SUPPLY CHAIN

MANAGEMENT
Sep 2022
 COURSE AGENDA
Session Content Duration
1 Supply Chain overview 2 lessons
2 Planning 2 lessons
3 Procurement 2 lessons
4 Operation Management 1 lesson
5 Inventory Management 1 lesson
6 Logistics and Transportation 1 lesson
7 Warehouse Operations 1 lesson
8 Risk Management 1 lesson
• “A supply chain consists of all parties
involved, directly or indirectly, in fulfilling
a customer request. The supply chain
includes not only the manufacturer and
suppliers, but also transporters,
warehouses, retailers, and even
customers themselves”

• “All activities associated with the flow &

transformation of goods/services from
raw materials to finished
goods/completed services for end users”

Source: Sunil Chopra

 to 1960s 1970s – 1980s 1980s – 1990s 1990s – 1999 2000 -
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Warehousing and Total Cost Integrated Logistics Supply Chain Lean Supply Chain
Transportation Management Management Management Management
Management Focus Management Focus Management Focus Management Focus Management Focus
Operations Optimizing Tactics/ Strategies Supply chain Internet, e-Business,
Performance Operation Cost & Logistics Planning Strategies, Channel, e-Marketing, SCM
Efficiencies Customer Service Coevolution, Goals Synchronization
Organization Design Organization Design Organization Design Organization Design Organization Design
Decentralized Centralized Integration of Partnering Networked
Functions Functions Logistics Functions Virtual Organization [Link],
Market Coevolution Exchanges,
Agility/Scalability

Source: McKee & Ross (2009)

DEFINITION
▪ Supply Chain Management: Integration of suppliers,
distributors and customer logistics into one cohesive
process in order to optimize the planning, sourcing,
manufacturing and delivering of products and services…

SCOPE
▪ Effective supply chain management requires
integration of departments/functional areas and
also among trading partners accomplished through
information sharing.
Raw materials Suppliers Manufacturer Distributors Wholesalers Retailers End customers

UPSTREAM MIDSTREAM DOWNSTREAM

Materials/ Components/ Transformation process: Distribution finished goods to end customers

WIP from Suppliers Materials -> Finished goods
 FLOWS IN SUPPLY CHAIN

GOODS/SERIVCES: VALUE FLOW

REQUIREMENTS

RETAILER
PRODUCER
CUSTOMER INFORMATION FLOWS
SUPPLIERS
DISTRIBUTOR

CUSTOMER SERVICE

PAYMENTS: MONEY FLOW

MAKE
• Logistics management is that part of supply chain management that plans, implements, and
controls the efficient, effective forward and reverse flow and storage of goods, services and
related information between the point of origin and the point of consumption in order to meet
customers’ requirements.

• Supply chain management encompasses the planning and management of all activities involved
in sourcing and procurement, conversion, and all logistics management activities. Importantly, it
also includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers. In essence, supply chain
management integrates supply and demand management within and across companies.

Source: Council of Supply Chain Management Professionals

“Push” strategy:
• Production and supply volumes are realized based on historical sales and demand forecast
• Planning – driven chain (Efficiency Supply chain)
• This approach can result in high level of history and transportation costs which unexpected
changes in demand
“Pull” strategy:
• Supply and production volumes are identified and realized based on received customers’ orders.
• Order – driven chain (Responsiveness Supply Chain)
• In some cases, manufactures pre-fabricate some goods in advance to make final production
quick. This is called push-pull strategy (or postponement)
 Push strategy Pull strategy
(Efficiency) (Responsiveness)
Functional products • Low cost
• Demand is stable • Utilization
• Low margin
• Low variety
• Standardized
Innovative products • Short shelf life
• Demand is uncertain • Mix-order for
• High margin customer
• High variety
• High change
• Time to market: Quick
• Revenue growth
• Synchronize capacity with demand
• Optimize cost
• Add Value for Customers and Stakeholders
• Leverage Partner Strengths
• Reduce uncertainty along the chain
• Minimize delays
 EFFECTIVE
SCM
FEATURES
Reliability Agility

Responsive Cost Asset

Increase Customer Service Reduce Production Cost Improve Quality of Products

Improve Financial Development of Best

Position Marketing Strategies
 Supply Chain Conflicting PLANNING & RISK INFORMATION TALENT
Network objectives MANAGEMENT TRANSPARENCY ACQUISITION
SC network is Every node in the To stay efficient Create It is becoming
very complex. It supply chain has and effective, transparent increasingly more
must be flexible different periodic relationship and difficult to find
to respond to objectives. assessments and collaboration via qualified and
the changes and Therefore, all redesigns are technology passionate talents
dynamics of the nodes have to be needed advancements in this field
marketplace managed to get
the same goal
R&D Supply chain Sales & Marketing Consumers

Value Chain

Human Resource Finance

▪ End-to-End process
▪ “Supply” and “Chain”
▪ Dependent
▪ 3 flows
▪ SCOR: Plan – Source – Make – Deliver - Return
▪ Add Value
▪ “Raw material” + “Transformation” = “Finished goods”
▪ Synchronize capacity with demand
▪ Optimize cost
▪ “Supply chain” & “Value chain” & “Demand chain”
▪ Push vs pull. Efficiency vs Responsiveness
MAKE
Planning is processes that balance aggregate demand and supply
to develop a course of action which best meets sourcing,
production, and delivery requirements.

Demand Planning refers to the use of forecasts and experiences in

estimating demand for different items at different points in the
supply chain. Inputs required:
• Historical sales data
• Current inventory
• Normal demand
• Seasonal factors
• Random factors (promotion, discount, natural disasters,…)
• Constraints or business rules
Supply planning determines how best to fulfill the requirements
created from the demand plan. The objective is to balance supply
and demand in a manner that achieves the financial and service
objectives of the enterprise, no stock-out situation, proper
inventory levels.

