Lernzettel: Supply Chain Fundamentals and Decision Strategies

📋 Course Outline

1. Supply chain definitions and flows
2. Supply chain functions and components
3. Supply chain objectives, constraints and partners
4. Supply chain management and decision levels
5. Supply chain modeling and decision problems
6. Aggregate planning strategies and methods
7. Aggregate planning case study scenarios
8. Supplier selection as multicriteria decision
9. Analytic Hierarchy Process for supplier choice

📖 1. Supply chain definitions and flows

🔑 Key Concepts & Definitions

• Supply chain : A supply chain is a network of parties that move goods and services and coordinate information and money from raw materials to customers.
• Goods and services flow : A goods and services flow is the physical movement and transformation of products and services along the supply chain.
• Information flow : An information flow is the exchange of data that supports planning, forecasting, and coordination across supply chain activities.
• Financial flow : A financial flow is the movement of payments and related cash flows between supply chain parties.
• Supply chain components : Supply chain components are the people and organizations plus the material, information, and financial elements that interact through flows.

📝 Essential Points

• A supply chain spans upstream raw materials to downstream delivery to customers and other stakeholders.
• Supply chain activities include transformation of goods/services and coordination of associated information and financial flows.
• Key operations/functions span sourcing & purchasing, transport, storage (inbound), production, storage (outbound), distribution, and sales.
• Supply chain components include suppliers at multiple levels, manufacturers, distributors, retailers, and final clients.
• Information flow includes forecasts and production planning, while financial flow involves payments and cash flows.

💡 Memory Hook

Think of SC as 3 parallel lanes: Physical (goods), Digital (information), Money (cash/payments) moving from upstream to customer.

📖 2. Supply chain functions and components

🔑 Key Concepts & Definitions

• Supply chain management : Supply chain management is the coordination of activities across the chain to optimize stakeholder value.
• Supply chain functions : Supply chain functions are the major activity areas that move, store, produce, and plan flows from supply to demand.
• Supply chain components : Supply chain components are the actors and operational elements that together form the chain and its external links.
• External environment : The external environment is everything outside the focal firm that affects the supply chain, including other chains and stakeholders.

📝 Essential Points

• Supply chain management aims to globally optimize the value generated for stakeholders of the chain.
• Supply and demand are matched downstream first, then the chain is strategized and designed, followed by planning operations and cross-functional processes.
• Coordination of actors across the chain is required to reach a globally optimized scenario.
• Performance and risk management are needed as control mechanisms during supply chain execution.
• Key decision levels include strategic, tactical, and operational decisions across the chain.

💡 Memory Hook

Match Demand first, then Design, then Plan—then Control with Performance & Risk.

📖 3. Supply chain objectives, constraints and partners

🔑 Key Concepts & Definitions

• Supply chain design : A structured approach that links supply chain problems to decisions and checks whether the resulting system is acceptable and efficient.
• Strategic procurement process : A strategic procurement process that covers sourcing choices, supplier selection, and contracting to secure supply.
• Make or Buy decision : A procurement choice that decides whether a product or component is produced in-house or purchased from external suppliers.
• Aggregate planning : A tactical planning process that balances production capacity with demand forecasts and sets production quantities and timing.

📝 Essential Points

• Supply chain design uses a top-down, stepwise framework with a recursive loop to connect identified problems to the best decision and to test system acceptability.
• Strategic decisions include supplier selection, network design, and procurement choices such as make-or-buy and supplier contracting.
• Tactical and operational decisions include production planning and inventory management, which determine how demand and stock levels are handled.
• Aggregate planning aims to level demand and capacity over the intermediate future by choosing production options that fit the forecasted demand.
• Aggregate planning options include lay-off part-timers, inventory, overtime, outsourcing, discount advertising, and hiring.

💡 Memory Hook

Design → Decide → Simulate: top-down loop tests acceptability and efficiency; then pick strategic (supplier/network) vs tactical/operational (planning/inventory).

