Supply Chain: Basic Concepts

• What is a Supply Chain?

• What are the problems involved in Supply
Chain Management?
• What are the levels of planning in Supply
Chain Management?

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary

 What is a Supply Chain?
• It is not a “one-way” chain, but a network
of stages
• Consists of all stages involved in fulfilling
customer demand
• Includes: Manufacturers, External
Suppliers, Vendors, Transporters,
Warehouses, Retailers, Customers

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary

 Schematic of a Nationwide
Supply Chain

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary

 Another Schematic
Upstream
Representation
Downstream

Suppliers Pre-
Manfr Warehouses Customers
assembly
Plants
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
 Example: Dell
• Customer
• Website
• Assembly Plants
• Warehouses
• Dell’s suppliers and their suppliers
• Dell “builds-to-order”
• Dell does not have retailers, wholesalers
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
 Example: Toyota
• Produces nearly 900,000 vehicles annually
• Over 35 manufacturing plants in 25 countries
outside of Japan
• For plants in the U.S., supply parts are shipped
across the Pacific, and transported on rail
• Deliveries are scheduled to the minute to keep
inventories low (Just-in-time)
• Complicated network with uncertainties

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary

 Problems in Managing the
Supply Chain
• Customer Service Goals
• Facility Location
• Inventory Decisions
• Transportation

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary

 Decision Levels
• Strategic:
– Long term, permanence of many years
• Tactical
– Intermediate time range, usually three months
to a year
• Operational
– Short range, week or less

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary

 Decision Levels: Examples
• Transportation
– Strategic: Mode Selection
– Tactical/Operational: Routing, scheduling
• Location
– Strategic: No. of plants and locations
– Tactical: Assigning inventory positions
• Warehouse
– Strategic: Layout, site selection
– Operational: Order picking
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
 Logistics in Economy
(1990, 1996)
• Freight Transportation: $352, $455
Billion
• Inventory Expense : $221, $311 Billion
• Administrative Expense: $27, $31 Billion
• Logistics related activity: 11%, 10.5% of
GNP

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary

 Cost Break-up for a
Manufacturing Firm
Profit
• Profit 4% Logistics
Cost

Marketing
• Logistics Cost 21% Cost

• Marketing Cost 27%

Manufacturing
Cost

• Manufacturing Cost 48%

ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary
 Logistics: True Magnitude
• Compaq estimates it lost $0.5 billion to $1 billion in
sales in 1995 because laptops were not available when
and where needed
• P&G estimates it saved retail customers $65 million
by collaboration resulting in a better match of supply
and demand
• When the 1 gig processor was introduced by AMD,
the price of the 800 meg processor dropped by 30%
• Kmart versus Walmart
ISyE 3103 Supply Chain Modeling: Logistics Siddhartha Maheshwary