Inventory planning determines the optimal quantity and timing of

inventory for the purpose of aligning it with sales and production
capacity

Sales and operations planning (S&OP) is a monthly integrated

business management process that empowers leadership to focus
on key supply chain drivers, including sales, marketing, demand
management, production, inventory management, and new
product introduction.
Procurement is the process by which companies acquire raw materials, components, products,
services, or other resources from suppliers to execute their operations. It includes:
• Market research.
• Supplier evaluation, development.
• PR, PO management.
• Buying, negotiation, contracting
• Etc
• Procurement deals with the sourcing activities,
negotiation and strategic selection of goods and
services that are usually of importance to an
organization.
• Sourcing is concerned with finding the best supplier
for goods and services.
• Purchasing is the process of how goods and services
are ordered.
• Procurement = Sourcing + Purchasing
Production is the conversion process, adding value to products

Production includes all the activities in order to offer products and services that can be
distributed to the clients as follows:
• The receiving of materials and auxiliary materials
• Materials’ transformation into products or services
• Inspection, planning and information processing
• Manage facilities and equipment, production status workflow and capacity management.
 Transportation Packing Information

Analyze
Inventory Warehousing Visualization
 Forwarding Logistics in service – 3PL
- Follow document: Bill, L/C - Warehouse operator
- Do procedure in customs , - Transport operator
warehouse , trucking - Solution design
- Control shipping route/
price / service

Logistics in house Retailer – 4PL – E-commerce

- Planning – Optimize cost - Focus Supply , Delivery ,
and capacity Fulfillment
- Inventory management
- Control 3PL
Reverse logistics is a process which deals with the reverse flow of recyclable materials,
reducing the cost of recall process, which results in the reduction of overall logistics cost as
well as reducing the amount of materials needed in the forward stream.

Returns management strategies may be the most neglected part of many supply chain
practices. The process of moving product from buyers back to sellers, if designed and
managed well, can reduce costs and improve customer satisfaction.

Reverse logistics focus on:

• The physical flow of returned goods.
• Quality testing for the returned goods to replicate the error or
identify the flaw.
• Decision to repair, refurbish, recycle, restock, disassemble or
disposal the returned goods.
Logistics Career Roadmap - Warehouse

Source: Vilas
Logistics Career Roadmap - Transportation & Operations

Source: Vilas
Logistics Career Roadmap - Freight Forwarding

Source: Vilas
Logistics Career Roadmap - Sales & Customer Service

Source: Vilas
Supply Chain Career Roadmap – Planning

Source: Vilas
Supply Chain Career Roadmap – Procurement

Source: Vilas
Supply Chain Career Roadmap – Production

Source: Vilas
You can find these books here:
[Link]
[Link]

[Link]
 Where do you belong?
Why does it match you?

Why should it be supply chain?

MAKE
What are your short-term and long-term
goal?
What is your “order winner”?
3PL/ Start up Client: Big firm/ Start up
Human needs are states of felt deprivation. They include basic physical
needs for food, clothing, warmth, and safety; social needs for belonging
and affection; and individual needs for knowledge and self-expression.

Wants are the form human needs take as they are shaped
by culture and individual personality..

Source: Philip Kotler

Demand is an economic principle referring to a
consumer's desire to purchase goods and services and
willingness to pay a price for a specific good or
service.

Demand data is usually different from sales data.

Demand Management is the function of recognizing all demands for goods and services to support
the market place. It involves prioritizing demand when supply is lacking. Proper demand
management facilitates the planning and use of resources for profitable business results.

Source: Source: [Link] (10th ed.)

Three functions in Demand Management

Marketing Management Customer Relationship Demand planning

The process of forecasting the demand for a
product or service so it can be produced and
delivered more efficiently and to the satisfaction
of customers.

Demand planning & forecasting are components

of demand management.
The demand plan provides a roadmap and a
comprehensive statement of how the business
will use its products, services, competencies, and
resources to succeed in the marketplace
Demand planning is considered an essential step in supply
chain planning, and a key input to the overall integrated
processes of Business planning.

The demand forecast was constructed from these factors:

• Baseline
• Seasonality
• Activities: Product launch, Marketing plan (promotion,
activation,…), Sales plan (Price discount,…)
• Market, competitors, product life cycle
• Other (Economy, policy,…)
Prioritizing Planning
demand demand

Influencing Communicating
demand demand
Demand planning : exercise to reconcile sales projection towards organizational budget

Organizational budget Sales projection Forecast accuracy

Shareholders expectation, Exercise of developing A demand should
whereby the demand will figures under processes manifest itself and be
be created in a reasonable to come up with an able to be measured as
and rational manner accurate forecast accuracy
representation
Demand planning is the result of an alignment of involved functions towards the same goal
Consensus forecast process results in best single number to drive downstream planning process
Accurate forecast gives you

Increasing customer Better Strategy

satisfaction

Working Capital Inventory Reduction

Reduction

Production more Managing shipping

effectively better

Demand Planning – THE ESSENTIAL STEP of Supply chain cycle.

• Sale in
• Sale out
• Off-take
• Independent demand
• Dependent demand
When looking at end to end supply chain, discuss about the benefits that proper demand
planning & forecasting in a business can offer to the different stages of the supply chain?
There are various factors influencing the demand; overall, we can classified into five main drivers
• Types of goods
• Price of good
• Competition level
• Technology level
• Economic viewpoint
Existing goods:
• Available historical sales data
• Can be estimated trend
• Know substitutes
• Competition’s analysis

New good:
• Unavailable historical sales data
• Difficult to forecast
• Require different approach in forecasting
“Demand shaping” activities:
• Price strategy
• Promotion
• Incentives
• Gift/Voucher
• Sampling/Demo
• Impact of concentration of competition
• Low barrier of entrants
• Cannibalization effect
• High development of technology
• E-commerce
• E-wallet
• Disruptive innovation
• General economic conditions:
globalization, level of investment,
national income, consumption pattern,
employment etc.

