DOS3701/DSC3201

Supply Chain Management

Semester I, 2019/2020

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• Instructor
• Lucy G. Chen
• Associate Professor
• Department of Analytics and Operations
• Office: BIZ1 #08-60
• Email: bizcg@nus.edu.sg
• Phone: 6516-3013
• Consultation:
• Tue: 10:30am – 11:30am
• Or by appointment through email

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Information Card

• Name: ___________
• Faculty: __________
• Knowledge in probability and calculus
• None
• Some
• Profound
• BIZ modules taken before (for non-Biz
students): ___________
• Whatever else you’d like to say: __________

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Course Administration
• Be punctual!
• Cell phones should be turned off or silenced.
• Laptops are generally not allowed in class.
• Class participation – attitude, comments, attendance
• Absence will be excused only with a valid LOA
• Assessment
• Class Participation – 10%
• Individual homework – 20%
• Group homework – 15%
• Group Project – 15%
• Report – 10%
• Presentation – 5%
• Final exam – 40%
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Homework

• Homework, if any, will be uploaded by Saturday

night every week
• Due on the following Thu 10pm.
• Teams may be called to present their group
homework in class

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Homework Submission
• Submission must be through IVLE
• Submit to “Student Submission” folder
• Allowed submission format: Word, Excel, or PDF
• Need to show detailed working
• Format for the file name
• Individual Homework: Homework_1_A1_Student Number
(for Homework 1 from Sectional Group A1, by A0123456B)
• Group Homework: Homework_1_A1_T5 (for Homework 1
from Sectional Group A1, Team 5)
• For group homework, remember to include the Names
and Student Numbers for all the team members

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Late Submission

• No late-submission is accepted.
• Wrong file name = no-submission!

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Prerequisite

• DSC2006/DAO2703
• Basic understanding on probability and
calculus
• E.g., uniform distribution, normal distribution,
derivative, etc.

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 Textbook
• Designing and Managing the
Supply Chain: Concepts,
Strategies and Case Studies
• By David Simchi-Levi, Philip
Kaminsky, and Edith Simchi-
Levi
• Third Edition (International
Edition)
• Publisher: McGraw Hill

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Lesson Plan
Week Lecture Topic*
1 Introduction to Supply Chain Management
2 Inventory Management and Risk Pooling
3 Single Period Inventory Model and Supply Chain
Coordination
4 Network Design
5 Supply Chain Game
6 Value of Information
Term Break!
7 Supply Chain Integration
8 Global Supply Chain
9 Coordinated Product and Supply Chain Design
10 No Class! (Instructor away for a conference)
11 Pricing Strategies
12 Sustainable Operations
13 Group Project E-presentation

*subject to change
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 Introduction to
Supply Chain Management

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What is a Supply Chain?

Timber Paper Pactiv

Company Manufacturer Corporation

P&G or other Third Cold

Customer
manufacturer party DC Storage

Chemical Plastic
manufacturer Producer

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What is a Supply Chain?
• Flow of products and services from:
• Raw materials manufacturers
• Intermediate products manufacturers
• End product manufacturers
• Wholesalers and distributors and
• Retailers
• Connected by transportation and storage
activities
• Integrated through information, planning, and
integration activities

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Flows in a Supply Chain
• Material flow
• raw materials, intermediate products, finished goods,
customer returns, recyclables, remanufacturables
• Information flow
• sales, orders, inventory, promotions, deliveries
• Financial flow
• credits, payments, invoices

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 Customers,
Field demand
Sources: Regional Warehouses: centers
plants Warehouses: stocking sinks
vendors stocking points
ports points

The picture can't be displayed.

Supply

Inventory &
warehousing
costs
Production/
purchase Transportation Transportation
costs costs costs
Inventory &
warehousing
costs 15
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 Background of Food-From-
The-Heart

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On a Mission to Save Food
No. of Collection
115
bakeries

No. of receiving
95
homes

No. of fixed
192
routes (daily)

Quantity of bread
20,000 kg/mth
saved

(Data are from www.foodheart.org)

• Target:
• Send the unsold bread of bakeries to needy homes and families

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Issues Arising From FFTH
• Fixed delivery route and
schedule
• Random supply from each
bakery
• The “food-saving” program
ends up throwing away food!
• How to match random supply
with constant demand?
• Design a flexible delivery
process

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What is Supply Chain Management?
• Supply chain management is 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.

• Notice:
• Everyone is involved
• Systems approach to reducing costs
• Integration is the key

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The Objective of a Supply Chain

• Maximize the overall value generated

• Supply Chain Surplus
= Customer Value – Supply Chain Cost
• Supply chain success should be measured in
terms of supply chain surplus and not in terms
of profitability at individual stages.

