• Ebog

Supply chain management

(2020)
Abstract: Beginning with the work of Ford W. Harris in 1915 on the economic order quantity (EOQ) model, many researchers developed a variety of mathematical models for minimizing the costs associated with holding inventories (raw materials, components, subassemblies, work in process, and finished goods) in industries and businesses. The subject dealing with these problems was initially called inventory control. These models were essentially single-decision-maker models involving one item. In those days, several reasons for holding sizable inventories were given, including economies of scale; uncertainties in demand, supply, delivery lead times, and prices; and a desire to hold buffer stocks as a cushion against unexpected swings in demand and to assure smooth production flow. Starting in the 1950s, Japanese manufacturers (in particular Toyota) initiated the just-in-time (JIT) philosophy to reduce work-in-process inventories to a minimum, and implemented it using a simple Kanban (which means card or ticket in Japanese) system to track the flow of in-process materials through the various operations. In the late 1960s, Toyota extended the JIT philosophy to reduce all inventories to a minimum by developing collaborative working relationships with its component suppliers and distributors with the aim of encouraging them to make and accept small and frequent JIT deliveries; providing for careful monitoring of quality and workflow; and ensuring that products were produced or received only as they were needed. In today's world of rapid technological developments, frequent design changes, and shorter product cycles, carrying as little stock as possible is crucial. The more one relies on stock, the more difficult it will be to accommodate design changes. That's why the JIT philosophy is now being integrated into the overall business strategy worldwide, changing the nature of manufacturing and business dramatically. It has expanded beyond the walls of a factory or shop to include the capabilities, skills, and cooperation of its suppliers and the insights of its customers. This new expanded system is now referred to as the supply chain. Supply chain management comprises planning and processing orders; handling, transporting, and storing all materials purchased, processed, or distributed; and managing inventories in a harmonious, coordinated, and synchronized manner among all the players on the chain to build to order (to fulfill customer orders as they arise) rather than build to stock (to build up stock level to fulfill anticipated future demand)