• Sociological conditions: relate to size of

population, density, change in age
groups, size of family, family life cycle,
level of education, family income, social
awareness etc.
 Strategic objectives:
• A tool to risk management for business activities
• Support important business decisions
• Insight in organization capital investment & expansion
decisions
Operational objectives:
• Short term objectives (formulate production & price
policies, controlling sales, arranging finance)
• Long term objectives (deciding production capacity,
planning long-term activities)
Source: Adapted from Keely L. Croxton, Sebastián J. García-Dastugue,
Douglas M. Lamber and Dale S. Rogers
Source: Adapted from Keely L. Croxton, Sebastián J. García-Dastugue,
Douglas M. Lamber and Dale S. Rogers
Determine Set level of Select Gather and Choose the Prepare the Test the
purpose aggregation horizon and visualize forecasting data for the forecast
and units of planning the data technique technique using
measure bucket historical
data

Forecast Achieve Continuously

consensus improve
on the
forecast
A bottoms-up approach start A top-down approach looks
with the micro view starting at macroeconomic trends,
with individual product sales market data and
and production estimates extrapolates down to the
and layers on market data company level to figure out
afterwards how much of that market
the company can capture
 Top-down Bottom-up
Pros • Reduce Variability • More Realistic
• Faster result • Better Item-Level Forecasting
• Greater Employee Involvement
Cons • Trends & patterns of specific • Higher level of complexity
products or location are • More resources involved (costs,
generalized time, technology)
• Lack of employee’s
participation and ownership
• Lack of specialized knowledge
from execution level
Historical data not available: Historical data available
Qualitative Quantitative
Judgmental forecasting Time series (Predict the future by using historical
(Incorporate judgmental & data)
subjective factors into forecast) • Moving average
• Delphi • Exponential smoothing
• Panel consensus • Trends & seasonality projections
• Market research
• Sales force composite Causal models (cause-and-effect relationship)
• Regression analysis
• Delphi method is a forecasting process framework
based on the results of multiple rounds of
questionnaires sent to a panel of experts.

• The panel consensus method, is by bringing the

internal members or experts from all level in the
company together, and have a open discussion about a
product or activity, any people is allowed to give their
own opinions, and the meeting will end when a
consensus is reached

• Market research: a structured questionnaire is used,

asking customers to rate the likelihood of them
purchasing the product on a scale.

• Sales force composite: Forecasts for each

outlet/branch/store of a company are generated by
salespeople, and are then aggregated.
Moving average method
• A technique to get an overall idea of the trends
in a data set
• Logic: Based on past sales data and assumption
that the future is the average of past
performance
• The moving average is extremely useful for
forecasting long-term trends
Exponential smoothing
• Exponential smoothing is a rule of thumb
technique for smoothing time series data.

• It is a weighted average of all past demand.

Most of the weight is on the latest observed
period and the remainder of the weights
decline exponentially.

• The coefficient alpha changes the weights and

varies how much weight (in the weighted
average) is applied to each period.
Trend analysis
• Trend analysis is the widespread practice of
collecting information and attempting to spot a
pattern.

• Project the curve into the future for medium

and long term forecasts

Seasonality analysis
• Adjustment to time series data due to
variations at certain periods

• Adjust with seasonal index – ratio of average

value of the item in a season to the overall
annual average value
Causal models
• Associative, models assume that the variable
we are trying to forecast is somehow related to
other variables in the environment.

• The forecasting challenge is to discover the

relationships between the variable of interest
and these other variables.

Regression analysis: a form of predictive modeling

technique which investigates the relationship
between a dependent (target outcome we want to
predict) and independent variable(s)
Bias Mean Average Deviation
Bias means is, do you have a tendency to over Mathematical average of the individual unit deviations,
forecast or under forecast? regardless of their sign
Bias = Actual - Forecast Should be used as a measure for demand
variability in determining safety stock
Mean error
The mean error captures bias of a forecast.

Mean Absolute Percentage Error Mean Squared error

The mean absolute percent error allows for The mean squared error inflates the weight of a large
comparisons of different forecasts by calculating single period error, thus is more sensitive to them. This is
the percent deviation of the forecast from the important because small errors can be easily dealt with,
actual demand but large single errors cause a lot of trouble.
Procurement is the process by which companies acquire raw materials,
components, products, services, or other resources from suppliers to execute
their operations. It includes:
• Market research.
• Supplier evaluation, development.
• PR, PO management.
• Buying, negotiation, contracting
• Etc
Procurement deals with the sourcing activities, negotiation and strategic selection of goods and
services that are usually of importance to an organization.

Procurement = Sourcing + Purchasing

• Sourcing is concerned with finding the best supplier for
goods and services.
• Purchasing is the process of how goods and services
are ordered.
Let consider an A company with a financial structure as below:
Revenue: 100 million dollars
Cost: 80 million dollars

How can we increase 15% the profit of A company?

 Develop strong relationships
Reduce expenses,
with other functional groups
improve cash flow, ROA

Develop integrated purchasing

Improve supply chain strategies that support
performance organizational strategies, goals
and objectives

Evaluate and improve

the performance of supplier Update high technology
 Specify the Evaluate Bidding, deal and
demand potential supplier select supplier

Evaluate the Receive the Receive the

performance of commodities and approval of
supplier settle payment purchasing
Human resource Organizational Information Measurement
design system
Top five knowledge area:
• Supplier relationship management
• Total cost analysis
• Purchasing strategies
• Supplier analysis
• Competitive market analysis

It’s important to company:

• Internal development of high potential
individual
• Recruit talent
• Hire promising college graduates
Organizational designs have to consider
• Centralization or decentralization
• Executive’s responsibility for coordinating
procurement and supply chain activities
• Close connection among cross functions to
manage procurement process
• Supply strategy coordination and review
sessions between business units
Real – time and shared information system
that supports:
• Demand and supply planning
• PR, PO tracking
• Distribution and transportation planning
• Electric PO and invoice
• Invoice tracking
Some KPIs for procurement department
• Saving
• Productivity
• OTIF
• % Ad hoc
• PR process lead time
• Compliance rate
• Raw materials
• Raw packagings
• Semi-finished products and components
• Finished products
• Maintenance, repair & operating items
(MRO)
• Production support items
• Capital equipment
• Transportation and 3PL purchasing
• Services
 Centralization Decentralization
• Consolidate purchase volumes • Implement after commitment
• Reduce duplication of • Speed and responsiveness
purchasing effort • Understand unique
• Coordinate purchasing plans operational requirements
and strategy • Product development support
• Coordinate and manage • Ownership
companywide purchasing
systems
• Develop expertise
• Manage companywide change
Purpose:
The purpose of the procurement policy is to establish a uniform policy for the procurement of
goods and services for company and to ensure that all purchases are done in the best interest
of company and are properly authorized and controlled