Global Optimization!

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 Supply Chain Costs
• Example: The Apparel Industry
Cost per Percent
Shirt Saving

Manufacturer Distributor Retailer Customer $52.72 0%

Manufacturer Distributor Retailer Customer $41.34 28%

Manufacturer Distributor Retailer Customer $20.45 62%

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Supply Chain Costs
• Median Supply Chain Costs as a Percentage of
Revenue
Segment Percentage
Apparel, Fabric and Accessories 5.2%
Automotive, Truck and Vehicles 5.7%
Beauty, Health and Wellness 4.5%
Department Store and Discount 4.5%
Electronics and Electricals 5.0%
Food and Beverage 6.0%
Hobby, Toys, Arts, Crafts and Sporting Goods 4.4%
Home Products/Furniture/Appliances 5.0%

* Supply chain cost is defined as transportation, DC, LSP and overhead costs.
Supply Chain: The Challenge
• Geographically dispersed complex network
• Conflicting objectives of different facilities
• Dynamic system
• Uncertainty and Risk
• Matching demand-supply is difficult
• Status of Logistics Knowledge
• Many problems are new
• Incomplete understanding of issues
• Methodology is rather narrow

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Complex Network
National Semiconductor:
• Production:
– Produces chips in six different locations: four in the US,
one in Britain and one in Israel
– Chips are shipped to seven assembly locations in
Southeast Asia.
• Distribution
– The final product is shipped to hundreds of facilities all
over the world
– 20,000 different routes
– 12 different airlines are involved
– 95% of the products are delivered within 45 days
– 5% are delivered within 90 days.

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Supply Chain: The Challenge
• Geographically dispersed complex network
• Conflicting objectives of different facilities
• Dynamic system
• Uncertainty and Risk
• Matching demand-supply is difficult
• Status of Logistics Knowledge
• Many problems are new
• Incomplete understanding of issues
• Methodology is rather narrow

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Conflicting Objectives in the
Supply Chain
• Suppliers
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
• Manufacturers
• Long run production
• High quality
• High productivity
• Low production cost

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Conflicting Objectives in the
Supply Chain
• Warehouses
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
• Customers
• Short order lead time
• High in stock
• Enormous variety of products
• Low prices

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Supply Chain: The Challenge
• Geographically dispersed complex network
• Conflicting objectives of different facilities
• Dynamic system
• Uncertainty and Risk
• Matching demand-supply is difficult
• Status of Logistics Knowledge
• Many problems are new
• Incomplete understanding of issues
• Methodology is rather narrow

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The Dynamic Supply Chain

• Increasing customer power leads to increased

demands on retailers
• Increased retailer power leads to increased
demands on suppliers

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Supply Chain: The Challenge
• Geographically dispersed complex network
• Conflicting objectives of different facilities
• Dynamic system
• Uncertainty and Risk
• Matching demand-supply is difficult
• Status of Logistics Knowledge
• Many problems are new
• Incomplete understanding of issues
• Methodology is rather narrow

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Order Size
The Dynamics of the Supply Chain

Customer
Demand

Retailer Orders
Distributor Orders

Production Plan

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

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Order Size
What Management Gets...

Customer
Demand

Production Plan

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

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 What Management Wants...
Volumes

Production Plan
Customer
Demand

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

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Uncertainty and Risk Factors
• June 2018 – US-China trade war
• A US cargo ship carrying soybeans has been
circling off the Chinese coast for over a month.
• $12,500 a day to continue chartering the ship v.s.
$6 million extra cost due to the tariff
• March 2011 – Japan Tsunami
• General Motors (GM) had to close plants in the
U.S. due to a lack of parts sourced from Japan.
• The cost to GM was estimated to be in the millions.
• 2001 India (Gujarat state) earthquake
• Supply interruptions for apparel manufacturers
Supply Chain: The Challenge

• Geographically dispersed complex network

• Conflicting objectives of different facilities
• Dynamic system
• Uncertainty and Risk
• Matching demand-supply is difficult
• Status of Logistics Knowledge
• Many problems are new
• Incomplete understanding of issues
• Methodology is rather narrow

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Supply Chain: The Potential

• In two years, National Semiconductor

reduced distribution costs by 2.5%, delivery
time by 47% and increased sales by 34% by
• Closing six warehouses around the globe.
• Air-freighting microchips to customers from a new
centralized distribution center.

