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MITCenter for

Transportation & Logistics

CTL.SC1x -Supply Chain & Logistics Fundamentals

Introduction to Logistics & SupplyChain Management


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CTL.SC1x - Supply Chain and Logistics Fundamentals Lesson: Introduction to Supply Chains

Five Questions

1. What is a supply chain?

2. What are logisticsand supply chain management?

3.

How should you view SCM?4. What are the challenges

5. Why should you care?

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What is a Supply Chain?

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Two or more parties linked by a flow of resources typically material, information, and money that ultimately

fulfill a customer request.

Information (order)

Money (payment)

Information (status)

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Material (delivery)


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What is a supply chain?

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Bicycle

Wholesaler

Retailer

Customer

Wholesaler

Retailer

Retailer

Customer

Customer

Customer

Retailer

HardwareSupplier

FrameSupplier

TireSupplier

CastingPlant

GearSupplier

PaintSupplier

PedalSupplier

Supplier

RubberMfg

PigmentSupplier

ChemicalMfg

Supplier

Smelter




The primary purpose of a SC is to satisfy customer needs.! Only one source of revenue the customer

!

Payments between parties are just fund exchanges

! Division of intra-SC payments are a function of power, market

conditions, etc.

Supply Chains try to maximize the total value generated! = [What customer pays] [Total effort expended to fulfill]

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Logistics versus Supply Chain Mgmt

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What is Supply Chain Management?

Supply Chain Management deals with the management of materials,information, and financial flows in a network consisting of suppliers,manufacturers, distributors, and customers.

Stanford Supply Chain Forum

Call it distribution or logistics or supply chain management. Bywhatever name it is the sinuous, gritty, and cumbersome process bywhich companies move material, parts, and products to customers.

Fortune (1994)

Logistics involves . . . managing the flow of items, information, cashand ideas through the coordination of supply chain processes andthrough the strategic addition of place, period and pattern values.

MIT Center for Transportation & Logistics

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Logistics vs. SCM

According to the Council of Supply Chain Management Professionals . . .

! Logistics management is that part of supply chain management thatplans, implements, and controls the efficient, effective forward and reverseflow and storage of goods, services and related information between the

point of origin and the point of consumption in order to meet customers'requirements.

! Supply chain management encompasses the planning andmanagement of all activities involved in sourcing and procurement,

conversion, and all logistics management activities. Importantly, it also

includes coordination and collaboration with channel partners, which canbe suppliers, intermediaries, third party service providers, and customers.

In essence, supply chain management integrates supply and demandmanagement within and across companies.

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Source: Used by permission, Council of Supply Chain Management Professionals, http://cscmp.org/.



Supply Chain ManagementPerspectives

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Supply Chain Perspectives

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Image Source: Arntzen, B. MIT Center for Transportation & Logistics, Hi-Viz Research Project (2013)



Supply Chain Perspectives

Suppliers

Manufacturers

Distributors

Customers

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Process View of Supply Chains

Four Primary Cycles!

Customer Order Cycle

!

Replenishment cycle

! Manufacturing Cycle

!

Procurement Cycle

Cycles Occur Between Stages!

Interactions differ at each stage

Not every SC will have all 4 Cycles

Procurement Cycle

Manufacturing Cycle

Replenishment Cycle

Customer Order Cycle

Customer

Retailer

Distributor

Manufacturer

Supplier

Adapted from Chopra & Meindl Supply Chain Management

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Macro Process (Software) Perspective

Supplier RelationshipManagement!

Sourcing!

Negotiation!

Buying

! Design and Supply

Collaboration

Customer RelationshipManagement!

Marketing!

Selling!

Call Centers

! Order Management

Internal Supply ChainManagement!

Strategic Planning!

Demand Planning!

Supply Planning

! Fulfillment

SRMsource

ISCMmake, move, store

CRMsell

Different macro processes should be aligned!

Fall under different groups (Marketing-CRM, Manufacturing-ISCM, Purchasing-SRM)

!

Forecasts, schedules, design, etc. should be coordinated

Supplier

CustomerFirm

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Traditional Functional Perspective

Purchasing / Procurement!

What to buy from who!

Corporate vs Group

Inventory Control!

How much to stock where!

Trigger points! Replenishment plan

Warehousing! Storage, Mixing, Break bulk!

Pick Pack and Ship!

What to stock where in WH Materials Handling!

How to move product! Packaging, containerization!

Storage layout

Order Processing!

Receiving, Entry & Status!

Order Management

Transportation!

Inbound versus Outbound!

Domestic versus International! Modal control (Rail, TL, LTL,

Parcel, Air, etc.)

Customer Service! Geographic!

Product Line Specific

Planning Group!

Facility Location!

Network Design! Demand Planning

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Systems Perspectiveof Supply Chains

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Take an Engineering Systems Perspective!

What is a variable and what is a constraint?!