What makes an effective policy

• Provides details to direct behavior toward a specific
goal or objective
• Avoid unimportant issues
• With minimum number of words
• Good interpretation to policy’s intent and direction
• Periodically reviewed for clarity and conformance
• Provide a specific course of action
 Fixed – price contract Cost – based contract
• Firm fixed price • Cost plus incentive fee
• Fixed price with escalation • Cost – sharing contract
• Fixed price with • Time and material contract
redetermination
• Fixed price with incentives
 Fixed – price contract Cost – based contract
• The most basic contractual • A risk of large contingency fee if using fixed – price
pricing mechanism, simplest and • Lower risk level of economic loss for supplier and
easiest for procurement to lower overall costs to buyer through careful contract
manage budget management
• Price is fix regardless of economic • Understand market and knowledge in industry,
conditions, industry competition, production and material -> break down and clear on
market price cost structure
• Avoid risk if price increase but • Apply to expensive, complex items with high
can pay higher if price decrease uncertainty of labor and material costs
-> Buyer need to understand • Less favorable for buyer because financial risks was
existing market conditions before transferred from seller to buyer
signing fixed – price contract • Seller are reluctant to cut cost
• Apply when buyer has knowledge, experience and
supplier has competence and cooperation
Spot contracts: Buy one time and no intention to
develop supplier relationship

Short term contracts: Purchase routinely made over

limited time horizon

Long term contracts: Contract made on continuing

basis for unidentified time
4 types of purchase items
Factors to consider when choosing contract types
• Situation of market
• Benefit from long – term agreements
• Degree of trust between buyer and seller
• Technology development
• Supplier’s ability to impact factors
• Total value of the purchase
• New product development
• Poor present suppliers’ performance
• At the end of a contract
• Demand for new equipments, goods, services
• Expand into new market or new product lines
• Reduce the size of the supply base
Purpose:
• To help de – risk the business (quality, cost,
capacity, delivery, …)
• To communicate your needs and improve
coordination

What is appraising suppliers?

• A way of determining whether a supplier will
perform as desired
• A basic for developing a list of approved
suppliers
• A basic for developing a vendor rating system
• The start of a business relationship
Recognize the need Identify key
Positioning the
for supplier sourcing
purchase item
appraisal requirements

Determine and
Identify and screen weight the criteria
Rating the suppliers
potential suppliers for supplier
appraisal

Undertake a SWOT Record the out Determine supplier

analysis of short – come and review development
listed suppliers with supplier strategy
Step 1: Recognize the need for supplier selection
• Current suppliers or new suppliers?
• The reason to appraise (ASL, improve
performance, bidding,…)
Step 2: Positioning the purchase item
• To determine how much effort to invest
• Base to create criteria and weight
Step 3: Identify key sourcing requirements
• SOW
• Requirements: Quality/ Cost/ Delivery,…
Step 4: Determine and weight the criteria for
supplier appraisal
• Define criteria clearly
• Transform criteria into something measurable
Step 5: Identify and screen potential suppliers
• Wait and see
• Attract and see Sample of
• Seek and find suppliers
rating
Step 6: Rating the suppliers
Step 7: Undertake a SWOT analysis of short –
listed suppliers
• Review again SWOT of short – listed suppliers
Step 8: Record the out come and review with
supplier
• Inform supplier the out come
• Clarify supplier’s concern about the out come
Step 9: Determine supplier development strategy
• Add new supplier or not
• Improve or remove from ASL
• Choose supplier to do the project or not
 Price analysis Cost analysis
Process of comparing supplier prices Process of analyzing every cost
against external price benchmarks elements add up final price (cost
without direct knowledge of breakdown)
supplier’s cost Assure a fair and reasonable price to
sign contract
 Cost breakdown
Key items Components of cost
Material cost Formula, raw material cost, components …
Packing cost Formula, PM cost (bottle, shipper, tape…)
Production cost People cost, Utility, M&E, Depreciation
Overhead cost Overall & support cost, management cost
Transportation & WH & Operation cost, DC cost, Inter-site freight,
Warehouse customer freight, Incoterms applied
Selling, Research, and Sales organization cost, new product research,…
Administration cost
Marketing expense TVC, Brand building, price reduction, sales
discounts
Profit Mark up on cost, return on investment,…
Negotiation is a process where by two or more parties, with differing views initially, attempt to
reach an agreement on a common objective by the selective use of different methods of
persuasion.

Negotiation is a process of GIVING and TAKING

The keys to negotiation are planning,

communication skills and knowledge of the
subject
Negotiation plan
• The requirements to be met and the needs to be
satisfied
• Negotiation strategy, objectives
• Analyze price and cost structure
• Desired relationship with supplier
• Balance powers
• SWOT
• Analyze supply market condition
• Understand purchasing strategy
• Understand supplier organization
• Understand supplier’s negotiators
• The required quality
• The quantity needed
• The required delivery schedule
• The desired delivery location
• The level of service required from the supplier
• Available budget for the purchase
• Global supply condition (capacity, availability,
lead time, trends…)
• Technological developments and substitute
product
• Price & price trends
• Major cost element involved other than price
(logistic, transportation…)
• Market structure and degree of competition
• Government policies and regulations
affecting the market
• Economic and socio-political conditions
(inflation, exchange rate, political stability…)
• Technical
• Financial
• Market related capabilities (distribution system,
after-sales services, technical support)
• Management capabilities
• Management Culture and Style
• Industrial relations
Organization power Personal power
• Market power • Position power
• Relative value power • Expert power
• Financial power • Information power
• Reputation power • Disruptive power
• Time power • Charismatic power
• Reward power • Connection power
• The power of choice • Good planning
• Confidence
 Strengths Weaknesses
Of your company in the Of your company in the
situation situation
Opportunities Threats
That are beneficial to your That are harmful to your
company in the situation company in the situation
 $10 $15

☺  Buyer

Negotiation zone

Seller  ☺

$12 $17
BEST ALTERNATIVE TO NEGOTIATED AGREEMENT
• Building block
• Silence
• Repeat, repeat & repeat
• Recess
• Empathy
• One more thing
• Deadline
• Seek for more information
• Have a break
• Ask to know what the problems of the other
side are
• Concess small details
• Change negotiator
• Change rank of the negotiator
• Take a break
• Responsibility transfer
• Look interested
• Inquire with question
• Stick to the point
• Test for understanding
• Evaluate the message
• Neutralize your feeling
 Monitoring and Evaluating
Formalizing the
Managing the Negotiation
Agreement
Implementation Performance
• Formalizing the agreement:
- Get the agreement signed without delay
- Implement it
• Monitoring and managing:
- Track supplier’s performance
• Evaluate the negotiation:
- Key issues to be aware of when an
agreement is reached
- How effectively you carried out the
negotiation
Manufacturing: focuses exclusively on the
conversion of tangible items like raw materials
into finished productions

Production includes both tangible and non-

tangible items in the conversion process.

