Course Summary

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Course Summary
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Characterization of the operations in
contemporary SCs and the area of SC management

• A SC chain consists of all the required stages
  for fulfilling customer demand, and it involves
  the transfer of materials, information and funds.
• The various operations involved are organized in
  a number of cycles, with the typical cycles being
  customer order, replenishment, manufacturing and
  procurement.
• Setting up and operating these cycles for any
  particular supply chain boils down to a number of
  problems / issues that can be characterized as
  strategic, tactical and operational.
• The field of SC management deals with the
  systematic study of these problems.

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The role of Corporate Strategy and its connection
to SC Management

• Any well-run contemporary organization is
  expected to have a well-defined (and stated)
  corporate mission, defining its role with respect
  to society, its employees and its investors.
• In addition, the organizations corporate
  strategy seeks to continually (re-)define the
  competitive advantages that must be sought by the
  organization in order to succeed in its mission.
• These competitive advantages are determined on
  the basis of
• the evolving strengths and weaknesses of the
  organization and its (key) competitors
• the prevailing political and economic conditions
• the phase of the product/industry life cycle
• and they seek to regulate attributes like the
  organization responsiveness, cost efficiency and
  product quality / differentiation, in order to
  build and sustain the companys market share.

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The role of Corporate Strategy and its connection
to SC Management (cont.)

• The various departmental / functional (including
  the SC) strategies must be aligned to and support
  the corporate strategy.
• The key levers used by SC management in its
  effort to support corporate strategy are
• Facilities
• Inventory
• Transportation
• Information
• Market Segmentation

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Market Characterization and the role of
Information Management in Contemporary SCs

• To the extent that the customer demand is the
  main input signal that drives the entire set of
  operations in any SC, it is imperative that this
  input is properly understood, characterized and
  appropriately disseminated to the various
  interested parties.
• Understanding and characterizing the expected
  demand and the arising customer needs is
  primarily the task of the marketing department,
  and the relevant function is known as
  forecasting.
• The ability for effective forecasting depends on
  a number of factors like
• the availability of relevant data,
• the forecasting horizon,
• the stability of the forecasting quantity and any
  inherent trends in it over time,
• etc.
• As a result, forecasting can be based on either
  qualitative or quantitative techniques, with
  quantitative techniques being more demanding in
  their applicability requirements.

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Market Characterization and the role of
Information Management in Contemporary SCs
(cont.)

• Furthermore, quantitative techniques can be
  discriminated to
• causal models, that seek to characterize
  functional dependencies between the forecasted
  quantity and other relevant indicator variables,
  and
• time series-based models, that essentially seek
  to systematically extrapolate any detected trends
  in past observations of the forecasted quantity,
  into the future.
• Causal models can be built using techniques from
  (linear) regression.
• Time-series based models essentially use some
  sort of weighted average in order to compute an
  estimate of the mean value of the forecasted
  quantity from its part observations. The
  implementational details depend on the type of
  trends identified / expected in the data (level,
  linear growth, seasonalities, etc.)
• In addition, it is pertinent to characterize the
  variability in the forecasted quantity, by
  obtaining an estimate of the standard deviation
  of the relevant distribution(s). All of the
  aforementioned models provide formulae for
  obtaining (approximating) an estimate of this
  std. dev., by using the forecast errors.

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Market Characterization and the role of
Information Management in Contemporary SCs
(cont.)

• While the last (retailing) stages in a SC have
  direct experience of the market demand, more
  upstream stages in the SC must frequently rely on
  the information provided to them from the
  downstream stages in order to predict the
  expected demand and plan their activity
  appropriately.
• This type of interaction tends to distort the
  information provided to the upstream stages of
  the SC, since it tends to integrate in it the
  effects of erratic or intentional behavior from
  the downstream stages. In particular, upstream
  stages tend to observe a much more variable
  demand than the actual demand generated by the
  market this effect is known as the bullwhip
  effect.
• Currently, there is a systematic effort among
  leading companies to identify and eliminate the
  reasons that tend to result in lack of
  coordination and the bullwhip effect in SCs. At
  the same time, information technology is explored
  and promoted as an enabler of new business
  practices that can lead to enhanced SC
  coordination and efficiency.

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Designing SC networks

• The problem of SC network design seeks to
  determine the number and configuration of the
  various facilities in any particular supply
  chain, in terms of their capacities and
  capabilities, and also their interaction in terms
  of material and information flow.
• The involved decisions are characterized as
  strategic, since they commit the organization for
  a substantial period of time (typically measured
  in years) while at the same time they define the
  organizational capability with respect to
  production and distribution.
• Typical characterizations of this class of
  problems seek to maximize profit or control total
  deployment and operational costs while ensuring
  some target service level(s), which quantify the
  organization responsiveness. The typical costs
  involved relate to facilities, inventories,
  transportation, and maybe other administrative
  costs like IT-infrastructure, etc.
• The detailed characterization of these problems
  is affected by a number of qualitative factors,
  including attributes of regional demand,
  production technologies and economies of scale
  and scope, tarrifs and tax incentives, available
  infrastructure, risks associated with economic
  (e.g., exchange rates), political and
  demand-influencing factors, the behavior of the
  competitors, etc.

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Designing SC networks (cont.)

• From a mathematical / analytical standpoint, many
  of these problems can be represented as minimum
  cost network flow problems, and eventually
  characterized and solved (at a certain level of
  approximation) through linear and mixed integer
  programming formulations.
• Additional optimization models and techniques
  have been developed for particular problems,
  addressed under certain conditions/assumptions
  (e.g., the center of gravity model).
• Furthermore, there is a developing effort that
  seeks to systematically address and factor in the
  relevant decision making, the impact of the
  uncertainty underlying the various parameters of
  the considered problems. A popular approach tries
  to characterize the potential evolution of the
  system operation under the aforementioned
  uncertainties in a number of scenarios, compactly
  expressed in a decision tree, and use this
  representation for systematically evaluating the
  expected Net Present Value for various proposed
  solutions.

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Transportation-related Concepts and Problems

• Transportation-related costs are one of the major
  types of cost experienced by contemporary SCs.
  In general, there is a trade-off between
  transportation and facilities and
  inventory-related costs.
• This cost can be controlled by pertinently
  choosing the transportation mode, types and
  frequency of service, service providers, etc.
• From the transportation service providers
  standpoint, the quest is to maximize the
  potential profit through the effective
  utilization of the available resources / assets.
• Some typical problems underlying the effective
  deployment and operation of transportation
  services are as follows
• Shortest Path Finding the minimum length / cost
  route between two points
• Minimum Spanning Tree Establish connectivity
  between a number of locations while minimizing
  the total cost.
• Min-Max Path Finding a route between two
  locations that minimizes the length of the
  involved route legs.
• Traveling Salesman Tour Find the minimum length
  tour visiting a number of locations.
• Bin Packing Minimize the number of
  (finite-capacity) containers required to ship a
  number of indivisible loads to a certain
  destination.
• Vehicle Routing Minimize the total travel cost
  for shipping a number of loads to a number of
  destinations, utilizing finite capacity vehicles.