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Session 1:
Introduction
MGMT 664 Supply Chain Management
Gemma Berenguer
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Agenda

Introductions

Logistics of the course

Supply Chain fundamentals

Examples of successful supply chains

Form teams!

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About me

My name is GEMMA BERENGUER

I am a professor in Operations Management

My Research:
Supply chain design
Operations management for public and nonprofit institutions
Sustainable and socially responsible operations

My teaching:
MGMT 690:Sustainable (and socially responsible) Operations
MGMT660: Introduction to OM

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About you!

Quick survey

State/country of origin
Program
Some foodies, sports fans,
professional experience with Operations and/or SCM?

Out of 13 points for class participation, you get 1 point

for filling in the online survey

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About the course

Learn tools and methodologies to model and analyze

supply chain processes;

Learn how to manage uncertainty and risk, both within

the firm and across the supply chain;

Learn how to effectively coordinate supply chains

using contracts;

Study how companies have used the principles from this

course to significantly enhance their competitiveness
and to innovate business models.

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Course materials

Cases on Course Packet

Course slides and extra readings on Blackboard

Textbook of reference (not required but recommended)

Chopra, S., Meindl, P., Supply Chain Management: strategy,

planning, and operation, Pearson, 5th Edition, 2013.

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Additional resources

Another textbook:
Simchi-Levi, D., Kaminsky, P. Simchi-Levi, E., Designing and managing the
supply chain: concepts, strategies, and case studies, McGraw-Hill, 3rd
Edition, 2008.

Teaching assistants:
Gokul Madhusundararaju (gmadhusu@purdue.edu)

Office hours:
Wednesdays 11am 12pm
By appointment

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Course outline

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Course outline

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Evaluation

Participation and attendance 13%

Individual homework 20%

Group assignments 30%

Negotiation exercise 6%

Supply chain game report 6%

Final exam 25%

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What is a supply chain?

https://www.youtube.com/watch?v=Mi1QBxVjZAw

How much of a bottle of water is profit?

What do hotels manufacture?

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What is a supply chain?

Definition:
comprises all the parties involved in providing a product or service to a
customer, either directly or indirectly,

What is supply chain management?

a set of approaches utilized to efficiently integrate suppliers,
manufacturers, warehouses, and stores, so that merchandise is produced
and distributed
at the right quantities,
to the right locations, and
at the right time,
in order to minimize system-wide costs while satisfying service level
requirements

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Supply chain (slide from: UC Berkeley professor Max Shen)

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Supply chain flows (1)

Information

Product
Firm Customer
Funds
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Supply chain flows (2)

Upstream Downstream

Material

Information

Finance

Hau L. Lee, Creating value through supply chain integration, Supply Chain Management
Review, 2000.

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Supply chain flows (2)

Upstream Downstream

Returns, repairs, raw materials,

servicing, recycling, intermediate
Material
disposal products, finished
goods
Sales, orders, capacity, promotion
Information inventory, quality, plans, delivery
promotion plans schedules
Payments, Credits, consignment,
Finance consignments payment terms,
invoice

Hau L. Lee, Creating value through supply chain integration, Supply Chain Management
Review, 2000.

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SCM decisions

What suppliers should we use and how many?

How many factories and warehouses should we have?

What products should each factory produce?

In what locations should our firm have factories and warehouses?

How do we set capacity at each location?

Given locations and capacities, what quantities should we

produce and store at these locations?

What quantities should move from location to location and at

what time?

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Decision phases of a supply chain

Supply chain strategy or design

How to structure the supply chain over the next several
years

Supply chain planning

Decisions over the next quarter or year

Supply chain operation

Daily or weekly operational decisions

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Supply chain Strategy phase

Decisionsabout the structure of the supply chain

and what processes each stage will perform
Strategic supply chain decisions
Locations and capacities of facilities
Products to be made or stored at various locations
Information systems type

Supply chain design must support strategic

objectives
Supply chain design decisions are long-term and
expensive to reverse must take into account
market uncertainty

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Supply chain Planning phase

Definitionof a set of policies that govern short-term

operations. Fixed by the supply configuration from
previous phase
Starts with a forecast of demand in the coming year
Planning decisions:
Planned buildup of inventories
Subcontracting, backup locations
Inventory policies
Timing and size of market promotions

Must consider in planning decisions demand uncertainty,

exchange rates, competition over the time horizon

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Supply chain Operations phase

Time horizon is weekly or daily
Decisions regarding individual customer orders
Supply chain configuration is fixed and operating policies are
determined
Goal is to implement the operating policies as effectively as
possible
Operational decisions
set order due dates
generate pick lists at a warehouse
allocate an order to a particular shipment
set delivery schedules
Much less uncertainty (short time horizon)

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Examples of best practices

DELL

Zara

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DELL

Direct business model

No middlemen
No warehouses
Suppliers are close by

Build-to-order strategy
Production doesnt begin until order is placed
There is never more than 4 hours inventory on hand
This leads to lower cost