Operation includes overall business operations

which includes production and post-production
stages
conversion process, adding value to products
Operation includes all the activities in order to
offer products and services that can be
distributed to the clients as follows:
• The receiving of materials and auxiliary
materials
• Materials’ transformation into products or
services
• Inspection, planning and information
processing
• Manage facilities and equipment,
production status workflow and capacity
management.
Value is the usefulness, worth and importance of products and services that consumers perceive
and are willing to pay
 Push strategy Pull strategy
(Efficiency) (Responsiveness)
Functional products • Low cost
• Demand is stable • Utilization
• Low margin
• Low variety
• Standardized
• High volume
• Low changeover
Innovative products • Short shelf life
• Demand is uncertain • Mix-order for
• High margin customer
• High variety
• Low volume
• High changeover
▪ ETO: A production environment where products whose customer specifications require unique
engineering design, significant customization, or new purchased materials. Each customer order results
in a unique set or part numbers, bills of material, and routings.

▪ MTO: A production environment where a good or service can be made after receipt of a customer’s
order. The final product is usually a combination of standard items and items custom-designed to meet
the special needs of the customer.

▪ ATO: A production environment where a good or service can be assembled after receipt of a
customer’s order. The key components (bulk, semi-finished, intermediate, subassembly, fabricated,
purchased, packing, and so on) used in the assembly or finishing process are planned and usually
stocked in anticipation of a customer order. Receipt of an order initiates assembly of the customized
product.

▪ MTS: A production environment where products can be and usually are finished before receipt of a
customer order. Customer orders are typically filled from existing stocks, and production orders are
used to replenish those stocks.
▪ Project: The product is primarily made at one site, is unique, and has a deadline for completion.

▪ Intermittent production: A form of manufacturing in which the jobs pass through the functional
departments in lots, and each lot may have a different routing.
Work centers are production areas that are grouped by function, organized around similar process
and usually involves smaller lots or batches. The emphasis in planning is to have fast changeovers with
skilled, flexible labor.
Batch is a version for higher production volume (lots or batches are larger) and the flow between
the chain of activities is optimized to minimize distances traveled between workstations. The emphasis in
planning is to have longer production runs and fewer changeovers.

▪ Flow processing: Work flows from one workstation to another at a nearly constant rate and with no
delays.
Line (Repetitive flow) is used when the products being produced are discrete units, line cans or
cars.
Continuous (Continuous flow) is used when the products being produced are liquids, liquid metals
or flour, pet food or milk.
• The planning, scheduling, and control of
the activities that transform inputs into
finished goods and services

• An academic field of study that focuses on

the effective planning, scheduling, use, and
control of a manufacturing or service firm
and their operations. The field is a
synthesis of concepts derived from design
engineering, industrial engineering,
management information systems, quality
management, production management,
inventory management, accounting, and
other functions.

Source: APICS
Volume Variety
Efficiency Responsiveness
Outsource Insource
 Low cost

Diversification High quality

Productivity Fast delivery

High reliability
Capacity is the capacity of a worker, machine, work center, plant or organization to produce
output per time period
Resource > demand Resource < demand
- Cross training staff Change the available capacity
- Schedule to maintenance equipment - Use overtime
- Push sale - Hire
- Invest in R&D - Add shifts
- Use alternate routings
- Subcontract
- Reduce setup
- Improve processes
Alter the load
- Alter lot sizes
- Reschedule
Any movement of people, products & information that does not directly
support the transformation of a product or provision of a service

• Necessary, but it must be controlled in terms of times and distance

• Risk of being damaged, lost, delayed, and so on
• Not make any transformation to the product

Any supplies/ documents/ equipment/ tools in excess of current process or

demand requirements

• Sub-assembly, raw material or finished goods, office supplies.

• Store/ sit around and wait… for the next process
• Cash that has been tied up into the material drain on the cash flow
• Risk of being damaged/lost/ depreciation/Expired and so on
Any movement of people/ body (Bending, turning, reaching, lifting) which
does not directly support the transformation of a product or provision of a
service

• Poorly arranged space, disorganized tool, lack of space for component

parts
• Process/working method is not effective

Waiting when people, materials, information are not ready or when

process events are not synchronized

• For parts, information, instructions, equipment

• Just wait and do nothing -> No value added
Production that is ahead of time or in quantity that exceeds current
process or demand requirement (too much or too early)

• Making more than is IMMEDIATELY required

Production/ Processing/ Communication efforts that exceed what is

customer required or do not add further value to the product or service

• Adding work that is not required

• Email?
Products or services that do not conform to the specification or Customer’s
expectation -> Repair/ Rework to fulfill customer requirements

• Caused by incorrect method

• Fail to maintain equipment, machines and fixtures

Human potential
• The underutilization of talent/ Capability
• Delegating tasks with inadequate training
Decouple Fluctuations: Decoupling inventory
maintained between entities in a
manufacturing or distribution network to
create independence between processes or
entities

The objective of decoupling inventory is to

disconnect the rate of demand from the rate
of supply
Improve customer service
• Lead time
• Shortage
• Variety

