model. because of webshop model.
Peapod: selling online groceries Netflix: renting online DVD’s
• Impact of online sales on costs in • Impact of online renting on costs in
the grocery industry: the movie rent industry:
– Customer: convenient because no – Customer: convenient because can
shop visit rent online, receive in 24 hours
– Inventory costs: lower, because of – Inventory costs: lower, because of
aggregation of stocks aggregation of stocks
– Facility costs: lower because no – Facility costs: lower because no
retail outlets retail outlets
– Transportation costs: significant – Transportation costs: significant
higher because of outbound costs higher because of outbound costs
– Information costs: (slightly) higher – Information costs: higher because
because of ict needs. of ICT needs.
DESIGNING DISTRIBUTION NETWORKS

Distribution networks in practice
• Distribution networks in practice
– The ownership structure of the distribution network
can have as big an impact at the type of distribution
network NETWORK DESIGN
– It is important to have adaptable distribution networks
– Product price, commoditization, and critically affect the
IN THE SUPPLY
type of distribution system CHAIN
– Integrate the internet with the existing physical
network
NETWORK DESIGN IN SUPPLY CHAIN NETWORK DESIGN IN SUPPLY CHAIN
Introduction Introduction
• Toyota has plants located world
• What do we mean when using the wide in each market that it serves.
term “network design”?
• What is the relevance of network

design?
• How can you decide on a certain • Before 1997 plants only had
location (for plant, warehouse) capacity to serve “own” market.
After 1997 plants can serve also
other markets.

The role of network design The role of network design
• Supply chain network design decisions are classified • Factors influencing network design decisions
as follows: – Strategic factors
– Facility role: What role? What process at facility? – Technological factors
– Facility location: Where should it be located? – Macroeconomic factors (tariffs, tax incentives,
– Capacity allocation: How much capacity? exchange rate, freight & fuel costs)
– Market and supply allocation: What markets should it – Political factors
serve? – Infrastructure factors
– Competitive factors
– Customer response time and local presence
– Logistics and facility costs
Framework for network design solutions Phase I
Competitive strategy PHASE I • Objective:
Supply chain Global competition
Internal constraints strategy – Define a broad supply chain design
Production technologies
PHASE II
Tariffs and tax incentives
• Activities:
Competitive environment Regional Regional demand – Clear definition of strategy
facility (size, growth, homogeneity, local specifications)
configuration
Political, exchange rate,
– Define the necessary capabilities
Production technologies
demand risk – Forecast the evolution of global competition
Competitive strategy
PHASE III
Available infrastructure – Define constraints on capital and growth
Desirable sites
PHASE IV
Competitive strategy Location Logistical costs
choices

Phase II Phase III
• Objective: • Objective:
– Identify regions where facilities will be located – Select a set of desirable potential sites within each
region
• Activities:
– Forecast demand per country or region • Activities:
– Identify if economies of scale can play a role – Selection of sites based on desired production strategy,
– Identify demand risk, exchange rate risk, political risk, including:
• Hard infrastructure requirements like: suppliers, transportation,
regional tariffs, tax incentives, im/export restrictions
communication, warehousing
– Identify competitors do we need to be nearby or far • Soft infrastructure requirements like: skilled workforce,
away workforce turnover, community receptivity to
business/industry.
Phase IV Gravity locations model
• Objective:
100,100
– Determine precise location
• Activities:
– Design the network (maximizing total profits) Location C = X, Y
C1 = 30, 90 Sales = 200
C2 = 50, 10 Sales = 100
C3 = 90, 70 Sales = 100
Ideal location is:

X = (30+50+90) / 3 = 57
Customer location Y = (90+10+70) / 3 = 57
Supplier location
Central warehouse
Lecture DESIGNING
DESIGNINING THE GLOBAL SUPPLY
4 SUPPLY CHAIN CHAIN NETWORKS
NETWORK

DESIGNING SUPPLY CHAIN NETWORKS DESIGNING SUPPLY CHAIN NETWORKS
Introduction Examples
• P&G sells for 35% of their global
sales in developing markets like
Africa.
• What is “globalization”?
• Foxcon (China) has become a giant

• How do organisations make use of
producing in low-cost countries and
globalization and it opportunities?
shipping overseas.
• What are pro’s and con’s.

• Honda was able to react to sales
drop better because of flexible
plants.

Impact of globalization Offshoring
• Globalization offers companies opportunities to grow • Offshoring is moving (a part of) production to a
revenues and decrease costs low-cost country.
• Globalization also increase risk: • Advantages:

– Natural disasters – Lowering total costs
– Shortage of skilled workers
– Geopolitical uncertainty • Disadvantages:
– Terrorist infiltration of cargo – Increasing transport costs
– Volatility of fuel prices – Increase of length of total supply chain
– … – Increasing risk
The offshoring decision Risk factors
Category Risk drivers
• Offshoring decision is impacted by:
Disruptions Natural disaster, war, terrorism, labor disputes,
– Supplier price supplier bankruptcy
– Terms Delays High capacity, inflexibility, poor quality
– Delivery costs System risk Information system breakdown, system
integration/networked
– Inventory and warehousing Forecast risk Inaccurate forecast, seasonality, short life cycle
– Cost of quality Intellectual property risk Vertical integration of supply chain, global
outsourcing
– Customer duties
Receivables risk Exchange rate, price of input, single source,
– Cost of risk
Procurement risk Number of customers, financial strength of customers
– Exchange rate trends Inventory risk Rate of product obsolete, inventory holding costs,
product value, demand/supply uncertainty
Capacity risk Cost of capacity, capacity flexibility

Managing risk Different flexible configurations
Risk migration strategy Tailored strategies
Increase capacity Focus on low-cost, decentralized capacity for
predictable demand
Get redundant suppliers More redundant supply for high
Increase responsiveness Favor costs over responsiveness
Increase inventory Decentralize inventory

Dedicated network Fully flexible network
Increase flexibility
Pool or aggregate demand

Increase source capacity
Chained network one long chain Chained network two short chains
DEMAND FORECASTING
Introduction
DEMAND • Why is forecasting an important

activity for organisations?
FORECASTING IN A
• Is forecasting only interesting for
SUPPLY CHAIN sales? Why yes why no?
NETWORK • Forecasting is “guessing” about the

future. How can improve the quality
of thus “guessing”?
DEMAND FORECASTING DEMAND FORECASTING

