INTERNATIONAL SUPPLY CHAIN MANAGEMENT
CHAPTER 1: INTODUCTION
3 Types of flows:
1. Flow of materials: range from raw materials to work in progress to all the way to finished goods.
(raw materials, work in progress, finished goods)
2. Information flow: order confirmation or dispatch advice. (about how much is sold – info of
costumer )
3. Reverse flow of funds: money that flows back into the supply chain.
The reverse flow can be in the form of:
Goods
Information
Packaging material
Transportation equipment
There are two forces in the chain of goods, information and funds:
Product supply
Customer demand high degree of customization
Commodities (tea, coffee, rice etc.) and household equipment, electronics and general fashion
clothes, are likely to be produced on a product supply basis. The supply chain starts supplying before you
come into the supermarket to buy some tea bags.
High degree of customization (tailor-made clothes, customized tools and dinner in an up-market fish
restaurant) are more likely to be product on customer demand basis. The chain starts moving after you
1
,have expressed your wish or order.
Plan process: balance demand and supply to develop a course of action to meet sourcing, production
and delivery need.
1. Source: Described the process of buying goods or services to meet planned or actual demand.
Find suppliers of your product in order to source your materials that you need for production.
Can also be called purchasing or procurement.
2. Make: describes all processes that transform your raw materials or sub- assemblies into the
finished product with the aim to meet customer demand. (How to set up manufacturing?)
3. Deliver: Supply chain processes that provide finished goods to customers. (order management,
warehousing and transport management.)
4. Return: Comprises all tasks that are associated with the return of product. (quality reasons, for
recycling or for post-delivery customer support.)
3 supply chain players:
On the upstream side (towards supply) - supplier’s supplier at the beginning of the extended
chain.
Downstream side (towards demand) - customer’s customer/end customer at the end of the
extended supply chain.
Customers - distributors (take inventory in bulk), wholesalers (buy from distributors directly) or
retailers (stock products in smaller quantities and sell them to the general public)
Supply
Demand
2
, A. Simple supply chain B. Extended supply chain
Categories of companies that are service providers to other players in the supply chain such as:
transportation, warehousing, finance, market research, new product design, information. Specialize in
certain skills and expertise, provide these services more efficiently than manufacturers, distributors,
wholesalers, retailers or end customers.
The wave stands for inventory and you are constantly managing the level of inventory against the risk
of being out of stock. The challenge is to balance the level of inventory while maintaining a high level of
service.
Ex. 4 players: factory, distributor, wholesaler and retailer that source, produce and move beer within the
supply chain. Aim is to minimize total supply chain costs, which can be achieved through holding little
(not too little) inventory Bullwhip effect. A small change in real customer demand leads to a huge
amplification of the upstream demand signal and increased volatility of orders through suppliers. The
initial out of stock situation soon becomes a massive excess stock problem. In order to improve the
situation, we need to communicate, share a demand forecast between the different nodes and reduce
information and product flow lead-times.
3
,CHAPTER 2: GUIDE TO PLAN
Inventory = the quantity of goods that is available on hand or in stock.
Three main formats:
1. Raw materials
2. Work in progress
3. Finished goods
Why hold inventory?
- Protect against uncertainty
- Cost reduction through inventory is achieved
when stock is held close to the customer.
- Protect against quality defects.
- Stabilize manufacturing
- Anticipation stock
- Balancing supply and demand.
DIFFERENT TYPES OF INVENTORY
• Cycle or replenishment stock: This stock keeps the supply chain moving. Cycle stock is the
inventory necessary to meet the normal daily demand.
• Safety stock: This stock buffers against forecast error and the supplier’s unreliability.
• In-transit stock: This stock is in the process of being transported to a stocking or delivery point.
• Seasonal stock: This stock is built up in advance to meet increased sales volumes during a
particular time of the year.
• Promotional stock: This stock feeds into marketing campaigns and advertising.
• Speculative stock: This stock is held to protect against price increases or periods of limited
availability.
Dead or obsolete stock: This stock is no longer usable or saleable in the market
CYCLE STOCK
AS x costs of products = average cycle stock investment
SAFETY STOCK
4
, There are two parts of the equation to account for in the safety stock calculation:
a) Safety stock supply that covers unplanned production and delivery delays
b) Safety stock demand that covers unplanned changes in demand
Average demand can be calculated by summing up demands
from a number of time periods and dividing the sum by the
number of time periods.
Supplier uncertainty arises from orders taking different
lengths of time to arrive from suppliers. It thus describes
how reliable your supplier is. (in for instance days to late)
Reducing Inventory
There are four ways in which you can positively influence your safety stock position:
1. Reduce lead-time less safety stock is needed
2. Reduce supplier uncertainty as suppler become more reliable, less safety stock is needed
3. Reduce forecast error demand uncertainty can be reduced and thus less safety stock will be
needed
4. Reduce service level will positively impact your safety stock position. This decision of reducing
service levels to improve the overall safety stock position should be discussed and agreed together
with your customer
DEMAND AND SUPPLY PLANNING
DESCRIBING THE DEMAND
Demand can be segregated into various categories.
