• Logistics costs

• Total logistics costs as a share of the gross domestic product (GDP, deutsch BIP)

1. Trucking

2. Maritime

3. Air

4. Rail

1. Maritime

2. Road

3. Rail

4. Inland Waterways

5. Air

1. Globalization

2. Blockchain

3. E-Commerce

4. Real-Time Tracking

5. Customer Experience

6. Artificial Intelligence (AI)

7. Augmented Reality

8. Smart Warehousing

9. Data Analytics

10. Supply Chain Visibility

Covid-19

• Drop in full track loads (FTL) of Chinese long-haul trucking transportation in the begin of 2020 (covid pandemic)

• Due to increased efficiency, increased truck tonnage, logistics costs remained nearly constant before Covid-pandemic

Political developments: War against Ukraine

• Amount of goods traded with Russia during the war decreases in Europe

Set of operations:

• acquisition of raw materials (suppliers)

• transformation of these materials into intermediate and finished products (plants)

• distribution of the finished goods to customers to satisfy demand requirements (distribution centers)

  
  

  Supply Chains exist both in service & manufacturing organizations with different complexities

  Supply Chains are goal-oriented -> SC exist to support business activities

  
  

1. Processes

   • individual activities involved in producing & distributing goods & services

   • manufacturing / services operations

   • engineering design functions

2. Stock points

   • locations where inventories are held

   • result of deliberate policiy decisions (e.g., retail stock)

   • consequence of problems in the system (e.g., backlog)

3. Network

   • various paths by which services and goods can flow through a supply chain

   • connects processes and stockm points

   
   

1. station

   • the lowest level

   • single process fed by a single stockpoint

   • consists of one or more server

1. line

   • sequence of stations

   • used to generate a product or service

1. network

   • the highest level

   • multiple lines

   • producing multiple products and/or services

• set of approaches utilized to efficiently integrate

  • suppliers

  • manufacturers

  • warehouses

  • stores

• so that merchandise is produced & distributed

  • at the desired quantities

  • to the right locations

  • at the right time

• in order to minimize systemwide costs or maximize total profit while satisfying service level requirements.

• SCM takes into account every facility that has an impact on cost or profit and plays a role in making the product conform to customer requirements

• Supply Chain Management (SCM) encompasses the firm´activities at many levels from strategic level through tactical to operational level

Be efficient & cost-effecive across the entire system

• minimize systemwide costs

• maximize total profit

• satisfy service level requirements

• More global and broader view

• Cooperations, collaborations,outsourcing and contracts

• Material program and supplier selection

• Customer involvements

  
  

• Uncertainty

  • customer demand can never be forecasted exactly

  • travel times will never be certain

  • machines or vehicles may break down

• Complex network of facilities dispersed over a large geographical area & over the globe

• Conflicting objectives

  • different facilities have different conflicting objectives

• Dynamic system

  • Supply chain evolves over time

  • customer demand and supplier capabilities and supply network relationships change over time

    
    

1. Functional dimension (supply chain process)

   • Procurement

   • Production

   • Distribution

   • Sales

2. Time dimension (planning horizon)

   • Long term (strategic)

   • Mid term (tactical)

   • Short term (operational)

1. Procurement

   • all processes that provide resources necessary for production

   • e.g., choice of suppliers, determination of raw materials, demand or personnel recruitment, etc.

2. Production

   • determination of production locations, times and quantities on the basis of given limited capacity of resources

3. Distribution

   • choice of transportation routes for the distribution of products between facilities and customers

4. Sales

   • planning processes concerned with customer orders and demand forecasts

   • e.g., determination of production programs, forecasting of potential sales for specific customer groups,etc.

Decision on a higher time dimensional level

• are carried out infrequently

• set the conditions under which lower level decisions are made

1. Strategic level

   • deals with high capital cost decisions that have a long-range scope and a long-lasting effect on the company

   • focus on the development of objectives and policies for the entire supply chain

   • Data is aggregated, based on forecasts, often incomplete or imprecise

Where to locate facilities?

How many new facilities should be opened?

Which size and layout should the new facilities have?

Which suppliers should be used?

Which products to produce and where?

What production equipment should be installed?