Examples Demand forecast
• Home depot orders base paints • Demand forecast (predicting the demand) is the
and dyes in anticipation on basis for supply chain planning for both push and
customers orders. pull.
• Coca-Cola decides on the timing of • Push: Every activity is done in anticipation of the
promotions based on the demand customer.
forecast for quarter. – Production, Transportation, etc
• Milk and paper towels are products

• Pull: Every thing is done as a reaction to a sale.
with stable demand and usually
easy to forecast. – Available capacity, available inventory
DEMAND FORECAST DEMAND FORECAST
Characteristic Components of forecast
• Forecast characteristics: • Components of forecasts and forecasting:
– Forecasts are always inaccurate – Past demand
– Long-term forecasts are less accurate then short-term – Lead time of product replenishment
– Aggregate forecasts are usually more accurate than – Planned advertising or market efforts
disaggregate – Planned price discounts
– How further upstream the supply (away from – State of the economy
customer) the greater the distortion – Actions that competitors have taken
DEMAND FORECAST DEMAND FORECASTING

Methods Basic approach
• Methods of forecasting: • Basic approach to demand forecasting
– Qualitative: rely on human judgment are primarily – Understand the objective of forecasting
subjective – Integrate demand planning and forecasting throughout
– Time series: based on historical demand with the the supply chain
assumption that past history is a good indicator for – Identify the major factors the influence the demand
future demand. forecast
– Causal: assuming that the forecast is related with – Forecast the appropriate level of aggregation
certain factors in the environment like economy, – Establish performance and errors measures for the
interest rate forecasts
– Simulation: imitation of consumer choices (could be a
combination of time-series and casual methods)
Time series Measures of forecast error
• Time series has different approaches: • Forecast errors are valuable information for two
– Static methods: Future demand can be predicted reasons:
based on historical data – To check if current forecast method is (still) accurate
• Estimating level and trend – Because of its relationship to contingency planning.
• Estimating seasonal factors
– Adaptive forecasting: Future demand is based on
historical data plus new observed data
• Moving average
• Simple exponential smoothing
• Trend- and seasonal corrected exponential smoothing

Selecting the best smoothing constant Role of IT
• Data is corrected with a “smoothening constant” • Forecasting – Demand planning forecasting – uses
which has a direct impact on the sensitivity: many data and might require IT-support:
– Moving average
– Trend-corrected exponential smoothing • Advantages of using IT:
– Trend and seasonality- corrected exponential – Availability of commercial demand planning modules
smoothing including variety of forecasting algorithms
– Including possibilities to included detailed levels (f.e.:
product level, customer level)
– Including possibility for “what-if” analysis
Risk management Collaborative forecasting
• Forecasting includes risk related to misallocation of: • Collaboration in forecasting often creates a much
– Sourcing more accurate forecast.
– Facilities
– Inventory • Important aspects:
– Transportation – Share only data that truly provide value
– Pricing – Be sure to distinguish between demand and sales
– Information management (historical sales is not necessarily the same as
historical demand)
Lecture AGGREGATE
PLANNING AND
PLANNING IN A
5 COORDINATION
IN THE SUPPLY SUPPLY CHAIN
CHAIN

AGGREGATE PLANNING AGGREGATE PLANNING
Introduction Example
• Paper is seasonal product, in spring
• Why is it interesting to look from a
more paper is consumed because
supply chain perspective to the
of printing the annual year reports.
planning?
Running a mill is costly. To
optimize revenues the industry
• What solutions do organisations have uses aggregate planning to
to upscale (or down scale) capacity? determine production and
inventory levels.
• What is the role of ICT related to the
planning issue?

Introduction Objectives
• Aggregate planning is the process where a company • Main objectives of aggregate planning are to identify
determines planned levels of: following operational parameters:
– Capacity – Production rate –units to produce per time unit
– Production – Workforce
– Sub-contraction – Overtime
– Inventory – Machine capacity level
– Stock-outs – Sub contracting
– Pricing – Backlog
– Inventory on hand
AGGREGATE PLANIING AGGREGATE PLANNING
The planning challenge Aggregate strategies
• Forecast • Aggregate planning is focusing on three costs:

• Production costs – Capacity (regular, overtime, subcontracting)
• Labour Aggregate • Production quantities
• Subcontracting Planning from: – Inventory
• Changing capacity • Regular time
• Labor/machine hours – Backlog
• Overtime
required per unit • Subcontracting
• Inventory holding costs • Inventory held
• Stock-out costs • Backlog/Stock-outs • Three strategies:
• Constraints • Workforce hired/laid off
• Limits on overtime • Machine capacity
– Chase strategy – using capacity as the lever
• Limits on layoffs increase/decrease – Flexibility strategy – using utilization as the lever
• Limits on capital
• Limits on stock-outs – Level strategy – using inventory as the lever
• Constraints from
suppliers Profitability

Leveling and chasing demand Constraints
Level production Chase demand
demand
• Workforce, hiring and layoff constraints
Production units
Production units
• Capacity constraints
• Inventory balance constraints
• Overtime limit constraints
Time Time
Stock units
Stock units
Time Time
Building a master production schedule The role of IT
• Master Production Schedule (MPS) identifies all • The most early IT supply chain products were
batches which needs to be produced in each period. aggregate planning modules
• Example: • Advantages of using IT:

Family Set-up Batch Prod. Prod. Numb. Set-up Prod. – Can go beyond linear programming to solve the
time size time quant. set-ups time time problem
A 8 50 5.60 256 5 40 1,433.6
– Possibility to combine with production planning and
B 6 150 3.00 640 4 24 1,920.0
C 8 100 3.80 512 5 40 1,945.6
inventory planning
D 10 50 4.80 256 5 50 1,228.8
E 6 100 3.60 512 5 30 1.843.2
F 5 75 4.30 384 5 25 1,651,2
AGGREGATE PLANNING
Implementing aggregate planning
• Today aggregate planning modules are part of ERP
packages.
SALES AND
• Important aspects related to implementation:
– Think beyond the enterprise, focus on supply chain OPERATIONS
–
–
Make plans flexible, forecasts are never accurate
Rerun planning when new data emerges
PLANNING
– Use aggregate planning as capacity increases
SALES AND OPERATIONS PLANNING SALES AND OPERATIONS PLANNING
Introduction Example
• Red Tomato Tools is selling garden
• What can you tell about demand and products which is seasonal,
demand patterns? concentrated in spring.
• How does demand connect sales to • Two strategies for managing

operations and the supply chain? inventory:
– Producing only during season,
leaving plant capacity unused
• What solutions do organizations have
to influence the capacity and/or – Producing flat during year absorbing
demand? sales fluctuation via stock

