COMM 399 Logistics and Operations Management

Supply Chain Management:

Overview
1

Supply Chain Example:

Amazon.com

Amazon Fulfillment Centers

How about in Canada?

4

Supply Chain Example:

Detergent
What are different firms
involved in the supply
chain of this product?

Detergent Supply Chain

P&G or other
manufacturer

Third
party DC

Plastic
Producer

Tenneco
Packaging

Chemical
Paper
manufacturer
Manufacturer
e.g. Oil Company)

Safeway

Customer wants
detergent

Chemical
manufacturer
(e.g. Oil Company)

Timber
Industry

Supply Chain Management

The system of suppliers, manufacturers,
transportation, distributors, and vendors that
exist to
Transform raw materials to final products, and
Supply those products to customers

The raw material, work-in-process, and finished

goods (FG) in inventory
The information, money, and people associated
with the system
Also called: the value chain, the logistics
network, the distribution network
7

Supply Chain
Consists ofSupplier

Manufacturer Distributor

Upstream

Aims to match
supply and demand
(profitably for
products and
Achieves
services)

Retailer Customer

Downstream

SUPPLY SIDE

+ + + + +

DEMAND SIDE

The right

The right

The right The right

The right

The right

Product

Price

Store

Customer

Time

Quantity

Higher

Profits
8

Sources:
plants
vendors
ports

Field
Regional
Warehouses:
Warehouses: stocking
stocking
points
points

Customers,
demand
centers
sinks

Supply

Inventory &
warehousing
costs
Production/
Transportati
purchase
Transportati
on
on
costs
costs
Inventory & costs
warehousing
costs

Flows in a Supply Chain

Material
Information
Funds
SUPPLIER

CUSTOMER

The flows resemble a chain reaction

10

Supply Chain Challenges

Glitch-Wrong
material
Machine is down

supplier

High inventories
throughout the
chain

factory

Frequent supply
shortages

distributor

Inefficient logistics

Low order fill rates

High stockouts

retailers

customers

Inefficient
promotions
11

Supply Chain Challenges

Conflicting Objectives in Supply Chain
Purchasing /

Suppliers
Stable volume
Stable volume
requirements
Flexible delivery time
Little variation in mix
Large quantities

supplier

factory
Manufacturing
Long run production
High quality
High productivity
Low production cost

Warehousing

Low inventory
Reduced transportation
costs
Quick replenishment
capability

distributor

retailers

customers

Customers

Short order lead time

High in stock
Enormous variety of
products
Low prices
12

Increasing Variability of Orders

Up the Supply Chain

Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review

13

US PC Supply Chain
Changes in
demand

Annual percentage changes in

demand (in $s) at three levels of a the
semiconductor supply chain: personal
computers, semiconductors and
semiconductor manufacturing
Semiconductor
equipment.
Equipment

80%
60%
40%
20%

PC

0%
-20%

Semiconductor

-40%
1995

1996

1997

1998

1999

2000

2001

14

Sequential vs. Global

Planning

Sequential Planning

Procurement Manufacturing Distribution

Planning
Planning
Planning

Demand
Planning

Global Planning

Collaboration,
Coordination,
Information Sharing

Procurement Manufacturing Distribution

Planning
Planning
Planning

Demand
Planning
15

Causes

The Bullwhip Effect

The variance of orders is greater than that

of sales, and the distortion increases as
Avoid misleading forecast
one moves upstream
updates
Forecasting Share demand info throughout SC
Updates and Increase visibility of inventory
throughout SC
Lead Time
Develop trust and good working
Delays
relationships
Reduce lead times
Order
Reduce/Eliminate fixed
Batching
costs
(Fixed
Costs)
Price
Fluctuations Stabilize prices
(Forward Buying)
Rationing
and
Eliminate gaming and
Shortage
shortage situations
Gaming

16

International Issues
Why globalization? What are the
driving forces?

