Published on March 6, 2014
Supply Chain Management: An Introduction Behzad Behdani email@example.com firstname.lastname@example.org
Learning objectives • A generic understanding of: – What is a supply chain – Which aspects might be important in supply chain design/operation – What decisions companies face in making and moving products around the world • A general discussion on some main trends in the supply chain management and how this may impact the role of transportation
What is a Supply Chain? • A supply chain consists of All parties involved, directly or indirectly, in the flow and transformation of goods and services from raw materials to customer Supplier Upstream Manufacturer Distributor Retailer Customer Downstream
SCM in a Supply Network Cash Products and Services Information CHINA N-Tier Suppliers THAILAND NETHERLANDS Manufatureres Logistics GERMANY Distributors GERMANY/POLAND Retailers Supply Chain Management (SCM) is concerned with the management and control of the flows of material, information, and finances in supply chains so as to provide the desired levels of service to supply chain customers in most profitable way
The objective of a Supply Chain • The objective of every supply chain is to maximize the overall value generated. • For most commercial supply chains, value will be strongly correlated with supply chain profitability, the difference between the revenue generated and the overall cost across the supply chain. • For any supply chain, there is only one source of revenue: the customer.
The objective of a Supply Chain (cont...) What makes customers happy: • Low price • Variety of options • Good quality • Product availability • … First rule in supply chain: Select a customer segment and adapt your supply chain based on the service needs of that customer segment
The range of possible supply chain designs Efficient SC Responsiveness spectrum Cost-sensitive SC Efficiency: • Producing and supplying at lowest possible cost Responsive SC Time-sensitive SC Responsiveness: • Meet short lead times • Handle a wide variety of products • Meet high service level
Cost-Responsiveness Tradeoff Responsiveness (in time, high service level and product variety) High Low High Cost Low Ref: Sunil Chopra and Peter Meindl (2012). Supply Chain Management: Strategy, Planning, and Operation, 5th edition, Pearson Education.
The range of supply chain designs Commodities Detergent Rice Pasta Price Low Customized products High Fashion Clothing PC Notebook Customer Need Responsiveness High
Drivers of Supply Chain Performance How to achieve Efficiency Responsiveness Supply chain structure Facilities Information Inventory Sourcing Transportation Pricing Logistical Drivers CrossFunctional Drivers Ref: Sunil Chopra and Peter Meindl (2012). Supply Chain Management: Strategy, Planning, and Operation, 5th edition, Pearson Education.
Drivers of Supply Chain Performance (cont…) Driver Responsive Efficient Facilities • Excess capacity • Little excess capacity • Many smaller facilities close • Few centralized facilities to customers serve wide areas Inventory • High inventory level • Wide range of items • Low inventory level • Fewer items Transportation • Frequent shipment • Fast and flexible movement • Shipement few, large • Slow cheaper modes Information • Collect and share timely more information • Minimize /rationalize the cost of collecting information Sourcing • Assigning tasks based on uncertainty handling • Assigning tasks based on economies of scale Pricing • Differential pricing startegy to attract more customers • Fixed pricing startegy
Some trends in managing supply chains • Globalization and Global Supply Chain Management • Outsourcing • Just-in-Time • ….
An example of global sourcing in supply chain Source: Daniels, J. D., Radebaugh, L. H. and Sullivan, D. P. (2004). International Business: Environments and Operations, Addison-Wesley.
What means this globalization of business for transportation? • Transportation is key to success of every supply chain
What means this globalization of business for transportation? 600 milion TEU 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 World Container Traffic and Throughput (Source: World Bank database)
What means this globalization of business for transportation? • Similar trend can be seen in main EU ports 12 11 Million TEU 10 9 Rotterdam 8 Hamburg 7 Antwerp 6 Bremen 5 Valencia 4 3 2 2006 2007 2008 2009 2010 2011 Container traffic in main European ports (Source: website of Port of Rotterdam) 16
What means this globalization of business for transportation? Maersk Mc-Kinney Møller 18,270 TEU Source: http://maritime-connector.com/ships_uploads/maersk_mc_kinney_moller-9619907-container_ship-8-168317.jpg
Maersk Mc-Kinney Møller in China Source: http://www.shipspotting.com/gallery/photo.php?lid=1841852
Maersk Mc-Kinney Møller in Rotterdam Source: https://worldmaritimenews.com/archives/92900/maersk-mc-kinney-moller-blazes-trail-of-record-productivity-at-ports/
How transportation system can support the requirements of supply chains? ≈ 2 € / container.km Source: http://www.ect.nl ≈ 0.21 € / container.km
Business for global supply chains is more risky
Risk in global container movement: just one example Source: wikipedia.com Expansion of pirate operations
Is your container on board?