Predictable variability Managing supply
• Predictable variability is change in demand that can • A firm can manage supply by following factors:
be forecasted. – Production capacity
– Inventory
• Objective: balance supply with demand maximizing
profitability by:
Customer
– Manage supply using capacity, inventory,
subcontracting Inventory
– Manage demand using short-term price discounts and Capacity
promotions
Managing capacity Managing inventory
• Firms can manage capacity by using a combination • Firms can manage capacity by using a combination
of: of:
– Time flexibility from workforce – Using common components across multiple products
– Use of seasonal workforce – Build inventory of high-demand or predictable-demand
– Use of subcontracting products
– Use of dual facilities
– Design product flexibility in the process

Managing demand Factors influencing timing of promotion
• Supply chains can manage demand by using a • Four key factors influencing promotion:
combination of: – Impact of the promotion on demand
– Pricing – Cost of holding inventory
– Promotion – Cost of changing the capacity level
– Product margins
• Note: Promotion decisions are mostly made by
retailers without taking into account the impact on • The increase in demand comes from:
the rest of the supply chain. – Market growth
– Stealing share
– Forward buying
SALES AND OPERATIONS PLANNING
Implementing sales & operations planning
• Important aspects related to implementation:
– Coordinate planning across enterprises in the supply
chain Lecture
– Take predictable variability into account when making
strategic decisions COORDINATION
– Design S&OP to understand and manage the drivers of
demand usage 6 AND ECONOMIES
– Ensure that S&OP process modifies plans as the reality
of forecasts changes
OF SCALE
COORDINATION IN A SUPPLY CHAIN

Introduction
• What could be the importance of

communication in the supply chain?
COORDINATION IN
• What could be barriers in bringing
A SUPPLY CHAIN together the different players in a
supply chain?
• How can you coordinate the supply

chain?
COORDINATION IN A SUPPLY CHAIN COORDINATION IN A SUPPLY CHAIN
Coordination in the supply chain Coordination in the supply chain
• Supply coordination requires each stage of the supply • Lack of coordination has following effects on:
chain to share information! – Manufacturing costs: higher, build up excess capacity
– Inventory costs: higher, build-up excess stocks
• Lack of coordination results in bullwhip effect: – Transportation costs: higher, fluctuations result in surplus
– Labor cost logistics: higher, fluctuations result in surplus
downstream
upstream
– Product availability: lower, resulting in lost sales
– Replenishment lead time: longer, build-up excess capacity
Bullwhip effect: Small variations downstream can result in – Relationship across the supply chain: have negative impact
big variations upstream! because of increasing costs and decreasing service

Obstacles to coordination Obstacles to coordination & information
• Major obstacles in coordination are: • Incentives obstacles:
– Incentive obstacles – Local optimization within functions or stages
– Information obstacles – Sales force incentives
– Operational obstacles
– Pricing obstacles • Information processing obstacles:
– Behavioral obstacles – Forecasting based on orders and not on customer
demand
Will be explained in next slides… – Lack of information sharing
Obstacles to operations & pricing Obstacles to behavior
• Operational obstacles: • Behavioral obstacles:
– Ordering in large lots – Each stage sees only own stage and not the impact on
– Large replenishment lead times the rest
– Rationing and shortage gaming – Different stages reacting to current local situation
rather than trying to identify the root cause
– Based on local view different stages blame each other
• Pricing obstacles:
becoming enemies
– Lot size-based quantity discounts
– Not learning from own actions resulting in a vicious
– Price fluctuations circle
– Lack of trust among supply chain partners resulting in
less/no information is shared

How to achieve coordination How to achieve coordination
• Managers can take following actions to improve the • Aligning of goals:
coordination in the supply chain: – Aligning goals across the supply chain
– Aligning of goals and incentives – Aligning incentives across functions
– Improving information visibility and accuracy – Pricing for coordination
– Improving operational performance – Altering sales force incentives from sell-in to sell-
– Designing pricing strategies to stabilize orders through
– Building strategic partnerships and trust
• Improving information visibility and accuracy
– Sharing point-of-sale data
– Implementing collaborative forecasting and planning
– Designing single-stage control of replenishment
How to achieve coordination Continuous replenishment
• Improving operational performance • Continuous replenishment programs (CRP): the
– Reducing replenishment lead-time and lot sizes wholesaler continuously replenishes the retailer
– Ration based on past sales and sharing information to based on POS data.
limit gaming
• In most instances CRP systems are driven by actual
• Designing pricing strategies to stabilize orders with drawls of inventory from retailer warehouse
– Moving from lot size-based to volume based quantity (instead of POS-data).
discounts
– Stabilize pricing
• Building strategic partners and trust

Vendor managed inventories Collaborating in the supply chain
• Vendor managed inventory (VMI), the manufacturer • Collaborative planning, forecasting and replenishment
or supplier is responsible for all decisions regarding (CPFR) is where two parties have synchronized their
product inventories at the retailer. data and established standards for exchanging
information.
• Control of replenishment moves to supplier.
Inventory is owned by supplier till this is sold by • Sellers and buyers may collaborate on:
retailer. – Strategy and planning
– Demand and forecasting management
– Execution
– Analysis
Four scenarios of collaboration Successful organisation of CPFR
• Four common scenarios for CPFR deployment are: • Organization and technology requirements for
– Retail event collaboration successful CPFR:
– DC replenishment collaboration – Cross functional, customer specific teams
– Store replenishment collaboration – Including sales, demand planning and logistics
– Collaborative assortment planning
• Risks and hurdles:

– Relationships with competitors of partners
– Necessity to follow IT scale/technology of partner
– Difference in organizational culture
COORDINATION IN A SUPPLY CHAIN