Efficiency
• Economic of scale in procurement and
production

Capacity planning
Load leveling
Buffering
• Interest costs
• Cost of capital
• Taxes and insurance
• Storage cost
• Cost of space
• Handling cost
• Administration
• Scrapping and obsolescence
• Deterioration and theft
• Cost of delayed response time
• Raw materials
• Semi finished products/ parts
• Work – in – process (WIP)
• Finished products
• Return and repair goods
• Maintenance, repair and operating
supplies (MRO)
• Cycle stock
• Safety stock
• Seasonal stock
• Speculation stock
• Strategic stock
Concept Generation: 20 – 80 Rules (Pareto Rules)
Fast moving & High Value AF AM AR Rarely moving & High Value
-> Monitor closely BF BM BR -> Avoid to stock

Fast moving & Low value CF CM CR Stock or not Stock

-> Automation trigger
Avoid to stock DR
• The required service level influences the height of the safety stock
• An increase in required service leads to an exponential increase in safety stock

Service level in % Z-value

84% 1.00
90% 1.28
95% 1.65
97.5% 2.00
99% 2.33
99.9% 3.10
Ordering and Setup cost includes paperwork, billing,
or machine setup time. It doesn’t depend on the size
of the order

Unit Purchasing or Producing cost is variable cost

associated with purchasing or producing a single
unit, variable labor cost, variable overhead cost,
and raw material cost

Unit Holding cost is the cost of carrying one unit of

inventory for one time period (storage cost,
insurance cost, and opportunity cost)
• Demand is deterministic and occurs at a
constant rate

• The ordering actions are repetitive

• Continuous review: An order may be placed

at any time

• The lead time is zero

• No shortage is allowed

• Unit ordering cost, unit purchasing cost, and

unit holding cost are all constant
• Q: Number of units per order
• Q*: Optimal number of units per order
(EOQ)
• D: Annual demand in units for the
inventory item
• S: Setup or ordering cost for each order
• H: Holding or carrying cost per unit year
• P: Purchasing cost per unit
Number of cycle:
𝐷
=
𝑄

Annual Ordering cost:

𝑆∗𝐷
=
𝑄

Annual Purchasing cost:

= P*D

Unit Holding cost per cycle:

1 𝑄
=𝐻∗ ∗ ∗𝑄
2 𝐷

𝐻∗𝑄2
=
2𝐷

Annual Holding cost

𝐻∗𝑄
=
2
Economic order quantity:
𝑆∗𝐷 𝐻∗𝑄
Q*= min TC(Q) = P ∗ D + +
𝑄 2
2∗𝑆∗𝐷
TC”(Q) = >0
𝑄3

𝑆∗𝐷 𝐻
TC’(Q) = - 2 +
𝑄 2

2𝑆𝐷
-> Q*=
𝐻
 𝒚 𝑳
Case 1: The lead time is shorter than a cycle ∗
= ∗
𝒙 𝒙 /𝑫
-> y = LD
 𝒌∗𝒙∗
L’ = L -
𝑫
Case 2: The lead time is greater than k cycles 𝒚 𝑳
but less than or equal k+1 cycles =
𝒙∗ 𝒙∗ /𝑫
-> y = L’D
• Back order rate
• Perfect order rate
• Carrying cost of inventory
• Inventory turnover ratio
• Days of inventory
• Mismatch
• Obsolete
Logistics is that part of the supply chain
process that plans, implements, and
controls the efficient, effective flow and
storage of goods, services and related
information from the point of origin to the
point of consumption for the purpose of
confirming to customer requirements. The
definition includes inbound, outbound,
internal and external movements and return
of materials.

Source: The Council of Logistics Management

The scope of logistics involves: Management of order processing,
inventory, transportation and combination of warehousing,
materials handling, and packaging, all integrated throughout a
network of facilities.

The goal of logistics is to support procurement,

manufacturing and customer service
operational requirements
 Transportation Packing Information

Analyze
Inventory Warehousing Visualization
• Traffic and transportation
• Warehousing and storage
• Packaging
• Material handling
• Inventory control
• Order processing/ fulfillment
• Logistics communications
• Customer service
• Reverse logistics
 Wholesalers

Suppliers Raw Production Finished Distributors End customers

materials goods
warehouse warehouse
Retailers

Collecting raw Receiving Receiving Order

materials/ Quality/audit Quality/audit Picking
components Inspection Inspection Fulfillment
from suppliers Put-away Put-away Shipping
Storage Storage
 Vendor Mgt
PO Mgt
INFORMATION Track & trace
VMI
FLOW Shipment level
SeeChange
Shipment Planning
Document Mgt – Receipt,
DOCUMENT Brokerage, Document
Indexing, Scanning verification
FLOW pouching, ASN
Exception Mgt
Drayage,
DC Bypass
PHYSICAL Stuffing, CFS Service
Mixing Hub
FLOW Container Planning
MCC
Consolidation
RIGHT TIME RIGHT PLACE RIGHT QUANTITY
The word “logistics” come from Greece with
the word “logos” meant reason/ratio

Military officers called “logistikas” were

responsible for ensuring the supply and
allocation of resources, so that soldiers could
move forward efficiently

The book “The elements of the Art of War”

has one section for “Logistics”

After World War II, logistics moved from

warfare to business. The term is now used
widely in the civil sector
 1. Loading of
goods 2. Warehouse receiving.
Storage as required

3. Container
stuffing
6. International transport
(Land, Sea and/or Air)
7. Customs -destination 4. Customs - origin
5. Port services - origin
8. Port services -
destination 9. Container de-stuffing and
warehouse receiving.
Storage as required

11. Final delivery 10. Truck loading

Logistics Service Providers, often termed third-
party logistics (3PL) providers, are outsource
entities shippers leverage to manage a company's
warehousing, distribution and transportation of
freight.
Transportation based Forwarding based

Information based

Warehousing/
Financial based
Distribution based
Cost reduction Improve
customer service

Focus on core Increase production

competencies flexibility
Cross-docking is a procedure whereby product
is received and dispatched immediately,
without being put away into storage
▪ Pure cross-dock means product is received, then
loaded directly onto its outbound vehicle, with
no product manipulation (requires supplier to
build pallets based on final destination,
sometimes called ‘store-ready’ pallets)
▪ Typical timeline is 1 day or less, with staging in
between
▪ ‘Flow-through’ or ‘merge-in-transit’ may also be
used as terminology, but could refer to a process
in which product manipulation (e.g., break-bulk)
is required
Transportation refers to the movement of
product from one location to another as it
makes its way from the beginning of a supply
chain to the customer