• Level of demand (High or Low)
• Frequency of demand (Fast of Slow)
• Patterns of demand (stable, trend or seasonal)
• Product life cycle positioning (launch, emerging, established, decline, withdrawal)
• Product classification product segmentation - Pareto’s law provides an approach to identify
which categories a product belongs to depending on their parentage turnover. (fast movers,
medium movers,
slow movers)
FORECASTING THE
DEMAND
5
CHAPTER 1: INTODUCTION
3 Types of flows:
1. Flow of materials: range from raw materials to work in progress to all the way to finished goods.
(raw materials, work in progress, finished goods)
2. Information flow: order confirmation or dispatch advice. (about how much is sold – info of
costumer )
3. Reverse flow of funds: money that flows back into the supply chain.
The reverse flow can be in the form of:
Goods
Information
Packaging material
Transportation equipment
There are two forces in the chain of goods, information and funds:
Product supply
Customer demand high degree of customization
Commodities (tea, coffee, rice etc.) and household equipment, electronics and general fashion
clothes, are likely to be produced on a product supply basis. The supply chain starts supplying before you
come into the supermarket to buy some tea bags.
High degree of customization (tailor-made clothes, customized tools and dinner in an up-market fish
restaurant) are more likely to be product on customer demand basis. The chain starts moving after you
1
,have expressed your wish or order.
Plan process: balance demand and supply to develop a course of action to meet sourcing, production
and delivery need.
1. Source: Described the process of buying goods or services to meet planned or actual demand.
Find suppliers of your product in order to source your materials that you need for production.
Can also be called purchasing or procurement.
2. Make: describes all processes that transform your raw materials or sub- assemblies into the
finished product with the aim to meet customer demand. (How to set up manufacturing?)
3. Deliver: Supply chain processes that provide finished goods to customers. (order management,
warehousing and transport management.)
4. Return: Comprises all tasks that are associated with the return of product. (quality reasons, for
recycling or for post-delivery customer support.)
3 supply chain players:
On the upstream side (towards supply) - supplier’s supplier at the beginning of the extended
chain.
Downstream side (towards demand) - customer’s customer/end customer at the end of the
extended supply chain.
Customers - distributors (take inventory in bulk), wholesalers (buy from distributors directly) or
retailers (stock products in smaller quantities and sell them to the general public)
Supply
Demand
2
, A. Simple supply chain B. Extended supply chain
Categories of companies that are service providers to other players in the supply chain such as:
transportation, warehousing, finance, market research, new product design, information. Specialize in
certain skills and expertise, provide these services more efficiently than manufacturers, distributors,
wholesalers, retailers or end customers.
The wave stands for inventory and you are constantly managing the level of inventory against the risk
of being out of stock. The challenge is to balance the level of inventory while maintaining a high level of
service.
Ex. 4 players: factory, distributor, wholesaler and retailer that source, produce and move beer within the
supply chain. Aim is to minimize total supply chain costs, which can be achieved through holding little
(not too little) inventory Bullwhip effect. A small change in real customer demand leads to a huge
amplification of the upstream demand signal and increased volatility of orders through suppliers. The
initial out of stock situation soon becomes a massive excess stock problem. In order to improve the
situation, we need to communicate, share a demand forecast between the different nodes and reduce
information and product flow lead-times.
3
,CHAPTER 2: GUIDE TO PLAN
Inventory = the quantity of goods that is available on hand or in stock.
Three main formats:
1. Raw materials
2. Work in progress
3. Finished goods
Why hold inventory?
- Protect against uncertainty
- Cost reduction through inventory is achieved
when stock is held close to the customer.
- Protect against quality defects.
- Stabilize manufacturing
- Anticipation stock
- Balancing supply and demand.
DIFFERENT TYPES OF INVENTORY
• Cycle or replenishment stock: This stock keeps the supply chain moving. Cycle stock is the
inventory necessary to meet the normal daily demand.
• Safety stock: This stock buffers against forecast error and the supplier’s unreliability.
• In-transit stock: This stock is in the process of being transported to a stocking or delivery point.
• Seasonal stock: This stock is built up in advance to meet increased sales volumes during a
particular time of the year.
• Promotional stock: This stock feeds into marketing campaigns and advertising.
• Speculative stock: This stock is held to protect against price increases or periods of limited
availability.
Dead or obsolete stock: This stock is no longer usable or saleable in the market
CYCLE STOCK
AS x costs of products = average cycle stock investment
SAFETY STOCK
4
, There are two parts of the equation to account for in the safety stock calculation:
a) Safety stock supply that covers unplanned production and delivery delays
b) Safety stock demand that covers unplanned changes in demand
Average demand can be calculated by summing up demands
from a number of time periods and dividing the sum by the
number of time periods.
Supplier uncertainty arises from orders taking different
lengths of time to arrive from suppliers. It thus describes
how reliable your supplier is. (in for instance days to late)
Reducing Inventory
There are four ways in which you can positively influence your safety stock position:
1. Reduce lead-time less safety stock is needed
2. Reduce supplier uncertainty as suppler become more reliable, less safety stock is needed
3. Reduce forecast error demand uncertainty can be reduced and thus less safety stock will be
needed
4. Reduce service level will positively impact your safety stock position. This decision of reducing
service levels to improve the overall safety stock position should be discussed and agreed together
with your customer
DEMAND AND SUPPLY PLANNING
DESCRIBING THE DEMAND
Demand can be segregated into various categories.
• Level of demand (High or Low)
• Frequency of demand (Fast of Slow)
• Patterns of demand (stable, trend or seasonal)
• Product life cycle positioning (launch, emerging, established, decline, withdrawal)
• Product classification product segmentation - Pareto’s law provides an approach to identify
which categories a product belongs to depending on their parentage turnover. (fast movers,
medium movers,
slow movers)
FORECASTING THE
DEMAND
5