Achieving coordination in practice
• Achieving coordination in practice:
– Quantify the bull-whip effect
–
–
Get top management commitment for coordination
Devote resources to coordination
ECONOMIES OF
– Focus on communication with other stages SCALE: CYCLE
– Try to achieve coordination in the entire supply chain
network INVENTORY
– Use technology to improve connectivity in the supply
chain
– Share the benefits of coordination quitably
MANAGING ECONOMIES OF SCALE MANAGING ECONOMIES OF SCALE
Introduction The role of cycle inventory
• Cycle inventory exists because producing or
• What do we want to make use of purchasing in larger lots create economies of scale
economies of scale? and lowering costs.
• What is the effect to inventory in the • A lot or batch size is the quantity that a stage of a
supply chain? supply chain can produce or purchase at a time
• What are the advantages and • Cycle inventory is the average inventory in a supply
disadvantages? chain

Introduction Cycle inventory related costs
• Inventory profile of jeans at Jean-Mart • Costs related to inventory ordering and holding:
Inventory
– Inventory holding costs
• Cost of capital
Q
D • Obsolesce (or spoilage) costs
Cycle Q • Handling costs
inventory 2 • Occupancy costs
• Miscellaneous costs
– Ordering costs
Time • Buyer time
• Transportation costs
Cycle inventory = Q / 2 • Receiving costs
Average flow time = Q / 2 * D 1.000 / (2 * 100) = 5 • Other costs
Economies of scale Aggregating replenishment orders
• When planning a purchase or a production the firm • Aggregating replenishment across products, retailers
wants to optimize for the costs or suppliers in a single order allows for a reduction in
lot size for individual products because fixed order
• Illustration: Economic Order Quantity: costs and transportation costs are spread across
multiple products, retailers, or suppliers.
Total costs
Holding costs
Ordering costs

Impact of quantity discounts Managing multi-echelon cycle inventory
• Manufacturers of commodity products (price set by • A multi-echelon supply chain has multiple stages and
market) with large fixed costs per lot can use lot size- possible many players at each stage.
based quantity discounts to maximize supply chain
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
profits.
• Lot size based discounts, however, increase cycle

inventory in the supply chain.
Managing multi-echelon cycle inventory Managing multi-echelon cycle inventory
• Unsynchronized multilevel cycle inventory. • Synchronized multilevel cycle inventory.
Q Q
Average stock = Q/2

Average stock = Q/10
Q Time Q Time
Average stock = Q/2 Average stock = Q/2
Time Time
2Q 2Q
Average stock = Q/2 + Q/2

Average stock = Q/10 + Q/2
Time Time
MANAGING ECONOMIES OF SCALE

Managing multi-echelon cycle inventory
• Synchronized replenishment cycle inventory
Distributor is replenished
Lecture
every 3 weeks
MANAGING
7a INVENTORIES IN
Retailer is replenished
every 1 week
every 2 weeks
THE SUPPLY
CHAIN (i)
every 3 weeks
Replenish- Cross From

ment docking inventory
MANAGING UNCERTAINTY
Introduction
MANAGING • What is maybe the biggest hinder in

managing the supply chain?
UNCERTAINTY IN
• What are the risks if you do not
THE SUPPLY CHAIN manage the supply chain well?
• How can you cover for this risk?
MANAGING UNCERTAINTY MANAGING UNCERTAINTY

Safety inventory Example importance of availability
• Safety inventory is inventory carried to satisfy
demand that exceeds the amount forecasted for a
given period.
Inventory
Cycle
inventory
Safety
inventory
Time
Trade-off of safety stock Safety inventory and demand uncertainty
• A supply chain manager has to balance: • Key questions for planning safety stock:
– Pro: Increase of product availability – What is the appropriate level of product availability
– Con: cost of holding (safety) inventory – How much safety inventory is needed
– What actions can be taken to improve product
• Higher pressure on product availability, because: availability while reducing safety inventory?
– Internet increases the ease of searching
– Increased variability and customization • Demand has a systematic and a random component
– Shorter product life cycle • Goal is of forecasting is:
– Predict the systematic component
• High pressure on reduced inventory because: – Estimate the random component
– Need to reduce costs

Measuring product availability Replenishment policies
• Product availability can be measured by: • Replenishment policies is the process of regarding
– Product fill rate (fr): is the fraction of product demand when to order and how much to order.
that is satisfied from product in inventory
– Order fill rate: is the fraction of orders that are filled • Two main approaches:
from available inventory
– Continuous review: Inventory is continuously checked
– Cycle service level (CSL): is the fraction of and when at Reorder point (ROP) a lot size Q is
replenishment cycles that end with all the customer ordered.
demand being met.
– Periodic review: Inventory is checked at a regular
interval and the order is placed to raise the inventory
to a certain threshold.
Impact uncertainty on safety stock Impact uncertainty on safety stock
• The safety stock level is influenced by: • This could lead to the following mathematical
– Uncertainty in lead-time (of supplier, production) outcomes:
– Uncertainty in demand Fill rate Safety inventory Costs
– Number of independent stocking locations 97.5% 67 +
98.0% 183 ++
Total safety inventory

98.5% 321 ++++
99.0% 499 +++++++++
99.5% 767 +++++++++++++++
• How to balance or to improve?

Number of independent
Stocking locations

Impact uncertainty on safety stock The role of IT in inventory management
• The impact on safety stock can be improved by: • IT can support inventory management by:
– Reducing the lead-time – Improved visibility:
– Reducing the uncertainty in demand • To see how much is available
• To see where this is available (store, warehouse, other stores)
– Reducing the number of independent stocking
locations – Better coordination of the supply chain:
• Using RFID systems
• Integrating different stages (collaborative planning, etc)
• It is important to recognize that information

accuracy important (garbage in -> garbage out!)
Lecture DETERMINING THE
MANAGING
OPTIMAL PRODUCT
7b INVENTORIES IN
THE SUPPLY AVAILABILITY
CHAIN (ii)
OPTIMAL PRODUCT AVAILABILITY OPTIMAL PRODUCT AVAILABILITY

Introduction Introduction
• Product availability or Customer service level is one
of the primary measures of a supply chain
• Why is optimal product availability?
responsiveness.
Why is this relevant?
• Optimal customer service level is finding a balance

• What is balanced to find optimal
between:
product availability?
– Costs of overstocking a product
service
– Costs of understocking a product costs
• What factors can help assuring a
good product availability?
Examples of Service levels Continuously stocked items
• If a power plants runs out of • When an item which is continuously stocked is out of
electricity is costly but also risk for stock two possible scenarios:
society – All demand that arises when out-of-stock is backlogged
and filled later: for example by offering a rain check.
• When Nintendo launched the Wii – All demand that arises when out-of-stock is lost.
they missed $1.3 billion in sales
because of bad sales forecasts • Based on the possibilities of following one of the
scenario’s the safety level can be adjusted
• Walmart runs out of stock several
times a day for several products
without to much consequences.