17

Transfer Pricing: Example

Shanghai,
China
(manufacturer)

Vancouver,
Canada
(retailer)

18

Transfer Pricing: Example

Manufacturer
tax rate

25%

Manufacturers
Profit

BC Retailer
tax rate

Price of
intra-firm
transaction?

30%

Retailers
Profit

19

TP Method for Tax purpose

U.S. Treasury regulation section
1.482-3
Methods to determine taxable income
in connection with a transfer of tangible property
1.482-3 Methods to determine taxable income in connection with a transfer of tangible property.
(a) In general. The arm's length amount charged in a controlled transfer of tangible property must be
determined under one of the six methods listed in this paragraph (a). Each of the methods must be
applied in accordance with all of the provisions of 1.482-1, including the best method rule of
1.482-1(c), the comparability analysis of 1.482-1(d), and the arm's length range of 1.482-1(e).
The methods are -(1) The comparable uncontrolled price method, described in paragraph (b) of this section;
(2) The resale price method, described in paragraph (c) of this section;
(3) The cost plus method, described in paragraph (d) of this section;
(4) The comparable profits method, described in 1.482-5;
(5) The profit split method, described in 1.482-6; and
(6) Unspecified methods, described in paragraph (e) of this section.

Comparable Uncontrolled Price

Resale Price

(b) Comparable uncontrolled price method -- (1) In general. The comparable uncontrolled price
method evaluates whether the amount charged in a controlled transaction is arm's length by
reference to the amount charged in a comparable uncontrolled transaction.
(2) Comparability
and reliability considerations -- (i) In general. Whether results derived from applications of this
method are the most reliable measure of the arm's length result must be determined using the
factors described under the best method rule in 1.482-1(c). The application of these factors under
the comparable uncontrolled price method is discussed in paragraph (b)(2)(ii) and (iii) of this section.
(ii) Comparability -- (A) In general. The degree of comparability between controlled and
uncontrolled transactions is

Cost Plus

20

Partner-Competitor Relationship:
Complexity

21

Close-Loop Supply Chains

Disposable Cameras
Closed-Loop Supply
Chains

Refillable
Cartridges

Cell phones
22

Interface Floor
Worlds largest provider of commercial
carpet tile
Goal: Zero environmental impact by 2020
Idea: Evergreen Services Agreement
Carpet would be leased, not sold; then,
recycled

Supply Chain related issues

One centralized recycling facility, or
decentralized?
License recycling technology?
Impact on the current manufacturing strategy?

23

Supply Chain and Sustainability

Carbon Footprinting

24

Carbon Footprinting and SC

Networks

25

Agriculture Supply Chain

Water

Farmers

Percentage of Water
(Groundwater & Irrigation)
Used for Agriculture

70%
Retailer

Past Five
Decades

Wholesale/
Processor

12%
Agricultural
Land

Land Per
Capita

40%

(90% in India)

2X

Cropping
Intensities

Production Crop Yield

26

Challenges
Water
Increased
Demand
Variability

Farmers
Access to
Water
Yield Rate
&
Uncertainty
Price
Uncertainty

National Food Security

Government Rural Poverty & Equity
Environment
sustainability

Processing
Company
Reliability
of Supplies
Price
Uncertainty
Quality
Control
Subsidy
(Water)
Price
Protection
Suboptimal!
27

Contract Farming: Win-Win-Win

Farmers

Processing Company

Stability
Access: Capital,
information and
technology
Higher revenue

Water

Secure supply
Quality-controlled
Improved efficiency
and lower cost
Waterfootprinting
More efficient allocation
Reduced demand: Improved
technology or crop choices
28

Supply Chain and Sustainability

Public-Private Partnership
Africa: Coke's Last Frontier
Sales are flat in developed
countries. For Coke to keep
growing, Africa is it

29

Earthquake in Japan 2011

30

Reading
Required Reading
An Interview with Dell Computers
Michael Dell (Harvard Business Review,
March-April 1998, available from the
UBC library)

Recommended Reading
C&T 2/e Sections 16 Supply Chain
Coordination Sections 16.1-2
JCA 12/e Chapter 10 Supply Chain
Strategy
31