Global Supply Chain and Operations Management PDF by Dmitry Ivanov, Alexander Tsipoulanidis and Jörn Schönberger

Part I Introduction to Supply Chain and Operations Management
1 Basics of Supply Chain and Operations Management . . . . . . . . . . . 3
1.1 Introductory Case Study: The Magic Supply Chain and the Best Operations Manager .. . 4
1.2 Basic Definitions and Decisions . . . . . . . . . . . . . . . . . . . . . . . 5
1.2.1 The Transformation Process, Value Creation, and Operations Function .  . 5
1.2.2 Supply Chain Management . . . . . . . . . . . . . . . . . . . . 7
1.2.3 Decisions in Supply Chain and Operations
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.3 Careers and Future Challenges in Supply Chain and Operations
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.4 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

2 Examples from Different Industries, Services, and Continents . . . . 17
2.1 Examples of Operations and Supply Chains in
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1.1 Nike: Sourcing Strategy in the Integrated Supply
Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1.2 Dangote Cement: Establishing Sophisticated Supply
Chain Management in Africa . . . . . . . . . . . . . . . . . . . 19
2.1.3 Toyota: Supply Chain Disruption Management . . . . . . 22
2.1.4 Tesla Gigafactory . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2 Examples of Operations and Supply Chains in Services . . . . . . 24
2.2.1 SCOM in Restaurants: Case Study Starbucks
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.2.2 Operations Management at Airport Madrid/Barajas . . . 26
2.2.3 Time-Critical Supply Chains: Disaster Management and
Humanitarian Logistics . . . . . . . . . . . . . . . . . . . . . . . 28
2.2.4 Operations Issues in Car Sharing . . . . . . . . . . . . . . . . 31
2.2.5 REWE: Expanding the Logistics Network . . . . . . . . . 32
2.3 Examples of e-Operations and Supply Chains . . . . . . . . . . . . . 33
2.3.1 Fab.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.3.2 Homeplus: The Store Comes to Your Home . . . . . . . . 37
2.4 Examples of Digital Supply Chains and Smart Operations . . . . 38
2.4.1 Amazon Robots . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.4.2 Adidas “Speedfactory”: 3D Printing and Industry
4.0 in Supply Chain and Operations Management . . . . 39
2.4.3 Predictive Analytics and Machine Learning: RueLaLa and Pharmapacks .  40
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 

3 Processes, Systems, and Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.1 Introductory Case-Study: AirSupply . . . . . . . . . . . . . . . . . . . . 45
3.1.1 E-procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.1.2 Vendor-Managed Inventory . . . . . . . . . . . . . . . . . . . . 47
3.1.3 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.2 Business Process Management . . . . . . . . . . . . . . . . . . . . . . . . 49
3.2.1 Process Optimization and Re-engineering . . . . . . . . . . 49
3.2.2 Business Process Modelling . . . . . . . . . . . . . . . . . . . 51
3.3 Management Information Systems . . . . . . . . . . . . . . . . . . . . . 53
3.3.1 Role of Information Technology in Supply Chain and
Operations Management . . . . . . . . . . . . . . . . . . . . . . 53
3.3.2 Types of Management Information Systems . . . . . . . . 53
3.3.3 Management Information Systems and Organization . . 54
3.3.4 ERP Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
3.3.5 APS Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.3.6 SCEM and RFID . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
3.3.7 Business Analytics and E-Business . . . . . . . . . . . . . . 60
3.4 Problem Solving Methods and Research Methodologies . . . . . 63
3.4.1 Problems, Systems, and Decision-Making . . . . . . . . . 63
3.4.2 Models and Modeling . . . . . . . . . . . . . . . . . . . . . . . . 66
3.4.3 Model-Based Decision Making . . . . . . . . . . . . . . . . . 67
3.4.4 Quantitative Models and Operations Research . . . . . . 70
3.4.5 Integrated Decision Making Support . . . . . . . . . . . . . 70
3.4.6 Research Methodologies . . . . . . . . . . . . . . . . . . . . . . 72
3.5 Integration of Business Analytics, Simulation, and Optimization 74
3.6 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Part II Designing Operations and Supply Network: Strategic