📖 4. Supply chain management and decision levels

🔑 Key Concepts & Definitions

• Supply chain : A supply chain is the network of organizations and activities that move goods from suppliers to customers.
• Outsourcing : Outsourcing is obtaining production capacity from an external supplier instead of using internal resources.
• In-house production : In-house production is performing work internally using the manufacturer’s own workforce and facilities.
• Aggregate planning : Aggregate planning is the process of deciding production quantities and workforce levels over a planning horizon to meet demand.

📝 Essential Points

• Supply chain decisions can be framed by whether production is done via outsourcing or in-house capacity.
• Aggregate planning uses forecasted demand to set production quantities across multiple time periods.
• Chase strategy sets each period’s production quantity to match that period’s forecasted demand.
• Level strategy keeps the production rate uniform across the planning horizon.
• Level strategy is based on the idea that a stable workforce improves commitment and product quality.
• Workforce and capacity can be adjusted using hiring/firing, overtime, and part-time labor to achieve aggregate plans.

💡 Memory Hook

Chase = “match demand each month”; Level = “steady output, steady team”.

📖 5. Supply chain modeling and decision problems

🔑 Key Concepts & Definitions

• Aggregate planning : Aggregate planning is the process of deciding production quantities and workforce levels over a medium-term horizon to meet forecast demand.
• Level strategy : Level strategy is an aggregate planning approach that keeps the workforce (and thus regular production capacity) constant across the planning horizon.
• Outsourcing (sub-contracting) : Outsourcing (sub-contracting) is using external capacity to produce items when internal production and inventory cannot cover demand.
• Over-time work : Over-time work is increasing production capacity by working beyond regular hours to satisfy demand without changing the workforce size.
• Hiring and training cost : Hiring and training cost is the per-worker expense incurred when adding workers to increase regular production capacity.

📝 Essential Points

• Regular-time labor hours per unit are computed as $1.6$ hours per unit, then scaled by daily production to get total labor hours.
• Average production requirement uses $\text{Average production requirement}=\frac{\text{Total expected demand}}{\text{Number of working days}}$ to convert demand into a daily target.
• Scenario 1 level plan uses hiring at the start to reach required workers while producing with regular working hours.
• Required workers for Scenario 1 are computed as $\text{Daily units}\times\frac{\text{labor hours per unit}}{\text{regular hours per day}}=50\times\frac{1.6}{8}=10$ workers.
• Scenario 1 hiring decision is $\text{workers to hire}=10-9=1$ worker when current workforce is 9.
• Scenario 1 total cost is the sum of inventory carrying cost, regular-time labor cost, and hiring cost, giving $60{,}350$.

💡 Memory Hook

Level strategy = keep workers steady; use subcontracting (or overtime) only when demand exceeds what regular capacity plus inventory can cover.

📖 6. Aggregate planning strategies and methods

🔑 Key Concepts & Definitions

• Subcontracting strategy : A production strategy that meets excess demand by outsourcing part of the required output instead of producing it internally.
• Level strategy : An aggregate planning strategy that keeps the workforce constant across the planning horizon and adjusts output only when needed.
• Overtime strategy : A method for increasing internal production during specific periods by using extra working hours to cover demand above regular capacity.
• Graphical approach : A planning method that compares alternative aggregate plans visually and then selects the one with the lowest total cost.

📝 Essential Points

• Excess demand can be satisfied by subcontracting when internal production is insufficient.
• In the example, daily production is computed as $9\times 8\times 1.6=45$ units per day.
• Scenario 2 uses subcontracting to cover shortfalls and results in subcontracted output of 620 units over the horizon.
• Scenario 3 uses a level workforce and covers excess demand with overtime, producing extra output via extra hours.
• Total cost is computed by summing inventory carrying cost, regular labor cost, and (when used) subcontracting or overtime cost.
• In the comparison, Plan 2 has the lowest total cost ($54,465) versus Plan 1 ($60,350) and Plan 3 ($55,209).

