2024-2025
SAMENVATTING SUPPLY CHAIN
MANAGEMENT
MERI DELBROEK
,Inhoudsopgave
Samenvatting – supply chain management ......................................................................................... 4
Understanding the supply chain ...................................................................................................... 4
What is a supply chain? .............................................................................................................. 4
SCM is about trade-offs .............................................................................................................. 4
Tea supply chain ......................................................................................................................... 4
What is a supply chain?............................................................................................................... 5
Decision phases of a supply chain ............................................................................................... 5
Process views of a supply chain .................................................................................................. 6
Macro processes ........................................................................................................................ 8
SC coordination .......................................................................................................................... 8
SC performance: achieving strategic fit ........................................................................................... 9
Competitive and functional strategies ......................................................................................... 9
Uncertainty in demand................................................................................................................ 9
Implied demand uncertainty ..................................................................................................... 10
Supply chain capabilities .......................................................................................................... 11
Responsiveness? The CODP ..................................................................................................... 11
Sustainable supply chains pt.1: sourcing ...................................................................................... 13
The tree pillars of sustainability ................................................................................................. 13
Environmental sustainability ..................................................................................................... 13
Sources of emission ................................................................................................................. 13
Sustainability is extremely relevant in a SC context .................................................................... 14
Social responsibility .................................................................................................................. 14
Sustainable sourcing ................................................................................................................ 15
Supply chain networks .............................................................................................................. 15
Current supply chain networks .................................................................................................. 19
A SSC example ......................................................................................................................... 19
Corporate social responsibility (CSR)......................................................................................... 20
How? ....................................................................................................................................... 21
More examples ......................................................................................................................... 23
Sustainable supply chains pt.2: Carbon Footprint ......................................................................... 23
What is this? ............................................................................................................................. 23
The main problem ..................................................................................................................... 23
Supply chains are more than just transport ................................................................................ 24
Why do we want to measure emissions? .................................................................................... 26
What about SCOPE 3? .............................................................................................................. 29
A (potential) way forward ........................................................................................................... 30
1
, One important detail ................................................................................................................. 30
Supply chain visibility................................................................................................................ 30
Application to scope 3 estimation ............................................................................................. 31
Supply chain network design pt. 1: strategic issues ........................................................................ 32
Distribution network design....................................................................................................... 32
Design options.......................................................................................................................... 35
Supply chain network design pt. 2: framework for network design decisions ................................... 43
Framework for network design .................................................................................................. 43
Phase III: desirable sites ............................................................................................................ 44
Phase II & IV: capacitated location models ................................................................................. 46
Joint replenishment pt.1 – deterministic demand........................................................................... 53
Motivation ................................................................................................................................ 53
Where does S come from? ........................................................................................................ 53
Joint replenishment problem ..................................................................................................... 53
Joint replenishment in distribution ............................................................................................. 54
Example: best buy .................................................................................................................... 54
Power-of-two policy .................................................................................................................. 56
Tailored aggregation .................................................................................................................. 57
Conclusions ............................................................................................................................. 59
Forecasting demand in a supply chain pt.1 : static methods........................................................... 59
Forecasting .............................................................................................................................. 59
Some examples ........................................................................................................................ 61
Forecasting demand in a supply chain pt.2 : adaptive methods ...................................................... 68
Adaptive forecasting ................................................................................................................. 68
Parameters ............................................................................................................................... 68
Procedure ................................................................................................................................ 68
Forecast methods..................................................................................................................... 68
N-period moving average........................................................................................................... 68
N-period moving average........................................................................................................... 69
Simple exponential smoothing .................................................................................................. 70
Influence of alpha ..................................................................................................................... 70
Single exponential smoothing (α = 0.1) ....................................................................................... 71
Double exponential smoothing (Holt’s model) ............................................................................ 71
Triple exponential smoothing (Winters’s model) ......................................................................... 72
How can we choose? ................................................................................................................ 73
Measures of forecast error ........................................................................................................ 73
The link to inventory decisions… ................................................................................................ 75
In practice ................................................................................................................................ 75
2
,Aggregate production planning ..................................................................................................... 75
Planning decisions .................................................................................................................... 75
Aggregate production planning (app) ......................................................................................... 76
Why do this? ............................................................................................................................. 76
The role of uncertainty .............................................................................................................. 76
Typical parameters ................................................................................................................... 77
3 main strategies ...................................................................................................................... 77
Strategies: chase ...................................................................................................................... 77
Strategies: level ........................................................................................................................ 78
Strategies: mixed (tailored) ........................................................................................................ 78
But first….................................................................................................................................. 79
Aggregate production planning .................................................................................................. 79
Strategy #1: level production ..................................................................................................... 82
Strategy #2: zero inventory (chase) ............................................................................................ 84
Chase or level? ......................................................................................................................... 85
Chase #2: allow limited backorders (by hiring 1 fewer worker) ..................................................... 86
Surely, we must be able to optimize this? ................................................................................... 87
Linear programming: tailored strategy ........................................................................................ 87
Extensions to the LP fromulation ............................................................................................... 89
Supply chain coordination pt. 1..................................................................................................... 90
3
,Samenvatting – supply chain management
Understanding the supply chain
There’s a limit to how much efficiency can be gained by optimizing local processes
Your supply chain will be as weak as the weakest link
What is a supply chain?
