SAMENVATTING ISCM.pdf

# Introduction to supply chain management basics This section introduces the fundamental concepts of supply chain management, its components, key flows, and its distinction from logistics, along with the SCOR model [5](#page=5). ## 1.1 What is supply chain management? Supply chain management (SCM) involves cooperation, trust, and information sharing among organizations and functions, moving away from siloed operations towards integrated systems. It aims for global optimization rather than local optimization [6](#page=6). > **Tip:** Supply chain management is often likened to air traffic control; it is largely unnoticed until something goes wrong [3](#page=3). ### 1.1.1 Supply chain management vs. logistics While often used interchangeably, logistics is a subset of supply chain management. Logistics focuses on the efficient organization of the transportation and storage of goods from the point of origin to the point of consumption, encompassing the right product, in the right way, quantity, quality, place, time, for the right customer, and at the right cost. Supply chain management is a broader, intercompany, boundary-spanning concept [7](#page=7). ### 1.1.2 Supply chain building blocks (participants) A supply chain is comprised of various participants or building blocks, which can be illustrated using the example of a ski parka [8](#page=8): * **Tier 3 Supplier:** Supplies raw materials (e.g., iron, copper, coal) [8](#page=8). * **Tier 2 Supplier:** Supplies raw materials or components (e.g., cotton, nylon, steel) [8](#page=8). * **Tier 1 Supplier:** Supplies semi-finished products (e.g., lining, zippers, fasteners, shell) [8](#page=8). * **Original Equipment Manufacturer (OEM):** Manufactures the finished product (e.g., the parka) [8](#page=8). * **Distributor (or Retailer):** Distributes or sells the finished products (e.g., Parka Retail Store, E-commerce) [8](#page=8). * **Customer (and Consumer):** The end-user of the finished product (e.g., the skier) [8](#page=8). > **Example:** The production of a smartphone involves a highly complex global supply chain with numerous tiers of suppliers for components like displays, batteries, and microchips, sourced from various raw material suppliers worldwide [20](#page=20) [21](#page=21). ### 1.1.3 Key flows in a supply chain Supply chains are characterized by three key flows [9](#page=9): 1. **Materials flow:** Involves the movement of goods, including the warehousing function for storage and inventory management. This can utilize various modes of transport such as railways, roadways, airways, waterways, and pipelines [9](#page=9). 2. **Data and Information flow:** Includes the exchange of information through systems like Enterprise Resource Planning (ERP), the internet, and telephones, crucial for coordination and planning [9](#page=9). 3. **Resources flow:** Encompasses the movement of financial capital, human resources, and equipment necessary to operate the supply chain [9](#page=9). ### 1.1.4 Why supply chain management? Effective supply chain and operations management are crucial for achieving competitive advantage. This advantage can be achieved through various strategies, leading to value creation [10](#page=10). * **Competitive Advantage = Product Excellence x Process Excellence** [10](#page=10). * An efficient supply chain contributes to tailored services, responsiveness, and reliability, which are increasingly important order-winning criteria, often service-based rather than solely product-based [10](#page=10). * Peter F. Drucker highlighted the importance of an integrated approach in logistics for overall business success as early as 1962 [10](#page=10). > **Tip:** In today’s marketplace, service-based criteria are more likely to determine success than product-based ones [10](#page=10). ## 1.2 Levels of coordination and integration The scope of supply chain management can vary depending on the size and market power of the organization [13](#page=13). * **Small businesses:** May have a more limited scope, potentially focusing on basic supplier and customer interactions [13](#page=13). * **Small and Medium-sized Enterprises (SMEs):** Typically engage in more coordinated activities with their suppliers and customers [13](#page=13). * **Multinational companies:** Operate with a broad and complex supply chain network, requiring extensive coordination and integration across global operations [13](#page=13). ## 1.3 SCOR – Supply chain reference model The SCOR (Supply-Chain Operations Reference) model is a process reference model endorsed by the Supply-Chain Council. It provides a common language and structure for describing supply chain operations [15](#page=15). ### 1.3.1 SCOR process activities The SCOR model defines six core processes that represent the flow of goods and services in a supply chain [16](#page=16): * **Plan:** Processes that balance aggregate demand and supply to develop strategies that best meet sourcing, production, and delivery requirements [16](#page=16). * **Source:** Processes to procure goods and services to meet planned or actual demand [16](#page=16). * **Make:** Processes that transform products to a finished state to meet planned or actual demand [16](#page=16). * **Deliver:** Processes that provide finished goods and services to meet planned or actual demand, including order management, transportation, and distribution [16](#page=16). * **Return:** Processes associated with returning or receiving returned products for any reason, extending into post-delivery customer support [16](#page=16). * **Enable:** Processes that manage the overall supply chain, including business rules, performance, data, resources, facilities, contracts, network management, regulatory compliance, and risk management [16](#page=16). Companies can utilize the SCOR model to analyze their processes and benchmark them against industry standards [16](#page=16). ## 1.4 Summary Supply chain management is characterized by cooperation, information sharing, trust, and global optimization. Its building blocks include tiered suppliers, OEMs, retailers, distributors, and customers. Key flows are materials, data/information, and resources. Competitive advantage is achieved through efficient supply chain and operations management, offering tailored services, responsiveness, and reliability. The SCOR model provides a process framework (Plan, Source, Make, Deliver, Return, Enable) for analyzing supply chains. Modern supply chains are global, complex, and have a significant environmental impact [18](#page=18). ## 1.5 Lesson follow-up This section typically includes hands-on sessions, assignments, and readings to reinforce the learning objectives of the introductory topic. For example, a hands-on session might involve identifying the supply chain for a smartphone or tablet, detailing its components, suppliers, and the overall complexity and environmental impact. Homework assignments may also focus on analyzing the complexity, environmental impact, and distances traveled within a supply chain, as well as understanding specific company strategies [12](#page=12) [14](#page=14) [17](#page=17) [19](#page=19) [20](#page=20) [21](#page=21) [22](#page=22) [5](#page=5). --- # Supply chain design and strategy This section explores the core principles of supply chain design and strategy, focusing on integration, collaboration, manufacturing approaches, lean and agile methodologies, and key performance indicators. ### 2.1 Supply chain integration and collaboration Supply chain integration involves sharing information and coordinating activities across different entities within the supply chain, acting as an enabler for collaboration. It facilitates a global optimization perspective, revealing solutions that might be missed by focusing on individual components [48](#page=48). #### 2.1.1 Methods of supply chain integration Key methods for