💡 Memory Hook

Subcontracting = outsource shortfalls; Level strategy = keep workers steady; Overtime = add hours; Graphical approach = compare total costs.

📖 7. Aggregate planning case study scenarios

🔑 Key Concepts & Definitions

• Aggregate planning : Aggregate planning is the monthly planning of production and inventory decisions to meet forecast demand at minimum total cost.
• Overtime production : Overtime production is extra monthly output beyond regular capacity, produced at a higher unit cost.
• Subcontracting (outsourcing) : Subcontracting is meeting demand by purchasing production from an external supplier at a specified unit cost.
• Backorder cost : Backorder cost is the penalty per unit per month for unmet demand carried into the future.

📝 Essential Points

• Monthly demand units are 450, 500, 600, 550, and 400 for January–May.
• Regular capacity is 400 units per month and overtime capacity is 150 units per month.
• Initial inventory is 200 units and inventory holding cost is $2 per unit per month.
• Regular production cost is $30/unit and overtime production cost is$45/unit.
• Outsourcing cost is $40 per unit and backorder cost is$20 per unit per month.
• Three scenarios to compare are: use overtime, use subcontracting, or do nothing and allow backorders.

💡 Memory Hook

Capacity ladder: Regular 400 → Overtime +150 (costly) → Outsource (fixed cost) → If none, backorder penalty $20.

📖 8. Supplier selection as multicriteria decision

🔑 Key Concepts & Definitions

• Multicriteria decision : A decision method that ranks options using several criteria rather than a single metric.
• Decision criteria : A set of factors used to judge alternatives, such as cost, safety, and flexibility.
• Pairwise comparison matrix : A square matrix that records how much more one criterion is preferred over another using a numerical scale.
• Criteria weights : A vector of numerical importance values for each criterion derived from the pairwise comparison matrix.

📝 Essential Points

• Supplier selection can be modeled by choosing an objective, listing criteria, and evaluating suppliers against those criteria.
• Saaty’s pairwise scale assigns 1 for equal importance, 3/5/7/9 for increasing importance, and 2/4/6/8 as intermediate values.
• In a pairwise matrix, if criterion i is rated k times more important than criterion j, then the entry for j vs i is 1/k.
• Weights are computed by normalizing the pairwise comparison matrix and then averaging each criterion’s row values.
• A supplier’s overall score is obtained by combining its criterion performances using the computed criteria weights.
• The example structure uses criteria Cost, Safety, and Flexibility to rank Supplier 1, Supplier 2, and Supplier 3.

💡 Memory Hook

Pairwise → normalize → row-average = weights; then weighted scores rank suppliers.

📖 9. Analytic Hierarchy Process for supplier choice

🔑 Key Concepts & Definitions

• Analytic Hierarchy Process : A decision method that ranks alternatives by combining pairwise comparisons of criteria and alternatives into weighted scores.
• Pairwise comparison matrix : A square matrix where each entry expresses the relative preference between two elements using a numerical scale.
• Criteria weights : A weight vector giving the relative importance of each criterion, derived from the pairwise comparison matrix.
• Weighted score of alternatives : A criterion-weighted sum that converts each alternative’s performance on criteria into a single overall score.
• Consistency Index : A statistic that measures how far a pairwise comparison matrix’s implied preferences deviate from perfect consistency.

📝 Essential Points

• For 3 criteria, the example weights are Cost 0.633, Safety 0.261, and Flexibility 0.106.
• Weighted score is computed as $\sum_{j} (\text{alternative rating on criterion }j)\times (\text{criterion weight }j)$.
• Supplier 1’s weighted score is $8\cdot0.633+9\cdot0.261+7\cdot0.106=8.155$.
• Supplier 2’s weighted score is $6\cdot0.633+9\cdot0.261+9\cdot0.106=6.579$.
• Supplier 3’s weighted score is $7\cdot0.633+7\cdot0.261+7\cdot0.106=7.261$.
• The winner is the alternative with the highest weighted score, which is Supplier 1 in the example.

