MiNDS -

Natural
resources
development
and storage

Basics of Supply Chain

Management

Carlo RAfele
RESLOG Research Group for
Engineering Systems &
Logistics
 Contents
1. Differences between logistics and supply
chain management (SCM)
2. Main issues in the SCM
3. Goals and actions to improve

2
 Lecture Goals
1. Understanding of the SCM complexity
2. Defining the main elements and actors
3. Comprising relationships within the SCM
4. Right ways for defining analysis

3
Well . . . . Is This Logistics ?
Actually . . . . . This Is Logistics
 Some examples
of logistic process
Key drivers
How to afford a logistic
process analysis
 Key drivers

Dominant challenge
 Key drivers

Dominant challenge
An Automotive Supply Chain
 PRODU DISTRIBU SEL
SUPPLY
CE TE L

PLAN

SC Operation
Logistic activities
Logistic activities
Logistic activities
Logistic activities
Logistic activities
Logistic activities

PUDO : a point where is possible Pick Up or Drop Off materials

Logistic activities
Logistic activities
Logistic activities
Logistic activities
Logistic activities
Some examples of logistic process
within ENI or another
oil & gas company

Key drivers
Do You know some examples of
Supply Chain?

Is it correlated to logistics?
 Traditional View: Logistics in the
Manufacturing Firm

• Profit 4% Profit
Logistics
Cost
• Logistics Cost 21%
Marketing
Cost
• Marketing Cost 27%

• Manufacturing Cost 48% Manufacturing

Cost

Supply Chain Engineering MN 799

 What Is the Supply Chain?

• Also referred to as the logistics network

• Suppliers, manufacturers, warehouses, distribution centers and
retail outlets – “facilities”
Suppliers Manufacturers Warehouses & Customers
Distribution Centers

• and the

• Raw materials
• Work-in-process (WIP) inventory Transportation Transportation
Costs Costs

• Finished products
Material Costs Transportation
Manufacturing Costs Inventory CostsCosts

• Information
• And ……Money
• that flow between the facilities

Source: STEVENS Institute of Technology

 The Supply Chain
Suppliers Manufacturers Warehouses & Customers
Distribution Centers

Transportation Transportation
Costs Costs
Material Costs Transportation
Manufacturing Costs Inventory Costs Costs

Source: STEVENS Institute of Technology

 Understanding the Supply Chain
…
a chain is only as good as its weakest link

Supplier Manufacturer Wholesaler Retailer Customer

…there is a limit to the surplus or profit in a supply chain

Strong, well-structured supply chains are critical to sustained competitive

advantage.

We are all part of a Supply Chain in everything we buy

Supply Chain Engineering MN 799
 The Network Flow Model
Material Material
Order-To-Stock Order-To-Delivery

Info
Trading Info
Supplier Customer
Partner
Invoice-To-Cash Invoice-To-Pay

Cash Cash

From: William T. Walker, Supply Chain Architecture: A Blueprint for

Networking the Flow of Material, Information, and Cash, CRC Press,
©2005.

Supply Chain Engineering MN 799

 Supply Chain Management

Supplier

Manufacturer

Distributor

Market

Source: F.Dallari , G.Marchet, Rinnovare la Supply Chain. Il Sole 24 Ore Editions.

 A Definition of Supply Chain
A selected and stable set of entities, which are
autonomous and independent from an ownership
point of view, but they operate together by
integrating some of their business processes, in
order to provide value-added products, services and
information, from final consumers up to raw material
manufacturers.

[Adapted from the definition of supply chain given by the members of the
International Center for Competitive Excellence, University of North
Florida, 1994]
 A Definition of Logistics
• Not only one of the internal business functions of a
company, but a more wide and complex notion of
logistics.
• Operational infrastructure of a supply chain.
• A system managing
- physical flows
- informational flows, and
- financial flows
among different companies belonging to the same
value chain.