achieving supply chain integration include: * **Enterprise Resource Planning (ERP):** Software solutions designed to integrate core business operations such as finance, HR, supply chain, procurement, and manufacturing within an organization [48](#page=48). * **Electronic Data Interchange (EDI):** A critical enabler for automated exchange of business documents like purchase orders and invoices between supply chain partners [48](#page=48). * **Shared visibility:** Utilizing shared technology platforms (e.g., cloud services) to enable real-time tracking of inventory, sharing of demand and consumption data, and collaborative product development [48](#page=48). * **Standardisation of processes:** Implementing uniform quality rules, service standards, and manufacturing operations across the supply chain [48](#page=48). #### 2.1.2 Supply chain collaboration Supply chain collaboration centers on fostering relationships among supply chain partners and relies on their willingness to work towards shared objectives. The complexity of modern supply chains presents a significant challenge to both integration and collaboration [49](#page=49). #### 2.1.3 Methods of supply chain collaboration Effective collaboration can be achieved through: * **Supplier Relationship Management:** Cultivating and maintaining positive relationships with critical suppliers [49](#page=49). * **Collaborative Planning, Forecasting, and Replenishment (CPFR):** A process that combines the insights of multiple partners for planning and fulfilling customer demand, involving shared information and joint planning for promotions, forecasts, and inventory levels [49](#page=49). * **Continuous improvement initiatives:** Implementing programs like Lean, Six Sigma, or Total Quality Management (TQM) [49](#page=49). * **Collaborative Product Development:** Engaging suppliers early in the product development lifecycle [49](#page=49). Integration and collaboration are highly effective in mitigating the Bullwhip Effect. Advancements in technology and cloud-based platforms have increased accessibility to supply chain integration for a wider range of companies, including smaller ones [50](#page=50). ### 2.2 Manufacturing strategies Manufacturing strategies are largely influenced by the "lead-time gap," which is the discrepancy between the time required to produce and deliver a product and the time a customer is willing to wait. The demand penetration point, where customer demand becomes known, is crucial in determining the most suitable order fulfillment strategy [52](#page=52). #### 2.2.1 The lead-time gap The total production lead time (P) encompasses procurement, manufacturing, and delivery processes, while the customer order cycle (C) represents the time the customer is willing to wait. The lead-time ratio is calculated as $P/C$ [52](#page=52). > **Example:** In a bakery, the lead time for a croissant involves mixing dough, shaping, proving, baking (manufacturing), ingredient delivery (procurement), and delivery to the bakery (delivery). Customer waiting time is about five minutes. For a birthday cake, manufacturing includes dough preparation, baking, and custom decoration, with longer procurement times for special items and a customer waiting time of up to two days [54](#page=54) [55](#page=55). #### 2.2.2 Order fulfilment strategies The choice of order fulfillment strategy depends on the demand penetration point [53](#page=53). | Strategy | Description | Typical products | | :---------------------- | :---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | Make-to-Stock (MTS) | Products are picked from inventory and shipped upon order arrival. | Canned goods, consumables, seasonal products, fast-moving consumer goods, technology products like smartphones and TVs. | | Finish-to-Order (FTO) / Assemble-to-Order (ATO) | A blend of MTS for components and MTO for end products; final customization occurs late based on standard components and subassemblies. | Computers (e.g., Dell), automobiles, industrial equipment, furniture. | | Make-to-Order (MTO) | Production begins only upon receiving customer orders; inventory is built only for raw materials or standard components. | Customized clothing, jewelry, footwear, specialized technology products. | | Engineer-to-Order (ETO) | Products are developed and built according to specific customer requirements; inventory is limited to raw materials and standard components. | Custom industrial machinery, specialized vehicles, aerospace systems, architectural glass and facades, scientific instruments. | ### 2.3 Lean and agile supply chains #### 2.3.1 Lean supply chains The core principle of Lean is the elimination of waste, defined as any activity that does not add value to the product or service, consuming money, time, or resources. Value-adding activities are those that enhance the main features or characteristics of a product/service, ensure expected quality, or improve customer experience [58](#page=58). Seven types of waste identified in Lean are [59](#page=59): * **Overproduction:** Producing more or sooner than customer demand requires [59](#page=59). * **Waiting:** Delays caused by processes, resource unavailability, or decision-making [59](#page=59). * **Motion:** Unnecessary movements of people, parts, or machines [59](#page=59). * **Over-processing:** Performing more work than necessary or using overly complex processes [59](#page=59). * **Transportation:** Unnecessary movement of goods between processes, plants, or suppliers [59](#page=59). * **Defects:** Requiring rework, leading to non-conformities, accidents, or breakages [59](#page=59). * **Inventory and WIP:** Excessive or slow-moving inventory and high levels of Work-In-Process [59](#page=59). Lean utilizes various tools and solutions for waste elimination, including analytical methods like Gemba walks (observing work firsthand), Value Stream Mapping (visualizing production flow), and Spaghetti diagrams (tracking movement). Practical tools include the Five S method for workplace organization, SMED (Single-Minute Exchange of Die) for reducing changeover times to enable smaller lot sizes, and TPM (Total Productive Maintenance) for equipment upkeep to prevent breakdowns. Lean is considered the standard methodology for increasing process efficiency [60](#page=60). #### 2.3.2 Agile supply chains Agile supply chains are characterized by their flexibility and responsiveness to change. Key elements include [61](#page=61): * **Postponement (or delayed configuration):** Product designs are based on common platforms, components, or modules, with final assembly or customization occurring only after the customer's requirement is known. This is often interchangeable with mass customization [61](#page=61) [62](#page=62). * **Advanced manufacturing technologies:** Employing tools like automated assembly lines, Computer-Aided Design (CAD), and Computer-Aided Manufacturing (CAM) [61](#page=61). * **Near-shoring:** Locating production facilities, particularly for final assembly, closer to customer markets [61](#page=61). A high degree of supply chain integration and collaboration is essential for achieving agility [61](#page=61). > **Example:** Dell is recognized as a pioneer in mass customization through postponement, configuring computers based on customer orders [72](#page=72). ### 2.4 Supply chain key performance indicators (KPIs) The Supply Chain Triangle illustrates the balance between three primary objectives: Service, Cost, and Cash [64](#page=64). * **Service:** Meeting customer expectations regarding availability, lead times, and quality [64](#page=64). * **Cost:** Minimizing the total expenditure of the supply chain [64](#page=64). * **Cash:** Generating and managing the flow of cash within the business [64](#page=64). #### 2.4.1 Key performance indicators Various KPIs are used to measure sales and supply chain performance across different