💡 Memory Hook

Think “weights × ratings, then pick the biggest,” and check consistency with $CI=(\lambda_{max}-n)/(n-1)$.

📅 Key Dates

Date	Event
1970s	Saaty developed the Analytic Hierarchy Process (AHP) in the 1970s
1926-2017	Thomas L. Saaty’s lifespan shown in the course
Session 1: Introduction to Supply Chain	Session title shown for the course material

📊 Synthesis Tables

Aggregate planning scenarios comparison

Plan	Total cost	Key cost drivers
Plan 1	$60,350	Inventory carrying $9,250; Regular labor$49,600; Hiring $1,500
Plan 2	$54,465	Inventory carrying $3,625; Regular labor$44,640; Subcontracting $6,200
Plan 3	$55,209	Inventory carrying $3,625; Regular labor$44,640; Overtime labor $6,944

⚠️ Common Pitfalls & Confusions

1. Confusing the three flow types: goods/services flow is physical movement and transformation, while information flow is forecasts/production planning and financial flow is payments/cash flows.
2. Mixing up supply chain management with supply chain itself: management is coordination to optimize stakeholder value, whereas the supply chain is the network of parties and activities moving goods.
3. Thinking aggregate planning is only about production: in the course it also includes inventory decisions (inventory carrying cost) and, depending on the scenario, subcontracting or backorders.
4. Swapping chase vs level strategies: chase matches each period’s production quantity to that period’s forecasted demand, while level keeps production rate uniform across the horizon.
5. Using the wrong daily production requirement formula: the course uses Average production requirement = Total expected demand / Number of working days to convert to a daily target.
6. For AHP, forgetting the reciprocal rule in pairwise matrices: if criterion i is k times more important than j, then the entry for j vs i is 1/k.
7. In AHP scoring, incorrectly computing weighted scores: the course uses a weighted sum of alternative ratings times criterion weights, then selects the highest score and checks consistency via CI.

✅ Exam Checklist

1. Define a supply chain and list the associated goods/services, information, and financial flows from raw materials upstream to customers downstream.
2. Explain what “goods and services flow” and “information flow” and “financial flow” mean in the course and give examples of each (e.g., forecasts, payments).
3. List the key SC operations/functions in order as presented: sourcing & purchasing, transport, storage (inbound), production, storage (outbound), distribution, sales.
4. State the course objective of supply chain management (globally optimize stakeholder value) and the required process steps (match supply & demand downstream first, then strategize/design, then plan operations & cross‑fun
5. Identify constraints of a supply chain and classify their nature as internal or external, using examples given (finance, culture, regulations, capacity, technology).
6. Describe SC partners as shown (focal company, customers, suppliers, outsourcing partner, competitors, governments, capital market, job market, society, sub-suppliers).
7. Explain the decision-level framework: strategic vs tactical & operational decisions, and connect examples (network design, sourcing/outsourcing, market & sales planning).
8. Use the “Puzzle of Supply Chain Design” framework: top-down stepwise with recursive loop, and state the acceptability/efficiency check and modification/optimization model idea.
9. For aggregate planning, state the purpose (balance capacity and forecast demand and specify quantity/timing) and list the demand-capacity leveling options (lay-off part-timers, inventory, overtime, outsourcing, discount
10. Compute the daily production requirement using Average production requirement = Total expected demand / Number of working days, then compute required workers using Daily units × (labor hours per unit / regular hours per
11. For the graphical approach example, reproduce the scenario logic: Scenario 1 level with hiring at start; Scenario 2 level with subcontracting for shortfalls; Scenario 3 level with overtime for excess demand, and identify
12. For AHP supplier selection, outline the steps (objective → criteria → alternatives → pairwise comparisons → weights → consistency test → weighted scores), then compute/interpret weights, weighted scores, and CI using CI=
13. For the AHP consistency test, explain how λmax is obtained from the pairwise matrix times the weight matrix and how the consistency ratio is checked against the threshold (<0.1).