Dynamics of Supply Chain Operations Flashcards
Bullwhip
Supply chains are inherently unstable.
Demand variability increases as one moves up the supply chain away from the end consumer, and small changes in consumer demand can result in large variations in orders placed upstream.
Eventually, the supply network can oscillate in very large swings as each organisation in the supply chain seeks to solve the problem from its own perspective. This phenomenon is known as bullwhip effect.
This effect has been observed in most industries, resulting in increased cost and poor service
Causes
Information Issues
Lack of communication and coordination up and down the supply chain
– Long lead times (for material and information flow)
– Demand forecast inaccuracies – each partner in the chain adds a certain percentage to the demand estimates. No visibility of actual consumer demand.
Decision Issues
Decisions made locally (by one business) not globally (by the whole supply chain)
– Conservative decision-making
* Managers are generally risk-averse
* Risks are usually not symmetric – stockout hurts more than excess
* Inflated orders due to fear of shortage
Disruptive Practices – Promotions
result in forward buying to benefit from lower prices
– Order batching – larger orders result in more variance
– “Gaming” in shortage situations
This leads to
Increased safety stock
Inefficient allocation of resources
Increased transportation and storage costs
Reduced service level
Bad relationships across the supply chain
Higher consumer prices
Delivery delays
Addressing Issues in Supply Chains: Structure
Co-location with the supplier on-site: vendor managed inventory, JIT
Compression-reduce one or more steps: factory collection, direct from customer to warehouse
Multiple routings: multiple sources/suppliers, access to multiple distribution centres
Pivot point/ Push-pull – make to stock and make to order: mobile phones
Industrial Symbiosis: collection of co-located interlinked industries
Inventory
Where to most effectively hold it: as per push/pull models, cost as well as response issues
Types of inventory: raw materials, WIP, finished goods
How much to hold: economies of scale, uncertainty in supply/demand, smaller batches
Resources
Transport frequency and speed: shared transport, X docking/ mixed case pallets
Processing/storage: warehouses organised around orders vs product types, production paths with shorter lead times
Receipt/dispatch: systems to reduce delays at arrivals/departure e.g. RFID, eProcurement
Information
Uncertainty reduction: demand and supply, Demand forecasting levels and variability, Supply tracking of deliveries, supplier visibility
Reduced delays and errors: automated data capture, linked data capture, reduced inferencing
Reduced delays and errors: automated data capture, linked data capture, reduced inferencing
Greater, simpler information’s sharing: systems to enable simple and secure data access, data sharing agreements
Reducing the Bullwhip Effect
Information sharing – demand information at retailer (POS data) must be transmitted upstream in a timely fashion
Channel alignment – coordination of pricing, transportation, inventory planning, and ownership between upstream and downstream sites in a supply chain
Consumer direct”
Vendor Managed Inventory
Improve operational efficiency - lean – reduce costs and lead time
Smaller and more frequent batches
Use third-party logistics providers
– Mixed truck loads (e.g., Tesco, Sainsburys)
Stabilise prices (Every Day Low Price strategy) (e.g., P&G, Kraft)
Eliminate gaming in shortage situations
in the face of shortage, allocate in proportion to past sales records instead of current orders
building strategic partnerships and trust
Bullwhip problems have led to need for systematic assessment of supply chain operations
Typical Service Supply Chain
No inventory
Significant resource fluctuations
No transportation times
Order lead times
Order backlogs
Demand variability
Maintenance & Spare Parts Supply Chain
Forward and backward flow of parts
Mix of steady and unsteady demand
Significant resource fluctuations
Order lead times
Order backlogs
Demand variability