functions [65](#page=65). **Service KPIs:** * **On-time In-full (OTIF) Delivery [%:** Measures the percentage of deliveries that are both on time and complete [66](#page=66). $$ \text{OTIF} = \frac{\text{Number of deliveries made on time and complete}}{\text{Total number of deliveries}} \times 100 $$ * **On-time Delivery (OTD) [%:** Measures the percentage of deliveries made by the promised time [66](#page=66). $$ \text{OTD} = \frac{\text{Number of deliveries made on time}}{\text{Total number of deliveries}} \times 100 $$ * **Customer Return Rate [%:** Indicates the proportion of products returned by customers. $$ \text{Customer Return Rate} = \frac{\text{Number of Customer Returns}}{\text{Number of Products Sold}} \times 100 $$ * **Customer Lead Time [Days:** The duration from when a customer places an order to when it is delivered [66](#page=66). $$ \text{Customer Lead Time} = \text{Order delivery date} - \text{Order request date} $$ **Cash KPIs:** * **Days Sales in Inventory (DSI) [Days:** Measures the average number of days it takes to sell inventory. A lower DSI can indicate sustainability by reducing excessive inventory and waste [65](#page=65) [67](#page=67). $$ \text{DSI} = \frac{\text{Average Inventory}}{\text{Cost of Goods Sold (COGS)}} \times \text{Number of Days in the Period} $$ * **Days Sales Outstanding (DSO) [Days:** Represents the average number of days it takes to collect accounts receivable [67](#page=67). $$ \text{DSO} = \frac{\text{Accounts receivable}}{\text{Net Sales}} \times \text{Number of Days in the Period} $$ * **Days Payables Outstanding (DPO) [Days:** Indicates the average number of days a company takes to pay its suppliers [67](#page=67). $$ \text{DPO} = \frac{\text{Accounts Payable}}{\text{Cost of Goods Sold (COGS)}} \times \text{Number of Days in the Period} $$ * **Cash-to-Cash Cycle Time [Days:** The total time it takes to convert inventory into cash [67](#page=67). $$ \text{Cash-to-Cash Cycle Time} = \text{DSI} + \text{DSO} + \text{DPO} $$ **Cost KPIs:** * **Procurement costs [value:** Includes purchase price, shipping, handling, transportation, and administrative costs related to procurement [67](#page=67). * **Total Supply Chain costs [value:** Encompasses shipping, handling, transportation, inventory, salaries, procurement, and software/system costs for the entire supply chain [67](#page=67). Often, On-time Delivery (OTD) and Days Sales in Inventory (DSI) are primary focus areas for many companies [65](#page=65). --- # Globalisation and challenges in supply chains Globalisation has profoundly reshaped supply chains, driving significant evolution and introducing complex challenges that necessitate robust risk management and new operational requirements. ## 3. Globalisation and challenges in supply chains ### 3.1 Evolution of supply chains The evolution of supply chains has been driven by several key factors, fundamentally altering how goods are produced and transported globally [82](#page=82). #### 3.1.1 Drivers of globalised supply chains The primary drivers behind the globalization of supply chains are: * **Technology:** Advancements in Information Technology (IT), including MRP, ERP, and cloud computing, have enabled better coordination and visibility across extended networks [82](#page=82). * **Trade Agreements and Trade Standards:** Agreements such as GATT, WTO, NAFTA, USMCA, RCEP, and AfCFTA have reduced trade barriers, leading to decreased trade costs, increased trade flows, lower consumer prices, heightened competition, and job creation. However, opponents argue that the risks associated with these agreements can outweigh the benefits. Trade barriers include tariffs, non-tariff barriers (NTBs) like quotas and import licenses, investment barriers, and service trade barriers [82](#page=82) [83](#page=83). * **Containerisation:** The standardization and widespread adoption of shipping containers, beginning in the mid-1950s, revolutionized maritime transport by making loading and unloading more efficient, reducing handling costs, and increasing cargo capacity. Containers offer advantages in efficiency, standardization, security, and flexibility [82](#page=82) [89](#page=89). * **Logistic Service Providers (LSPs):** The increasing reliance on LSPs, including freight carriers, forwarders, couriers, and integrators, has been crucial for managing the complexities of global logistics [82](#page=82) [91](#page=91). #### 3.1.2 Key concepts and strategies * **Supply Chain Management (SCM) Concepts:** Coined by Keith Oliver in 1982, SCM emphasizes collaboration and integration, involving information sharing, collaborative planning, process alignment, joint decision-making, and standardized quality rules [92](#page=92). * **Hub-and-Spoke Networks:** These networks are highly effective for moving large volumes of goods over long distances by consolidating traffic at central hubs, leveraging economies of scale. FedEx's early adoption and subsequent standardization of this model highlight its importance in complex supply chains. The formula for point-to-point connections is given by $ \frac{N \times (N-1)}{2} $, where N is the number of nodes [93](#page=93). * **Outsourcing Narrative:** The trend of outsourcing various activities (manufacturing, customer service, accounting) to low-cost countries, primarily in Asia, accelerated in the 1990s. This has led to cheaper products for consumers but raises concerns about country-specific regulations and negative impacts that are often overlooked [94](#page=94). #### 3.1.3 Incoterms Incoterms are international trade rules developed by the International Chamber of Commerce (ICC) to reduce uncertainty and risks in international sales contracts. They clearly define the responsibilities of sellers and buyers regarding transportation costs, insurance, customs duties, and the transfer of risk. Incoterms are categorized by mode of transport [83](#page=83) [84](#page=84): * **Group E (Ex Works):** Seller’s responsibility ends at their premises (e.g., EXW) ] [85](#page=85). * **Group F (Free Carrier):** Seller delivers goods to a carrier at a named place (e.g., FCA, FAS, FOB) ] [85](#page=85). * **Group C (Carriage Paid To):** Seller pays for transport to a named destination (e.g., CPT, CIF, CFR, CIP) ] [85](#page=85). * **Group D (Delivered At):** Seller is responsible for delivery to the buyer's premises (e.g., DAP, DPU, DDP) ] [85](#page=85). #### 3.1.4 Trade Facilitation There are significant gaps in trade facilitation performance globally. This includes variations in the time and cost associated with documentary and border compliance for both exports and imports [86](#page=86). #### 3.1.5 Maritime freight and containerization Maritime freight accounts for a substantial portion of global freight tonne-kilometres [87](#page=87). * **Types of Maritime Freight:** * **Unitised freight:** Primarily containers [87](#page=87). * **Bulk freight:** Dry and liquid cargo like petroleum, coal, and grains [87](#page=87). * **General freight:** Items like drums, bags, pallets, and vehicles [87](#page=87). * **Loading Methods:** * **RoRo (Roll-on/roll-off):** For vehicles like cars, trucks, and trailers [88](#page=88). * **LoLo (Lift-on/lift-off):** For containers and break-bulk cargo using cranes [88](#page=88). * **Containerisation's Impact:** The introduction of standardized freight containers in 1956 dramatically improved maritime transport efficiency, leading to faster turnaround times, reduced costs, and increased cargo capacity [89](#page=89). * **Container Ship Capacity:** The capacity of container ships has seen exponential growth, from approximately 1,000 TEUs in 1960 to over 20,000 TEUs on the largest ships today, making global transport cheaper and more accessible [90](#page=90). ### 3.2 Impact of globalised supply chains Globalization has led to significant increases in international trade volume and value [97](#page=97) [98](#page=98). #### 3.2.1 Positive impacts * **Lower prices and greater choice for customers:** Increased competition and diverse sourcing options lead to a wider product selection at competitive prices [99](#page=99). * **Increased economic growth:** Businesses can expand into new markets, fostering overall economic expansion [99](#page=99). * **Innovation:** Global competition encourages businesses to innovate to gain a competitive edge [99](#page=99). * **Job creation:** Employment opportunities arise in both developed and developing countries [99](#page=99). #### 3.2.2 Negative impacts * **Complexity:** Globalized supply chain networks become inherently more complex to manage [100](#page=100). * **Vulnerability:** These chains are more susceptible to disruptions from natural disasters, political instability, and pandemics [100](#page=100). * **Labour protection issues:** Variations in labor standards across countries can lead to exploitation of workers in regions with weaker protections [100](#page=100). * **Environmental impact:** Long-distance transportation contributes negatively to the environment [100](#page=100). ### 3.3 Supply chain risk management Supply chain vulnerability is defined as exposure to significant disturbances from both internal and external risks . #### 3.3.1 Factors increasing supply chain vulnerability * **Focus on efficiency over effectiveness:** The lean paradigm, while efficient, can become less viable in volatile demand environments . * **Globalization and outsourcing:** The pursuit of lower purchasing and manufacturing costs through outsourcing often overlooks total supply chain costs (e.g., landed costs), leading to extended lead times, higher inventory, and increased obsolescence risk. This also increases complexity and potential loss of control . * **Focused factories and centralized distribution:** Centralization strategies, often driven by market integration, can increase the impact of disruptions . * **Reduction of supplier base:** Consolidating suppliers, while offering benefits like lower management costs, increases the risk of major disruptions if a key supplier fails . #### 3.3.2 Types of supply chain risks Globalized supply chains face a wide array of risks: * **Disruptive events:** Pandemics (e.g., COVID-19), geopolitical conflicts (e.g., Ukraine war), climate change impacts . * **Natural disasters:** Earthquakes, floods, tsunamis, volcanoes . * **Corporate social responsibility (CSR):** Issues related to conflict minerals, bribery, corruption, labor standards, child, and slave labor . * **Government regulations and policies:** Antidumping laws, taxes, tariffs, and duties . * **Environmental impact:** Pollution, waste generation (e.g., plastics) ] . * **Loss of intellectual property (IP):** IP theft and inadequate protection laws . * **Security and cybercrime:** Data loss, theft of trade secrets, hacking, malware . * **Delivery/transportation problems:** Shipping disruptions, carrier issues, capacity shortages . * **Physical security:** Cargo theft . * **Labour issues:** Strikes, unrest, slowdowns . * **Legal and customs compliance:** Incorrect documentation and global trade non-compliance . #### 3.3.3 Supply chain risk management (SCRM) framework A structured SCRM framework involves several key steps: 1. **Risk identification:** Identifying critical threats by understanding the supply chain's operations and vulnerabilities. This is a cross-functional process involving suppliers, LSPs, customers, and internal stakeholders across departments like Finance, R&D, Marketing, Purchasing, Operations, Logistics, and Quality. Methodical approaches include brainstorming, interviews, SWOT analysis, and diagramming techniques like the Ishikawa (fishbone) diagram . 2. **Risk assessment:** Evaluating the likelihood and potential impact of each identified risk. Failure Mode and Effect Analysis (FMEA) can be used for this purpose . 3. **Risk prioritization:** Ranking risks based on their potential impact . 4. **Risk mitigation:** Implementing corrective actions to reduce risks. Common strategies include diversifying the supplier base, establishing strong supplier relationships, shortening the supply chain (e.g., via nearshoring), simplifying product design, closely monitoring performance, developing contingency plans, and implementing strategic safety stocks. Basic risk reduction strategies are avoidance, reduction, transference, and acceptance . 5. **Risk monitoring:** Regularly reviewing and updating the risk assessment and prioritization . ### 3.4 New supply chain challenges and requirements Globalized supply chains face evolving challenges and demand new capabilities: * **Challenges:** * **Supply Chain Complexity:** Increased interconnectedness and global reach create intricate networks . * **VUCA-World:** Operating in a Volatile, Uncertain, Complex, and Ambiguous environment . * **Climate change:** Growing impact of environmental shifts on operations . * **Regulatory compliance:** Stringent requirements concerning environment, labor, and social issues . * **New Requirements:** * **Resilience:** The ability to withstand and recover quickly from disruptions is paramount . * **Sustainability:** Minimizing environmental impact and improving social and economic contributions are increasingly critical . --- # Sustainability and resilience in supply chains This section delves into the growing imperative for businesses to integrate sustainability and resilience into their supply chains, exploring the underlying motivations, key concepts, practical approaches, and established management systems. ### 4.1 Motivations for sustainable and resilient supply chains There is mounting pressure on companies to adopt sustainable and resilient supply chains due to several converging factors. The political landscape is evolving, with governments worldwide implementing regulations to curb environmental impact, such as supply chain due diligence requirements like the German Lieferkettengesetz. Concurrently, investors and customers increasingly demand that companies operate with social and ethical responsibility. Furthermore, the escalating frequency and unpredictability of disruptions, driven by climate change, geopolitical tensions, and global health crises like pandemics, necessitate greater resilience. Adopting sustainable and resilient solutions is viewed as a long-term investment that can significantly reduce a company's risk exposure to complex supply chains and mitigate reputational damage related to social and ethical brand image . Supply chains are substantial contributors to global greenhouse gas emissions, accounting for over fifty percent through activities like transportation, industrial processes, and energy consumption. The rapid increase in these gases is a primary driver of global warming and climate change . The depletion of natural resources poses a significant threat to the global economy, potentially leading to increased costs and economic instabilities. Traditional economic models, which often focus on short-term gains and efficient resource allocation within a static framework, have historically neglected the impact of resource depletion and environmental concerns. Notably, influential economics textbooks from the past did not include the concept of sustainability . ### 4.2 Sustainability Sustainability, in the context of supply chains, is defined as meeting present needs without compromising the ability of future generations to meet their own. Key concepts and tools related to sustainability include the doughnut economy, renewable versus non-renewable resources, the circular economy, and the United Nations' 17 Sustainable Development Goals (SDGs) . #### 4.2.1 Renewable vs. non-renewable resources Resources are categorized as either renewable or non-renewable. Renewable resources can be replenished naturally over time. Examples include solar