supply chain management-2009

8/9/2019 Supply Chain Management-2009

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Supply ChainManagement


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Tier 1

Suppliers

Distributors

Retailers

Customers

Factory

Warehouse

Factory

7 days review2 days to transmit order

10 days review

2 days to transmit order

1 day to transmit order

7 days review2 days to transmit order

2 days from receipt to issue1 day to prepare shipment3 days for transit

2 days from receipt to issue1 day to prepare shipment7 days for transit

1 day from receipt to issue26 days for manufacturing1 day for transit

3 days to prepare shipment2 days for transit

2 days from receipt to issue

Tier 2

Suppliers8 days to prepare shipment2 days for transit7 days review

2 days to transmit order

Supply Chain Structure

O

M


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Bullwhip Effect

Orde

r

Quantity

Time

Retailers Orders

Orde

r

Quantity

Time

Wholesalers Orders

Orde

r

Quantity

Time

Manufacturers Orders

The magnification of variability in orders in the supply-

chain

The magnification of variability in orders in the supply-

chain

A lot ofretailers each

with little

variability in

their orders.

A lot of

retailers each

with little

variability in

their orders.

can lead togreater variability

for a fewer number

of wholesalers,

and

can lead to

greater variability

for a fewer number

of wholesalers,

and

can lead toeven greater

variability for a

single

manufacturer.

can lead to

even greater

variability for a

single

manufacturer.


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Bullwhip effect in autos to machine tools

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

%

chang

eindem

and

GDP = solid line

Source:Anderson, Fine and Parker (1996)

Autos

Machine tools


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Consequences of the bullwhip effect

Inefficient production or excessive inventory.

Low utilization of the distribution channel.

Necessity to have capacity far exceedingaverage demand.

High transportation costs.

Poor customer service due to stock outs.


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Typical Supply chain

Supplier

Retailer 1

Retailer 2

Retailer 20

.

.

.

Retailers

demandsRetailers

orders/

suppliers

demand

Supplier

Retailer 1

Retailer 2

Retailer 20

.

.

.

Retailers

demandsRetailers

orders/

suppliers

demand


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Causes of Bullwhip Effect

Information Asymmetry Different demand forecasting at different levels

based on different sets of information

Batch Purchasing To exploit scale economies

Rationing and Shortage Gaming Inflated orders from retailers

Price Fluctuations Trade discounts may result in forward buying


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Trade promotions and forward buying

Supplier gives retailer a temporary discount, called a trade promotion.

Retailer purchases enough to satisfy demand until the next trade promotion.

Example: Campbells Chicken Noodle Soup over a one year period:

One retailers buy

Time (weeks)

Cases

Shipments

Consumption

0

1000

2000

3000

4000

5000

6000

7000

D

ec

Jan

Feb

M

ar

A

pr

M

ay

Jun

Jul

A

ug

Sep

Oct

N

ov

Cases

Total shipments and consumption


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Levers for Managing the

Bullwhip Effect

Operational Effectiveness

Information Sharing

Channel Alignment


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Operational Effectiveness Reduce Flow Time

Reduce flow time for information Through technologies like EDI, Point of Sale info

Reduce flow time for material Cross Docking

Reduce scale economies By reducing fixed costs of ordering, set up etc.

Giving discounts to assortments of products Use 3PLs for transportation


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Information Sharing

Share information across the supply chain

Share consumption info with upstream

Share POS data with suppliers

Share availability info with downstream


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Managing the Bullwhip Effect

Channel Alignment Coordinate replenishment and forecasting

Vendor Managed Inventory (VMI)Continuous Replenishment ProgramCollaborative Forecasting and Replenishment

Program (CFRP)

Stabilize PricesEvery Day Low Pricing (EDLP)

Allocation PoliciesUse past sales/orders


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Hau Lees Supply Chain

Uncertainty Framework

Demand Uncertainty

Low (Functionalproducts)

High (Innovativeproducts)

Efficient SC

Ex.: Grocery

Responsive SC

Ex.: Computers

Risk-Hedging SC

Ex.: Hydro-electricpower

Agile SC

Ex.: Telecom

Low(StableProcess)

High(EvolvingProcess)

Supply

Uncertainty

supply chain management-2009

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