Perspective
4 Operations and Supply Chain Strategy . . . . . . . . . . . . . . . . . . . . . . 81
4.1 Introductory Case-Study “Quick and Affordable”: Zara,
UNIQLO & Primark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.1.1 Zara’s Three Success Factors: Speed, Speed,
and Speed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.1.2 UNIQLO: Basic, Casual Wear at Top Quality . . . . . . 83
4.1.3 Primark: It’s All About Money . . . . . . . . . . . . . . . . . 84
4.2 Operations and Supply Chain Strategies . . . . . . . . . . . . . . . . . 85
4.2.1 Value Added and Costs . . . . . . . . . . . . . . . . . . . . . . 85
4.2.2 Operations Strategies . . . . . . . . . . . . . . . . . . . . . . . . 86
4.2.3 Supply Chain Strategies and “Strategic Fit” . . . . . . . . 87
4.3 Supply Chain Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4.3.1 Bullwhip Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4.3.2 Vendor-Managed Inventory . . . . . . . . . . . . . . . . . . . . 95
4.3.3 Collaborative Planning, Forecasting
and Replenishment . . . . . . . . . . . . . . . . . . . . . . . . . . 98
4.3.4 Supply Chain Contracting . . . . . . . . . . . . . . . . . . . . . 99
4.4 Supply Chain Resilience and Sustainability . . . . . . . . . . . . . . . 100
4.4.1 Supply Chain Sustainability: Examples of Coca-Cola
and Mercadona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
4.4.2 Supply Chain Resilience and Ripple Effect . . . . . . . . 104
4.5 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
5 Sourcing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
5.1 Introductory Case Study “New Logistics Concept (NLK:
Das Neue Logistik Konzept) at Volkswagen” . . . . . . . . . . . . . 111
5.2 Sourcing Process and Principles . . . . . . . . . . . . . . . . . . . . . . . 114
5.2.1 Procurement, Purchasing and Sourcing . . . . . . . . . . . 114
5.2.2 Sourcing Process . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
5.2.3 Make-or-Buy and Outsourcing . . . . . . . . . . . . . . . . . 117
5.2.4 Organization of Sourcing Processes . . . . . . . . . . . . . . 120
5.3 Sourcing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
5.3.1 Single vs. Dual and Multiple Sourcing . . . . . . . . . . . . 120
5.3.2 Local vs. Global Sourcing . . . . . . . . . . . . . . . . . . . . . 122
5.3.3 Just-in-Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
5.4 Supplier Relationship Management . . . . . . . . . . . . . . . . . . . . 126
5.4.1 Strategic Supplier Analysis . . . . . . . . . . . . . . . . . . . . 127
5.4.2 Supplier Selection . . . . . . . . . . . . . . . . . . . . . . . . . . 129
5.4.3 Supplier Integration and Development . . . . . . . . . . . . 131
5.5 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
6 Production Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
6.1 Introductory Case-Study DELL vs. Lenovo . . . . . . . . . . . . . . . 135
6.2 Postponement and Modularization . . . . . . . . . . . . . . . . . . . . . 140
6.2.1 Problem: Mass Production or Product
Customization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
6.2.2 Principles: Postponement and Modularization . . . . . . . 140
6.2.3 Examples of Postponement Strategies . . . . . . . . . . . . 141
6.3 Push–Pull Views and Order Penetration Point . . . . . . . . . . . . . 144
6.4 Selection of a Production Strategy . . . . . . . . . . . . . . . . . . . . . 145
6.4.1 Types of Production Strategies . . . . . . . . . . . . . . . . . 145
6.4.2 Method: Lost-Sales Analysis . . . . . . . . . . . . . . . . . . . 150
6.5 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
7 Facility Location Planning and Network Design . . . . . . . . . . . . . . . 155
7.1 Introductory Case Study Power Pong Sports, China . . . . . . . . . 155
7.2 Supply Chain Design Framework . . . . . . . . . . . . . . . . . . . . . . 158
7.3 Global Supply Chain Design . . . . . . . . . . . . . . . . . . . . . . . . . 159
7.3.1 Warehouse Location Problem and Its Formalization . . 160
7.3.2 A Spreadsheet Approach to the WLP . . . . . . . . . . . . . 163
7.3.3 Branch-&-Bound: How the Solver Add-In Works . . . . 168
7.3.4 Capacitated WLP . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
7.4 Regional Facility Location . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
