Module 2

• Supply chain 


  Consists of a network of firms and locations that begins with raw materials and ends with final users
• The supply chain consists of suppliers, manufacturers, wholesalers, and retailers.
• 5 Levels of the Supply Chain

  1. Tier 2 suppliers
  2. Tier 1 suppliers
  3. Manufacturers
  4. Distributors
  5. Retailers
• Tier 2 suppliers


  Make individual components
• Tier 1 suppliers


  Make more complex product components
• Manufacturers


  Products are designed and assembled
• Distributors


  The step between manufacturers and retailers
• Retailers 


  Provide assortment of products and sometimes assist customers with purchasing decisions
• Advantages of distributors

  1. Cost effective storage of inventory
  2. Faster delivery of lead times
  3. Smaller order quantities
• Distribution Centers

  1. Lower price per square meter of storage
  2. Less space Needed for the same amount of product
• Four Cost Metrics


  Procurement, Labor, Inventory, Transportation
• Procurement


  Cost of goods purchased from suppliers
• Labor 


  Wages and salaries of the individuals in supply chain functions
• Inventory


  Storage, maintenance, opportunity costs, obsolescence
• Transportation 


  Ocean/water transport, railroad, trucking, air transport
• Service Metrics


  Lead Time and Inventory availability
• Lead time 


  Time between an order is about received and when it is delivered
• In stock availability


  The probability that all demand is served within an interval of time
• Stock out probability


  The probability that the demand for an item exceeds its inventiry during a period of time
• Fill Rate


  Fraction of demand satisfied
• Variability due to demand


  Changes in demand for products over the day
• Variability due to Supply Chain Performance


  Failure in quantity, quality, finances, and operating practices
• Variability due to Disruptions

  Natural disruptions, political/economic disruptions
• Variability due to bullwhip effect

  Tendency for demand to become more volatile at higher levels of the supply chain(Caused by overreactive orderinf, batching, and price promotions)
• Tactical decisions(short term decisions)
• Strategic decisions(long term decisions)
• Efficient supply chain delivers

  1. Low procurement cost
  2. Large lot sizes/inventory
  3. Long lead times
  4. Little flexibility
• Responsive supply chain delivers

  1. Short lead times
  2. Variety of products and quantities
  3. High service levels
  4. Flexibility of products
• Goals of Supply Chain Strategy

  1. Reduce variability
  2. Increase flexibility
  3. Reduce costs
• Inventory 


  Physical units within a process that are used for the production of goods or the delivery of services
• Types of inventory

  1. Raw material inventory
  2. Work in process inventory(WIP)
  3. Finished goods inventory
• Raw material inventory 


  Used as input to a process
• Work in process inventory

  materials and components used within the process to complete the product
• Finished goods


  no longer requires additional processing
• Forecasting


  Forecasting future demand is essential for inventory management
• Product and Demand Tracking

  Need good data on how much product you have and actual demand to produce good forecasts and implement technology to improve data accuracy
• Analytical skills


  Use data to make good decisions
• Product Transportation and Handling Assets

  Resources needed to physically move inventory quickly, safely, and cost effectively
• Flow time: Since flow time cannot be zero, there is always inventory in a process
• Production Smoothing due to Seasonality

  When capacity is less than what is needed during peak demand but too much during off-peak times, you can use a production smoothing strategy