Transportation is an important supply chain

driver because products are rarely produced
and consumed in the same location

Transportation is a significant component of

the costs incurred by most supply chains.
Supply chains use a combination of the
following modes of transportation:
• Air
• Package carriers
• Truck (Truckload vs Less-than-truckload)
• Rail
• Water
• Pipeline
• Intermodal
Three basic questions need to be considered when
designing a transportation network between two
stages of a supply chain:
1. Should transportation be direct or through an
intermediate site?
2. Should the intermediate site stock product or
only serve as a cross-docking location?
3. Should each delivery route supply a single
destination or multiple destinations (milk run)?
• The buyer structures the transportation
network so that all shipments come directly
from each supplier to each buyer location
• The major advantage is the elimination of
intermediate warehouses and its simplicity of
operation and coordination.
• A milk run is a route on which a truck either delivers product from a single supplier to multiple
• In direct shipping with milk runs, a supplier delivers directly to multiple buyer locations on a
truck or a truck picks up deliveries destined for the same buyer location from many suppliers.
• Direct shipping provides the benefit of eliminating intermediate warehouses, whereas milk runs
lower transportation cost by consolidating shipments to multiple locations on a single truck.
• Product is shipped from suppliers to a central
distribution center where it is stored until needed by
buyers when it is shipped to each buyer location

• Storing product at an intermediate location is

justified if transportation economies require large
shipments on the inbound side or shipments on the
outbound side cannot be coordinated.

• The presence of a DC allows a supply chain to

achieve economies of scale for inbound
transportation to a point close to the final
destination
• Suppliers send their shipments to an intermediate
transit point (could be a DC) where they are cross-
docked and sent to buyer locations without storing
them.

• When a DC cross-docks product, each inbound truck

contains product from suppliers for several buyer
locations, whereas each outbound truck contains
product for a buyer location from several suppliers.

• Cross-docking is appropriate when economies of

scale in transportation can be achieved on both the
inbound and outbound sides and both inbound and
outbound shipments can be coordinated.
• Milk runs can be used from a DC if lot sizes to be
delivered to each buyer location are small
• Milk runs reduce outbound transportation costs
by consolidating small shipments
A retail chain has eight stores in a region supplied from four supply sources.
Trucks have a capacity of 40,000 units and cost $1,000 per load plus $100 per
delivery. Thus, a truck making two deliveries charges $1,200. The cost of holding
one unit in inventory at retail for a year is $0.20.

The vice president of supply chain is considering whether to use direct shipping
from suppliers to retail stores or setting up milk runs from suppliers to retail
stores.
a/ What network do you recommend between direct shipping and milk runs(to
two stores) if annual sales for each product at each retail store are 960,000
units?
b/ What network do you recommend among direct shipping; milk runs(to two
stores) and milk runs(to four stores) if sales for each product at each retail store
are 120,000 units?
• Warehouse is defined as the part of
logistics systems that store products (raw
materials, parts, goods-in-process,
finished goods…) at and between points
of origin to points of consumption

• Warehousing can be provided by either

warehouses or distribution centers (DC)

Source: Source: Douglas M. Lambert, James R. Stock, and Lisa

M. Ellram, Fundamentals of Logistics Management
 Warehouses Distribution centers
Emphasize the storage of product Emphasize the rapid movement
of products through a facility
Main purpose is to maximize Main purpose is to maximize
usage of available storage space throughput
• Warehousing adds value in customer service, by facilitating high inventory
availability, shorter response times, value-added services, returns,
customization, and consolidation among others.

• Warehousing adds business and supply-chain value in all the same ways as
inventory.

• Warehousing helps determine the optimal timing of the purchase and reduce
operation cost

• Warehousing can help to provide transportation economies of scale by

working as consolidation points for accumulating and assembling small
shipments into larger ones.
Source: Source: World class warehousing
Source: Source: World class warehousing
• Product: What kind of goods will it hold?

• Space: What physical characteristics should the

warehouse have?

• Equipment: What MHEs are available?

• Circulation of goods: How do goods circulate?

• Personnel: How many employees are there?

DESPATCH RECEIVING
AREA AREA

Fast Moving Storage and Pick Faces

Medium Moving Storage

Slow Moving Storage

• U-shape flow occurs when the goods receipt
and dispatch functions are located at the same
side/end of a warehouse building.

• Products flow in at receiving and move to

receiving staging, pallet storage, case picking,
broken-case picking, order assembly, and
shipping.

• Items with higher throughput level are located

closer to the loading bays.
A U-shaped flow design has a number of advantages over other flow designs:

• It yields high utilization of dock resources (i.e., dock doors, dock equipment, dock space, dock
operators, and dock supervisors) because the receiving and shipping processes can share dock
doors.

• It facilitates cross-docking because the receiving and shipping docks are adjacent to one
another.

• It yields high lift-truck utilization because put-away and retrieval trips are easily combined and
because the storage locations closest to the receiving and shipping docks are natural locations
to house fastmoving items.

• It allows expansion opportunities in three directions.

• It provides excellent security because a single side of the building is used for entry and exit.
DESPATCH AREA
RECEIVING AREA
• 'Through' flow happens when separate loading
bay facilities for outbound and shipping are
provided, often at opposite end of warehouse.

• Products flow in at receiving, move into

storage, picking area and then the marshalling
and despatch area in a straight line.

• Items with a higher throughput level are

located at the center of the warehouse.
Application of I-shape flow:
• When there is a risk of interference or confusion between goods in and goods out.

• When goods inwards vehicles and dispatch vehicles are very different; for example
differences in platform height or nature of unit load.

• When a warehouse is connected to a production plan

Disadvantages of I-shape flow:
• Goods need to travel the full length of the
warehouse, even for goods that have a higher
throughput level.