7.4.1 Management Problem Description . . . . . . . . . . . . . . . 181
7.4.2 A Mathematical Model of the Decision Situation . . . . 181
7.4.3 Solving the Mathematical Model: Centre-of-Gravity
Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
7.5 Factor-Ranking Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
7.5.1 Case-Study OTLG Germany . . . . . . . . . . . . . . . . . . . 189
7.5.2 Factor-Rating Method . . . . . . . . . . . . . . . . . . . . . . . . 189
7.5.3 Utility Value Analysis . . . . . . . . . . . . . . . . . . . . . . . 194
7.6 Combining Optimization and Simulation in Supply
Chain Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
7.7 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
8 Distribution and Transportation Network Design . . . . . . . . . . . . . . 203
8.1 Introductory Case Study: Bavarian Wood . . . . . . . . . . . . . . . . 203
8.2 Generic Transport Network Structures . . . . . . . . . . . . . . . . . . 206
8.3 Realizing Economies of Scale in Transportation . . . . . . . . . . . 208
8.3.1 Consolidation of Shipments . . . . . . . . . . . . . . . . . . . . 208
8.3.2 Postponement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
8.3.3 Milk-Runs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
8.3.4 Transshipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
8.4 Trade-Off-Based Transportation Network Design . . . . . . . . . . 218
8.5 Capacity Allocation in a Many-to-Many Network . . . . . . . . . . 221
8.5.1 The Transportation Problem . . . . . . . . . . . . . . . . . . . 222
8.5.2 Decision Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
8.5.3 Finding the First Feasible Model Solution . . . . . . . . . 224
8.5.4 Optimality Check . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
8.5.5 Solution Improvement . . . . . . . . . . . . . . . . . . . . . . . 230
8.6 Distribution Network Design . . . . . . . . . . . . . . . . . . . . . . . . . 234
8.6.1 Case Study: ALDI vs. Homeplus . . . . . . . . . . . . . . . . 234
8.6.2 Types of Distribution Networks . . . . . . . . . . . . . . . . . 236
8.6.3 Case Study: Seven-Eleven Japan . . . . . . . . . . . . . . . . 238
8.6.4 Transportation Modes . . . . . . . . . . . . . . . . . . . . . . . . 240
8.7 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
9 Factory Planning and Process Design . . . . . . . . . . . . . . . . . . . . . . . 247
9.1 Introductory Case-Study “Factory Planning at Tesla” . . . . . . . . 247
9.2 Factory Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
9.2.1 Role of Factory Planning in SCOM. . . . . . . . . . . . . . 249
9.2.2 Processes of Factory Planning . . . . . . . . . . . . . . . . . . 250
9.3 Capacity Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
9.3.1 Queuing Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
9.3.2 Little’s Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
9.3.3 Bottleneck Analysis/Theory of Constraints . . . . . . . . . 264
9.3.4 Drum, Buffer, Rope . . . . . . . . . . . . . . . . . . . . . . . . . 265
9.3.5 Break-Even Analysis . . . . . . . . . . . . . . . . . . . . . . . . 266
9.3.6 Decision Trees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
9.3.7 Simulation: Case Study AnyLogic . . . . . . . . . . . . . . . 270
9.4 Process Flow Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
9.4.1 Job Shop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
9.4.2 Batch Shop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
9.4.3 Assembly Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
9.4.4 Continuous Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
9.4.5 Product-Process Matrix . . . . . . . . . . . . . . . . . . . . . . . 278
9.5 Lean Production Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
9.5.1 Lean Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
9.5.2 Lean Production Principles . . . . . . . . . . . . . . . . . . . . 281
9.5.3 Lean Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . 286
9.6 Key Points and Discussion Questions . . . . . . . . . . . . . . . . . . . 288
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
10 Layout Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
10.1 Introductory Case-Study “OTLG Ludwigsfelde” . . . . . . . . . . . 293
10.2 Layout Planning in Manufacturing . . . . . . . . . . . . . . . . . . . . . 294
10.2.1 Fixed Position Layout . . . . . . . . . . . . . . . . . . . . . . . . 295
