Supply Chain Coordination and Management Flashcards
What is the bullwhip effect?
Variation amplifies as it moves up the supply chain from customers towards supply
What are the consequences of the bullwhip effect?
-Excessive inventory
-Excessive capacity and inefficient production
-High transportation cost
-Increased lead time
-Poor customer service due to stockouts
What are the causes of the bullwhip effect?
-Lack of information sharing & trust
-Reactive and over-reactive ordering
-Shortage gaming
-Order batching and synchronisation
-Price fluctuations
What are mitigating strategies for the bullwhip effect?
-Enhance information sharing and build trust through collaboration
-Share data, collaborative planning, forecasting and replenishment
-Turn and earn, restrict returns and order cancellations
-Reduce setup costs, aggregate during transport and spread deliveries evenly
-Do not implement trade promotions
What are Vendor Managed Inventories?
-The supplier is responsible for all inventory decisions at the retailer
-Retailer must share data with the supplier
How does order synchronisation cause the bullwhip effect?
When retailers synchronise orders it means the supplier’s daily demand is much more variable than consumer demand
How does order batching cause the bullwhip effect?
When ordering in batches, retailers order in pallet quantities which causes the variability of supplier demand to be greater than consumer demand
How do trade promotions and forward buying cause the bullwhip effect?
-Trade promotions encourage retailers to buy more than they need to meet short-term demand
-This causes significant demand variability in a short period
How does reactive and overreactive ordering cause the bullwhip effect?
-If inventory managers see an unusually low or high demand, they exaggerate how much inventory is actually needed which causes an increase in supplier demand variability
What is shortage gaming and when does it occur?
-Retailers engage in shortage gaming when the next replenishment of inventory is uncertain
-Suppliers may also not have the capacity to meet the demand
-In response, suppliers may implement a proportional allocation scheme
-As a result, retailers may order more than required
How does shortage gaming cause the bullwhip effect?
It increases the variability of supplier demand
What is another effect apart from the bullwhip effect that can result from shortage gaming?
It can cause a mismatch of supply and demand for retailers
How does information sharing mitigate the bullwhip effect?
-Giving suppliers better access to consumer data can allow them to better assess trends in demand
-Retailers should also offer information on potential promotions they are going to implement
How does smoothing the production flow mitigate the bullwhip effect?
-This eliminates the reasons why retailers may want to order at the same time thereby mitigating order synchronisation
How can shortage gaming be mitigated?
-Implementing order cancellation or non-refundable deposits for orders
-Forgoing retail orders altogether and simply allocating inventory to retailers
What are the characteristics of VMI?
-Retailer no longer makes the inventory decisions, the supplier does
-Retailer shared demand data with the supplier
-Supplier and retailer eliminate trade promotions
What are the benefits of VMI?
-Reduces order synchronisation
-Suppliers can ship in smaller lots which combats the batching effect
-Computerised system can combat overreaction
What is production smoothing and how does it mitigate the bullwhip effect?
-Retailers increase the inflow of inventory in the lead up to a busy period (e.g Xmas)
-This reduces the amount of ordering needed during the busy period thereby decreasing demand variability
What is the relationship between capacity pooling and waiting times?
-Capacity pooling can reduce waiting times
-Queueing systems exhibit economies of scale
-Larger systems have a shorter waiting time at a given utilisation level
-Larger systems can achieve higher utilisation while maintaining the same responsiveness
What are the concerns of capacity pooling?
-Pooling benefits are lower when the pooled systems are not truly independent
-Pooling may require a broader range of skills of the workforce
-Customers may value being treated consistently by the same person
-Pooling may introduce additional setups
What is the protection level in revenue management?
This is the number of units reserved for a higher price
What is the booking limit in revenue management?
This is the number of units reserved for a lower price
How doe you calculate the optimal protection level?
-Calculate the overage cost: low price
-Calculate the underage cost: High price-low price
-Calculate the critical ratio
-Use this to determine the optimal number of units to reserve at the high price
-1-critical ratio is the booking limit
What is overbooking?
-This is when more reservations are accepted than capacity
-Accounts for no-shows
How to calculate the optimal number of oversold units?
-Calculate the overage cost: Low price + additional cost
-Calculate the underage cost: High price - low price
-Calculate the new critical ratio
-Use this to determine the optimal number of oversold units
-Add this to maximum capacity to determine total number of units sold
What is the goal of revenue management?
-Maximise revenue out of fixed supply
What are the conditions for booking limits to be effective?
-The same unit of capacity can be sold to different customer segments
-There are distinguishable customer segments with different price sensitivities
-Capacity is perishable
-Capacity is restrictive
-Capacity is sold in advance
-The firm has the ability to charge different prices to different customer segments
What are additional considerations for revenue management?
-Demand forecasting: Demand forecasts need to be accurate
-Dynamic Devisions: Forecasts change so decisions on booking limits need to be reviewed frequently
-Variability in available capacity: If a firm can change capacity this needs to be built into the forecast
-Reservations in groups: The method here assumed bookings only come one at a time
-Effective segmentation: In practice customer segmentation might not be practical
-Multiple fare classes: In reality there are often more than 2 fare classes
-Variation in purchase capacity: this framework does not account for customers purchasing more than 1 unit
