Supply Chain Management

SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENT

K. Özcan ATILGANK. Özcan ATILGAN

Erhan GÜLErhan GÜL

M. Onur ŞENARASM. Onur ŞENARAS

TABLE OF CONTENTSTABLE OF CONTENTS

• What is Supply Chain Management?What is Supply Chain Management?

• Types of Supply ChainsTypes of Supply Chains

• The Strategic Importance of the Supply The Strategic Importance of the Supply ChainChain

• Global Supply Chain IssuesGlobal Supply Chain Issues

• Vendor SelectionVendor Selection

• Problems of Supply ChainProblems of Supply Chain

• Supply Network Management Supply Network Management

• Supply Network DesignSupply Network Design

• ProblemMathematical ModelProblemMathematical Model

• Model: Distribution & Example (LINGO Model: Distribution & Example (LINGO Solution)Solution)

What is Supply Chain What is Supply Chain Management?Management?

• Supply chain management isSupply chain management is the the implementation of a supply chain orientation implementation of a supply chain orientation across suppliers and customers.across suppliers and customers.

• Supply chain managementSupply chain management is the is the systemic, strategic coordination of the systemic, strategic coordination of the traditional business functions within a traditional business functions within a particular company and across business particular company and across business within the supply chain, for the purpose of within the supply chain, for the purpose of improving the long-term performance of the improving the long-term performance of the individual companies and the supply chain individual companies and the supply chain as a whole.as a whole.

Types of Supply ChainsTypes of Supply Chains

• Basic Supply Chain Basic Supply Chain

• An Extended Supply Chain An Extended Supply Chain

• An Ultimate Supply Chain An Ultimate Supply Chain

• Partnership Partnership

THE STRATEGIC IMPORTANCE OF THE THE STRATEGIC IMPORTANCE OF THE

SUPPLY CHAINSUPPLY CHAIN

• As firm strive to increase their As firm strive to increase their competitivenessvia product competitivenessvia product customization,high quality,cost reductions, customization,high quality,cost reductions, and speed to market, they place added and speed to market, they place added empahsis on the supply chain.The key to empahsis on the supply chain.The key to effective supply chain management is to effective supply chain management is to make suppliers partners in the firm‘s make suppliers partners in the firm‘s strategies to satisfy an ever changing strategies to satisfy an ever changing marketplace marketplace

suppliersupplier

inventoryinventory

supplier

supplier

inventory

customer

customer

customer

inventory

inventory

manufacturermanufacturer

distributor

GLOBAL SUPPLY CHAIN GLOBAL SUPPLY CHAIN ISSUESISSUES• Flexible enough to react to sudden changes Flexible enough to react to sudden changes

in parts availability, distribution or shipping in parts availability, distribution or shipping channels, import duties, and currency rates.channels, import duties, and currency rates.

• Able to use the latest computer and Able to use the latest computer and transmission technologies to manage the transmission technologies to manage the shipment of parts in and finished products shipment of parts in and finished products out.out.

• Staffed with local specialist to handle duties, Staffed with local specialist to handle duties, trade, freight, customs, and political issues.trade, freight, customs, and political issues.

VENDOR SELECTIONVENDOR SELECTION

• Vendor Evaluation Vendor Evaluation

• Vendor Development Vendor Development

• NegotiationsNegotiations

Problems of Supply ChainProblems of Supply Chain

• Network design problem from raw material Network design problem from raw material suppliers to customers.suppliers to customers.

• Problem of production quota assignment, Problem of production quota assignment, by which specific quantities are distributed by which specific quantities are distributed to each of the several facilities producing to each of the several facilities producing the same items.the same items.

• Production planning problem, considering Production planning problem, considering the global BOM relationship.the global BOM relationship.

• Global capacity planning for various Global capacity planning for various manufacturing facilities in the network.manufacturing facilities in the network.

• Distribution planning that determines Distribution planning that determines optimal distribution channel and quantity optimal distribution channel and quantity

Supply Network Management SystemSupply Network Management System

* Supply network design optimization * Supply network design optimization module module

* Production and distribution planning * Production and distribution planning modulemodule

* Model management module* Model management module

* Data management module * Data management module

Supply Network Design ProblemSupply Network Design Problem

Supply Network Design ProblemSupply Network Design Problem

The network design problem is one of the The network design problem is one of the most comprehensive strategic decision most comprehensive strategic decision problems that need to be optimized for the problems that need to be optimized for the long-term efficient operation of whole supply long-term efficient operation of whole supply chain. It determines the number, location, chain. It determines the number, location, capacity, and types of plants, warehouses capacity, and types of plants, warehouses and distribution centers to be used. It also and distribution centers to be used. It also establishes distribution channels, and the establishes distribution channels, and the amount of materials and items to consume, amount of materials and items to consume, produce and ship from suppliers at each produce and ship from suppliers at each level to finally the customers. level to finally the customers.

Mathematical ModelMathematical Model The assumptions to model are:The assumptions to model are:• Total capacity and operation cost of Total capacity and operation cost of

distribution centers, warehouses and distribution centers, warehouses and manufacturing plants are known in advance.manufacturing plants are known in advance.