energy, wind energy, hydropower, geothermal energy, and biomass. Non-renewable resources are finite and cannot be replaced once depleted. These include fossil fuels (coal, oil, natural gas), nuclear energy sources like uranium and thorium, and various minerals and metals such as iron ore, copper, and aluminium. For non-renewable resources, the strategy should be to reduce their use and prioritize recycling . While some materials like paper, cardboard, glass, and certain plastics can be recycled, others present significant recycling challenges. For instance, e-waste contains valuable and hazardous materials, and recycling lithium from batteries requires high temperatures, often exceeding 1,000 degrees Celsius, making it a complex process . #### 4.2.2 Doughnut economy The doughnut economy is a visual framework for sustainable development that seeks to balance human needs with the planet's ecological limits. It identifies a "safe and just space" for humanity, where the inner ring represents the minimum social foundations necessary for human well-being, and the outer ring signifies the ecological ceiling beyond which planetary boundaries are overstepped . The doughnut economy framework considers four lenses for sustainable development within a specific place, encompassing both local needs and global responsibilities : * **Local Social Lens:** Examines the needs for the well-being of people within the community, such as food, healthcare, and education . * **Global Social Lens:** Assesses how the local community impacts the well-being of people worldwide, considering social justice and fair trade . * **Local Ecological Lens:** Evaluates the health of the local environment and the impact of human activities on it, including pollution and resource depletion . * **Global Ecological Lens:** Investigates how the community's production and consumption patterns affect the planet's overall ecological health, impacting global resources and pollution . #### 4.2.3 Circular economy The circular economy is a model focused on eliminating waste and pollution, circulating products and materials, and regenerating nature. This contrasts with the linear economic system, often referred to as a "throwaway society". Key principles of the circular economy include : * **Eco-design for circular production:** Designing products with minimized resource consumption throughout their lifecycle, emphasizing repairability, reusability, and recyclability . * **Circulate products and materials:** Encouraging sharing, reusing, repairing, and refurbishing to keep products and materials in use for as long as possible . * **Regenerate nature:** Actively restoring and revitalizing ecosystems, natural resources, and biodiversity that may have been degraded . * **Eliminate waste and pollution:** Minimizing waste generation and the release of harmful pollutants across the entire product lifecycle . The circular economy is considered crucial for a sustainable future, promoting more efficient resource utilization . #### 4.2.4 Sustainable Development Goals (SDGs) The 17 SDGs, defined by the United Nations in 2015, provide a blueprint for peace and prosperity. These goals offer a holistic approach, integrating societal, technical, and economic aspects. Several SDGs have direct connections to supply chain management : * **Goal 8 (Decent Work and Economic Growth):** Supply chains are significant employers, particularly in manufacturing, logistics, and retail . * **Goal 9 (Industry, Innovation and Infrastructure):** Efficient and resilient infrastructure is vital for supply chains, which also drive innovation in logistics and technology . * **Goal 12 (Responsible Consumption and Production):** Supply chains are central to production and consumption patterns . * **Goal 13 (Climate Action):** Supply chains contribute significantly to greenhouse gas emissions through various operations . * **Goal 17 (Partnerships for the Goals):** Achieving sustainable supply chains necessitates collaboration among all supply chain partners . ### 4.3 Sustainable supply chains Sustainable supply chains integrate environmental, social, and corporate governance (ESG) considerations into their operations. ESG issues encompass a broad spectrum of factors that can influence a company's long-term performance, including environmental concerns like deforestation and carbon emissions, social issues such as labor exploitation and worker safety, and governance aspects like corruption and executive compensation. Companies that effectively address ESG issues can mitigate risks, attract investors and customers, and enhance their reputation . #### 4.3.1 Reducing the transport-intensity of supply chains Minimizing transportation within supply chains directly lowers their carbon footprint. The transport of raw materials and finished goods consumes a significant amount of oil daily. Strategies to reduce transport intensity include : * **Reviewing product designs and bills of materials:** Focusing on improved life-cycle characteristics, reduced packaging, and lighter product designs . * **Reviewing sourcing strategies:** Favoring near-shoring and local suppliers . * **Reviewing transport options:** Utilizing efficient new-generation vessels . * **Improving transport utilization:** Increasing the use of shared distribution and optimizing vehicle routings to avoid empty runs . * **Using postponement strategies:** Assembling and customizing products near the point of use, aligning with agile supply chain principles . #### 4.3.2 Sustainable solutions across supply chain processes Optimizing the entire supply chain, as outlined by the SCOR model (Plan, Source, Make, Deliver, Return, Enable), can incorporate sustainability principles at each stage . * **Plan:** Avoiding overproduction, favoring pull over push systems, collaborative planning, and minimizing inventory levels and safety stocks . * **Source:** Prioritizing near-shoring, selecting suppliers committed to sustainability, and ensuring ethical sourcing practices (labor standards, fair trade) . * **Make:** Improving energy efficiency, increasing overall equipment efficiency (OEE), and reducing waste, rework, and scrappage . * **Deliver:** Optimizing network configurations, minimizing transport intensity and packaging waste, and using sustainable transportation methods . * **Return:** Managing product end-of-life and making it easy for customers to return products for repair or recycling . * **Enable:** Investing in energy-efficient technology, providing employee training on sustainability, and fostering a culture of sustainability within the organization . ### 4.4 Resilient supply chains Resilience in supply chains refers to the capacity to withstand or recover quickly from disruptions. Transparent supply chains are crucial for resilience, ensuring that all potential risks are identified and addressed with contingency plans . Diamond-shaped supply chains, which are highly efficient in the short term, are particularly vulnerable to disruptions. This structure, characterized by a few critical suppliers at lower tiers, can lead to a significant lack of redundancy. Examples of components susceptible to disruptions in such supply chains include semiconductor chips, rare earth metals, lithium, and cobalt, which are essential for lithium-ion batteries . ### 4.5 Examples of sustainable products and services Several innovative products and services exemplify sustainable practices within supply chains: * **Fairphone:** This company is a benchmark for sustainable products, focusing on recyclable materials, ethical sourcing of conflict-free minerals, repairability, longevity through spare parts availability, and supply chain transparency, including cost breakdowns and supplier lists . * **Too Good To Go:** This app connects consumers with restaurants and bakeries offering surplus food at discounted prices at the end of the