Source: F.Dallari, G.Marchet, Rinnovare la Supply Chain. Il Sole 24 Ore Editions

Logistics Service as a Capacity for
Fulfill the Seven Right Conditions
• The right product
• In the right quantity
• At the right moment EFFICACY
• In the right conditions OBJECTIVES
• In the right place
• For the right client

EFFICIENCY
• At the lowest cost
OBJECTIVES
 Basic Logistics Process

Export &
Manufacture Primary Distribution Secondary B2B & B2C After-Sales
Import
& Raw Materials Movement Centres Movement Distribution Services
Activities

Value-Added
Suppliers Distribution Production Distribution Sales Channel End User
Services
Inbound Manufacturing Supply Distribution After Sales
Logistics Logistics Logistics Logistics Logistics

Reverse Logistics
 Logistics vs Supply Chain
LOGISTICS ≠ SUPPLY CHAIN, since a supply chain
refers to those activities to be performed in an integrated
and coordinated way by the systemic entities managing
flows. Such activities do not only concern the delivery
of materials or services.
Examples:
- Product definition.
- Supplying contracts definition.
- Market decisions.
Factory MCC (Smart Ville)
Complesso Industriale MCC
5

(Smart Ville)
1
4

2 3

FABBRICATO PRINCIPALE

8
Se ttore 1 - Modulo Anteriore
9 Settori Se ttore
Se ttore
2
3
-
-
Approvvigionamento m ateriali
Parti m obili
dedicati Se ttore
Se ttore
4
5
-
-
Pannelleria
Ponte posteriore
ai Se ttore
Se ttore
6
7
-
-
Modulo plancia
Consegna prodotto finito
10 Partners Settore 8 - Ve rniciatu ra
Telaio scocca
Se ttore 9 -
Se ttore 10 - O peratore logistico
 The scenario is more and more
complex Perturbation
Amazonitizazion
in B2B Land

Material Price fluctuation

Shortage
 History of Supply Chain Management

• 1960’s - Inventory Management Focus, Cost Control

• 1970’s - MRP - Operations Planning
• 1980’s – MRP II, JIT - Materials Management, Logistics
• 1990’s - SCM - ERP - “Integrated” Purchasing, Financials,
Manufacturing, Order Entry
• 2000’s - Optimized “Value Network” with Real-Time
Decision Support; Synchronized & Collaborative Extended
Network

Source: STEVENS Institute of Technology

DISTRIBUTION NETWORK
Structuring the distribution channel

Direct Public market

Large companies
Retailer
Medium business
Wholesale

Dealer Small business

Micro business
Distributor

General public
Large retailers

Nathanael BARBIER
 INDUSTRIAL NETWORK
Examples

• Automotive Industry:
Transportation cost < Purchase & Production
cost
 limited number of plants but local factories to penetrate
markets
• Aeronautic industry:
Transportation cost < < Purchase & Production
cost
 1 single production site

• Soda industry:
Transportation cost = Purchase & Production
cost
 small bottling plants close to markets
Nathanael BARBIER
Basic Supply Chain Architectures (Examples)
1. Indirect Channel
Retailer Customer
Supplier Wholesale
Factory Retailer Customer
Supplier Wholesale
Retailer Customer
2. Direct Channel
Supplier Supplier
Supplier
Fabricator Factory Integrator Customer
Supplier
Retailer
3. Virtual Channel
Supplier
Credit Virtual
Service Store
Supplier Fabricator Factory
Express
Freight Customer
C 1999. William T. Walker, CFPIM, CIRM with the APICS Educational & Research Foundation. All Rights Reserved.
 The Supply Chain Concept

At least two Interdependence

nodes (companies) among nodes

SUPPLY CHAIN

Institutional Business process Relationships management

autonomy integration based on coordination
of nodes
Supply Chain key processes
 Try to draw a shipment of products
from China (Yantian) to Europe (Hamburg) and
finally to 8Gallery.
Three days for technical stop in Port Kelang.
 The increasing importance of Supply Chain Management