1. Tactical level

   • deals with decisions that have a medium-range scope

   • planning horizon: between six months and two years

   • take the basic physical production capacity constraints and the forecasted demand pattern (established by a long-range plan),and decide on the effective use of available resources to meet demand at mininmum cost

   • Data is detailed, based on forecasts

     
     

Which size should workforce have?

What is the amount of shifts/overtime worked?

Which production rate should be chosen?

How is the amount of inventory managed?

Which shipping modes should be used?

What is the amount of subcontracting utilized by the company?

1. Operational level

   • short-range decisions that affect day-to-day activities

   • take the orders directly from the customers (or as generated by the inventory system), and plan in detail how the products should be processed through a plant

   • often detailed schedules are drawn for one week, then one day, and finally one shift in advance

   • Data is concrete and detailed

How are products assigned to machines?

In which sequence are orders routed through a plant?

What is the replenishment quantity for each stock keeping unit?

How are vehicles loaded and routed?

Objective

choosing & implementing the right mix of structural and infrastructural elements

1. Structural elements

   • Tangible resources (buildings, equipment, computer systems,…)

   • changes are infrequent and only after much deliberation (because of their costs and inflexibility)

2. Infrastructural elements

   • Intangible resources (people, policies, decision rules, organizational structure choices)

Strategy

• The actively planned basis for decision making in a company

• dictates its policies, activities and priorities

Business strategies

combination of

• cost

• quality

• speed

• service

• variety

Both consumers and competing firms attach different weights to these metrics (-> various trade-offs based on different business strategies)

for example:

Operations

• processes that take in a set of input resources are used to transform something, or are transformed themselves, into outputs of products and services

Inputs

• Transformed resources: materials, information, customers

• Transforming resources: machines, facilities, staff

Outputs

• goods with different degree of tangibility

• pure products & services, facilitating services & products

  
  

• developed in the late 1960s

• based on the demand of finished goods (the required number of components is derived from the bill of materials (BOM))

• schedule planning is restricted to quantities without availability check for required resources

• supported by databases and elementary spreadsheet software

• developed in the 1980s as an extension of MRP I

• Capacity and schedule planning as well as integration of other functional areas (procurement, production, storage)

• implementation of resource balancing with regard to personnel, machines and materials

• involves data management, order initiation and monitoring

• hierarchical planning: focus on solution methods for domain-specific subproblems -> long planning cycles and problems with short-term bottlenecks of resources

• developed in the 1990s as an extension of both MRP I & MRP II

• Integration of additional business functions (purchasing, accounting, human resource department)

• highly intra-organizational focus, restricted hierarchical planning approach

• weakness in data analysis and in data exchange between subareas

• no analysis or optimization -> advanced planning systems (APS)

• prominent providers and tools: mySAP R3, Oracle, Baan

Hierarchical Planning System

• decompose the total planning problem into planning modules

• Planning modules = partial plans (assigned to different planning levels)

• Upmost level

  • often only one module

  • development of an enterprise-wide, long-term but very rough plan

• Lower level

  • more restricted

  • supply chain sections covered by one plan

  • shorter planning horizon

  • more detailed plan

• The increasing degree of detail is achieved by disaggregating data and results when going down in the hierarchy

• The decreasing degree of detail is achieved by aggregating data and results when going up in the hierarchy

(Aggregating

• products, aggregated into groups

• resources, aggregated into capactiy groups

• time, aggregared into larger periods)

  
  

  Planning systems represent decision support systems (they support human decision makers), because modeling is only a relaxation of reality.

Advanced Planning Systems (APS)

• Bottleneck-orientated planning approach

• Consists of several modules, each of them covering one or several of the planning tasks identified in the planning matrix

• Aim at “computerizing” the planning process for decision support

• Integral planning of the entire supply network

• Real optimization via alternatives, objectives and constraints

• Hierarchical planning system

• Dedicated to deterministic planning -> safety stocks required

• Coordination between supply network partners possible

Advanced Planning Matrix

Demand Planning

• Forecasts of future costs and trends of the demand for strategic sales planning (long-term demand estimates), mid-term sales planning and short-term sales planning.