day, effectively combating food waste. It is estimated that forty percent of food goes to waste. The platform offers an end-to-end solution for retailers to manage surplus food, while the app serves as a business-to-consumer marketplace for this food . * **Who Gives A Crap:** This company produces toilet paper and tissues from one hundred percent recycled materials or bamboo and donates fifty percent of its profits to build toilets in developing countries. This initiative addresses the critical issue that two point four billion people lack access to a toilet, contributing to child mortality from diarrheal diseases. Their model incorporates social impact through profit donation, ethical sourcing, fair trade, and reduced transport intensity . ### 4.6 Environmental management systems (EMS) Environmental Management Systems (EMS) provide a framework for organizations to manage their environmental impacts. ISO 14001 is a widely recognized international standard for EMS, though it is not mandatory . #### 4.6.1 ISO 14001 Implementing ISO 14001 offers numerous benefits, including reduced environmental impact through resource efficiency and waste reduction, a competitive advantage as customers and suppliers increasingly prefer certified organizations, cost savings from reduced energy and water consumption, and an improved reputation and brand image. It also ensures legal compliance with environmental regulations and reduces the risk of environmental incidents . ISO 14001 operates on a continuous improvement process model, known as Plan-Do-Check-Act (PDCA). The key elements of this process are : * **Leadership:** Top management commitment and provision of necessary resources for the EMS . * **Planning:** Development of objectives and targets for environmental performance improvement . * **Support:** Ensuring availability of required resources (human, financial, technical) and necessary employee skills and knowledge . * **Operation:** Defining procedures to manage environmental aspects of products, activities, and services, including planning for environmental emergencies . * **Performance evaluation:** Monitoring, measuring, and evaluating operations with significant environmental impact, and ensuring compliance with regulations through audits . * **Improvement:** Implementing corrective actions for continuous improvement of the EMS . Organizations that implement ISO 14001 can effectively demonstrate their commitment to sustainable practices and environmental responsibility . ### 4.7 Summary The motivation for adopting sustainable and resilient supply chains stems from increasing environmental regulations, social and ethical responsibilities, and the desire for an improved reputation, which translates to a competitive advantage. Environmental, Social, and Corporate Governance (ESG) issues are the new imperative in supply chain management. Sustainable supply chains focus on reducing transport intensity and waste, embracing circular economy principles. Supply chain resilience involves avoiding vulnerable structures like diamond-shaped supply chains. ISO 14001, a continuous improvement process, integrates leadership, support, operations, and performance evaluation to enhance environmental management . --- # Digitalization and emerging trends in supply chains Digitalization is profoundly reshaping supply chains, leading to the development of Supply Chain 4.0, which integrates technologies like IoT, Blockchain, and AI to create more efficient and responsive networks . ### 5.1 Supply Chain 4.0 concepts Supply Chain 4.0 represents the next evolution of supply chain management, characterized by increased digitalization and the adoption of advanced technologies. It moves beyond earlier concepts like MRP-ERP and e-supply chains by incorporating a wider array of interconnected digital tools and principles, aiming for greater integration, data sharing, and data-driven insights . #### 5.1.1 Major trends in Supply Chain 4.0 Key trends driving Supply Chain 4.0 include: * **Internet of Things (IoT):** A global network of interconnected physical devices with embedded sensors and computing capabilities that exchange data and information. This facilitates the creation of smart and modular containers, agnostic hubs, and hyperconnected transportation networks . * **Blockchain technology:** A decentralized, digitally recorded ledger system for transactions, distributed across networks. Its applications in supply chain management include enhancing visibility, preventing counterfeiting, and ensuring food safety, as demonstrated by initiatives like IBM Food Trust . * **Next-generation packaging:** Development of packaging materials that are bio-based, recyclable, reusable, and biodegradable, often integrated with IoT to monitor conditions during transit. Examples include smart transportation boxes and modified atmosphere packaging (MAP) . * **Circularity:** Focus on eliminating waste and pollution by considering the entire product lifecycle, promoting reuse, repair, remanufacturing, and recycling . * **Big-data Analytics:** The analysis of vast quantities of supply chain data to derive actionable insights . * **3D-Printing:** An additive manufacturing process for creating physical objects from digital models, particularly useful for prototyping . * **Bio-based materials:** Materials derived from sustainable biomass sources . * **Outdoor Autonomous vehicles:** Self-driving robots designed for operation in outdoor environments . * **Alternative Energy solutions:** The adoption of energy from renewable and inexhaustible sources . #### 5.1.2 Internet of Things (IoT) in Supply Chain 4.0 The IoT, often referred to as the "physical internet," aims to create a worldwide, hyperconnected network that is physical, digital, and operational. Data is encapsulated in packets for efficient transmission, ensuring reliable and timely delivery of information without users needing to understand the underlying communication mechanisms . Key applications include: * **Smart and modular containers:** Containers equipped with sensors and digital technology for enhanced monitoring, storage, handling, and transport (e.g., foldable and stackable) . * **Agnostic hubs and Logistics Infrastructure:** Systems capable of exchanging data (e.g., inventory levels, sales statistics) across an open network, fostering interoperability . * **Hyperconnected transportation networks:** Seamless transfer of shipments between various modes of transport (airplanes, ships, trains, trucks, cargo bikes, scooters, hand trucks) using modularly sized containers . #### 5.1.3 Blockchain in Supply Chain 4.0 Blockchain's decentralized and immutable nature offers significant advantages for supply chain management . Primary use cases include: * **Supply chain management:** Enhancing visibility and combating counterfeiting . * **Food safety:** Guaranteeing the conditions of food transport in conjunction with IoT data . * **Other applications:** Digital identity, voting, fundraising, healthcare records, notaries, intellectual property certification, and real estate transactions . An illustrative example is IBM Food Trust, which leverages blockchain to provide transparency and accountability across the food supply chain by connecting all stakeholders through a shared, permissioned ledger of data . #### 5.1.4 Next-generation packaging in Supply Chain 4.0 Next-generation packaging focuses on sustainability and intelligence. This includes using materials that are more bio-based, recyclable, reusable, and biodegradable. Furthermore, IoT technology is integrated to monitor package conditions, such as temperature, humidity, and shock during transportation. Examples include smart transportation boxes with embedded sensors and modified atmosphere packaging (MAP) to extend shelf life and reduce food waste . ### 5.2 Artificial Intelligence (AI) in logistics AI in logistics presents immense