• Capacity requirements of plants and Capacity requirements of plants and warehouses for multiple products are known.warehouses for multiple products are known.

• Customer demands for multiple products are Customer demands for multiple products are also knownalso known

• All the decisions are made within a single All the decisions are made within a single period.period.

• The transportation costs from facilities to The transportation costs from facilities to facilities for each product are given facilities for each product are given

Input Parameters

• I I : set of customer zones (distribution center): set of customer zones (distribution center)

• J J : potential warehouse sites: potential warehouse sites

• KK : potential plant locations : potential plant locations

• WjWj : throughput limit of each warehouse site : throughput limit of each warehouse site jj

• DkDk : capacity of each plant : capacity of each plant kk

• LL : set of products : set of products

• qklqkl : required capacity of the plant : required capacity of the plant kk for each for each product product ll

• ailail : demand for each product : demand for each product ll by the set of by the set of customer zone customer zone II

Input Parameters (Costs)

• CijlCijl : variable cost to distribute a unit of product : variable cost to distribute a unit of product ll from an open warehouse from an open warehouse jj to a customer zone to a customer zone II

• TjklTjkl : variable cost to transport a unit of product : variable cost to transport a unit of product ll to an open warehouse to an open warehouse jj from an open plant from an open plant kk

• gjgj : fixed cost for each warehouse : fixed cost for each warehouse jj• fkfk : fixed cost for each plant : fixed cost for each plant kk• sjlsjl : required throughput capacity of the : required throughput capacity of the

warehouse warehouse jj for each product for each product ll• WW : upper limit on the number of warehouses that : upper limit on the number of warehouses that

can be openedcan be opened• PP : upper limit on the number of plants that can : upper limit on the number of plants that can

be openedbe opened

Decision Variables Decision Variables

• XijlXijl : total number of units of product : total number of units of product ll distributed to customer zone distributed to customer zone ii from open from open warehouse warehouse jj

• YjklYjkl : total number of units of product : total number of units of product ll that is that is shipped to open warehouse shipped to open warehouse jj from open plant from open plant kk

• ZjZj : indication variable whether a warehouse : indication variable whether a warehouse jj is openis open

• PkPk : indication variable whether a plant : indication variable whether a plant kk is is openopen

KK(PLANT)(PLANT)

JJ(WAREHOUSE)(WAREHOUSE)

İİ(CUSTOMERS)(CUSTOMERS)

Model: distributionModel: distribution

Objective function:Objective function:

Model: distributionModel: distribution

Constraints :Constraints :

Model: Distribution Model: Distribution

Binary Constraints:Binary Constraints:

• ZjZj={0,1} forall ={0,1} forall jj JJ

• PkPk={0,1} forall ={0,1} forall kk KK

• XijlXijl,,Yjkl >=Yjkl >= 0 forall 0 forall ii II,,jj JJ,,kk K K and and ll LL

A NUMERICAL EXAMPLE FOR THEA NUMERICAL EXAMPLE FOR THE DISTRIBUTION MODEL DISTRIBUTION MODEL

A product can be produced in two plants. A product can be produced in two plants. There are 3 warehouses and 2 types of There are 3 warehouses and 2 types of customers. We know explicitly demands of customers. We know explicitly demands of each customer. For the first customer, each customer. For the first customer, demand is 1000 and second is 1200. demand is 1000 and second is 1200. Each warehouse have throughput limits in Each warehouse have throughput limits in the order of 30000, 40000, 50000. the order of 30000, 40000, 50000. Required throughput capacity of the Required throughput capacity of the warehouse for our product is 12.warehouse for our product is 12.

……EXAMPLEEXAMPLE

Distribution cost from an open Distribution cost from an open warehouse to customers are 3, 4, 7, warehouse to customers are 3, 4, 7, 5, 8, 2 ($). Fixed costs for each 5, 8, 2 ($). Fixed costs for each warehouses are 1700, 1900, 2000 warehouses are 1700, 1900, 2000 ($). Fixed costs for each plants are ($). Fixed costs for each plants are 2600, 3200 ($). Variable costs from 2600, 3200 ($). Variable costs from open plants to open warehouses are open plants to open warehouses are 2, 1, 3, 4, 2, 5 ($). 2, 1, 3, 4, 2, 5 ($).

FABRİKFABRİKA 1A 1

FABRİKFABRİKA 2A 2

DEPO 1DEPO 1

DEPO 2DEPO 2

DEPO 3DEPO 3

LINGO MODEL (Sets)LINGO MODEL (Sets)

SETS:SETS:

• SETI/1..2/:I,A;SETI/1..2/:I,A;

• SETJ/1..3/:J,G,Z,W;SETJ/1..3/:J,G,Z,W;

• SETK/1..2/:P,F,D,K,Q;SETK/1..2/:P,F,D,K,Q;

• SETIJ(SETI,SETJ):C,X;SETIJ(SETI,SETJ):C,X;

• SETJK(SETJ,SETK):T,Y;SETJK(SETJ,SETK):T,Y;

ENDSETSENDSETS

LINGO MODEL (Datas)LINGO MODEL (Datas)

