Supply Chain Models and

Modeling Systems
Rohit Sindhwani
Optimization models
Transactional IT
Analytical IT
Data, Models and Modeling systems

Optimization seeks to render its supply

chain efficient, flexible and responsive as
possible
Examples
Proctor and Gamble : Drive out non value
adding supply chain costs
UPS : Optimization modeling system that
simultaneously determines aircraft routes,
fleet assignments and package routings
Cerestar : Optimization modeling system
that increased daily throughput by 20%
Boeing : New methods for controlling and
lowering production costs
Conagra : Tighter supply chain management
 Supply chain networks

Vendors Plants Distribution

Centers
Markets
High level view of the supply chain
Transformation activities and processes that describe facilities and links
Optimization models have been successfully applied in design analysis
Integrated Supply chain planning
Functional integration
Purchasing, manufacturing, transportation, warehousing
Spatial integration
Vendors, Facilities, Markets
Intertemporal integration
Strategic, Tactical and Operational Planning
Also referred to as Hierarchical planning
Requires consistency and coherence among overlapping
supply chain decisions at various levels
Integration of supply chain
Demand management
Analysis of capital expenditure for manufacturing during
growth stage should take into concern the marketing
decisions
Supply Chain Costs
Raw material and other acquisition costs
Inbound transportation costs
Facility investment costs
Direct and indirect manufacturing costs
Direct and Indirect distribution center costs
Inventory holding costs
Interfacility transportation costs
Outbound transportation costs

Net Revenue = Gross Revenue

Total Cost
Efficient frontier of cost versus
delivery time

Efficient Frontier C
Supply Chain Cost ($)

B
B1

A
B2

1 2 3 4
Customer Service measured in maximal delivery time(days)
Types of models
Descriptive Models
Modeling practitioners develop to better understand
functional relationships in the company with outside
world
Forecasting models
Predict demand for the companys finished products, the cost of
raw materials or other factors
Cost relationships
Describe how direct and indirect costs vary as functions of cost
drivers
Resource utilization relationships
Describe how manufacturing activities consume scarce resources
Simulation models
Describe how all or parts of companys supply chain will operate
over time
Continued..
Normative models
Process for identifying norms that company
should strive to achieve
Also referred to as Optimization models or
Mathematical Programming models

Prevent Garbage in, Garbage out problem

while analysing data

Effective decision making requires integrated

approach by constructing global optimization
model.
Remove the Silo effect
 Decision Analysis
Makers
Intuition

Optimization Model

Supply
Transaction
Chain
al
Descriptive Models Decision
Databases
Database
The Value Chain
Firm Infrastructure
Human Resource
Support activities

Management
Information Technology M
Technology Development A
R
Value Chain Management GI
Demand Management N
Inboun Corporate Financial
Operations Outbou Marketi Services
d Management
nd ng and
Logisti Logistic Sales
cs s
Primary Activities

Source : M.E. Porter

Innovative Requirements
Data Problem 1: There is an overabundance
of transactional data for the purposes of
managerial decision making

Data Problem 2 : Managers do not know

what the data in the companys
transactional databases imply about how to
integrate their activities with the supply
chain activities of other managers and
vendors