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DELL Global Supply Chain

Canada,
Video cards

U.S., CPUs,
France,
Windows,
Soundcards China, Cases wt Power Korea, Japan
Supply, Cables, RAM Chips,
Network Cards, Monitors
Dell Assembly
Taiwan,
Austin, Texas
Mexico, Motherboard
Keyboards, Mouse Thailand,
Hard Drives Malaysia,
CD-ROMs
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Push/Pull view of a supply chain

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Push/Pull view of supply chain

process
Supplychain processes fall into one of two categories
depending on the timing of their execution relative to
customer demand
Pull:execution is initiated in response to a customer
order (reactive)
Push: execution is initiated in anticipation of customer
orders (speculative)
Push/pullboundary separates push processes from pull
processes

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DELLs supply chain

Before 2008
Focus on responsiveness

In 2008, Dell enters retail channel

The supply chain setup does not support low cost (online customers are
less price-sensitive than retail customers)

Need to re-engineer

Segment supply chain using:

Demand uncertainty
Cost drivers
Relationships with customers
Customer value proposition
Technology clock-speed
When One Size Does Not Fit All, MIT Sloan Management Review, 2012, Simchi-Levi,
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DELL customer driven supply

chain segmentation
Customer Type Strategy Push or Pull?

Online sales Build-to-order PULL

Popular online Build-to-stock PUSH-PULL Procurement, production

sales and shipping to stocking points are all
based on forecast; shipment to customer
locations is based on realized demand
Retail channels Build-to-Plan PUSH Strategy, procurement,
production and shipment decisions are all
based on forecast
Enterprise clients Build-to-Spec PUSH-PULL Products are assembled to
order using components ordered well
ahead of time, based on forecast
When One Size Does Not Fit All, MIT Sloan Management Review, 2012, Simchi-Levi,
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DELLs four supply chains

When One Size Does Not Fit All, MIT Sloan Management Review, 2012, Simchi-Levi,
Clayton and Raven
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Cost-Responsiveness Efficient Frontier

Responsiveness

High DELLs position

before 2008

Low
Cost
High Low
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Zara Fast Fashion supply chain

VIDEO: ZARA

Answer the following questions while watching the video:

How often the assortment is modified in stores?

How many global warehouses?

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What is behind Zaras success?

Stockout often

Produce in the most expensive part of the world

Redesigns apparel all time, which lead to demand uncertainty

Does not advertise

No product innovation

No technology innovation

Not a new niche

Zara innovates through better supply chain management!

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What is beyond Zaras success?

It transferred Dells build to order model to the apparel industry. It

produces fashion to order
Close production location (Spain and Mexico), short lead times
Quantity decisions made days before sales
Detailed product differentiation decision is postponed (design team
develops platform models but holds off finalizing detailed designs)
Few days of inventory
21-29 day cycle (from design to sales/discount) (16months for others)

It pays with more expensive capacity, but the trade-off is favorable

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Achieving Strategic Fit

Responsive
supply chain

Responsivenes
s spectrum Extra reading:
What is the
right supply
chain for your
product?

Efficient
supply chain

Certain Implied Uncertain

demand uncertainty demand
spectrum
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Matching supply chain with

products
Functional Products Innovative Products

Efficient
supply chain

Responsive
supply chain

Extra reading: What is the right supply chain for your product?

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Matching supply chain with

products
Functional Products Innovative Products

Efficient
Match Mismatch
supply chain

Responsive
Mismatch Match
supply chain

Extra reading: What is the right supply chain for your product?

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Facilities

Efficient Responsive
Small number of large facilities Larger number of smaller facilities

Operate with high utilization Flexible facilities

Cheap location Location close to markets

Assembly line Job shop

Use of automation

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Inventory

Efficient Responsive
Minimize inventory Inventory close to the customer

Large inventory

High variety

Cost of under-stocking is high

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Transportation/Shipping

Efficient Responsive
Transportation cost Transportation need (expediting, air,
(truck/rail/grounds) express carriers)

Full truckloads Less than truckload (LTL)

Small number of large shipment Large number of small shipments

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Sourcing

Efficient Responsive
Focus on cost Flexible suppliers

Single sourcing Dual sourcing (multiple)

Outsource In-house

Purchase in bulk Small shipments

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Pricing

Efficient Responsive
Low High

EDLP Loyal customer

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Efficient/responsive supply chains

Efficient supply chain Responsive supply chain

Supply demand at the lowest Respond quickly to demand

Primary goal
cost
Maximize performance at a
Product design
minimum product cost
strategy
Lower margins because
Pricing strategy price is a prime customer
driver
Manufacturing Lower costs through high
strategy utilization
Minimize inventory to lower
Inventory strategy
cost
Lead-time Reduce, but not at the
strategy expense of costs
Select based on cost and
Supplier strategy
quality
Create modularity to allow
postponement of product
differentiation
Higher margins because price is
not a prime customer driver
Maintain capacity flexibility to buffer
against demand/supply uncertainty
Maintain buffer inventory to deal
with demand/supply uncertainty
Reduce aggressively, even if the
costs are significant
Select based on speed, flexibility,
reliability, and quality
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Next day

Form your groups!

Session 2: Forecasting in supply chain

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