Fundamentals of SCM

Review
• Difference of Purchase & Procurement
• Bull Whip and Control Measures using Information role in Supply
Chain
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• Evolution
• Bull Whip and Control Measures using Information role in Supply
Chain
• Total Cost of Ownership
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• A term referring to ineffective communication between buyers and
suppliers and infrequent delivery of materials, combined with
production based on poor forecasts along a supply chain that results
in either too little or too much inventory at various points of storage
and consumption. Simply, it causes an amplification of the variation in
the demand pattern along the supply chain.
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• In SC operations, material requirements planning (MRP) is managing
inventories, purchases, and production schedules.
• Enterprise resource planning (ERP) systems, providing real-time
purchase and sales data, inventory, and production information to all
business units and to key supply chain participants.
• These system design depends on
• the number and complexity of products
• size of the firm
• design of the supply chain
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• Example
• Retailers Walmart - scan the bar codes of items (RFID) when consumers make
purchases, causing the local store’s MRP to deduct units from inventory until a preset
reorder point is reached.
• When this occurs, the local computer system automatically contacts Walmart’s regional
distribution center’s MRP system and generates an order.
• At the distribution center, the order is filled and sent along with other orders to the
particular Walmart.
• Eventually, the inventory at the distribution center needs replenishing, and at that time,
the distribution center’s MRP system automatically generates an order with the
manufacturer, who then delivers the product to the Walmart distribution center.
• This type of order communication and inventory visibility may extend farther up the
supply chain, reducing the likelihood of stockouts, excess inventories, and long lead
times.
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• ERP provides the mechanism for supply chain members to share
information so that scarce resources can be fully utilized to meet
demand, while minimizing the bullwhip effect and supply chain
inventories.
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• Total cost of ownership or total cost of acquisition includes
1. unit cost of the item
2. payment terms
3. cash discount
4. ordering cost
5. carrying cost
6. logistical costs
7. maintenance costs
8. and other more qualitative costs that may not be easy to assess.

The total cost analysis demonstrates how other costs besides the unit cost can
affect purchase decisions
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• Total cost of ownership or total cost of acquisition includes
1. unit cost of the item
2. payment terms
3. cash discount
4. ordering cost
5. carrying cost
6. logistical costs
7. maintenance costs
8. and other more qualitative costs that may not be easy to assess.

The total cost analysis demonstrates how other costs besides the unit cost can affect purchase
decisions

Example 2.1 and Figure 2.6

Decision Making in SCM
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• Network Optimization Model
• Risk Pooling
• Facility Locations
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• Risk Pooling
• relationship between the number of warehouses, inventory and customer
service;
• when market demand is random, it is very likely that higher-than-average
demand from some customers will be offset by lower-than-average demand
from other customers.
• As the number of customers served by a single warehouse increases, these
demand variabilities will tend to offset each other more often, thus reducing
overall demand variance and the likelihood of stockouts.
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• Risk Pooling
• Consequently, the amount of safety stock in a warehouse system required to
guard against stockouts decreases.
• Thus, the more centralized a warehousing system is, the lower the safety
stock required to achieve a given system-wide customer service level
( customer service level is inversely proportional to the number of stockouts
per period).
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• Warehousing
• Market positioned strategy locates warehouses close to customers to maximize
customer service levels. This strategy might be recommended when there are
high levels of competition and distribution flexibility.
• Product positioned strategy locates warehouses close to the sources of supply
to enable the firm to collect various goods while minimizing inbound
transportation costs. This strategy works well when there are large quantities of
goods purchased from many sources of supply and assortments of goods
ordered by customers.
• Intermediately positioned strategy places warehouses midway between the
sources of supply and the customers. This strategy is recommended when
distribution service requirements are relatively high and customers order
product assortments purchased from many suppliers.
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• Warehousing
• Market positioned strategy locates warehouses close to customers to maximize
• customer service levels. This strategy might be recommended when there are
high levels of competition and distribution flexibility.
• The product positioned strategy locates warehouses close to the sources of
supply to enable the firm to collect various goods while minimizing inbound
transportation costs. This strategy works well when there are large quantities of
goods purchased from many sources of supply and assortments of goods
ordered by customers.
• The intermediately positioned strategy places warehouses midway between the
sources of supply and the customers. This strategy is recommended when
distribution service requirements are relatively high and customers order
product assortments purchased from many suppliers.
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• Warehousing
• Exercise Problem 1 and 2
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• Facility Locations
• Example 11.1
• Example 11.2
• Exercise Problem 1 to 4
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• Network Optimization Model
• Distribution Network
• Example shared for analysis
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• Network Optimization Model
• Distribution Network
• Example shared for analysis
Achieving Customer Focus in SCM
Logistics in SCM
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• Modes of Transportation
• Motor (truck)
• Rail
• Air
• Water, and
• Pipeline carriers
• Factors of Choice
• goods to be transported
• how quickly the goods are needed
• the price shippers are willing to pay, and
• the locations of shippers and customers.
• Develop table of comparison
• Compare Cost of Service Pricing and Value of Service Pricing
• Discuss with Examples
• Intermodal Transportation
• Horizontal Collaboration and Other measures for Green Logistics
• Reverse Logistics Concepts – Zombie Inventory, Impact on Sc, Impact on Environmnet
• Transportation Local and Global Regulations