One time orders Improving supply chain profitability
• When an item which is a one-time item (seasonal- • The service level is a good starting point to optimize
item) is out of stock two possible scenarios: the supply chain profitability
– Discount based on quantities ordered (during life time)
– Discount at the end of life cycle • Two managerial levers:
– Increasing the salvage value
• Selling to outlet stores, or other markets (summer/winter)
– Decreasing the margin lost from a stock-out
• Backup sourcing, substitute products,
• But also:
– Reducing supply chain uncertainty
Reducing demand uncertainty Product availability for multiple products
• Demand uncertainty can be reduced by: • When ordering multiple products and being
– Improved forecasting: The more accurate the forecast confronted with (supply) limitations the procedure is
is the lower the risk on over/understocking advised:
– Quick response: The shorter the lead-time the lower – Compute the expected marginal contribution
pressure is on accurate forecasting – Decide for the products with the highest marginal
– Postponement: The later product differentiation is contribution
realized the more flexibility the shorter the lead-time
the lower the need accurate forecasting
– Tailored sourcing: Using a combination of two
suppliers. One with low flexibility producing the certain
part and one high flexibility the uncertain part.
Lecture TRANSPORTATION
TRANSPORTATION
IN A SUPPLY
8 AND SOURING IN
THE SUPPLY CHAIN
CHAIN

SUPPLY CHAIN TRANSPORTATION SUPPLY CHAIN TRANSPORTATION
Introduction Example of importance of transportation
• IKEA uses a global network,
inexpensive sources, transportation in
• What modes of transportation do you dense volumes and big stores.
know? What are the advantages and
disadvantages?
• Seven-Eleven uses a responsive
transportation system replenishing
• What (standard) solutions are you stores several time a day.
aware in setting up transportation
networks? • Netflix operates a movie rental
business without stores but using
transportation for distribution.

Transportation basics Air
• Air carriers offer a fast and fairly
expensive mode of transportation.
• Ideal for small high-value or time

Shipper = party Carrier = party that Customer = party
that requires the moves/transports that will receive the sensitive items in situations where
movement the products product fast transportation over a large
distance are needed.
Basic transportation modals
• Challenge is to maximize the

revenue per flight.
Air Carrier/truck Rail Water Pipeline
Package carriers Truck
• Package carriers are • Truck transport a significant part
transportation companies like (70%, US, 2002) of the goods.
FedEx, UPS
• Loads can be full truck loads (TL)
• They transport packages from 0 to or less than a truck load (LTL)
100 kg
• Flexible door-to-door shipment,
• They have often worldwide short distance, more expensive
responsive networks, relative than rail.
expensive but fast.
• The challenge is to balance
outbound and inbound.

Rail Water
• Rail transport a smaller part (10%, • Water transportation can be used
US, 2002) of the goods. for inland and ocean transport.
• Ideal for transporting large, heavy, • Global ocean carriers are Maersk,
high-dense products over longer Evergreen, Hanjin Shipping.
distance to “fixed” locations (one of
two parties need to be near to rail • Ideal for carrying large loads at
station). low(est) costs, especially where
oversea is needed. Disadvantage is
• Challenge is to have good the slow speed
utilization of the locomotives and
crew.
Pipeline Intermodal
• Pipeline is suitable for continuous • Intermodal is transportation with
transport of fluids and gas . use of more than one mode of
transportation.
• First an investment in the pipeline
is needed. • For example:
– Container Ship <> Truck
• Pipelines are typical 80-90% – Trailer Truck <> Train
utilized.

• Three basic questions to be considered when • Direct shipment network to single locations
designing a network between two stages:
Suppliers Buyer locations
– Should transportation be direct?
– Should the intermediate site stock product or serve as
cross-docking location?
– Should each delivery route supply a single destination
or multiple destinations (milk-run)?
• Direct shipment with milk runs • All shipments via intermediate DC with storage
Suppliers Buyer locations Suppliers Buyer locations Suppliers Buyer locations
DC

• All shipments via intermediate TP with cross-docking • Shipping via DC using milk runs
Suppliers Buyer locations Suppliers Buyer locations
Transit Point DC
Cross-docking
Design options Transportation and inventory cost
• Tailored network • Designing the transportation network also involves:
Suppliers Buyer locations
– Choice of transportation mode
– Inventory aggregation
TP/DC
Storage/
cross docking

Trade-offs selection transportation mode Trade-off cost and responsiveness
• Impact of different transportation modes on • Transportation costs are closely linked to the degree
inventories, response time and cost in the supply of responsiveness the supply chain aims to provide:
chain:
Mode Cycle Safety In-transit Transport Transport Mode Aggregate Disaggregate

inventory inventory costs time costs
Transport costs Low High
Rail 5 5 5 2 5
Demand uncertainty High Low
TL 4 4 4 3 3
Holding costs High Low
LTL 3 3 3 4 4
Customer order size Large small
Package 1 1 1 6 1
Air 2 2 2 5 2
Water 6 6 6 1 6
Tailored transportation The role of IT in transportation
• Tailored transportation is the use of different • Because of the complexity IT
transportation networks and modes based on support is a good match:
customer and products characteristics: – Vehicle load optimization
– Tailored transportation by customer density and – Route planning
distance – Position determination (GPS)
– Tailored transportation by size of customer – Digital markets balancing capacity
– Tailored transportation by product demand and value and demand