Continuous expansion of decision variables! Increases potential for improvement but increases both

complexity and coordination requirements

Purch

asing

Wareh

ousin

g

Inv

en

toryM

gm

t

MaterialH

an

dlin

g

Ord

erPro

cessing

Tran

sporta

tion

Custom

er

Sv

c

Objective: Deliver at lowest transport costVariable:

"Select carrier to tender each load toConstraints:

"Ship everything each day"Must deliver within specified windows

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Supply Chain as a System


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Purch

asing

Wareh

ousin

g

Inv

en

toryM

gm

t

MaterialH

an

dlin

g

Ord

erPro

cessing

Tran

sporta

tion

Custom

er

Sv

c

Objective: Deliver at lowest transport costVariables:"Select carrier to tender each load to"

Select time windows to deliverConstraints:

"Ship everything each day

Objective: Deliver at lowest total costVariables:

"Select carrier to tender each load to"Select time windows to deliver"

Select when to ship what from whereConstraints:

"

Deliver within negotiated time frame


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Purch

asing

Wareh

ousin

g

Inv

en

toryM

gm

t

MaterialH

an

dlin

g

Ord

erPro

cessing

Tran

sporta

tion

Custom

er

Sv

c

Pro

ductD

esign

Man

ufa

cturin

g Objective:"Design, build, and deliver at lowest total cost

Variables:"Select carrier to tender each load to"Select time windows to deliver"Select when to ship what from where"Select where to stock which form of product

Constraints:"Deliver within negotiated time frame


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Purch

asing

Wareh

ousin

g

Inv

en

toryM

gm

t

MaterialH

an

dlin

g

Ord

erPro

cessing

Tran

sporta

tion

Custom

er

Sv

c

Pro

ductD

esign

Man

ufa

cturin

g

Objective:"

Maximize on-shelf availabilityVariables:

"Select carrier to tender each load to"Select time windows to deliver"

Select when to ship what from where"

Select where to stock which form ofproduct"

Select contract relationships"Select who should control replenishment"

Which channel member should performwhich function

Constraints:"Total delivered cost to shelf

Retailer

Supplier


Why is this so hard to do?

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What are the major challenges?(Why is it so hard?)

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Why is it so difficult? 1/2

Metrics How do you measure a system?!

Trade-off of Breadth vs. Validity of metrics

! Outcome Based Logistics - Perfect order, Perfect Shelf

Politics and Power of Players - Who wins?! Mom & Pop Shop versus Mega-Stores

!

Mega Retailers vs. Mega CPG Manufacturers

Visibility Who can see what and how quickly?! Data are stored separately

!

All parties do not have equal access to data

!

Massive data !Shared & accessible information

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Why is it so difficult? 2/2 Uncertainty - Who knows what is going to happen?

! Variable demand of product (shorter lifecycles)

! Variable manufacturing yield

!

Unreliable sourcing of raw materials

!

Inconsistent transit lead times

Increased complexity Why is it getting harder?!

Exploding number of Stock Keeping Units (SKUs)

!

Higher and diverging customer demands

! New & merging channels (Omni-Channel)

Global operations Why dont we ever close?!

Most firms source & sell across globe

!

Multiple regions, time zones, languages, & cultures

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Why do we care?

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Why do we care?

Supply Chains . . .

! Span the globe and cannot be managed as an isolated function,

!

Have become critical to any organizations operations, and

!

Connect functions, divisions, and business units within a firmas well as across firms.

Evolved into being both a Bridge and a Shock Absorber

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By Wsvan; cropped by Beyond My Ken (talk) 01:29, 14 October 2013 (UTC) (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (

http://commons.wikimedia.org/wiki/File:Leonard_P._Zakim_Bunker_Hill_Bridge_-_Boston,_MA.jpg"Mini Shocks" by Avsar Aras - Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons - http://commons.wikimedia.org/wiki/

File:Mini_Shocks.JPG#mediaviewer/File:Mini_Shocks.JPG


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Example: Variability of #2 Diesel Pricing

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2

2.2

2.4

2.6

2.8

3

3.2

3.4

3.6

3.8

4

4.2

4.4

4.6

4.8

Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 May-14 Nov-14

OnHighwayPriceof#2Diesel($/gallon)

Data Source: U.S. Energy Information Administration, http://www.eia.gov/petroleum/gasdiesel/diesel_proc-methods.cfm


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Logistics Costs per GDP

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2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1980 1985 1990 1995 2000 2005 2010 2015

PercentageofUS

GDP

Year

US Inventory Holding Cost US Transportation Cost Total US Logistics Cost

!"#$

&'()*+,

-./ 0123)*4,

+$#.2 0123)*4,

!"#! %&'! '(" ''#

!"#( )&%( ''* '*)

!""+ (&"# '#% %(!

!""( *&,, %+' ))!'+++ !+&'" %#( (")

'++( !%&! )!+ *%"

'+!+ !)&", )'" *,"

'+!% !, )," #,'

Data Sources: Council of Supply Chain Management (2014) 25th Annual State of Logistics Report


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Still, why do we care?

Key Skills Technically Narrow Coordination

Influence Local & Controllable Across entire Supply Chain

Leadership Hierarchical, Direct,Hard

Influential, Indirect, Soft

Risk Management Robust or Reactionary Planned Response & Flexibility

Measurement Single Focus Multi-faceted

Technology

Approach

Isolated Optimization Visibility & Coordination

TechnologyPlatform

Self-Hosted, On-site Cloud or SaaS

Scope / Reach Regional / National Global / Multi-National

Functional Logistics Supply Chain

Supply Chain Management is a growing and evolving discipline.

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MITCenter for

Transportation & Logistics

CTL.SC1x -Supply Chain & Logistics Fundamentals

Questions, Comments, Suggestions?

Use the Discussion!

[email protected]

"Boxer (2)" by Dezidor - Own work. Licensed under Creative Commons Attribution 3.0 viaWikimediaCommons - http://commons.wikimedia.org/wiki/

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