10.2.2 Process Flow Layout . . . . . . . . . . . . . . . . . . . . . . . . 296
10.2.3 Product Flow Layout . . . . . . . . . . . . . . . . . . . . . . . . 299
10.2.4 Cell-Based Layout . . . . . . . . . . . . . . . . . . . . . . . . . . 302
10.3 Layout Planning in Warehouses . . . . . . . . . . . . . . . . . . . . . . . 305
10.3.1 Incoming Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
10.3.2 Storage Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306
10.3.3 Put-Away and Order Pick-Up . . . . . . . . . . . . . . . . . . 306
10.3.4 Layout Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
10.4 Methods of Layout Planning . . . . . . . . . . . . . . . . . . . . . . . . . 308
10.4.1 REL-Charts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308
10.4.2 Quadratic Assignment Problem . . . . . . . . . . . . . . . . . 310
10.4.3 Simulation: Modeling Operations at Pharmaceutical
Distribution Warehouses with AnyLogic . . . . . . . . . . 312
10.5 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313
10.6 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
Part III Matching Demand and Supply: Tactical and Operative
Planning
11 Demand Forecasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319
11.1 Introductory Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319
11.2 Forecasting Process and Methods . . . . . . . . . . . . . . . . . . . . . . 321
11.2.1 The Forecasting Process and Time Horizons . . . . . . . . 322
11.2.2 Forecasting Methods . . . . . . . . . . . . . . . . . . . . . . . . . 323
11.2.3 Forecasting Quality . . . . . . . . . . . . . . . . . . . . . . . . . 325
11.3 Statistical Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
11.3.1 Linear Regression . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
11.3.2 Moving Average . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
11.3.3 Simple Exponential Smoothing . . . . . . . . . . . . . . . . . 329
11.3.4 Double Exponential Smoothing . . . . . . . . . . . . . . . . . 331
11.4 Key Points and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
12 Production and Material Requirements Planning . . . . . . . . . . . . . . 335
12.1 Introductory Case-Study SIBUR: Integrated Operations and
Supply Chain Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
12.2 Planning Horizons/MRP-II . . . . . . . . . . . . . . . . . . . . . . . . . . . 338
12.3 Sales and Operations Planning . . . . . . . . . . . . . . . . . . . . . . . . 339
12.3.1 Role of Sales and Operations Planning . . . . . . . . . . . . 339
12.3.2 Options for Aggregate Planning . . . . . . . . . . . . . . . . . 341
12.3.3 Methods for Aggregate Planning . . . . . . . . . . . . . . . . 342
12.4 Sales and Production Planning with Linear Programing . . . . . . 345
12.4.1 Problem Description . . . . . . . . . . . . . . . . . . . . . . . . . 345
12.4.2 Method: Linear Programming . . . . . . . . . . . . . . . . . . 346
12.4.3 Graphical Solution . . . . . . . . . . . . . . . . . . . . . . . . . . 348
12.5 Master Production Schedule and Rolling Planning . . . . . . . . . . 349
12.5.1 Master Production Schedule . . . . . . . . . . . . . . . . . . . 349
12.5.2 Rolling Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
12.6 Material Requirements Planning . . . . . . . . . . . . . . . . . . . . . . . 351
12.6.1 Bill-of-Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
12.6.2 MRP Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
12.7 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360
13 Inventory Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
13.1 Introductory Case-Study: Amazon, Volkswagen, and DELL . . . 361
13.2 Role, Functions, and Types of Inventory . . . . . . . . . . . . . . . . . 363
13.3 Material Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
13.3.1 ABC Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365
13.3.2 XYZ Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367
13.4 Deterministic Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370
13.4.1 EOQ Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
13.4.2 EOQ Model with Discounts . . . . . . . . . . . . . . . . . . . 374
13.4.3 EPQ Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376
13.4.4 Re-order Point . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
13.5 Stochastic Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378