Risk management Making transport decision in practice
• Three main types of risk:
– The risk that a shipment is delayed • Align transportation strategy with competitive
• Think about congestions, break-downs, strategy
cross-border activities -> more near to
customer • Consider both in-house and outsourced
– The risk that a shipment does not transportation
reach its destination • Use technology to improve transportation
• Think about natural disasters, performance
terrorism, accidents -> alternative
routes • Design flexibility into the transportation network
– The risk of hazardous material
• Think about: harmful materials like
chloride and radio-active
SOURCING DECISSIONS
Introduction
• What is the relevance of sourcing for

SOURCING organisations and specially supply
chain management?
DECISSION IN A
SUPPLY CHAIN • How would you select suppliers?
• What type of supply chain suppliers

are you aware?
SOURCING DECISSIONS SOURCING DECISSIONS

Examples of importance of sourcing The role of sourcing
• Dell first was directly selling to • Outsourcing is if the firm hires an outside firm to
customers. Now Dell is outsourcing perform an operation rather than executing the
retail to Walmart and others. operation itself.
• In the same period Apple is • Key questions:

insourcing retail with selling via own – Will third party increase the supply chain surplus
Apple Stores. relative to performing the activity in house?
– How much of the increase in surplus does the firm get
• Procter & Gamble (P&G) has never to keep
attempted to sell its products directly – To what extent do risks grow upon outsourcing?
to customers.
The role of procurement, (out)sourcing Supplier selection
• Procurement (purchasing) is the process of • Supplier selection process:
acquiring raw materials, components and services
from suppliers to execute their operations. Supplier scoring
Supplier
selection and Design
Sourcing
Procurement planning and
and assessment contract collaboration
analysis
negotiation
• Sourcing is the entire set of business processes

required to purchase goods and services.
• Supplier scoring and assessment
• Supplier selection and contract negotiation
• Outsourcing is that a supply chain function is
performed by a third party. • Design collaboration
• Procurement
• Sourcing planning and analysis

In-house or outsource In-house or outsource
• How do third parties increase the Supply Chain • (continued)
Surplus: – Receivables aggregation
– Capacity aggregation – Relationship aggregation
– Inventory aggregation – Lower costs and higher quality
– Transportation aggregation by transportation
intermediaries
– Transportation aggregation by storage intermediaries
– Warehouse aggregation
– Procurement aggregation
– Information aggregation
– …
Risks of using a third party Third-party logistics (3PL)
• The following risks must be evaluated: • Third-party logistics (3PL) providers perform one
– The process is broken or more of the logistics activities (related to product
– Underestimation of the cost of coordination flow, information and funds).
– Reduced customer/supplier contact – Transportation: inbound, outbound, truck, rail, …
– Loss of internal capability and growth in third party – Warehousing: storage, facilities management, …
power – Information technology: provide ICT systems, …
– Leakage of sensitive data and information – Reverse logistics: handle reverse flows, …
– Ineffective contracts – Other 3PL services: loss and damage claims, …
– Loss of supply chain visibility – International: customs brokering, port services, …
– Negative reputational impact – Special skills/handling: hazardous materials, food, …

Examples of third-party logistics (3PL) Fourth-party logistics (4PL)
• Asset based logistics providers • Fourth-party logistics (4PL) providers act as
(1980’s): operators of own/leased integrators that assemble the resources, capabilities
logistics assets like: Penske, DFDS. and technology of its own and other organisations to
design, build and run comprehensive supply chain
• Network logistic providers (1990’s): solutions.
operators of global network like:
UPS, TNT, FedEx. • Fundamental advantage of 4PL is the greater visibility
and coordination over a supply chain.
• Skill-based logistic providers (end
1990’s) providing complete solutions
like: Maersk
Example of fourth-party logistics (4PL) Supplier scoring and assessment
• Kuehne & Nagel AG handles all • Supplier scoring and assessment is the process
outbound logistics from factory to to rate supplier performance. Suppliers should be
customers for Nortel. compared based on their impact on the supply chain
surplus and total costs.
• Li & Fung helps global companies
like Reebok managing sourcing and • Sourcing decision should not only be based on price
production across many locations in but also on:
the developing world. – Lead-time
– Reliability
– Quality
– Design capability

Supplier scoring and assessment Supplier selection
• Factors influencing total costs and supplier • Important aspects of supplier selection:
performance: – Decision to work with one single source or multiple
Performance category Category components Quantifiable?
suppliers
Supplier price Labor, material, overhead, local taxes, … Yes
Supplier terms Net payment terms, delivery frequency, … Yes
• Mechanisms for supplier selection:
Delivery costs All transportation costs, packaging costs, … Yes
Inventory costs Supplier inventory, in-transit inventory, … Yes
– Offline competitive bids
Warehousing costs Warehousing and material handling costs, … Yes – Reverse auctions
Quality costs Costs of inspection, rework, return Yes – Direct negotiations
Reputation Reputation impact of quality problems No
Other costs Exchange rate trends, taxes, duties Yes
Support Management overhead and support Difficult
Supplier capabilities Lead-time, on time, information, design To some extent
Contracts, risk sharing and performance Contracts, risk sharing and performance
• When designing a contract the following three • Independent actions of two parties in a supply chain
questions are relevant: often result in lower profits:
– How will the contract affect the firm’s profit and total
supply chain profit? margin retailer
– Will the incentives in the contract introduce any margin manufacturer

Price
information distortion? cost price
– How will the contract influence supplier performance • Each supply chain step makes decisions only
along the key performances measures considering its own margin, solutions:
– Buyback or return contracts
– Revenue sharing contracts
– Quantity flexibility contracts