• Dealing with uncertainty environments – matching supply and

demand
• Shorter product life cycles of high-technology products
– Less opportunity to accumulate historical data on customer demand
– Wide choice of competing products makes it difficult to predict
demand
• The growth of technologies such as the Internet enable greater
collaboration between supply chain trading partners
– If you don’t do it, your competitor will
– Major buyers such as Wal-Mart demand a level of “supply chain
maturity” of its suppliers
• Availability of SCM technologies on the market
– Firms have access to multiple products (e.g., SAP, Baan, Oracle, JD
Edwards) with which to integrate internal processes

Source: STEVENS Institute of Technology

 Supply Chain Management – Key Issues

• Overcoming functional silos with conflicting goals

Customer Service/
Purchasing Manufacturing Distribution
Sales

High
Low pur- Few change- inventories
chase price overs
Low invent- High service
Multiple Stable levels
schedules ories
vendors
Regional
Long run Low trans- stocks
lengths
portation

SOURCE MAKE DELIVER SELL

Source: STEVENS Institute of Technology

 Supply Chain Management – Key Issues
ISSUE CONSIDERATIONS

Network Planning • Warehouse locations and capacities

• Plant locations and production levels
• Transportation flows between facilities to minimize cost and time
Inventory Control • How should inventory be managed?
• Why does inventory fluctuate and what strategies minimize this?

Supply Contracts • Impact of volume discount and revenue sharing

• Pricing strategies to reduce order-shipment variability

Distribution Strategies • Selection of distribution strategies (e.g., direct ship vs. cross-docking)
• How many cross-dock points are needed?
• Cost/Benefits of different strategies
Integration and Strategic • How can integration with partners be achieved?
Partnering • What level of integration is best?
• What information and processes can be shared?
• What partnerships should be implemented and in which situations?
Outsourcing & Procurement • What are our core supply chain capabilities and which are not?
Strategies • Does our product design mandate different outsourcing approaches?
• Risk management
Product Design • How are inventory holding and transportation costs affected by product
design?
• How does product design enable mass customization?

Source: Simchi-Levi
The process representation
 Identify a supply chain of a product
(related to the ENI business or not) and:
- Draft a flow of materials
- Draft a flow of activities
- Insert the points of measurement and
the KPIs
The Swim Lane is the preferable tool to
use
All the process – from suppliers to
customers – has to be included.
Source: STEVENS Institute of Technology
The customer service
 The Value Chain
• Since the mid 90’s, companies, less and less
autonomous entities and more and more parts of
“chains of relationships”, have focused on:
– supply chain integration processes;
– value chains: collaboration among all the partners
contributing to provide a product or a service to final
users. These partners form a value chain.
 Value-Added Generation
• The amplification of the generated value-added
is a characterizing feature of a supply chain.
• An optimized supply chain brings a global
value-added that is greater than the sum of the
contributions of the single interacting entities.
• The value added is bigger than the increased
cost both on supplier side and on customer side.
 Modified Porter’s Value Chain

Source: J.F..Shapiro, Modeling the Supply Chain

 FRONT OFFICE

A Customer’s View of the Supply Chain

Ex.: Order a new laptop
Order the product... Take delivery...
with configuration complexity on-line the next day at home, and
get started without a hassle

Pay for the product... Service the product...

in a foreign currency by credit card anywhere in the world
Supply Chain Engineering MN 799
C 1999. William T. Walker, CFPIM, CIRM with the APICS Educational & Research Foundation. All Rights Reserved.
 The Value Principle:
Every stakeholder wins when throughput is maximized.

Value is
Return In
Investment

Shareholders
Value is
Trading the Perfect
Value is Suppliers Customers Order
Partner
Continuity
of Demand Employees
Non è possibile v isualizzare l'immagine.