opportunities and significant promises, though it is also subject to hype and unrealistic expectations. AI solutions are particularly effective in domains characterized by high data availability, repeated activities, and complex patterns, enabling personalization and customization . #### 5.2.1 Application domain of AI solutions AI solutions are applicable across various stages and functions of the supply chain, from raw material suppliers to distributors and retailers. Key application areas include : * **Purchasing:** Optimizing procurement processes. * **Production:** Enhancing manufacturing efficiency and planning. * **Logistics:** Automating operational tasks and optimizing routes. * **Sales:** Improving forecasting accuracy and sales strategies. Specific AI applications span advanced sales forecasts, automated logistics operations, intelligent packaging, and the integration of IoT and computer vision for data collection and analysis . #### 5.2.2 AI application: Forecasts AI models significantly enhance demand forecasting accuracy by incorporating external factors such as promotions, weather, GDP growth, and product categories, which traditional statistical methods may struggle with . **Forecasting Models:** * **Statistical Forecasts:** Linear regression, Triple Exponential Smoothing . * **Hybrid Models:** Prophet (developed by Meta) . * **AI Models (Supervised Machine Learning):** * ExtraTrees (Extremely Randomized Trees): Utilizes decision trees for predictions . * Multi-layer Perceptron Regressor (Neural Networks/Deep Learning) . **Performance Metrics:** * **Mean Absolute Error (MAE%):** Measures the average magnitude of errors . * **Bias%:** Indicates the average forecast error relative to average demand . Studies show that while all models can perform well with "perfect" data, AI models like TREE and NN often exhibit better performance with more complex or real-world data compared to traditional methods like Linear Regression or Triple Exponential Smoothing. However, the principle of "Garbage in, garbage out" holds true: incomplete or biased data will lead to poor forecasting results regardless of the model's sophistication . #### 5.2.3 AI application: Computer Vision Computer vision is a critical technology enabling AI and robotics to interpret images and videos. It is fundamental for : * **Fully autonomous yard operations:** Enhancing efficiency in logistics yards . * **Fully autonomous warehousing:** Automating tasks within warehouses . * **Fully autonomous delivery systems:** Facilitating self-driving delivery vehicles . Computer vision plays a vital role in collecting data from diverse sources, underpinning many AI solutions in logistics . #### 5.2.4 Opportunities of AI in Logistics AI offers numerous opportunities for transforming supply chains, enabling: * **Automated logistics systems:** Streamlining operations through automation . * **Copilots and assistants:** Providing AI-driven support for human decision-making . * **Enhanced purchasing, planning, and sales:** Optimizing these critical business functions . * **Fully integrated supply chains:** The realization of Supply Chain 4.0 through seamless data flow and collaboration across all tiers of the supply network . #### 5.2.5 Risks of AI in Logistics Despite its benefits, AI in logistics also presents significant risks: * **Cyberattacks:** Supply chains are inherently vulnerable to cyber threats, which can disrupt operations for extended periods, as seen in attacks on ports and carrier companies . * **Data Security and Privacy:** Pervasive data collection raises concerns about data ownership, sharing practices, and usage, impacting users, workers, and clients . ### 5.3 Summary Digitalization and emerging trends are transforming supply chains from reactive and functional to proactive, sustainable, and networked enterprises. Supply Chain 4.0, with its emphasis on IoT, Blockchain, and AI, facilitates a shift towards a circular economy and a highly connected, collaborative global network. This evolution is marked by increased productivity, better service, cost efficiency, and enhanced quality indicators, moving towards an integrated and networked enterprise model. The future will likely see AI playing an even larger role in logistics, impacting areas from automation to advanced planning and forecasting . > **Tip:** When evaluating AI solutions for supply chain operations, consider the availability and collectability of data, the repetitiveness of tasks, and the presence of complex patterns that AI can learn . --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Supply Chain Management (SCM) | A broader, intercompany, boundary-spanning concept that involves the management of the flow of goods and services, involving the movement and storage of raw materials, of work-in-process inventory, and of finished goods from point of origin to point of consumption. | | Logistics | The part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements. | | SCOR Model (Supply Chain Operations Reference Model) | A process reference model developed to describe the supply chain process for purposes of cross-enterprise process reengineering and continuous improvement. It comprises five processes: Plan, Source, Make, Deliver, and Return. | | Supplier | An entity that provides goods or services. In a supply chain context, this can include Tier 1, Tier 2, and Tier 3 suppliers, each providing different levels of raw materials or components. | | Original Equipment Manufacturer (OEM) | A company that manufactures a product or component that is then used in another company's end product. | | Distributor | An intermediary who buys goods from manufacturers and sells them to retailers or directly to consumers. | | Retailer | A business that sells goods directly to consumers. | | Customer | An individual or organization that purchases goods or services. | | Consumer | An individual who is the end-user of a product or service. | | Lead Time | The total time elapsed between the placement of an order and its receipt. | | Bullwhip Effect | The phenomenon in supply chains where demand variability increases as one moves further up the supply chain, from the consumer to the manufacturer. | | Lean Philosophy | A management philosophy focused on maximizing customer value while minimizing waste. It aims to eliminate any activity that does not add value from the customer's perspective. | | Agile Supply Chains | Supply chains designed to be flexible and responsive to rapid changes in demand and market conditions. | | Key Performance Indicators (KPIs) | Measurable values that demonstrate how effectively a company is achieving key business objectives. In supply chain management, KPIs measure performance in areas like service, cost, and cash. | | Service KPIs | Metrics that measure the performance of a supply chain in meeting customer expectations, such as On-Time In-Full (OTIF) delivery and Customer Return Rate. | | Cost KPIs | Metrics that measure the expenses associated with operating a supply chain, such as Total Supply Chain Cost and Procurement Cost. | | Cash KPIs | Metrics that measure the financial efficiency of a supply chain, such as Days Sales in Inventory (DSI) and Cash-to-Cash Cycle Time. | | ISO 14001 | An international standard that specifies requirements for an effective environmental management system (EMS). It helps organizations improve their environmental performance through more efficient use of resources and reduction of waste. | | Resilience | The capacity of a supply chain to withstand or to recover quickly from disruptions, ensuring continuity of operations. | | Sustainability | Meeting present needs without compromising the ability of future generations to meet theirs, encompassing environmental, social, and economic considerations. | | Doughnut Economy | A visual framework for sustainable development that aims to meet the needs of all