• Estimations based on analysis of historical data & market analysis

• Forecasts are basis for Strategic Network Design, Master Planning and Distribution Planning

• Demand Planning has a cross-divisional functionality in APS (bölümler arasi islevsellik)

Strategic Network Planning

• Planning of the basic configuration of the complete supply network

  (including network design and flow of materials, on the strategic level)

• Determination of

  • storage capacity and location, production capacity and location

  • facility layout

  • long-term sourcing and distribution strategies

  • outsourcing of service to third-party logistics

• Long-term demand estimations and the principle production program serve as input data

Master Planning

• Comprehensive and coordinated planning at mid-term level of procured, produced & distributed quantities regarding capacity requirements and supply by minimizing the total costs

• Uses mid-term demand forecasts of the Demand Planning module

• Master Production Scheduling (MPS)

  • Determination of primary requirements (external demands) for final products

  • Determination of due dates for finished products

BOM (Bill of Materials) Explosion and Lot Sizing

• Short-term or operational production planning, performed for each production plant separately

• Translation of primary requirements for final products received from Master Planning into requirements for all items

• Lot sizes and due dates for the lots, i.e., production order release for all items, are determined

Detailed Production Scheduling

• Short-term planning tasks of machine scheduling and shop floor control and generation of detailed production plans for each machine

• Translation of planned order releases into a set of jobs to be processed on the available machines

• Determination of due dates of the jobs

• Optimization of some objective functions (e.g., makespan)

• Coordination of multi-stage production processes

• Machine scheduling is typical for single-item or batch producion

• Assembly Line Balancing is used for mass production

Distribution Planning

• Mid-term task to create routes

• Selection of distribution paths

• Constraints: Requirements of the customers and delivery dates

• Uses mainly information from Demand and Master Planning

• Input for Transportation Planning

Transportation Planning

• Cost effective short-term planning of freight transports for production amounts and demands

• Vehicle loading & scheduling

• Assignment of loads to vehicles

• Determination of short-distance delivery tours based on the results of Distribution Planning

Procurement Planning

• Short-term material planning and procurement

• Determination of purchase quantity, selection of supplier and initiation of purchase orders

• Objective is to minimize the sum of setup, purchase, transportation and inventory holding costs

Demand Fulfillment and ATP (Available to Promise)

• Identification of binding delivery date commitments for incoming orders (s.t. capacity & material situation & costs)

• Customer orders are matched with quantities available on stock and from scheduled receipts

• Available to promise (ATP):

  • If a new customer order for some product can be carried out at a promised date due to available stock

Advantages of APS

• Holistic view of all processes within in a company & between companies in a network

• Capacity-oriented approach takes scarce resources into account

• Hierarchical planning system allows modular planning process

• Integration of flows from suppliers and flows to customers

• Flexible adaptation of modules to market changes

• Each module can be treated with optimization methods from OR

Disadvantages of APS

• Global view leads to high degree of coarseness and aggregation

• Structural insufficiencies: No differentiation between network and node modules

• Insufficient consideration of uncertainty

• Interaction between companies critical in practice, because companies participate in different chains

• often used in standardized versions, but network-specific modelling is essential for efficiency of the method

Architecture of APS Software

• Master data &order data is obtained from an ERP-System

• Integration mainly via an interface to

  • Online Transaction Processing System (OTPS)

  • Data Warehouse

• Prominent providers and tools

  • mySAP SCM- Advanced Planning and Optimization

  • AspenTech- aspenONE

  • Oracle- Advanced Supply Chain Planning

Advantages of the usage of APS Software

• Application of optimization methods from OR

• Reduced planning time

• Visualized information

Functionality coverage of APS Software

Optimization methods in APS Software

Different APS Softwares use different optimization methods:

• Long-term / Medium-term planning

  • Linear programming (LP) & Mixed Integer Programming (MIP)

  • Proprietary heuristics

• Short-term planning

  • Rule-based scheduling /demand-supply-matching

  • Heuristics, especially genetic algorithms

  • Uncapaciated DRP (Distribution Requirements Planning) & MRP (Manufacturing Resources Planning) methods

    
    

• Information exchange between supply chain partners

• Exchanged information

  • point-of-sale data

  • inventory stocks

  • demand forecasts

• Alert monitors keep supply chain partners updated (managemenet-by-exception)

• Very important for Vendor Managed Inventory (VMI) systems

• Frequently used in Business-to-Business & Business-to-Customer environments