Think about this example. We have, as usual, supply function, manufacturing, distribution and customers, and the configuration is about physical placement. And now let's say that Hyundai Motor can use supplies in Korea, China, Thailand, UK, and also the company has its plant in Korea, China, India, and US-Alabama. And suppose that the company has its warehouses and big you know, dealerships in Korea, China, Vietnam and US, and the car maker targets customers in, you know, four different areas. Korean customers, Chinese customers, American customers, and European customers. And then, more specifically, the company should have chosen its location of the supplier. And here and there, you know, where you have your supplies in Thailand, or where you have your supplies and which is supplying in UK and so on and so forth. And likewise, in Korea, where you want to have your operations in Shanghai where exactly you want to place your plant. In India, in the U.S., Alabama, you know. And likewise in the warehouse. In warehouses, you, you gotta, you gotta make a choice about where you want to have your warehouses. You want a warehouse is here, and, your, your warehouse is Vietnam, in the US. And then the target customer, where the target customers are. Or maybe you know, another warehouse very close to the end of the market. You gotta, you gotta select your, you know, locations of your customers, or custom target customers. So that's the question about configurations. Physical placement, where should I locate? Where should I place this whole, you know, value chain activities across the world? And then the next element is connection. Once you have all these activities and all these functions all across the world, you gotta make a connection between or among these things. Okay? So they say the Korean suppliers supply the Korean operations and also the Korean suppliers supports operations in China, Chinese suppliers because the plant has a large demand and therefore the Chinese suppliers only supply Chinese operations. And Thailand, suppliers in Thailand support Chinese operations and also operations in India. And sometimes it, you know, supports US operations in Alabama. And supplies in UK support India and also they support operations in Korea and the US support American operations. And once you make your cause in Korea you, you know, shipped to has caused to the Korean you know, Pusan. Korean you know, city, and also you export to some of them to the US. And some are you also want to ship some of them to the South East Asian countries. And once you have, you know, built your cause in China, you ship most of them to the Chinese or the warehouses in China, because again, China has a huge demand. And therefore, you know, the market needs all of those, you know, cars produced in China. And in India, you might support here and here. And also US. And, you make your calls in the US, and most of them are consumed in the US market. So, the distribution centers go there. And then from this distribution center, final customers, customers in Korea, customers in the US, and sometimes we ship cars to EU countries as well. China, from China to China and if they have some leftover they want to ship them to Korean market. And here, Chinese market and U.S. market. And the U.S., European countries, and also United States. So, that's the connection. How to make the sort of long-term or sometimes short-term relationship, connection between this physical presence, all right. And then also uncertainties are everywhere and in order to cope with the uncertainty, you've gotta have your inventories. How much, where should I have my inventories? Where should I have my inventories? How much? Right? So these inventories are [UNKNOWN]. And, here you also need to have some inventories and these are pretty much semi-finished or almost completed or finished the product. And usually in the distribution centers or warehouses you have finished products, which are ready to be shipped to the end customers. And obviously, you have some inventories here, as you know, finished product. Very close to the end market, or maybe close to the retail stores. So, where should I have my inventory, how much inventory should I have? That's another very important question for this structure dimension. And finally, there are some transportation options, and logistical options, which logistical options I want to use, okay? So maybe you know, sometimes you want to use airplanes. But not, not likely in the, you know, automobile industry. You probably don't ship your cars using aircraft. But, obviously you know, in some other cases, some other products for instance, a smartphone. Sometimes you ship smartphones from one place to another using airplane, right? That's possible. For this car, usually either you can use a ship or maybe train or, you know, trucks [UNKNOWN]. So which transportation option you want to use? That's, that's the decision [UNKNOWN] this transportation or logistics options. Okay, that's the, you know, nicely drawn picture that, shows everything. You know, the configuration, interconnection, and inventory, and transportation options. Obviously, you know, it's not a complete picture but you can place where you want to have your inventories and where, you know, what kind of transportation options you can use and so on and so forth. I do need to get I want to add a little more detailed explanation for each one. I already mentioned that configuration, configuration is about geographic placement or physical placement of the value chain functions and activities. It requires [UNKNOWN] long term commitment, right? So long term strategy factors like work force quality, you know? Whether, would, there would be highly educated work forces and highly educated employees available. What about this you know text relationship between, you know, domestic market and you know foreign market. Nowadays many countries have signed you know, free trade agreements. Probably, you know, there is free FTA's signed between the US and Korea, and also EU and Korea, and I think that there will be you know, similar contract between Korea and China. So these are the, you know, factors you have to think about. Whether, what about this long-term trade partnership, trade relationship between these countries involved here. And connection is about how to connect these dispersed supply chain functions and