Value is
Employment
Stability
Supply Chain Engineering MN 799
 Burger and Fries
Examine this process – What do you observe?

What problems do you foresee in this Supply Chain?

Supply Chain Engineering MN 799
 Drivers of Supply Chain Performance
Competitive Strategy

Supply Chain Strategy

Efficiency Responsiveness

Supply chain structure

Inventory Transportation Facilities Information

Drivers
TRADE OFF FOR EACH DRIVER
Supply Chain Engineering MN 799
 INFORMATION
• AFFECTS EVERY PART OF SUPPLY CHAIN
– CONNECTS ALL STAGES
– ESSENTIAL TO OPERATION OF ALL STAGES
• ROLE IN COMPETITIVE STATEGY
– SUBSTITUTE FOR INVENTORY
• COMPONENTS
– PUSH VS PULL
– COORDINATION AND INFORMATION SHARING
– FORECASTING AND AGGREGATE PLANNING
– ENABLING TECHNOLOGIES
• EDI
• INTERNET
• ERP
• SCM
• OVERALL TRADE OFF: RESPONSIVENESS VS
EFFICIENCY ?
Supply Chain Engineering MN 799
 Value of Information
and SCM

Source: STEVENS Institute of Technology

 Information In The Supply Chain
Plan

Warehouses & Retailer

Suppliers Manufacturers
Distribution Centers

Source Make Deliver Sell

Order Lead Time • Each facility further away from

actual customer demand must
It’s estimated that the
make forecasts of demand
Delivery Lead Time typical pharmaceutical
• Lacking actual customer buying company supply chain
data, each facility bases its carries over 100 days
Production Lead Time forecasts on ‘downstream’ of product to
orders, which are more variable accommodate
than actual demand uncertainty
• To accommodate variability,
inventory levels are overstocked
thus increasing inventory
carrying costs

Source: STEVENS Institute of Technology

Track and Trace

Supply Chain Engineering MN 799

Apply Technology for Tracking
• Bar Code and 2D Bar Code

• Point Of Use Laser Scanners

• Radio Frequency Identification (RFID)

• Global Positioning by Satellite (GPS)

• Wireless Communication

•Beacon
Supply Chain Engineering MN 799
 Information Technology in a Supply Chain:
ERP Systems
ERP SYSTEMS – BROAD INFORMATION AVAILABILITY, REAL TIME,
CAN USE ENABLING TECHNOLOGY LIKE INTERNET – WEAK ANALYTICAL
Strategic

Planning
Potential
ERP ERP Potential
ERP
Operational

Supplier Manufacturer Distributor Retailer Customer

Supply Chain Engineering MN 799

 Information Technology in a Supply
Chain: Analytical Applications

Strategic

SCM

Planning APS Transport & Inventory Dem Plan

Planning
Supplier
Apps
Transport execution & CRM/SFA
MES
WMS
Operational

Supplier Manufacturer Distributor Retailer Customer

Supply Chain Engineering MN 799

 Infrastructure of Information Systems
Different levels

Cloud Computing

Enterprise Resource Planning External

communicati
Specialized Middleware on
Ex: Advanced Planning System, Customer Relationship Web, EDI, ..
Mgt, ...

Data Warehouse

Reporting and Business Intelligence

Nathanael BARBIER
 Why Is SCM Difficult?
Plan Source Make Deliver Buy

• Uncertainty is inherent to every supply chain

– Market demand
– Supplier lead times
– Travel times
– Breakdowns of machines and vehicles
– Weather, natural catastrophe, war
– Local politics, labor conditions, border issues

• The complexity of the problem to globally optimize a supply

chain is significant
– Minimize internal costs
– Maximize performances Coordination
– Deal with number of actors

Source: STEVENS Institute of Technology

 Uncertainty Issue
Supply Chain Management and Uncertainty
• Inventory and back-order levels fluctuate considerably across the
supply chain even when customer demand doesn’t vary
• The variability worsens as we travel “up” the supply chain
• Forecasting doesn’t help!