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Supply Chain: The Potential

• In 10 years, Wal-Mart transformed itself by

changing its logistics system.
• Highest sales per square foot, inventory turnover
and operating profit of any discount retailer.
• Laura Ashley turns its inventory 10 times a
year, five times faster than three years ago.
This is achieved by using
• New Information System
• Centralized Warehouse

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Supply Chain: The Potential

“For a company with annual sales of $500 million

and a 60% cost of sales, the difference between
being at median in terms of supply chain
performance and in the top 20% is $44 million
of additional working capital.”

-- PRTM Director Mike Aghajanian

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Best Supply Chain Practices

• 2018 Gartner Supply Chain Top 25

1. Unilever 2. Inditex 3. Cisco 4. Colgate- 5. Intel
Systems Palmolive
6. Nike 7. Nestlé 8. PepsiCo 9. H&M 10. Starbucks

11. 3M 12. Schneider 13. Novo 14. HP Inc. 15. L'Oréal

Electric Nordisk

16. Diageo 17. Samsung 18. Johnson 19. BASF HP 20. WalMart
Electronics & Johnson Inc. Inc.

21. Kimberly- 22. Coca-cola 23. Home 24. Adidas 25. BMW
Clark Company Depot

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Supply Chain Example - Zappos

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Drop Ship Model (2003, 25% of sales)

Order Order

• Advantages

• Disadvantages

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Warehousing and Inventory
Management
• Originally outsourced to eLogistics.
• Eventually opened their own warehouse
• “As an e-commerce company, we should have
considered warehousing to be our core
competency from the beginning. Outsourcing
that to a third party and trusting that they would
care about our customers as much as we
would was one of our biggest mistakes”

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Vendor Relations
• Traditionally, relationship with vendors is often
hostile
• Zappos thinks “Supply chains compete, not
companies”
• Build a close and friendly relationship with
vendors
• Collaborate with vendors by sharing
information and create true transparency

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Supply Chain Decisions
• Strategic Level
• Decisions that typically involve major capital investments and
have a long-term effect.
• E.g., Number, location, and capacity of warehouses and
manufacturing plants, product design, supplier selection,
outsourcing decisions
• Tactical Level
• Effective allocation of manufacturing and distribution
resources over a period of several months
• E.g., purchasing and production decisions, inventory policies,
transportation strategies
• Operational Level
• Day-to-day operational decisions
• E.g., scheduling, routing, truck loading
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Key Issues in Supply Chain
Management
• Inventory
• Sourcing
• Production
• Distribution
• Product Design
• Information Systems
• Pricing

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ISSUES: Inventory

• Reasons for holding inventory

• Uncertainty in customer demand
• Uncertainty in the supply
• Uncertainty in quantity and quality
• Uncertainty in delivery time
• Uncertainty in costs
• Economies of scale
• Pipeline Inventory
• Work in process or transit

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ISSUES: Inventory

• How much to order?

• When to order?
• Can uncertainty be reduced?
• How does forecasting tool affect inventory
level?

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ISSUES: Sourcing
• What to Purchase
- In-house production Vs. external suppliers
• Where to purchase
- Domestic Vs. international
• From whom to purchase
- Cost
- Reliability: quality and on time delivery
- Availability and flexibility

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ISSUES: Sourcing

• Centralized Vs. Decentralized

• Number of suppliers:
Single sourcing Vs. Multiple sourcing

• Supply contracts

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ISSUES: Production
• Location of manufacturing plants
• Production cost
• Taxes
• Incentives (by government)
• Proximity to markets and raw materials
• Transportation infrastructure
• Political stability and culture

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ISSUES: Production

• Flexibility
• The ability to produce different products
simultaneously and efficiently
• The ability to produce new products efficiently

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ISSUES: Production
• Efficiency
• Low cost
• Short lead time
• Reliability
• On-time delivery
• Quality

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ISSUES: Distribution

• The structure of the distribution network

• The distribution strategy
• The Classical Strategy
• Cross Docking
• Direct Shipping

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ISSUES: Product Design

• What role does product design play in supply

chain management?
• When is redesigning products worth the cost?
• Can product design compensate for
uncertainty in customer demand?

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ISSUES: Information Systems

• The advantages of advanced information

systems
• The challenge of unlimited data
• The role of e-commerce
• Impact of the internet

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ISSUES: Pricing

• Can be used to match supply with demand

• Can be used to improve efficiency and
responsiveness
• Pricing decisions
• Everyday low pricing versus high-low pricing
• Fixed price versus menu pricing, depending on the
product and services

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Readings

• Chapter 1

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