13.5.1 Service Level and Safety Stock . . . . . . . . . . . . . . . . . 379
13.5.2 Single Period Systems (“Newsvendor Problem”) . . . . 384
13.5.3 Safety Stock and Transportation Strategy: Case
DailyMaersk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386
13.6 Inventory Control Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
13.6.1 Fixed Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
13.6.2 Dynamic View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
13.7 Dynamic Lot-Sizing Models . . . . . . . . . . . . . . . . . . . . . . . . . 393
13.7.1 Least Unit Cost Heuristic . . . . . . . . . . . . . . . . . . . . . 394
13.7.2 Silver-Meal Heuristic . . . . . . . . . . . . . . . . . . . . . . . . 396
13.7.3 Wagner–Whitin Model . . . . . . . . . . . . . . . . . . . . . . . 397
13.8 Aggregating Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399
13.9 ATP/CTP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402
13.10 Key Points and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
14 Routing and Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407
14.1 Introductory Case Study RED SEA BUS TRAVEL . . . . . . . . . 408
14.2 Shortest Paths in a Network . . . . . . . . . . . . . . . . . . . . . . . . . . 409
14.2.1 Outline of the Shortest Path Problem (SPP)
in a Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409
14.2.2 Mathematical Graphs . . . . . . . . . . . . . . . . . . . . . . . . 411
14.2.3 The SPP as Graph-Based Optimization Model . . . . . . 411
14.2.4 Dijkstra’s Algorithm for the Identification of a Shortest
S-T-Path . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412
14.3 Round Trip Planning/Travelling Salesman Problem . . . . . . . . . 415
14.3.1 Travelling Salesman Problem . . . . . . . . . . . . . . . . . . 416
14.3.2 A Mixed-Integer Linear Program for
TSP-Modelling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418
14.3.3 Heuristic Search for High Quality Round Trips . . . . . . 421
14.4 Vehicle Routing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427
14.4.1 Case Study ORION: Vehicle Routing at UPS . . . . . . . 427
14.4.2 Decision Situation Outline . . . . . . . . . . . . . . . . . . . . 429
14.4.3 Current Approach for the Route Compilation . . . . . . . 430
14.4.4 Capacitated Vehicle Routing Problem . . . . . . . . . . . . 432
14.4.5 The Sweep Algorithm . . . . . . . . . . . . . . . . . . . . . . . . 435
14.5 Machine Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
14.5.1 The Problem of Scheduling a Machine . . . . . . . . . . . . 439
14.5.2 Priority Rule-Based Scheduling . . . . . . . . . . . . . . . . . 441
14.5.3 Scheduling Algorithm of Moore . . . . . . . . . . . . . . . . 444
14.5.4 Scheduling Two Machines in a Flow Shop . . . . . . . . . 445
14.5.5 Further Challenges in Machine Scheduling . . . . . . . . . 447
14.6 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
Part IV Advanced Topics in Supply Chain and Operations Management
15 Supply Chain Risk Management and Resilience . . . . . . . . . . . . . . . 455
15.1 Introductory Case-Study: Capacity Disruption at BASF . . . . . . 455
15.2 Uncertainty and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456
15.3 Risk Management in the Supply Chain . . . . . . . . . . . . . . . . . . 458
15.3.1 Risk Classification . . . . . . . . . . . . . . . . . . . . . . . . . . 458
15.3.2 General Framework of Risk Management in the
Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
15.4 Operational and Disruption Risks . . . . . . . . . . . . . . . . . . . . . . 462
15.5 Ripple Effect in the Supply Chain . . . . . . . . . . . . . . . . . . . . . 464
15.6 Supply Chain Resilience . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466
15.6.1 Resilience Framework . . . . . . . . . . . . . . . . . . . . . . . 466
15.6.2 Costs of Resilience . . . . . . . . . . . . . . . . . . . . . . . . . . 469
15.7 KPI for Supply Chain Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 473
15.7.1 Operational Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . 473
15.7.2 Disruption Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474
15.8 Key Points and Discussion Questions . . . . . . . . . . . . . . . . . . . 475
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 

16 Digital Supply Chain, Smart Operations and Industry 4.0 . . . . . . . 481
