Supply Chain Fundamentals & Segmentation Analysis

1 Chris Caplice Logistics SystemsSept 2006 Supply Chain Fundamentals & Segmentation Analysis Chris Caplice, MIT2 MIT Center for Transportation & Logistics Chain Management Definitions Supply Chain Management deals with the management of materials, information, and financial flows in a network consisting of suppliers, manufacturers, distributors, and customers. Prof. Hau Lee - Stanford Supply Chain Forum Call it distribution or logistics or Supply Chain management. By whatever name it is the sinuous, gritty, and cumbersome process by which companies move material, parts, and products to customers.

2 Fortune (1994) Chris Caplice, MIT3 MIT Center for Transportation & Logistics , what interesting Supply Chain / Logistics questions should I ask?Images of athletic shoe and potato chip bag removed due to copyright restrictions. Chris Caplice, MIT4 MIT Center for Transportation & Logistics Plan Supply ChainPlanPlanP2 Plan SourceP3 Plan MakeP4 Plan DeliverSourceMakeDeliverS1 Source Stocked ProductsM1 Make-to-StockM2 Make-to-OrderM3 Engineer-to-OrderD1 Deliver Stocked ProductsD2 Deliver MTO ProductsD3 Deliver ETO ProductsS2 Source MTO ProductsS3 Source ETO ProductsSupply- Chain Operations Reference (SCOR) ModelReturn SourceP5 Plan ReturnsReturn DeliverEnableSource.

3 Supply Chain Council Chris Caplice, MIT5 MIT Center for Transportation & Logistics Functional ViewPurchasing / Procurement What to buy from who Corporate vs GroupInventory Control How much to stock where Trigger points Replenishment planWarehousing Storage, Mixing, Break bulk Pick Pack and Ship What to stock where in WHMaterials Handling How to move product Packaging, containerization Storage layoutOrder Processing Receiving, Entry & Status Order ManagementTransportation Inbound versus Outbound Domestic versus International Modal control (Rail, TL, LTL, Parcel, Air, etc.)

4 Customer Service Geographic Product Line SpecificPlanning Group Facility Location Network Design Demand Planning Chris Caplice, MIT6 MIT Center for Transportation & Logistics Chain as a SystemTake an Engineering Systems Perspective What is a variable and what is a constraint? Continuous expansion of decision variables Increases potential for improvement but increases both complexity and coordination requirementsPurchasingWarehousingInvento ry MgmtMaterial HandlingOrder ProcessingTransportationCustomer SvcObjective: Deliver at lowest transport costVariable: Select carrier to tender each load toConstraints:Ship everything each dayMust deliver within specified windows Chris Caplice, MIT7 MIT Center for Transportation & Logistics an Engineering Systems Perspective What is a variable and what is a constraint?

5 Continuous expansion of decision variables Increases potential for improvement but increases both complexity and coordination requirementsPurchasingWarehousingInvento ry MgmtMaterial HandlingOrder ProcessingTransportationCustomer SvcObjective: Deliver at lowest transport costVariables: Select carrier to tender each load to Select time windows to deliverConstraints:Ship everything each dayObjective: Deliver at lowest total costVariables: Select carrier to tender each load to Select time windows to deliver Select when to ship what from whereConstraints:Deliver within negotiated time frameSupply Chain as a System Chris Caplice, MIT8 MIT Center for Transportation & Logistics an Engineering Systems Perspective What is a variable and what is a constraint?

6 Continuous expansion of decision variables Increases potential for improvement but increases both complexity and coordination requirementsPurchasingWarehousingInvento ry MgmtMaterial HandlingOrder ProcessingTransportationCustomer SvcProduct DesignManufacturingObjective: Design, build, and deliver at lowest total costVariables: Select carrier to tender each load to Select time windows to deliver Select when to ship what from where Determine where to stock which form of product Constraints:Deliver within negotiated time frameSupply Chain as a System Chris Caplice, MIT9 MIT Center for Transportation & Logistics an Engineering Systems Perspective What is a variable and what is a constraint?

7 Continuous expansion of decision variables Increases potential for improvement but increases both complexity and coordination requirementsPurchasingWarehousingInvento ry MgmtMaterial HandlingOrder ProcessingTransportationCustomer SvcProduct DesignManufacturingObjective: Maximize on-shelf availability Variables: Select carrier to tender each load to Select time windows to deliver Select when to ship what from where Determine where to stock which form of product Select contract relationships Select who should control replenishment Which channel member should perform which functionConstraints:Total delivered cost to shelf RetailerSupplierSupply Chain as a SystemWhy is this so hard to do?

8 Chris Caplice, MIT10 MIT Center for Transportation & Logistics will the Supply Chains differ?Images of athletic shoe and potato chip bag removed due to copyright restrictions. Chris Caplice, MIT11 MIT Center for Transportation & Logistics Chain SegmentationThere is no such thing as a one-size-fits-all Supply chainMost firms/business units operate multiple Supply chainsDifferent Supply chains require different methods for: Forecasting Demand Planning Inventory Planning Transportation Purchasing / Procurement Inventory Control Warehousing Materials Handling Order Management Transportation Customer Service Why segment?

9 Chris Caplice, MIT12 MIT Center for Transportation & Logistics & Portfolio ManagementHow many segments? (Rules of thumb) Homogenous- items within the segment are all similar Heterogeneous- items between segments should be very different Critical Mass - the segment should have enough number to make it worthwhile Pragmatic - the dimensions should be useful and communicableSegmentation in Supply Chain Management Customer, Product, Supplier More recently combinations of these Source: Prashant Yadav 2005 Chris Caplice, MIT13 MIT Center for Transportation & Logistics Chain SegmentationHow can I segment my customers/vendors?

10 Lead time requirements Service level requirements Purchase History Order Size and Volume Geographical Demographic Sales Trends Channel Segmentation How can I segment my products? Physical characteristics Demand characteristics Supplier characteristicsSource: Prashant Yadav 2005 Chris Caplice, MIT14 MIT Center for Transportation & Logistics SegmentationExample: Grocery Store: ~8000 SKUs (only Dry Goods) Total SKUs sold within 1 year M items (SKUs) sold Number of units sold per SKU Mean 144 Median 72 Mode 0 Std Dev 355 Biggest Sellers?Biggest Sales Day?