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Supply chain modeling


Supply chain optimization is the application of processes and tools to ensure the optimal operation of a manufacturing and distribution supply chain. This includes the optimal placement of inventory within the supply chain, minimizing operating costs (including manufacturing costs, transportation costs, and distribution costs). This often involves the application of mathematical modelling techniques using computer software

supply chain managers are trying to maximize the profitable operation of their manufacturing and distribution supply chain. This could include measures like: maximizing gross margin return , minimizing total operating expenses maximizing gross profit of products distributed through the supply chain.

Supply chain optimization addresses the general supply chain problem of delivering products to customers at the lowest total cost and highest profit.

Supply chain optimization has applications in all industries manufacturing and/or distributing goods, including retail, industrial products, and consumer packaged goods (CPG).

Linear programming (LP, or linear optimization) is a mathematical method for determining a way to achieve the best outcome (such as maximum profit or lowest cost) in a given mathematical model for some list of requirements represented as linear relationships.

Linear programming can be applied to various fields of study. It is used most extensively in business and economics, but can also be utilized for some engineering problems. Industries that use linear programming models include transportation, energy, telecommunications, manufacturing

. It has proved useful in modeling diverse types of problems in planning, routing, scheduling, assignment, and design

Likewise, linear programming is heavily used in microeconomics and company management, such as planning, production, transportation, technology and other issues. Although the modern management issues are ever-changing, most companies would like to maximize profits or minimize costs with limited resources. Therefore, many issues can be characterized as linear programming problems.

RFID TECHNOLOGY NEED FOR RFID 1) 2) 3) 4) 5) 6) Error free work. Improves the efficiency of work Need of rfid increases when volume of the business is increased Tracking becomes possible Retail sector is using for theft control in retail outlets RFID helps in reducing paper works

radio-frequency identification (RFID) is a technology that uses radio waves to transfer data from an electronic tag, called RFID tag or label, attached to an object, through a reader for the purpose of identifying and tracking the object. Some RFID tags can be read from several meters away and beyond the line of sight of the reader. The application of bulk reading enables an almost-parallel reading of tags.

APPLICATION OF RFID Manufacturing and Processing Inventory and production process monitoring Warehouse order fulfillment Supply Chain Management Inventory tracking systems Logistics management Retail Inventory control and customer insight Auto checkout with reverse logistics Security Access control Counterfeiting and Theft control/prevention Location Tracking Traffic movement control and parking management Wildlife/Livestock monitoring and tracking

RFID advantages over bar-codes No line of sight required for reading Multiple items can be read with a single scan Each tag can carry a lot of data (read/write)

Individual items identified and not just the category Passive tags have a virtually unlimited lifetime Active tags can be read from great distances


1) Facilities places where inventory is stored, assembled, or fabricated production sites and storage sites

2) Inventory raw materials, WIP, finished goods within a supply chain inventory policies

3) Transportation moving inventory from point to point in a supply chain combinations of transportation modes and routes

CROSS FUNCTIONAL DRIVERS 4) Information data and analysis regarding inventory, transportation, facilities throughout the supply chain potentially the biggest driver of supply chain performance

5) Sourcing functions a firm performs and functions that are outsourced

6) Pricing Price associated with goods and services provided by a firm to the supply chain


Components of facilities decisions a) Location centralization vs. decentralization b) Capacity c) Manufacturing methodology (product focused versus process focused) d) Warehousing methodology (SKU storage, job lot storage, cross-docking)

2) Inventory COMPONENTS OF INVENTORY Cycle inventory Average amount of inventory used to satisfy demand between shipments Depends on lot size

Safety inventory inventory held in case demand exceeds expectations costs of carrying too much inventory versus cost of losing sales Seasonal inventory inventory built up to counter predictable variability in demand cost of carrying additional inventory versus cost of flexible production Overall trade-off: Responsiveness versus efficiency more inventory: greater responsiveness but greater cost less inventory: lower cost but lower responsiveness

3) TRANSPORTATION Components of transportation u Mode of transportation: u Route and network selection

4) Information Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) Coordination and information sharing Forecasting and aggregate planning Enabling technologies

5) Sourcing Components of sourcing In-house versus outsource decisions Supplier evaluation and selection Procurement process

6) Pricing Components of pricing Pricing and economies of scale Everyday low pricing versus high-low pricing Fixed price versus menu pricing


Material requirements planning (MRP) is a production planning and inventory control system used to manage manufacturing processes. Most MRP systems are softwarebased, while it is possible to conduct MRP by hand as well. An MRP system is intended to simultaneously meet three objectives:

Ensure materials are available for production and products are available for delivery to customers. Maintain the lowest possible material and product levels in store Plan manufacturing activities, delivery schedules and purchasing activities

The scope of MRP in manufacturing

The basic function of MRP system includes inventory control, bill of material processing and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities. "Manufacturing organizations, whatever their products, face the same daily practical problem - that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required . Making a bad decision in any of these areas will make the company lose money. A few examples are given below:

If a company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time.

If a company purchases excessive quantities of an item, money is wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all.

Beginning production of an order at the wrong time can cause customer deadlines to be missed.

MRP is a tool to deal with these problems. It provides answers for several questions:

What items are required? How many are required? When are they required


Manufacturing resource planning (MRP II) is defined by APICS as a method for the effective planning of all resources of a manufacturing company BASIC FUNCTION OF MRP 2

Master production schedule (MPS) Bill of materials (BOM) (technical data) Production resources data (manufacturing technical data) Inventories and orders (inventory control) Purchasing management Material requirements planning (MRP) Capacity planning or capacity requirements planning (CRP) Standard costing (cost control)


MRP II systems can provide:

Better control of inventories Improved scheduling Productive relationships with supplier Improved design control Better quality and quality control Reduced working capital for inventory Improved cash flow through quicker deliveries Accurate inventory records

Collaborative planning and replenishment Forecasting

Collaborative Planning, Forecasting and Replenishment (CPFR) is a concept that aims to enhance supply chain integration by supporting and assisting joint practices. CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the supply chain. Information shared between suppliers and retailers aids in planning and satisfying customer demands through a supportive system of shared information. This allows for continuous updating of inventory and upcoming requirements, making the end-to-end supply chain process more efficient. Efficiency is created through the decrease expenditures for merchandising, inventory, logistics, and transportation across all trading partners.


Step1. Develop Front-End Agreement: Roles, Measurement, Readiness

Step2. Create Joint Business Plan: Strategies and Tactics

Step3. Create Sales Forecasts: Buyer and supplier both create customer-demand forecasts

Step4. Identify Exceptions in Sales Forecasts

Step 5. Resolve Exceptions: Agree on single forecast or agree to disagree

Step 6. Create Order Forecasts: Buyer and Supplier both create plans for buyer orders.

Step 7. Identify Exceptions in Order Forecasts

Step 8. Resolve Exceptions: Agree on single plan for buyer orders

Step 9. Order Generation

BENEFITS OF CPRF SYSTEM Increased inventory turns (i.e, lower buffer inventory) Increased fill-rate for the SKUs involved Higher levels of customer service CPFR also implemented in B2B exchanges such as Worldwide Retail Net

CHALLENGES FACED BY CPFR SYSTEM Buyer and supplier must develop trust that each will treat the other fairly and honestly. Pre requisites to do that incentives to do so. Conflicts with contractors At technical level, buyers and suppliers must develop a common language for identifying products and making decisions about them. System must be developed for linking the buyers and suppliers business processes. This will involve system challenges and Training. Security level protocols must be implemented that will safeguard both partners form leaks of proprietary information.