people within the planet's ecological limits, balancing human well-being with planetary boundaries. | | Circular Economy | An economic model focused on eliminating waste and pollution, keeping products and materials in use, and regenerating nature, as opposed to the traditional linear "take-make-dispose" model. | | ESG Issues (Environmental, Social, and Governance) | A set of standards for a company's operations that socially conscious investors use to screen potential investments. It addresses a company's environmental impact, its relationships with employees and communities, and its leadership and executive pay. | | Greenhouse Gas (GHG) Protocol | A widely used accounting standard for measuring and reporting greenhouse gas emissions. It defines scopes for emissions: Scope 1 (direct), Scope 2 (indirect from purchased energy), and Scope 3 (indirect from value chain). | | Global Warming Potential (GWP) | A measure of how much heat a greenhouse gas traps in the atmosphere over a specific period relative to carbon dioxide (CO2). | | CO2 Equivalent (CO2e) | A metric used to express the warming potential of any greenhouse gas in terms of the equivalent amount of carbon dioxide. | | Emission Factor (EF) | A coefficient that quantifies the amount of a greenhouse gas released per unit of activity (e.g., kg CO2e per kWh of electricity). | | Activity Data (AD) | Data that represents the amount of human activity that leads to greenhouse gas emissions (e.g., liters of fuel consumed, kilometers traveled). | | Scope 1 Emissions | Direct greenhouse gas emissions from sources owned or controlled by an organization, such as fuel combustion in boilers or company vehicles. | | Scope 2 Emissions | Indirect greenhouse gas emissions from the generation of purchased electricity, steam, heating, or cooling consumed by an organization. | | Scope 3 Emissions | All other indirect greenhouse gas emissions that occur in an organization's value chain, both upstream and downstream, including purchased goods and services, transportation, and use of sold products. | | EU Emissions Trading System (EU ETS) | A cornerstone of the European Union's policy to combat climate change and its main tool for reducing greenhouse gas emissions cost-effectively. It operates on the "cap and trade" principle. | | Corporate Sustainability Reporting Directive (CSRD) | An EU directive that aims to improve the quality, comparability, and reliability of sustainability reporting by companies operating within the EU. | | Carbon Border Adjustment Mechanism (CBAM) | An EU mechanism designed to put a carbon price on imports of certain goods from outside the EU, preventing carbon leakage and encouraging cleaner production globally. | | Sustainable Sourcing | The practice of procuring materials, products, and services in a way that minimizes negative environmental and social impacts while promoting ethical practices. | | Conflict Minerals | Minerals mined in conditions of armed conflict and human rights abuses, typically referring to Tantalum, Tin, Tungsten, and Gold (3TG) sourced from certain regions. | | Eco-labels | Labels awarded by independent organizations to products that meet specific environmental standards, indicating a reduced environmental impact throughout their lifecycle. | | Demand Forecasting | The process of estimating future customer demand, using historical data and various statistical or qualitative methods. | | Time Series Forecasting | A forecasting method that uses historical data to identify patterns (like trends and seasonality) that are assumed to reappear in the future. | | Naïve Forecast | A simple forecasting method where the forecast for the next period is simply the actual value from the previous period. | | Moving Average (MA) | A forecasting method that calculates the average of a fixed number of the most recent past data points to predict the future. | | Exponential Smoothing (SES, DES, TES) | A family of forecasting methods that assign exponentially decreasing weights to historical data points, with more recent data receiving higher weights. SES is for no trend, DES for trend, and TES for seasonality. | | Causal Forecasting | A forecasting method that establishes a relationship between the variable to be forecasted and other independent variables that are believed to influence it. | | Linear Regression (LR) | A statistical method used to model the relationship between a dependent variable and one or more independent variables by fitting a linear equation to the observed data. | | Forecasting Methodology | A structured approach to forecasting, typically involving preliminary analysis of demand patterns, selection and fitting of appropriate models, and ongoing evaluation and adjustment. | | Mean Absolute Deviation (MAD) | A measure of forecast error that calculates the average of the absolute differences between actual values and forecasts. | | Mean Square Error (MSE) | A measure of forecast error that calculates the average of the squared differences between actual values and forecasts, penalizing larger errors more heavily. | | Forecast Bias | A measure of the systematic tendency of a forecasting method to over- or under-forecast demand. | | Sales and Operations Planning (S&OP) | A cross-functional business planning process that reconciles customer demand with company resources to balance financial, operational, and sales plans. It typically operates on a monthly cycle and looks ahead 3-24 months. | | Supply Chain 4.0 | A concept representing the digitalization and integration of supply chains through advanced technologies like the Internet of Things (IoT), Blockchain, Artificial Intelligence (AI), and Big Data analytics. | | Internet of Things (IoT) | A network of physical devices, vehicles, appliances, and other items embedded with electronics, software, sensors, actuators, and network connectivity that enable these objects to collect and exchange data. | | Blockchain Technology | A distributed, immutable ledger system that records transactions across many computers in a way that ensures data integrity and security. In supply chains, it enhances transparency and traceability. | | Artificial Intelligence (AI) | The simulation of human intelligence processes by computer systems, including learning, problem-solving, and decision-making. In supply chains, AI can optimize forecasting, logistics, and operations. | | Economic Order Quantity (EOQ) | A model used to determine the optimal order quantity that minimizes the total inventory costs, balancing ordering costs with holding costs. | | Economic Production Quantity (EPQ) | A model used to determine the optimal production quantity that minimizes total production and inventory costs, balancing setup costs with holding costs for manufactured items. | | Safety Stock | Extra inventory held to mitigate the risk of stockouts caused by uncertainties in demand or lead time. | | Reorder Point (r) | The inventory level at which a new order should be placed to replenish stock before it runs out. | | Z-score | A statistical measure that quantifies how many standard deviations a data point is from the mean. It is used in safety stock calculations to achieve a desired service level. | | Outsourcing | The practice of contracting out a business function or process to a third-party provider. | | Landed Costs | The total cost of acquiring and delivering a product to its destination, including purchase price, shipping, insurance, duties, and other associated expenses. | | Kraljic Matrix | A strategic tool for managing supplier relationships based on two dimensions: supply risk and profit impact. It categorizes suppliers into four types: leverage, strategic, bottleneck, and non-critical. | | Service Level Agreement (SLA) | A formal contract between a service provider and a customer that defines the performance levels, responsibilities, and expectations for the services provided. |