The Internet Encyclopedia (Volume 3)

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392 SUPPLYCHAINMANAGEMENTTECHNOLOGIES

real-time information about setups, run times, through-

puts, and yields, managers are better able to identify bot-

tlenecks, analyze performance constraints, and make ad-

justments to ensure that production requirements are

met. This real-time response to the dynamic conditions on

the plant floor results in better utilization of inventories

and production assets and better delivery performance to

customers. Linking the plant floor with the ERP system,

MES can deliver real-time order status information to the

entire supply chain.

Supplier Systems

Supplier management systems provide integration be-

tween a company and its suppliers. In effective SCM sys-

tems, suppliers must be carefully selected, because they

become “partners” as members of the supply chain. Here

again, collaboration is of utmost importance; information

sharing and trust must be exchanged to make the pro-

cess work. Through supplier databases and business-to-

business purchasing technologies, companies “integrate”

with important suppliers. The supplier has a view of the

company’s production requirements and can therefore

better predict the components they must supply. This

streamlines the purchase order management function,

improves delivery performance, and helps reduce prod-

uct costs.

Logistics

Logistics is the process of planning and controlling the

flow and storage of goods from point of origin to point of

consumption. It works hand in hand with the inventory

management system and is often outsourced to a service

provider who becomes another member of the supply

chain. Logistics providers fall into the following cate-

gories:

Transporter—The provider moves the material, but the

company decides which materials, when to move them,

and where to move them.


Third-party logistics—The provider moves the material

and provides storage and handling facilities between the

company and its customers. The company still decides

what and when.


Fourth-party logistics—The provider takes over some

control of delivery scheduling and stocking levels, as

well as some of the operational functions within the

company’s facilities.

The more the logistics provider does, the more it needs

to participate in the technologies supporting the supply

chain.

OPTIMIZATION APPROACHES

Two optimization approaches, developed by operations

research and the management sciences, have been incor-

porated into the technology toolbox of SCM. They fall

into the categories of optimal solutions and heuristic solu-

tions, and both are proving to be beneficial to the planning

and execution activities of SCM. Optimization methods

improve the planning capabilities of SCM by developing

plans that are not only feasible (they meet demand needs

and supply limits), but that are also optimal (at lowest

cost, greatest profitability, or both). The need for realis-

tic, optimized plans has shifted the material-planning task

from material requirements planning (MRP), which does

not consider supply constraints (Lapide, 1998), to APS

systems that develop optimized solutions, based on those

constraints.

Although optimization methods have been available

for some time, they have become more popular in recent

years as computer technology required to do the calcula-

tions involved in these techniques has become more pow-

erful and less expensive. These methods determine solu-

tions to problems involving limited resources by stating

the problem in terms of objectives and constraints. The

objectives of SCM optimization can vary but generally in-

clude combinations of profit maximization, service level

attainment, cost minimization, and delivery performance.

SCM optimization deals with determining what products

to manufacture given the demand for the products and the

constraints related to the production of those products:

raw material and component supply, time, production

asset availability, storage availability, and the costs of all

of these components. The ideal solution will be feasible,

optimized, and beneficial to all members of the supply

chain.

Of course, sometimes there are no feasible solutions to

a SCM problem. In this case, the optimizer will choose the

least detrimental infeasible solutions. An example is when

a manufacturing firm cannot produce all of the products

required to fill customer orders within a given time period.

When this happens, some products are placed on a back-

order status and the customer orders for those products

are delayed.

Of the feasible solutions, there are generally some that

are optimized, and in some cases there may even be an op-

timal solution. Most SCM problems are so large and com-

plex that current optimization technologies don’t allow

an optimal solution to be attained. They generate a num-

ber of feasible solutions and allow the user to select one.

If a feasible solution cannot be attained, these systems

suggest various options to the user to loosen some of the

constraints so that a feasible solution may be generated.

Optimal Techniques

Optimal techniques are based on mathematical algo-

rithms that use a series of formulae to represent the vari-

ables and constraints of the problem, and generate a re-

sult based on the goal of maximizing or minimizing some

objective function.

Linear Programming

Linear programming models are used for problems in

which linear equations can be used to define the objectives

and constraints of the SCM planning problem. This

problem-solving method results in an optimal solution.

A simple example of the type of problem this approach is

used for follows.