Jan #3 - Supply Chain Management

Question 1

What is Supply Chain Management?

Answer 1

It is the management of the flow of goods and services, including all processes that transform raw materials into final products.

Question 2

List 5 of the main challenges of Supply Chain Management, and provide a short explanation for each.

Answer 2

1. Globalisation - challenging logistics due to high number of countries, part vendors, facilities, etc.
2. Compliance - safety laws, environmental protection laws, etc
3. Hiring right suppliers - predicting their ability to deliver in time and at required quality. Also need to train suppliers.
4. Inventory - too much stock can cause companies with poor SCM to lose money due to products not being sold.
5. Market Growth - trading policies, fees, and government policies make it difficult to increase consumer base at home and abroad.

Question 3

Describe a schematic representing a simple Supply Chain Management flow diagram, including production flows and information flows.

Answer 3

Question 4

The 5 main groups in a basic supply chain are suppliers, producers, distributors, retailers, and customers. Describe the variation in the size/amount of product flows and information flows between the different groups in the supply chain.

Answer 4

Question 5

One major issue with Supply Chain Management is called the “Bullwhip Effect” (otherwise known as the “Bullwhipe Effect” in the part of Germany that Jan comes from). What is this?

Answer 5

It is the name given to the phenomenon whereby small fluctuations in demand can cause progressively larger fluctuations in the need for parts and materials at the retailer, distributor, producer and supplier levels. See graphs below.

Question 6

List 5 problems that occur due to the Bullwhip Effect

Answer 6

High: stock levels and cost

Low: customer service quality, capacity utilisation, and demand forecast reliability

Question 7

List 5 causes of the Bullwhip Effect, and provide a brief explanation for each

Answer 7

1. Order batching - company takes order quantities from downstream customers then round up or down based on production constraints.
2. Price Fluctuations - e.g. special discounts disturbing regular buying patterns.
3. Demand information - relying on past demand info to estimate current demand info doesn’t take fluctuations into account
4. Lack of communication - processes run less smoothly
5. Free return policies - customers purposely overstate demand due to shortages, then cancel when supply becomes adequate again, resulying in excess material

Question 8

List 7 ways we can reduce the Bullwhipe Effect

Answer 8

Minimise: number of groups in supply chain, numberof delays, order sizes, and special deals/discounts

Maximise: communication/forecast quality, inventory management quality

Transformation into a digital supply chain

Question 9

Explain how improved communication/forecasts minimises the bullwhip effect.

Answer 9

Since managers believe that end-user demand is more predictable, they will ignore daily fluctuations occurring throughout the supply chain.

Question 10

Explain how a reduction in the number of groups in the supply chain minimises the bullwhip effect.

Answer 10

Fewer groups in the supply chain (e.g. fewer suppliers or retailers) facilitates better communication across teams

Question 11

Explain how a reduction in the number of delays minimises the Bullwhip Effect

Answer 11

Cutting order-to-delivery time significantly reduces supply chain fluctuations.

Question 12

Explain how a reduction in order sizes and improved customer service minimises the Bullwhip Effect

Answer 12

This prevents the surges in demand resulting from promotional discounts. Better to consistently offer good prices and have smooth ordering patterns.

Question 13

Explain how the optimisation of inventory management minimises the Bullwhip Effect

Answer 13

Leads to more accurate ordering from suppliers