More risk sources in a global supply chain • Port-related disruptions: – Natural disasters (like earthquake) – Labor strikes – Terrorist attacks –…
More risk sources in a global supply chain: natural disasters th • The Port of Kobe, Japan, once the 5 largest container port in the world, has fallen to 39th as a result of extensive damage caused by the 1995 Kobe earthquake, which required two years to repair. • Aftermath of 1995 earthquake, some traffic flows in the port of Kobe redirected to nearby hub ports such as Busan, Shanghai and Kaohsiung, some of which never returned even long after the cargohandling capacity was restored. Source: Fujita, M. & Hamaguchi, N. 2012. Japan and economic integration in East Asia: post-disaster scenario. Annals of Regional Science, 48, 485-500.
More risk sources in a global supply chain: natural disasters Source: Watanabe, Y. (2006), “Impact of the Kobe Earthquake on Transportation and Port Logistics: Lessons Learned”, International Conference on National Security, Natural Disasters, Logistics and Transportation
More risk sources in a global supply chain: port strike • The economic impact of the two week labor disruption at US West Coast ports in October 2002 is estimated at $1 billion to $2 billion per day. Source: Sheffi (2005), “The Resilient Enterprise”
More risk sources in a global supply chain: security issues • Supply chain security is a major concern although no specific terrorist attack to ports is reported. • Current Supply Chain Security Programs – Customs Trade Partnership Against Terrorism (C-TPAT) – Container Security Initiative (CSI) – Secure Freight Initiative (SFI) … • A new Law has born: 100% Container Scanning Legislation
More risk sources in a global supply chain: security issues • 100% scanning rule: On 3 August 2007 the US enacted the “Implementing Recommendations of the 9/11 Commission Act of 2007”. The act introduced a 100% scanning requirement for USbound maritime cargo at export with implementation as of 1 July 2012. This requirement came in addition to existing US security measures applied at arrival. • The implementation date is later extended to 2014.
More risk sources in a global supply chain: security issues • A total of €430 million would be required for investments for scanning and radiation detection including significant changes in infrastructure to create space for extra facilities for ports and terminals involved in US bound container traffic. • Operational costs in European ports would rise by more than €200 million annually, including expenditure for 2200 extra staff. • Direct transport costs of US-bound consignments would increase by about 10%. • Ports unable to implement 100% scanning would lose access to the US market; this would tend to increase congestion and environmental costs for other ports. Source: European Commission Staff Working Paper. Secure Trade and 100% Scanning of Containers. February 2010
Other issues in global supply chain management • National cultures and Communication challenges • Different regulations • Financial issues (e.g., exchange rate fluctuations) • Political and social instability • …
Outsourcing and increased complexity in freight transport • Outsourcing refers to the strategic decision to shift one or more of an organization’s activities to a third-party specialist. Source: Fransoo, J.C. and Lee C.Y. (2010), “Ocean container transport: an underestimated and critical link in global supply chain performance”: http://cms.ieis.tue.nl/Beta/Files/WorkingPapers/Beta_wp303.pdf
Outsourcing and its impacts on freight transportation • Lack of visibility: lack of access to necessary information • Fragmentation of management: control of resources by different actors • Hindrance of interests of main players: the voice of final customer might be ignored • Coordination issues: how different activities of different actors in a supply chain must be coordinated? How interests of different actors must be aligned? • Risk management issues: in case of disruption, the necessary resources to handle a disruption is distributed among multiple actors.
Just-in-Time (JIT) philosophy • A philosophy that seeks to eliminate all types of waste (like excessive levels of inventory and waiting times) • The idea: replenishing material buffers just when they are needed and not before or after. Source: Dan Reid, R. & R. Sanders (2010), “Operations Management”, 4th Edition, Wiley.
Just-in-Time (JIT) production and its impacts on freight transportation • • • • Little or no buffer in the system Time compression Importance of synchronisation Flexibility in port operation is important Every one in the network under stress?
Summary • Supply chain is designed/operated to provide value for customers and supply chains may take different forms based on customer needs • Supply chain management is al about a systemic view and integration of activates in a supply chain • Each port is a member of many supply chains and aligning ports strategy with requirements of multiple supply chains can be a challenge • With globalization and outsourcing, there are more difficulties in the smooth operation of supply chains
Just like passenger transport, in “freight transport” we need: Innovation Economies of scale Cooperation Sustainability
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