Supply Chain Decision

Supply Chain Decision

Supply Chain Decisions Supply chain management decision can be classify into two broad categories – (i) Strategic (Corpor... 12:29 AM

Supply Chain Decisions

Supply chain management decision can be classify into two broad categories –

(i) Strategic (Corporate Strategy) and (ii) Operational. 

As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy (sometimes they also called the corporate strategy), and guide supply chain policies from a design perspective.

On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The effort in these types of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain.
There are four major decision areas in supply chain management:

i) Location
ii) Production
iii Inventory, and
iv)Transportation (distribution)
There are both strategic and operational elements in each of these decision areas.

Location Decisions
The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc. Although location decisions are primarily strategic, they also have implications on an operational level.

Production Decisions
The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities--and this largely depends the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility.

Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw materials, semi-finished or finished goods. They can also be in-process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.

Transportation Decisions
The mode choice aspects of these decisions are the more strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels, and geographic location play vital roles in such decisions. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key in effective management of the firm's transport strategy.

Same as supply chain activities constitute a mega process and numerous decisions are involved in successful design and operation of supply chains. Supply chain decision making is a complex process. Some of the important reasons for the complexity of the decision making process are:

- Hierarchical structure of decisions
- Large scale nature of the supply chain networks
- Randomness of various inputs and operations
- Dynamic nature of interactions among supply chain elements

Supply chain decisions have been classified based on their temporal and functional consideration.

Procurement Decisions

Supplier/Vendor selection: Where should we source raw materials, components, and sub-assemblies from? (strategic)

Direct delivery from suppliers: Can intermediate warehouses be eliminated so that materials can be delivered directly into manufacturing plants? (strategic)

Vendor managed inventories: Should the inventories at the plants be vendor-managed? (strategic)

Optimal procurement policy: What are the cost and service trade-offs in alternative procurement strategies? (strategic/tactical)

Manufacturing Plant location: How many manufacturing plants should be set up and where should they be located? (strategic)

Product line selection: What products should be produced at each manufacturing location? (strategic/tactical)

Inventory decisions: What raw materials/Work-in-process (WIP)/finished goods inventory should be stocked in each center? (strategic/tactical)

Capacity planning: How much capacity is needed in each plant? (strategic)

Capacity allocation: How do we allocate plant capacity to products? (tactical)

Optimal manufacturing strategy: What are the cost and service trade-offs in alternative manufacturing strategies? For example, what would be the best policy among make-to-stock, make-to-order, and assemble-to-order? (strategic/tactical)

Input control: How do we introduce work into the plant? (strategic/tactical/operational)
Production scheduling: How do we schedule the production to maximize throughput and minimize cycle time? (tactical/operational)

Constrained Supply: How do we optimize resource utilization when the supplies are not enough to fulfill the requirements? (tactical)

Distribution

Configuration of distribution facilities: What types of distribution centers are required? (Warehouses, cross-docks, drop-lots, etc.) (strategic/tactical)

Location: Where should distribution facilities be located? (strategic)

Customer allocation: Which customers should a facility service? (strategic/tactical)

Facility configuration: What product should be handled by each facility? What products and in how many quantities should be stocked at each facility? What should be the replenishment strategy? (strategic/tactical)

Optimal distribution strategy: What are the cost and service trade-offs of alternative distribution strategies? (tactical)

Logistics

Logistics mode selection: What transport modes and lanes should be used to move products throughout the network? (strategic)

Selection of ports: Which ports should be used to bring product into and out of a country? (strategic)

Direct delivery: Which products should move directly from manufacturing centers to customers? (strategic/tactical)

Optimal transportation strategy: What are the cost and service tradeoffs of alternative transportation strategies? (tactical)

Global Decisions

Product and process selection: What product quantities, by facility, by process, should be produced and stored in each period to support customer demands? What products to sell and to which customers to maximize profits? (tactical)

Planning under uncertainty: What are the implications associated with seasonal or cyclical demand, capacity availability, cost fluctuations, or raw material availability? (tactical/operational)

Global optimization of operations: What are the cost and service trade-offs among procurement, manufacturing, distribution, and logistics alternative strategies? (strategic/tactical)

Real-time monitoring and control: How can the orders be dynamically routed and scheduled through the supply chain in reaction to occurrence of real-time events? (operational)