Multi-tier Wholesale
Suppliers Manufacturer Distributors Retailers Consumers

Sales

Sales
Sales

Sales

Time Time Time

Time

Bullwhip Effect
Source: STEVENS Institute of Technology
Bullwhip effect
 Uncertainty Issue
Factors Contributing to the Bullwhip
• Demand forecasting practices
– Min-max inventory management (reorder points to
bring inventory up to predicted levels)
• Lead time
– Longer lead times lead to greater variability in estimates
of average demand, thus increasing variability and
safety stock costs
• Batch ordering
– Peaks and valleys in orders
– Fixed ordering costs
– Impact of transportation costs (e.g., fuel costs)
– Sales quotas
• Price fluctuations
– Promotion and discount policies

• Lack of centralized information

Source: STEVENS Institute of Technology
 Uncertainty Issue
Taming the Bullwhip
Four essential methods for reducing the Bullwhip effect:
• Reduce uncertainty in the supply chain
– Centralize demand information
– Keep each stage of the supply chain provided with up-to-date
customer demand information
– More frequent planning (continuous real-time planning the goal)
• Reduce variability in the supply chain
– Every-day-low-price strategies for stable demand patterns
• Reduce lead times
– Use cross-docking to reduce order lead times
– Use EDI techniques to reduce information lead times
• Eliminate the bullwhip through strategic partnerships
– Vendor-managed inventory (VMI)
– Collaborative planning, forecasting and replenishment (CPFR)

Source: STEVENS Institute of Technology

 Uncertainty Issue
Demand-Management Activities
Forecasting Order service
(uncertainty) (certainty)

Demand management

RULE: Do not forecast what you can plan, calculate, or extract

from supply chain feedback.

Source: Adapted from Plossl, “Getting the Most from Forecasts,” APICS 15th International Conference Proceedings,
1972

Supply Chain Engineering MN 799

 Uncertainty Issue
Forecast Issues
• Forecasts are never right
– Very unlikely that actual demand will exactly equal forecast
demand

• The longer the forecast horizon, the worse the forecast

– A forecast for a year from now will never be as accurate as a
forecast for 3 months from now

• Aggregate forecasts are more accurate

– A demand forecast for all CV therapeutics will be more accurate
than a forecast for a specific CV-related product

Nevertheless, forecasts (or plans, if you prefer)

are important management tools when some
methods are applied to reduce uncertainty

Source: STEVENS Institute of Technology

 Coordination Issue

Supply Chain Coordination

• Supply chain coordination improves if all
the echelons act to increase the global
supply chain profit.
• Supply chain coordination requires that
each echelon takes into account the impacts
of its actions on every other supply chain
echelon.

Supply chain management

 Coordination Issue

Lack of Supply Chain

Coordination: Causes
• Different supply chain echelons have different
owners  different goals. Each echelon
maximizes its profit, thus reducing the global
profit of the supply chain.
• The information exchanged among different
supply chain echelons is delayed or distorted 
such distortion is amplified by the great variety of
products.
 Coordination Issue

The Current Supply Chain Challenge

Reaching a good level of coordination, despite

the great number of owners and the growing
variety of products.
Evolution of supply chain models:
Control tower

E2E approach
 Explanation of a supply chain
Control tower

https://www.youtube.com/watch?v=pdcJJp
sOPGw
Example of Control Tower
Example of Control Tower
 Relations within the Supply Chain

• 7 key trend in SC to solve the previous

issues

https://www.youtube.com/watch?v=cqufnkO3
kQ8
 In your example define the flow of
information; also define the subject
(department, client, supplier) that
originates the information or the data

Source: STEVENS Institute of Technology

 In your example define :
- Who manages the demand
- How is possible to reduce the
uncertainty
- In which way it is possible to
increase the coordination

Source: STEVENS Institute of Technology

Thank you!