Contracts, risk sharing and performance Contracts, risk sharing and performance
• Buyback contracts: allows a retailer to return • Contracts to coordinate supply chain costs:
unsold inventory up to a specific amount at an encourages a retailer to but larger lot-sizes because
agreed-upon price. suppliers costs are lower.
• Revenue-sharing contracts: the manufacturer • Contracts to increase agency effort: two-part

charges a lower price and shares a part of the tariff offers (franchise fee + supply chain margin)
retailer revenue. No returns are allowed. stimulate the sales from an agent.
• Quantity flexibility contracts: the manufacturer • Contracts to induce performance

allows the retailer to change the quantities ordered measurement: to align supplier and buyer
after observing demand. incentives shared-savings contracts can be used.
Design collaboration The sourcing process
• To collaborate on design is important because: • Categorizing items can be done using following
– 50-70% of spending comes from purchasing model:
– 80% of costs of parts is fixed during design High
Critical Strategic
Items items
• Advantages of collaboration on design: Critical
– Speeds up the design process, shorter time-to-market
Low General Bulk purchased
– Focus on integration leads to higher quality
items items
– Focus on integration leads to lower costs
Low Value High
costs
SOURCING DECISSIONS
Sourcing decisions in practice
• Use multifunctional teams
• Ensure appropriate coordination across regions and
business units PRICING AND
• Always evaluate the total costs of ownership
• Build long-term relationships with key suppliers REVENUE
MANAGEMENT
SOURCING DECISSIONS
Introduction
Lecture
INFORMATION
• What is a supply chain?
9 TECHNOLOGY AND
SUSTAINABILITY
INFORMATION TECHNOLOGY
Introduction
• What is importance of information in

INFORMATION the supply chain?
TECHNOLOGY IN A • How can availability of information

be improved? What examples?
SUPPLY CHAIN
• What are the risks related to the
implementation and use of
information technology?
INFORMATION TECHNOLOGY INFORMATION TECHNOLOGY
The role of IT Supply chain drivers and information
• Information is a key driver in the supply chain and • Supply chain drivers and information:
crucial to supply chain performance. Facility Determining location, capacity, schedules, and
trade offs: efficiency, flexibility, demand, exchange
rates, taxes and so on.
• Information must have following characteristics: Inventory Demand patterns, costs of carrying inventory, costs
– Must be accurate: true picture of the situation of stocking out, costs of ordering
– Must be accessible in a timely manner: easy & direct Transportation Deciding on transportation networks, routings,
modes,
– Must be of right kind: not data but information
Sourcing Information on product margins, prices, quality,
– Must be shared: shareholders should share common delivery lead-times, and so on.
view Pricing & Information on demand (volume and segment),
revenue product margin, lead time and availability.
management

The supply chain IT framework (global) Customer Relationship Management
• The supply chain IT framework is a help to • Customer Relationship Management (CRM) focus on
understand the role of IT within a supply chain: downstream interactions between the enterprises
and customers.
Supplier Internal Customer
Relationship Supply Chain Relationship
Management Management Management • Processes included:
(SRM) (ISCM) (CRM) – Marketing
– Sell
Transaction Management Foundation – Order management
(TMF)
– Call/service center
• The model will be explained in the next slides:
Internal Supply Chain Management Supplier Relationship Management
• Internal Supply Chain Management (ISCM) focusses • Supplier Relationship Management (SRM) focusses on
on the interns operations within the enterprise. upstream interactions between the enterprise and its
suppliers.
• Processes included:
– Strategic planning • Processes included:
– Demand planning – Design collaboration
– Supply planning – Source
– Fulfillment – Negotiate
– Field service – By
– Supply collaboration

The supply chain IT framework (detail) The transaction management foundation
SRM ISCM CRM • The transaction management foundation is the

historical home of the largest enterprise software
Design Strategic
Collaboration Planning
Market players: SAP, Oracle, Sage Group, Infor Global
Demand
Solutions and Microsoft.
Source Sell
Planning Supply chain visibility, coordinated planning,
forecasting, and replenishment, collaborative product
Supply development, coordinated logistics, coordinated
Negotiate Call Center
Planning promotions
Order
Buy Fulfilment
Management
Supply Field SRM ISCM CRM
Collaboration Service
Supplier Our Company Customer

(TMF)
The future of IT in the supply chain Risk management in IT
• The following three important trends will impact IT in • Several risks are associated with IT:
the supply chain: – Installing new IT systems: forced to transition from an
– The growth of software as SaaS old process to a new process. Troubles can be :
– Increased availability of real-time data • In business process: difficulty in (re)learning even resistance
• Technical issue
– Increased use of mobile technology
– The risk of relying on IT systems: In case systems fail
operations can come to a stop
• Saas is software owned, delivered and managed
remotely. • Solutions:
– Incremental- or big-bang implementation
• Mobile technology offers many new ways of doing
– Running duplicate systems
business
– Only implement the level of complexity needed

Supply chain IT in practice SAP ERP modules
mySAP Supply Chain Management
• Some general advices to making decisions regarding Strategic Planning Strategic Supply Chain Design Strategic Sourcing
supply chain IT: Forecasting & Lifecle
Demand Planning Promotion Planning Consensus Demand Planing
– Select an IT system that addresses the company’s key Planning
Supply Network
Safety Stock Distribution Customer Supplier
success factors Supply Planning
Planning
Planning &
Outsourcing
Planning Collaboration Collaboration
– Take incremental steps and measure value Procurement Purchase Order Processing Receipt Confirmation Invoice Verification
– Align the level of sophistication with the need for Manufacturing Production Planning & Detailed Scheduling Manufacturing execution
sophistication Warehousing
Inbound Outbound
Crossdocking
Warehouse & Physical
Processing Processing Storage Inventory
– Use IT systems to support decision making, not to
Order fulfilment Sales Order Processing Logistics Coordination Billing
manage decisions
– Think about the future Transportation Transportation Planning Transportation Execution Freight Costing
Procurement Manufacturing Fulfilment Transportation Supply Chain

Visibility
Visibility Visibility Visibility Visibility Analytics
Source: SAP website
BAJJonker Supply Chain Management: strategy, planning, and operation 253 BAJJonker Operations 254
Management, a
strategic
INFORMATION TECHNOLOGY
SAP ERP implementation
• Industry solutions are best-practice templates
designed to maximize efficiency and minimize
customisation.
SUSTAINABILITY
• Fast track implementation by standardised approach, IN THE SUPPLY
for example AccelaratedSAP solution:
– Phase 1: Project preparation CHAIN
– Phase 2: Business Blueprint
– Phase 3: Realisation
– Phase 4: Final preparation
– Phase 5: Go Live & support
BAJJonker Operations 255 BAJJonker Supply Chain Management: strategy, planning, and operation 256
Management, a
strategic
INFORMATION TECHNOLOGY SUSTAINABILITY