activities. And, obviously, we have to always think about these two things. We already mentioned the reason why we considering this you know structures dimension infrastructure dimension. Eventually we want to maximize both, not just one of these, we want to maximize both efficiency driven value and responsiveness driven value at the same time. And therefore whatever we make a decision, whatever decision we make regarding each one of these structured dimension elements, we have to think about the way to take into account this efficiency and responsiveness issues at the same time. And inventory. We already mentioned that inventory is buffer against uncertainty. Buffer against uncertainty. Because there is uncertainty there is inventory. Inventory occurs due to uncertainty or in anticipation of uncertainty we want to hold inventory so the relationship is both ways. Inventory is everywhere. Inventory is every point between two consecutive supply chain or value chain activities. So inventory is everywhere. The thing is that inventory is in different forms. Sometimes the inventory is just a [INAUDIBLE] raw materials or intermediate products when there is a supplier uncertainty. Right? This is the, you know, manufacturing and this is suppliers and if we don't, we don't have a high level of confidence or, if we don't have reliability in terms of the suppliers, then the, in order to cope with the uncertainty we want to have invented with raw materials. And now, sometimes inventory is a semi-finished or finished products when there is process uncertainty, right? Inside the assembly line. Inside the you know, manufacturing system. You have some uncertainties between processes and between, you know, manufacturing activities. You know, the flow is now synchronized and so on and so forth. And sometimes even if you don't want to have inventory you have, you do have a method. In this case, work in processing inventory right? Or that is a work in process, okay? And once you complete your products, once you complete your products, then that becomes finished good, finished goods inventory. And that's usually very close to the end, the customers were probably at the distribution centers and warehouses and so on and so forth. So, inventory is everywhere. And inventory is for buffering against uncertainty. So there is very, very delicate, very you know, critical relationship between uncertainty and inventory. In fact, uncertainty you know, causes lots of problems for companies. Especially uncertainty, causes lots of troubles, actual problems in supply chain management, which we will discuss further. Another thing which is the you know, again, the relationship between uncertainty and inventory. You know, uncertainty is not uncertainty is not an absolute concept. Kenneth Ardoll suggested that uncertainty. [BLANK_AUDIO] Is one of information. [BLANK_AUDIO] In other words, if you have more information, then the uncertainty you must deal with, will go down. It's a very simple relationship. Now we say that, you know, other things being equal as we have more uncertainty. Uncertainty, our inventory will fly [INAUDIBLE]. And if that is the case, in other words, if this is the case, that means that as we have more information our level of uncertainty, in other words the level of uncertainty we have to deal with will go down. So if I combine these two together, If I combine these two together as I have more information about the market. Usually, the most important information a company must have is the information about the market demand, right? So as you have more information, you might be able to deduce your inventory. Okay, so that's very important relationship. And what is this information? Measure that, the most significant or most important information the [UNKNOWN] try to have is the information about the demand. And how we can get that information from, should do the forecasting. All right? And therefore in supply chain management, firms forecasting capability is one of the most important capabilities. Very important abilities firms must have. Now let's look at the forecasting method. Very briefly. In order to, in order to see, you know, which forecasting method is, most, appropriate, most effective. That depends on actually where you stand in terms of your product life cycle. If you are in the early stage of product life cycle, maybe introduction period, you don't have many data points. You have a long-term perspective, and because you don't have data, you probably need to use qualitative forecast method. But as your product moves along this product life cycle, and your enter has growth in maturity phase and you have a more and more data and that means that you can now use quantitative approaches. Like time season analysis, digression analysis. Those are the two very rare known, very useful quantitative forecasting tools. But as you approach the maturity and decline stage, although you have more data, your time horizon becomes shorter and shorter. And somehow you can use quantitative tools because you have more and more data but at the same time you are facing another type of uncertainty. What's going to happen to this market? Right? Is this the case that we will be able to, you know, ride another product life cycle? Or we are going to stay here for long time or it might go away, it might go you know, it might disappear. So you have to face another type of uncertainty and you probably don't have enough data about that and therefore as we approach toward the climbing stage, it becomes again necessary for us to duke it or use more qualitative approaches as well. And as I mentioned, inventory is such an important indicator. Inventory is a very, very important element in supply chain management. Not just this you know, [UNKNOWN] is effected. The reason we pay attention to this inventory, usually the inventory management cost is about 20 to 40% of the product value per year. So inventory is one of the most expensive items in any company's balance sheet, or any company's income statement. So, inventory is important because of these cost implications. But again, inventories important, it's not just limited to the, to the cost implication only. We're going to look at the some other important factors. Some other important characteristics of inventory. And we will understand why inventory deduction is such an important driver in supply chain management. [BLANK_AUDIO]