DATA:DATA:• N= 3; warehouses that can be openedN= 3; warehouses that can be opened• U= 2; plants that can be openedU= 2; plants that can be opened• C= 3 4 7 5 8 2;C= 3 4 7 5 8 2;• T= 2 1 3 4 2 5;T= 2 1 3 4 2 5;• F= 2600 3200;F= 2600 3200;• G= 1700 1900 2000;G= 1700 1900 2000;• A= 1000 1200;A= 1000 1200;• Q= 20;Q= 20;• S= 12;S= 12;• W= 30000 40000 50000;W= 30000 40000 50000;• D= 150000 175000; D= 150000 175000;

ENDDATAENDDATA

LINGO MODEL (Constraints)LINGO MODEL (Constraints)

• MIN=@SUM(SETIJ(I,J):C(I,J)*X(I,J))+@SUM(SETJK(J,K):T(J,K)*Y(J,K))MIN=@SUM(SETIJ(I,J):C(I,J)*X(I,J))+@SUM(SETJK(J,K):T(J,K)*Y(J,K))+@SUM(SETK(K):F(K)*P(K))+@SUM(SETJ(J):G(J)*Z(J));+@SUM(SETK(K):F(K)*P(K))+@SUM(SETJ(J):G(J)*Z(J));

• @FOR(SETI(I):@SUM(SETJ(J):X(I,J))=A(I));@FOR(SETI(I):@SUM(SETJ(J):X(I,J))=A(I));

• @FOR(SETJ(J):@SUM(SETI(I):S*X(I,J))<=Z(J)*W(J));@FOR(SETJ(J):@SUM(SETI(I):S*X(I,J))<=Z(J)*W(J));

• @SUM(SETJ(J):Z(J))<=N;@SUM(SETJ(J):Z(J))<=N;

• @FOR(SETJ(J):@SUM(SETI(I):X(I,J))<=@SUM(SETK(K):Y(J,K)));@FOR(SETJ(J):@SUM(SETI(I):X(I,J))<=@SUM(SETK(K):Y(J,K)));

• @FOR(SETK(K):@SUM(SETJ(J):q(K)*Y(J,K))<=D(K)*P(K));@FOR(SETK(K):@SUM(SETJ(J):q(K)*Y(J,K))<=D(K)*P(K));

• @SUM(SETK(K):P(K))<=U;@SUM(SETK(K):P(K))<=U;

LINGO MODEL (Binary&Integer Constraints)LINGO MODEL (Binary&Integer Constraints)

• @FOR(SETJ(J):@BIN(Z));@FOR(SETJ(J):@BIN(Z));

• @FOR(SETK(K):@BIN(P));@FOR(SETK(K):@BIN(P));

• @FOR(SETIJ(I,J):@GIN(X));@FOR(SETIJ(I,J):@GIN(X));

• @FOR(SETJK(J,K):@GIN(Y));@FOR(SETJK(J,K):@GIN(Y));

SOLUTIONSSOLUTIONS

• Objective value 16100.00Objective value 16100.00

SOLUTIONSSOLUTIONS

Variable Variable ValueValue Reduced Reduced CostCost

X( 1, 1) X( 1, 1) 10001000 3.03.0

X( 2, 3) X( 2, 3) 12001200 2.02.0

SOLUTIONSSOLUTIONS

VariableVariable ValueValue Reduced Reduced CostCost

Z( 1)Z( 1) 11 17001700

Z( 2)Z( 2) 00 19001900

Z( 3)Z( 3) 11 20002000

SOLUTIONSSOLUTIONS

VariableVariable ValueValue Reduced CostReduced Cost

P( 1)P( 1) 11 26002600

P( 2)P( 2) 00 32003200

REPORTREPORT

• Optimal solution found at step: 29Optimal solution found at step: 29• Objective value: 16100.00Objective value: 16100.00• Branch count: 5Branch count: 5

Variable Value Reduced CostVariable Value Reduced Cost N 3.000000 0.0000000E+00N 3.000000 0.0000000E+00 U 2.000000 0.0000000E+00U 2.000000 0.0000000E+00 S 12.00000 0.0000000E+00S 12.00000 0.0000000E+00

A( 1) 1000.000 0.0000000E+00A( 1) 1000.000 0.0000000E+00 A( 2) 1200.000 0.0000000EA( 2) 1200.000 0.0000000E G( 1) 1700.000 0.0000000E+00G( 1) 1700.000 0.0000000E+00 G( 2) 1900.000 0.0000000E+00G( 2) 1900.000 0.0000000E+00 G( 3) 2000.000 0.0000000E+00G( 3) 2000.000 0.0000000E+00 Y( 1, 1) 1000.000 2.000000Y( 1, 1) 1000.000 2.000000

Y( 3, 1) 1200.000 2.000000Y( 3, 1) 1200.000 2.000000

FABRİKFABRİKA 1A 1

FABRİKFABRİKA 2A 2

DEPO 1DEPO 1

DEPO 2DEPO 2

DEPO 3DEPO 3

1000

1200

1000

1200

TEŞEKKÜRLER…TEŞEKKÜRLER…