Introduction The role of sustainability
• The health and survival of a supply chain and every
individual depends on the health of the surrounding
world.
• How are supply chain management
and sustainability connected?
• The 2005 World Summit of the United Nations
introduced the three pillar framework of sustainable
• Can you give examples of how development: economic, environmental and Social
sustainability can be improved along sustainability.
the supply chain?
SUSTAINABILITY SUSTAINABILITY
Factors driving focus on sustainability The tragedy of the commons
• The factors driving increased focus on sustainability
are:
– Reducing risk and improving the financial performance
of the supply chain
– Attracting customers who value sustainability
– Making the world more sustainable
SUSTAINABLE SUSTAINABILITY
Key metrics for sustainability Sustainability and the supply chain drivers
• Key metrics for sustainability are: • Discussion per supply chain driver
– Energy consumption how this can contribute to
– Water consumption sustainability:
– Greenhouse gas emissions – Facilities
– Waste generation – Inventory
– Transportation
– Sourcing
– Information
– Pricing
Facilities Inventory
• Facilities: can be significant users • Inventory: besides raw materials,
of water and energy and emitters work in process and finished
of waste and green house gasses. products also inventory in landfill.
• Opportunities: • Opportunity:
– Reuse energy – Cradle-to-cradle approach
• Examples: • Examples:
– Leveling energy use – Less harmful materials
– Reduction of energy use – Use materials for new
Transportation Sourcing
• Transportation is also closely • Majority of energy, water
related, think about CO2 emission consumption, waste and emission
but also waste generated. occur in the extended supply chain.
• Opportunity: • Opportunities:
– Reduce transportation – Include the extended supply chain
– Improve efficiency – Work with sustainable suppliers
– Cleaner energy sources
• Example:
• Examples: – Put a price premium
– Cleaner/more efficient engines
Information Pricing
• Good information is one of the • Visibility and pricing can stimulate
biggest challenges. sustainability.
• Opportunities: • Opportunities:
– Improve information exchange – Motivating customers to emphasize
– Include sustainability in metrics on sustainable products/services
– Use incentives
• Examples:
– Align sustainability efforts across • Examples:
the extended supply chain – Tax reduction
Closed loop supply chains Some examples
• Closed loop supply chains are the • Heathrow consolidates the deliveries for
biggest challenge to improve the different retailers. Using grouped
sustainability. (bulk) transportation reduces the impact.
• Deutsche Post has reduced the amount of

• Opportunities
paper necessary for airway bills reducing
– Reduce the consumption of paper.
– Reuse
– Recycle • Maersk ordered new ships (Triple-E class)
– Revitalize being more energy efficient reducing
– Recovery (recover energy) carbon emission per container with 50%.
– Landfill (disposal)
SUSTAINABILITY
More examples
• IKEA reduce package for one product with
1 centimeter and can now load 4 extra
sofas in a truck.
• Imported containers are not always fully

loaded, could be emptying in the harbor
and continue with bulk transportation.
• The usage of electronic logistic markets the

efficiency of combined transportation can
be improved.

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DESIGNING

BAJJonker Supply Chain Management: strategy, planning, and operation 56

DESIGNING DISTRIBUTION NETWORKS DESIGNING DISTRIBUTION NETWORKS

• What distribution patterns do you • Dell choose to distribute directly to

DESIGNING DISTRIBUTION NETWORKS DESIGNING DISTRIBUTION NETWORKS

Total logistics costs

• These networks will be discussed in the next slides.

E-SUPPLY CHAIN CONCEPTS E-SUPPLY CHAIN CONCEPTS

Retailer Retailer In-transit merge by carrier

Product flow Product flow

Information flow Information flow

Warehouse storage by Distributor/retailer

Product flow Product flow

Information flow Information flow

E-SUPPLY CHAIN CONCEPTS E-SUPPLY CHAIN CONCEPTS

Retailer Cross-dock DC Distributors

Pickup sites Retailers

Product flow Product flow

Information flow Information flow

DESIGNING DISTRIBUTION NETWORKS DESIGNING DISTRIBUTION NETWORKS

DESIGNING DISTRIBUTION NETWORKS

• What is the relevance of network

NETWORK DESIGN IN SUPPLY CHAIN NETWORK DESIGN IN SUPPLY CHAIN

NETWORK DESIGN IN SUPPLY CHAIN NETWORK DESIGN IN SUPPLY CHAIN

Ideal location is:

BAJJonker Supply Chain Management: strategy, planning, and operation 90

• Foxcon (China) has become a giant

• What are pro’s and con’s.

DESIGNING SUPPLY CHAIN NETWORKS DESIGNING SUPPLY CHAIN NETWORKS

• Globalization also increase risk: • Advantages:

DESIGNING SUPPLY CHAIN NETWORKS DESIGNING SUPPLY CHAIN NETWORKS

Increase inventory Decentralize inventory

Pool or aggregate demand

DEMAND • Why is forecasting an important

NETWORK • Forecasting is “guessing” about the

DEMAND FORECASTING DEMAND FORECASTING

• Milk and paper towels are products

DEMAND FORECAST DEMAND FORECASTING

DEMAND FORECASTING DEMAND FORECASTING

BAJJonker Supply Chain Management: strategy, planning, and operation 114

AGGREGATE PLANNING AGGREGATE PLANNING

• Forecast • Aggregate planning is focusing on three costs:

AGGREGATE PLANNING AGGREGATE PLANNING

• Example: • Advantages of using IT:

• How does demand connect sales to • Two strategies for managing

SALES AND OPERATIONS PLANNING SALES AND OPERATIONS PLANNING

SALES AND OPERATIONS PLANNING SALES AND OPERATIONS PLANNING

BAJJonker Supply Chain Management: strategy, planning, and operation 135

COORDINATION IN A SUPPLY CHAIN

• What could be the importance of

• How can you coordinate the supply

COORDINATION IN A SUPPLY CHAIN COORDINATION IN A SUPPLY CHAIN

COORDINATION IN A SUPPLY CHAIN COORDINATION IN A SUPPLY CHAIN

• Building strategic partners and trust

COORDINATION IN A SUPPLY CHAIN COORDINATION IN A SUPPLY CHAIN

• Risks and hurdles:

COORDINATION IN A SUPPLY CHAIN

MANAGING ECONOMIES OF SCALE MANAGING ECONOMIES OF SCALE