All the stages (=echelons) involved, directly or indirectly, in fulfilling a customer request
Supply chain management is primarily concerned with the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is produced and distributed in the right quantities, to the
right locations and the right time, and so as to minimize total system cost subject to satisfying service
requirements.
SCM looks at the problem of managing the flow of goods in an integrated manner
SCM is about trade-offs
Purchasing Warehousing
Stable volume requirements Low inventory
Flexible delivery time Low transportation costs
Little variation in mix Quick replenishment
Large quantities
Manufacturing Sales
Long run production Short order lead time
High quality Large inventories
High productivity Enormous variety of products
Low production costs Low prices
As a decision-maker, you need to deal with:
- A sales department who wants cheap, and infinite, inventory of products
available immediately from the warehouse.
- The warehouse, who wants as little inventory as possible, replenished
almost immediately by manufacturing.
- Manufacturing, who wants to produce in long runs (long LT), altering
designs and materials to achieve lower costs and higher quality.
- Procurement, who want stability from manufacturing and require fast lead
times from the suppliers.
Tea supply chain
Upstream: extremely long lead times, manual process
Processing: few different products, long lead times
Blenders: multiple combinations, marketing differentiation
Retail: cheap products, requires high service level
4
,What is a supply chain?
- Better name: supply network
- The customer is an integral part of the supply chain
- The movement of products is essential, but it also includes movement of information and funds
in both directions
- Not all stages are present in every supply chain
Multiple flows:
Objective of a supply chain
- Maximize overall value created (what’s value?)
- Measured with supply chain profitability (revenue from the customer – total cost)
- SC success -> measured by total SC profitability (NOT sum of individual profits)
SCM
- Manage SC flows and assets to maximize SC surplus
- One source of revenue: the final customer
Multiple sources of cost: all the different flows
- Close connection between design, planning, and operation of a SC and its success
Decision phases of a supply chain
Supply chain strategy and design
- Long-term, expensive, and difficult to reverse
- Must take uncertainty into account
- Decisions about the structure of the supply chain
- What processes will each stage perform?
o Inhouse vs. outsourcing
o Facility location and capacity
o Where to produce and store
o Transportation modes
o IT systems
Supply chain planning
- Constrained by the strategic decision
- Input: medium-term demand forecast
5
, - Goal: exploit flexibility to optimize performance
- Policies for mid-term operations
o Which markets from which location?
o Subcontracting part of our manufacturing?
o Inventory policy? Planned buildup?
o Market promotions?
Supply chain operations
- Constrained by the tactical decisions
- Input: actual customer orders
- Goal: implement the policies as effective as you can
- Policies for short-term operations
o Almost no uncertainty
o Allocate orders
o Set due dates
o Generate picking lists, etc.