• I-shape design does not lend itself to ABC storage

and dual-command trips. It is also harder to control
and less flexible
 Mixed Storage and Cross-dock requirement

INTAKE DOCKS

1
2 NON-STANDARD
1 CROSS DOCK PALLET STORAGE

DESPATCH DOCKS
4

2 RECEIPT INTO
STORAGE
3

3 PICK FACE
STANDARD
REPLENISHEMENT 4 PALLET
3
STORAGE

4 ORDER PICKING
4

PICK FACES
If the duration of the peak is short-
lived and the peak-to-average storage
ratio is high, then outside warehousing
and/or trailer storage should be
considered to accommodate the peak
storage requirements
If the duration of the peak is for an
extended period and the peak-to-
average storage ratio is low, then the
storage area should be sized at or very
near peak requirements
• Create A standard, readable and easy-to-see shelf labels system
• Create warehouse layout, clearly point out the positions of shelf, bin, etc.
• Store goods per types, purpose, size
• Arrange by categories, using labels to distinguish
• Put away fast moving goods at the most convenient area (based on Pareto, ABC Principles)
• Limit transit time by using proper storing methods
• Keep safety distance between cargo rows or between cargo row and wall
• Put carton within pallet
• Goods are put on pallet instead of on floor
• Wrap pallet when storing from the 2nd level
• Natural light helps enhance working environment
• 5S
Application: for all palletized goods,
especially for many SKU(s) and small lots
Pros:
• Inexpensive compared to other pallet
racks
• Can easily access pallets
• Accommodates LIFO and FIFO styles
Cons:
• Low storage density due to aisles
between rows of rack
Application: for storage of goods which has at least
2 pallets per batch (lot)
Pros:
• Achieve up to 40% more storage capacity than
selective pallet racking.
• Offer 50% selectivity, i.e., immediate accessibility
to 50% SKUs.
• Low investment cost
• Easily relocated and easily converted to/from
single deep system
Cons:
• Storage is limited to 10m for safe operations.
• Need special double deep reach trucks and
specialized forklifts to access pallets
• Speed of pallet access is reduced, resulting in
lower throughput rates
Application: Specifically meant for the storage
of bulk stock (large lots) and strict LIFO rule
Pros:
• Storage Space utilization
• Suitable for LIFO
Cons:
• Difficult to reach all non-end rack pallets by
forklift
• Potential for rack damage from fork trucks
as they navigate narrower aisles
Application: suitable for storage of bulk stock
and strict FIFO rule
Pros:
• High storage density
• Typically cheaper than most flow pallet rack
systems
Cons:
• Poor accessibility to individual pallets
• Easily damaged from machinery and forklifts
Application: few SKU, storage of bulk stock
(large lots), FIFO rule
Pros:
• An ideal high-density storage solution
• Singular loading/unloading point limits
damage from forklifts
• Flow racks can be added to nearly any
existing pallet rack configuration
Cons:
• Can be a more costly investment than other
storage options
• Poor accessibility to all pallets
Application: few SKU, storage of bulk stock (large
lots), LIFO rule
Pros:
• Eliminate honeycombing by allowing for
individual storage levels.
• Space-efficient and increases stability
• Less opportunity for damage of pallet racks by
forklifts
• Increased selectivity among inventory
Cons:
• High price compared to other racking systems
 Cosmetics
Vehicle arrival Unloading Document check
inspection

Moving from dock to storage

Label Shrink wrap Put away
area
Allocating order Picking VAS Packing

Label Shrink wrap Hand over Loading

Cycle count frequency
• Finished goods: monthly
• Raw materials: quarterly
• Spare part: twice per year or yearly

Cycle count method:

• Book to floor
• Floor to book

Cycle count quantity:

• 100% inventory
• Sample
Risk = Uncertainty that matter

Risk is the possibility of something positive or

negative happening
Risk management is a process including the
identification and analysis of risk, and the decision to
either accept or mitigate the exposure to such risk
when compared to the potential impact on the
achievement of the organization’ objective
Saving cost and time
Effective use of resources
Protect and drive business value
Reduce effect of disruption
Sustain stakeholders confidence and trust
 Identify
risks

Monitor
Analyze the
and review
risk
the risk
Prepare

Treat the Risk

risk assessment
Make a risk management plan:
• General information (brief, objective, purpose ,
scope…)
• Risk management organization (risk management
team, risk owner, steering committee)
• Risk management process
• Continuously identify both the threats and
opportunities that can affect the project objectives

• Each risk must be well defined and relate

specifically to an undesired event (threat) or to an
desired event (opportunity)

• Risk identification must be an ongoing process and

project members should openly communicate
risks, not only in the meetings where risks are
discussed

• Strategic risks or operational risks

• Determine the likelihood and consequence of
each risk

• Develop an understanding of the nature of the

risk and its potential to affect project goals and
objectives
Risk assessment includes:
• Evaluating: Estimate the probability that a risk
event will occur and the resulting consequences.
Then you use these estimates to determine the
severity of the risk to the project

• Prioritizing: After determining risk severity, you

decide the order in which the risks require
attention. The highest ranked risks or
opportunities are reported to the steering
committee
Strategies for negative risks or threats

Avoid: Risk avoidance involves changing the project management plan to eliminate the
threat posed by an adverse risk, to isolate the project objectives from the risk's impact

Transfer: Risk transference requires shifting the negative impact of a threat, along with
ownership of the response to a third party

Mitigate: Risk mitigation implies a reduction in the probability and/or impact of an adverse
risk . Taking early action to reduce the probability and/or impact of a risk on the project is
often more effective than trying to repair the damage after the risk has occurred

Accept: The project has decided to do nothing with the risk

Strategies for positive risks or opportunities

Exploit: This strategy may be selected for risks with positive impacts where the
organization wishes to ensure that the opportunity risk realized

Share: Sharing a positive risk involves allocating ownership to a third party who
is best able to capture the opportunity for the benefit of the project

Enhance: This strategy modifies the "size“ of an opportunity by increasing probability and /or
positive impacts, and by identifying and maximizing key drivers of these positive-impact risks

Accept: the opportunities when it happens but not actively pursuing it

• Status on risks, opportunities and response actions
should be followed up and documented regularly in
order to secure efficient and effective risk management
control

• The risk manager should establish standard routines for

monitoring and control to ensure that all identified
actions are mitigated with regards to action
responsibility and deadline

• The risk manager should establish standard routines for

monitoring and control to ensure that all identified
actions are mitigated with regards to action
responsibility and deadline