Welcome to IT Enabled Supply Chain Management Bent Steenholt Kragelund benk@itu.dk

Welcome to

IT Enabled Supply Chain Management

Bent Steenholt Kragelund

benk@itu.dk

Today's Agenda

• Understanding the Supply Chain

• The Beer Game

Course material

• Textbook: Chopra, S & Meindl, P (2012) Supply Chain Management, Strategy, planning and Operation (5th edition), Pearson• Global edition of the book will work as well

• Selected readings to be provided

Understanding the Supply Chain

What is a Supply Chain?

• All stages involved, directly or indirectly, in fulfilling a customer request

• Includes manufacturers, suppliers, transporters, warehouses, retailers, and customers

• Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service)

What is a Supply Chain?

• Customer is an integral part of the supply chain• Includes movement of products from suppliers to

manufacturers to distributors and information, funds, and products in both directions

• May be more accurate to use the term “supply network” or “supply web”

• Typical supply chain stages: customers, retailers, distributors, manufacturers, suppliers

• All stages may not be present in all supply chains (e.g., no retailer or distributor for Dell)

Beer supply chain example

ConsumerGrocery

StoreRegional

WholesalerDistributorBrewery

Can / bottle producer

Glasssupplier

Aluminumsupplier

Hopssupplier

Maltsupplier

Yeastsupplier

Product flow

Funds & information flows

Packaging materials flow

Hopssupplier

Maltsupplier

Hopssupplier

Maltsupplier

Yeastsupplier

Flows in a Supply Chain – the supply web

The Objective of a Supply Chain

• Maximize overall value created

Supply Chain Surplus = Customer Value – Supply Chain Cost

The Objective of a Supply Chain

• Customer the only source of revenue

• Sources of cost include flows of information, products, or funds between stages of the supply chain

• Effective supply chain management is the management of flows between and among supply chain stages to maximize total supply chain surplus

Decision Phases of a Supply Chain

Supply Chain Phase Frequency

1. Supply chain strategy or design Several years

2. Supply chain planning Quarterly / yearly

3. Supply chain operation Daily / weekly

Cycle View of Supply Chain Processes

• Processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages

Cycle View of Supply Chain Processes

Push/Pull View of Supply Chains

Processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull - reactive) or in anticipation of a customer order (push - speculative)

Push/Pull View of – L.L. Bean

Push/Pull View – Dell

The beer game

Introduction to the Beer Game

• The purpose of the Beer Game is to experience systemic effects and to introduce the need for supply chain and network management. Specifically it shows:

– How single parts in a system influence each other.

– How individual thinking differs from systemic thinking (network thinking).

– Potentials for systems optimization and the use of information systems.

• The Beer Game setup

– The Beer Game supply chain consists of four stages:

– The retailer (orange) has to fulfil the end consumer’s orders.

– The wholesaler (yellow) has to fulfil the retailer’s orders.

– The distributor (green) has to fulfil the wholesaler’s orders.

– The factory (blue) has to produce the beer to fulfil the distributor’s orders.

• The Beer Game is played in groups of 3, each of these groups sits around one table and plays one supply chain stage (see figure).

FactoryFactory DistributorDistributor WholesalerWholesaler RetailerRetailer

DelayDelayDelayDelay

Table layout

• Every table has the same layout that shows four different areas (see figure):

– The place for incoming orders (inbox) – coming from the downstream stage

– The place for outgoing orders (outbox) – going to the upstream stage

– The place for incoming deliveries (receiving) – coming from the upstream stage

– The place for outgoing deliveries (dispatch) – going to the downstream stage

• Deliveries are “on the road” for 2 weeks (lead time); production also takes 2 weeks. This lead time delay is represented by 2 two extra fields between the tables that hold the deliveries and are moved forward in each week.

Delay DistributorDistributor

Outgoingorder

Incomingorder

Incomingdelivery

Outgoingdelivery

Wholesaler

Factory

Delay

General playing procedure

• The game runs in weeks and it starts in week 1. In each week, each supply chain group has to proceed with the following steps:

– Receive new deliveries and update the play sheet (“incoming” and “available”). – Receive orders in the inbox and update the play sheet (“new order” and “to ship”)– Calculate the total amount that will be shipped (“your delivery”), note down the

amount, and place it in a box in the dispatch area on your table.– Agree on a new order amount, note down the number, and put it in an envelope in the

outbox field.

• The goal– Your goal is to minimize your cost!– (Remember that you compete against the same stage in the other supply chains –

retailer against retailer, distributor against distributor etc.)

• There are two different kinds of cost:– Inventory cost: Items in stock cost € 0,50 per week in holding costs.– Backorder cost: If an incoming order cannot be (fully) fulfilled, items are outstanding

and have to be put on “backorder” to be fulfilled in the following week(s). Each item on backorder costs € 1,00 per week.

What is a backorder?

• If an incoming order cannot be fully fulfilled due to a lack of available items in the inventory, items go on backorder. In this case your inventory is empty and a number of items have to appear as backorder in your play sheet.

