9 session 9_sc integration cfvg 2012
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Supply Chain Management
Dr. RAVI SHANKARAssociate Professor
SOM
SESSION 9: Supply Chain Integration
Dr. RAVI SHANKARProfessor
Department of Management Studies
Indian Institute of Technology DelhiHauz Khas, New Delhi 110 016, India
Phone: +91-11-26596421 (O); 2659-1991(H); (0)-+91-9811033937 (m)Fax: (+91)-(11) 26862620
Email: [email protected]://web.iitd.ac.in/~ravi1
SESSION#9: Supply Chain Integration (CFVG: 2012)
SUPPLY CHAIN INTEGRATION
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Supply Chain Strategies
� Push-Based Supply Chain
� Pull-Based Supply Chain
� Push-Pull Supply Chain
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The Old Paradigm: Push Strategies
� Production decisions based on long-term forecasts
� Ordering decisions based on inventory & forecasts
� What are the problems with push strategies?� Inability to meet changing demand patterns
� Obsolescence
� The bullwhip effect:
� Excessive inventory
� Excessive production variability
� Poor service levels
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Pull Systems
� Production is based on data from the
final customer (POS data is critical)
� Much more flexible system
� Much more efficient system
� JIT is a prime example of a pull system
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Benefits of Pull Systems
� Decreased lead times
� Lower inventory costs
� Decrease in variability in production
� Better service
� Less space
� More flexible system
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A Push/Pull View of Processes
�Pull Process - Initiated in response to a customer demand. Also known as make to order processes.
�Push Process - Initiated in anticipation of a customer demand. Also known as make to stock processes.
�Obvious difference - in pull processes demand is known; in push processes demand is forecasted
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A Push/Pull View of Processes
�In all supply chains, some stages operate as push processes and others as pull processes.
�The push/pull boundary separates push processes from pull processes.
�This distinction important in supply chain design issues. Goal is to increase number of pull processes.
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Comparison
�LL Bean
� Customer Order Cycle is
Pull
� Replenishment,
Manufacturing and
Procurement are Push
based in forecasts and
subject to long lead times
�Dell Computer
� Customer Order and
Manufacturing are Pull
Processes
� Procurement is a Push
Process based on forecasts
� Distributors and
replenishment eliminated from
this supply chain
� Dell’s suppliers operate in a
pull mode but their suppliers
(Tier 2) operate in a push
mode.
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Push and Pull Systems
�What are the advantages of push systems?
�What are the advantages of pull systems?
� Is there a system that has the advantages of both systems?
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A new Supply Chain Paradigm
� A shift from a Push System...
� Production decisions are based on
forecast
� …to a Push-Pull System
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Push-Pull Supply Chains
Push-Pull Boundary
PUSH STRATEGY PULL STRATEGY
Low Uncertainty High Uncertainty
The Supply Chain Time Line
CustomersSuppliers
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A new Supply Chain Paradigm
� A shift from a Push System...
� Production decisions are based on forecast
� …to a Push-Pull System
� Initial portion of the supply chain is replenished based on long-term forecasts� For example, parts inventory may be replenished
based on forecasts
� Final supply chain stages based on actual customer demand.� For example, assembly may based on actual orders.
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Consider Two PC Manufacturers:
� Build to Stock
� Forecast demand
� Buys components
� Assembles
computers
� Observes demand
and meets demand if
possible.
� A traditional push system
� Build to order
� Forecast demand
� Buys components
� Observes demand
� Assembles
computers
� Meets demand
� A push-pull system
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Push-Pull Strategies
� The push-pull system takes advantage of the rules of forecasting:
� Forecasts are always wrong
� The longer the forecast horizon the worst is the
forecast
� Aggregate forecasts are more accurate
� The Risk Pooling Concept
� Delayed differentiation is another example
� Consider Benetton sweater production
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What is the Best Strategy?
Pull Push
Pull
Push
I: ComputerII: Furniture
IV: Books/CDs III: Grocery
Demand uncertainty
(C.V.)
Delivery cost
Unit price
L H
H
L
Economies of
Scale
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Selecting the Best SC Strategy
� Higher demand uncertainty suggests pull
� Higher importance of economies of scale suggests push� High uncertainty important such as the computer
industry implies pull
� Low uncertainty important such as groceries implies push
� Demand is stable
� Transportation cost reduction is critical
� Pull would not be appropriate here.
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Selecting the Best SC Strategy
� Low uncertainty but low value of economies of scale (high volume books and cd’s)
� Either push strategies or push/pull strategies might be most appropriate
� High uncertainty and high value of economies of scale
� For example, the furniture industry
� How can production be pull but delivery push?
� Is this a “pull-push” system?
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Characteristics and Skills
Raw
Material Customers
PullPush
Low Uncertainty
Long Lead Times
Cost Minimization
Resource Allocation
High Uncertainty
Short Cycle Times
Service Level
Responsiveness
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Locating the Push-Pull Boundary
� The push section:� Uncertainty is relatively low
� Economies of scale important
� Long lead times
� Complex supply chain structures:
� Thus� Management based on forecasts is appropriate
� Focus is on cost minimization
� Achieved by effective resource utilization – supply chain optimization
� The pull section:� High uncertainty
� Simple supply chain structure
� Short lead times
� Thus� Reacting to realized demand is important
� Focus on service level
� Flexible and responsive approaches
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Locating the Push-Pull Boundary
� The push section requires:
� Supply chain planning
� Long term strategies
� The pull section requires:
� Order fulfillment processes
� Customer relationship management
� Buffer inventory at the boundaries:
� The output of the tactical planning process
� The input to the order fulfillment process.
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Benetton Manufacturing Process PostponementBenetton Manufacturing Process Postponement
Purchase Yarn
Dye Yarn
Finish Yarn
Knit Garment Parts
Join Parts
Old Sequence
Purchase Yarn
Knit Garment Parts
Join Parts
Dye Garment
Finish Garment
New Sequence
This process
is postponed
RM – 600 SKUs, 350 Suppliers75% Domestic, 25% ImportedPM-300 SKUs, 140 Suppliers
5 Plants, 18 PC
Dealer(15000)3000 SKUs
Depots (70 No)70% volume
6 Regional Distribution Centers
Export & Industrial Consumers (2000)
Made to stock Made to order
Supply Chain at Asian Paints
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Postponement in Practice
�Dealer Tinting System� In factory they make “Base/white" only
� Raw base sent to the dealers
� Customers choose their desired shades via computer systems at the dealer end
� Dealer mixes the desired base and the colorants with help of the DTS
� >2500 dealers have DTS
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Lean Agile
• Forecast at generic level
• Economic batch quantities
• Maximise efficiencies
• Demand driven
• Localised Configuration
• Maximise effectivenessStrategic
Inventory
The de-coupling point
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Two key de-coupling points
Forecast Driven Order Driven
Less uncertainty due to
enrichment of undistorted data
Push Pull
Factory Assembler Finished goods
Stock
Retailer
Market sales
Information
de-coupling
point
Direct market sales information
Material
de-coupling
point
Source: Mason-Jones & Towill
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Driven
ByDemand
Driven
By
Forecast
Plants Distribution
CentresWarehouses Depots
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Locating the Push-Pull
Boundary