Decision phases of a supply chain
Process views of a supply chain
Two ways of visualizing the processes
- Cycle view: divide the SC in cycles at the interface of each successive pair of stages
- Push/pull view: processes are divided into 2 categories, depending on whether they are a
response to a customer order (pull) or in anticipation of a customer order (push)
Cycle view of a SC
Clearly defines the process and their owner
Useful when considering operational decisions
6
, Each cycle happens between two stages (echelons)
Six subprocesses per cycle
Push/pull view
Most intuitive way of looking at it
Splits the SC into push and pull
CODP: customer order decoupling point
Examples:
1. Handmade violin
2. Tea in the store
=> 0 lead time
3. Laptops online
CODP Lead time
7
SAMENVATTING SUPPLY CHAIN
MANAGEMENT
MERI DELBROEK
,Inhoudsopgave
Samenvatting – supply chain management ......................................................................................... 4
Understanding the supply chain ...................................................................................................... 4
What is a supply chain? .............................................................................................................. 4
SCM is about trade-offs .............................................................................................................. 4
Tea supply chain ......................................................................................................................... 4
What is a supply chain?............................................................................................................... 5
Decision phases of a supply chain ............................................................................................... 5
Process views of a supply chain .................................................................................................. 6
Macro processes ........................................................................................................................ 8
SC coordination .......................................................................................................................... 8
SC performance: achieving strategic fit ........................................................................................... 9
Competitive and functional strategies ......................................................................................... 9
Uncertainty in demand................................................................................................................ 9
Implied demand uncertainty ..................................................................................................... 10
Supply chain capabilities .......................................................................................................... 11
Responsiveness? The CODP ..................................................................................................... 11
Sustainable supply chains pt.1: sourcing ...................................................................................... 13
The tree pillars of sustainability ................................................................................................. 13
Environmental sustainability ..................................................................................................... 13
Sources of emission ................................................................................................................. 13
Sustainability is extremely relevant in a SC context .................................................................... 14
Social responsibility .................................................................................................................. 14
Sustainable sourcing ................................................................................................................ 15
Supply chain networks .............................................................................................................. 15
Current supply chain networks .................................................................................................. 19
A SSC example ......................................................................................................................... 19
Corporate social responsibility (CSR)......................................................................................... 20
How? ....................................................................................................................................... 21
More examples ......................................................................................................................... 23
Sustainable supply chains pt.2: Carbon Footprint ......................................................................... 23
What is this? ............................................................................................................................. 23
The main problem ..................................................................................................................... 23
Supply chains are more than just transport ................................................................................ 24
Why do we want to measure emissions? .................................................................................... 26
What about SCOPE 3? .............................................................................................................. 29
A (potential) way forward ........................................................................................................... 30
1
, One important detail ................................................................................................................. 30
Supply chain visibility................................................................................................................ 30
Application to scope 3 estimation ............................................................................................. 31
Supply chain network design pt. 1: strategic issues ........................................................................ 32
Distribution network design....................................................................................................... 32
Design options.......................................................................................................................... 35
Supply chain network design pt. 2: framework for network design decisions ................................... 43
Framework for network design .................................................................................................. 43
Phase III: desirable sites ............................................................................................................ 44
Phase II & IV: capacitated location models ................................................................................. 46
Joint replenishment pt.1 – deterministic demand........................................................................... 53
Motivation ................................................................................................................................ 53
Where does S come from? ........................................................................................................ 53
Joint replenishment problem ..................................................................................................... 53
Joint replenishment in distribution ............................................................................................. 54
Example: best buy .................................................................................................................... 54
Power-of-two policy .................................................................................................................. 56
Tailored aggregation .................................................................................................................. 57
Conclusions ............................................................................................................................. 59
Forecasting demand in a supply chain pt.1 : static methods........................................................... 59
Forecasting .............................................................................................................................. 59
Some examples ........................................................................................................................ 61
Forecasting demand in a supply chain pt.2 : adaptive methods ...................................................... 68
Adaptive forecasting ................................................................................................................. 68
Parameters ............................................................................................................................... 68
Procedure ................................................................................................................................ 68
Forecast methods..................................................................................................................... 68
N-period moving average........................................................................................................... 68
N-period moving average........................................................................................................... 69
Simple exponential smoothing .................................................................................................. 70
Influence of alpha ..................................................................................................................... 70
Single exponential smoothing (α = 0.1) ....................................................................................... 71
Double exponential smoothing (Holt’s model) ............................................................................ 71
Triple exponential smoothing (Winters’s model) ......................................................................... 72
How can we choose? ................................................................................................................ 73
Measures of forecast error ........................................................................................................ 73
The link to inventory decisions… ................................................................................................ 75
In practice ................................................................................................................................ 75
2
,Aggregate production planning ..................................................................................................... 75
Planning decisions .................................................................................................................... 75
Aggregate production planning (app) ......................................................................................... 76
Why do this? ............................................................................................................................. 76
The role of uncertainty .............................................................................................................. 76
Typical parameters ................................................................................................................... 77
3 main strategies ...................................................................................................................... 77
Strategies: chase ...................................................................................................................... 77
Strategies: level ........................................................................................................................ 78
Strategies: mixed (tailored) ........................................................................................................ 78
But first….................................................................................................................................. 79
Aggregate production planning .................................................................................................. 79
Strategy #1: level production ..................................................................................................... 82
Strategy #2: zero inventory (chase) ............................................................................................ 84
Chase or level? ......................................................................................................................... 85
Chase #2: allow limited backorders (by hiring 1 fewer worker) ..................................................... 86
Surely, we must be able to optimize this? ................................................................................... 87
Linear programming: tailored strategy ........................................................................................ 87
Extensions to the LP fromulation ............................................................................................... 89
Supply chain coordination pt. 1..................................................................................................... 90
3
,Samenvatting – supply chain management
Understanding the supply chain
There’s a limit to how much efficiency can be gained by optimizing local processes
Your supply chain will be as weak as the weakest link
What is a supply chain?