What happens in the next week?

• In the following week, you will add the old backorder to the new incoming order to calculate the amount “to ship”. Again, if the available inventory is too little to fulfil the amount “to ship”, items have to be put on backorder and will cost $ 1,00 per item.

Some general rules

• No communication is allowed between supply chain groups, supply chain groups must not talk to each other at any time!

• If stock is available, an order has to be fulfilled.

• Every order has to be fulfilled, either in the current week (if enough stock is available) or in one of the next weeks (items go on backorder).

• Either the inventory or the backorder, one of them is always zero (0)!

FactoryFactory DistributorDistributor WholesalerWholesaler RetailerRetailer

DelayDelayDelayDelay

Delay DistributorDistributor

Outgoingorder

Incomingorder

Incomingdelivery

Outgoingdelivery

Wholesaler

Factory

Delay

FactoryFactory DistributorDistributor WholesalerWholesaler RetailerRetailer

DelayDelayDelayDelay

D DDD

D

DDD DD DD DD

The initial table set-up

The play-sheetIncoming Available New Order To Ship Your Delivery Backorder Inventory Your Order Cost

(Coming in from factory)

(Inventory + incoming)

(coming in from wholesaler)

(backorder + new order)

(=to ship, unless no full availability)

(To ship - Your delivery)

(Available - your delivery)

(Your decision) Delivery Order

0 15123456789

10111213141516171819

Week

Fill out play slipsDistributor

Delay DistributorDistributor

Outgoingorder

Incomingorder

Incomingdelivery

Outgoingdelivery

Delay

Step 1: Delivery IN

Incoming Available New Order To Ship Your Delivery Backorder Inventory Your Order Cost

(Coming in from factory)

(Inventory + incoming)

(coming in from wholesaler)

(backorder + new order)

(=to ship, unless no full availability)

(To ship - Your delivery)

(Available - your delivery)

(Your decision) Delivery Order

0 15123

Week

Fill out play slipsDistributor

5 20

5

Incoming Available New Order To Ship Your Delivery Backorder Inventory Your Order Cost

(Coming in from factory)

(Inventory + incoming)

(coming in from wholesaler)

(backorder + new order)

(=to ship, unless no full availability)

(To ship - Your delivery)

(Available - your delivery)

(Your decision) Delivery Order

0 151 5 2023

Week

Fill out play slipsDistributor

Delay DistributorDistributor

Outgoingorder

Incomingorder

Incomingdelivery

Outgoingdelivery

Delay

Step 2: Order IN

54

4

Delay DistributorDistributor

Outgoingorder

Incomingorder

Incomingdelivery

Outgoingdelivery

Delay

Step 3: Prepare delivery

5

Incoming Available New Order To Ship Your Delivery Backorder Inventory Your Order Cost

(Coming in from factory)

(Inventory + incoming)

(coming in from wholesaler)

(backorder + new order)

(=to ship, unless no full availability)

(To ship - Your delivery)

(Available - your delivery)

(Your decision) Delivery Order

0 151 5 20 4 4 4 0 16 8 423

Week

Fill out play slipsDistributor

4

Delay DistributorDistributor

Outgoingorder

Incomingorder

Incomingdelivery

Outgoingdelivery

Delay

Backorder

5

Incoming Available New Order To Ship Your Delivery Backorder Inventory Your Order Cost

(Coming in from factory)

(Inventory + incoming)

(coming in from wholesaler)

(backorder + new order)

(=to ship, unless no full availability)

(To ship - Your delivery)

(Available - your delivery)

(Your decision) Delivery Order

22 8 31 12 12 12 0 19 14 205 12 1423 4 23 25 25 23 2 0 207 232425

Week

Fill out play slipsDistributor

Delay DistributorDistributor

Outgoingorder

Incomingorder

Incomingdelivery

Outgoingdelivery

Delay

Step 4: Place your order

4

Incoming Available New Order To Ship Your Delivery Backorder Inventory Your Order Cost

(Coming in from factory)

(Inventory + incoming)

(coming in from wholesaler)

(backorder + new order)

(=to ship, unless no full availability)

(To ship - Your delivery)

(Available - your delivery)

(Your decision) Delivery Order

0 151 5 20 4 4 4 0 16 8 423

Week

Fill out play slipsDistributor

This is entirely your decisionKeep your cost low !

3 3

FactoryFactory DistributorDistributor WholesalerWholesaler RetailerRetailer

DelayDelayDelayDelay

D DDD

D

DDD DD DD DD

The initial table set-up

FactoryFactory DistributorDistributor WholesalerWholesaler RetailerRetailer

DelayDelayDelayDelay

D

DDD DD DD

Between weeks - Logistics

DDDD

Ready to play?

• Three assistants needed

• Form groups of 3– Each group should have a Laptop / Tablet capable of

running excel

• Download the play-sheet from the course blog

• Rename to Table-n where n is 1,2 or 3

• Open the right tab depending on your role