16.1 Introductory Case-Study: SupplyOn . . . . . . . . . . . . . . . . . . . . 481
16.2 SCOM Excellence and Digitalization . . . . . . . . . . . . . . . . . . . 483
16.2.1 Operational Excellence . . . . . . . . . . . . . . . . . . . . . . . 483
16.2.2 From Operational Excellence to SCOM Excellence . . . 484
16.2.3 Digitalization as New Driver in SCOM Excellence . . . 484
16.3 Development of Technology in SCOM . . . . . . . . . . . . . . . . . . 487
16.3.1 Three Industrial Revolutions . . . . . . . . . . . . . . . . . . . 487
16.3.2 Fourth Industrial Revolution: Industry 4.0 . . . . . . . . . 488
16.3.3 Internet of Things . . . . . . . . . . . . . . . . . . . . . . . . . . . 490
16.3.4 Cyber Physical Systems . . . . . . . . . . . . . . . . . . . . . . 490
16.3.5 Smart, Connected Products . . . . . . . . . . . . . . . . . . . . 491
16.3.6 Smart Supply Chains and Smart Value Adding
Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492
16.4 Digital SCOM Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . 493
16.5 Digital Technology in the “Plan” Processes . . . . . . . . . . . . . . . 494
16.5.1 Big Data Analytics . . . . . . . . . . . . . . . . . . . . . . . . . . 494
16.5.2 The Digital Twin . . . . . . . . . . . . . . . . . . . . . . . . . . . 495
16.6 Digital Technology in “Source” Processes . . . . . . . . . . . . . . . 497
16.6.1 eProcurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497
16.6.2 Supplier Collaboration Portals . . . . . . . . . . . . . . . . . . 498
16.6.3 Digital Trends for Excellence in Sourcing . . . . . . . . . 499
16.6.4 Blockchain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499
16.6.5 Robotic Process Automation and Artificial Intelligence
in Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
16.7 Digital Technology in “Make” Processes . . . . . . . . . . . . . . . . 502
16.7.1 3D Printing and Additive Manufacturing . . . . . . . . . . 502
16.7.2 Virtual Reality and Augmented Reality . . . . . . . . . . . 504
16.7.3 Robotics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505
16.8 Digital Technology in the “Delivery” Processes . . . . . . . . . . . 507
16.8.1 Drones or Unmanned Aerial Vehicles . . . . . . . . . . . . 508
16.8.2 Smart Driverless Transportation Systems . . . . . . . . . . 508
16.8.3 Smart Forklifts, Pallet Movers, and Cranes . . . . . . . . . 509
16.9 Qualitative and Quantitative Potential of Digital Technology in
SCOM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511
16.9.1 Qualitative Improvements of Digital SCOM . . . . . . . . 512
16.9.2 Quantitative Potential Assessments of Digital
SCOM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512
16.9.3 Possible Obstacles and Limitations of Digital
SCOM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514
16.10 Key Points and Discussion Questions . . . . . . . . . . . . . . . . . . . 516
16.11 Case-Study “Smart Usage of Big Data Along the Supply Chain:
Big Data Analytics Between Companies, Value-Added and the
Impact of Risk and Complexity Management” . . . . . . . . . . . . 518
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522 

17 Pricing and Revenue-Oriented Capacity Allocation . . . . . . . . . . . . . 527
17.1 Case Study: FRISIA COASTAL SHIPPING: The Story of Jördis
and Tjark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529
17.2 Non-competitive Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532
17.3 Pricing with Scarce Capacities . . . . . . . . . . . . . . . . . . . . . . . . 536
17.4 Setting Optimal Prices in Resource Networks . . . . . . . . . . . . . 542
17.5 Dynamic Pricing: Pricing in Reaction to Observed Market
Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546
17.5.1 Business Extension by Coastal Tours . . . . . . . . . . . . . 547
17.5.2 Decision Situation Modelling . . . . . . . . . . . . . . . . . . 552
17.5.3 Pricing and Capacity Distribution over the Sales
Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554
17.5.4 Summary of Dynamic Pricing . . . . . . . . . . . . . . . . . . 564
17.6 Pricing Lessons Learned and Open Issues . . . . . . . . . . . . . . . . 565
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 566
Appendix Case-Study “Re-designing the Material Flow in a Global
Manufacturing Network” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573