All the stages (=echelons) involved, directly or indirectly, in fulfilling a customer request
Supply chain management is primarily concerned with the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is produced and distributed in the right quantities, to the
right locations and the right time, and so as to minimize total system cost subject to satisfying service
requirements.
SCM looks at the problem of managing the flow of goods in an integrated manner
SCM is about trade-offs
Purchasing Warehousing
Stable volume requirements Low inventory
Flexible delivery time Low transportation costs
Little variation in mix Quick replenishment
Large quantities
Manufacturing Sales
Long run production Short order lead time
High quality Large inventories
High productivity Enormous variety of products
Low production costs Low prices
As a decision-maker, you need to deal with:
- A sales department who wants cheap, and infinite, inventory of products
available immediately from the warehouse.
- The warehouse, who wants as little inventory as possible, replenished
almost immediately by manufacturing.
- Manufacturing, who wants to produce in long runs (long LT), altering
designs and materials to achieve lower costs and higher quality.
- Procurement, who want stability from manufacturing and require fast lead
times from the suppliers.
Tea supply chain
Upstream: extremely long lead times, manual process
Processing: few different products, long lead times
Blenders: multiple combinations, marketing differentiation
Retail: cheap products, requires high service level
4
,What is a supply chain?
- Better name: supply network
- The customer is an integral part of the supply chain
- The movement of products is essential, but it also includes movement of information and funds
in both directions
- Not all stages are present in every supply chain
Multiple flows:
Objective of a supply chain
- Maximize overall value created (what’s value?)
- Measured with supply chain profitability (revenue from the customer – total cost)
- SC success -> measured by total SC profitability (NOT sum of individual profits)
SCM
- Manage SC flows and assets to maximize SC surplus
- One source of revenue: the final customer
Multiple sources of cost: all the different flows
- Close connection between design, planning, and operation of a SC and its success
Decision phases of a supply chain
Supply chain strategy and design
- Long-term, expensive, and difficult to reverse
- Must take uncertainty into account
- Decisions about the structure of the supply chain
- What processes will each stage perform?
o Inhouse vs. outsourcing
o Facility location and capacity
o Where to produce and store
o Transportation modes
o IT systems
Supply chain planning
- Constrained by the strategic decision
- Input: medium-term demand forecast
5
, - Goal: exploit flexibility to optimize performance
- Policies for mid-term operations
o Which markets from which location?
o Subcontracting part of our manufacturing?
o Inventory policy? Planned buildup?
o Market promotions?
Supply chain operations
- Constrained by the tactical decisions
- Input: actual customer orders
- Goal: implement the policies as effective as you can
- Policies for short-term operations
o Almost no uncertainty
o Allocate orders
o Set due dates
o Generate picking lists, etc.
Decision phases of a supply chain
Process views of a supply chain
Two ways of visualizing the processes
- Cycle view: divide the SC in cycles at the interface of each successive pair of stages
- Push/pull view: processes are divided into 2 categories, depending on whether they are a
response to a customer order (pull) or in anticipation of a customer order (push)
Cycle view of a SC
Clearly defines the process and their owner
Useful when considering operational decisions
6
, Each cycle happens between two stages (echelons)
Six subprocesses per cycle
Push/pull view
Most intuitive way of looking at it
Splits the SC into push and pull
CODP: customer order decoupling point
Examples:
1. Handmade violin
2. Tea in the store
=> 0 lead time
3. Laptops online
CODP Lead time
7
