Supply chain integration and Distribution strategy

Question 1

What are the requirements for effective integration of the supply chain?

What are the Supply chain integration strategies?

Answer 1

• Effective integration of supply chain requires
  
  • Effective coordination of production, transportation and inventory decisions
  • More importantly, integrating the front-end of SC (customer demand) to the back-end of SC (production and manufacturing

Strategies: Pull, Push, Push-Pull

Question 2

What is a newer paradigm?

Answer 2

•Pull Strategies

Question 3

What strategy falls into the old paradigm?

Answer 3

•Push Strategies

Question 4

What are the push strategies based on?

Answer 4

• Production decisions based on long-term forecasts
  
  • You can buy large quantity of components
  • You can manufacture large quantity of products
  • You can transport large quantity of products
• -> Economies of scale arise when the cost per unit falls as output increases
  
  • EOS are the main advantage of increasing the scale of production and becoming ‘big’.
    1. Bulk buying from long-term contract
    2. Fixed cost is spread over bigger output
    3. Cheaper financial cost
    4. More efficient use of machinery

Question 5

What are the problems of push strategies?

Answer 5

• • What are the problems with push strategies?
    
    • Inability to meet changing demand patterns
    • Obsolescence (forældelse)
    • The bullwhip effect:
      
      • Excessive inventory
      • Excessive production variability
      • Poor service levels

Question 6

Explain pull strategies?

Including advantages and disadvantages

Answer 6

A Newer Paradigm: Pull Strategies

• Production is demand driven
  
  • Production and distribution coordinated with true customer demand
  • Firms respond to specific orders
• Pull Strategies result in:
  
  • Decreased inventory levels at retailers and manufacturers
  • Decreased system variability
  • Better response to changing markets
• But:
  
  • Harder to leverage economies of scale
  • Doesn’t work in all cases

Question 7

Explain push-pull strategies

(including, advantages and disadvantages)

Answer 7

• A new SC strategy that takes advantage of Pull and Push system
• 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

Question 8

What is a good example of an industry that practices the push-pull strategy?

Explain

Answer 8

Question 9

Use an example to illustrate difference between a traditional push system and a push-pull system

Answer 9

PC manufacturers.

Question 10

Explain the framework for choosing SC strategy

Answer 10

Furniture industry is a bit tricky - it is neither push-pull, pul or push that is most appropriate, but pull-push.

• -> production is pull, but delivery push.
  
  • Production initiates with a customer order (high uncertainty)
  • Delivery: Transportation is planned based on forecast (low uncertainty)

Question 11

What are the characteristics of the two phases in a push-pull strategy?

(Hint: when it comes to uncertainty, lead times, objective and skills)

Answer 11

Question 12

At what level is the SCM decision making for ‘distribution strategy’.

Answer 12

Question 13

What are the three main distribution strategies?

Answer 13

Warehousing

Direct Shipping

Cross-Docking

Question 14

Explain warehousing as a distribution strategy

(including main advantage and disadvantage)

Answer 14

•Warehousing
–The classic strategy: Warehouses keep stock and provide customers with items required
–Low transportation cost
–Risk pooling (centralising inventory)
–BUT, holding cost

Question 15

Explain Direct shipping as a distribution strategy

(including main advantage and disadvantage)

Answer 15

• • Direct Shipping
    
    • Goods go directly to customers
    • No DC needed
    • Lead times reduced
    • But:
      
      • Less than full truck load: high transportation cost
      • No risk pooling

Question 16

Explain Cross-docking as a distribution strategy

Answer 16

• logistics technique known as cross-docking
  
  • goods are continuously delivered to warehouses where they are dispatched to stores without ever sitting in inventory.

–>

• DC serves as inventory coordination point rather than as storage
• Goods spend at most 10 - 15 hours in the warehouse
• Cross Docking avoids inventory and handling costs

Question 17

What is a good examples of a company using cross-docking?

Answer 17

What accounts for Wal-Mart’s remarkable success

• A focus on satisfying customer needs
  
  • providing customers access to goods when and where they want them
  • cost structures that enable competitive pricing
• This was achieved by way the company replenished inventory the centrepiece of its strategy.
• This strategy reduced Wal-Mart’s cost of sales significantly and made it possible to offer everyday low prices to their customers.

Question 18

Compare the three strategies

Answer 18

Question 19

What are the characteristics (requirements) of a cross-docking system?

Answer 19

Very difficult to manage

• Requires advanced information technology
  
  • All of Wal-Mart’s distribution centres, suppliers and stores are electronically linked to guarantee that any order is processed and executed in a matter of hours
  • Wal-Mart operates a private satellite-communications system that sends point-of-sale data to all its vendors allowing them to have a clear vision of sales at the stores
• Needs a fast and responsive transportation system.
  
  • Wal-Mart has a dedicated fleet of 2,000 truck that serve their 19 warehouses
  • This allows them to
    
    • ship goods from warehouses to stores in less than 12 hours
    • replenish stores twice a week on average.

Question 20

What are the four parameters that are interesting to compare the three strategies on?
And how do the three strategies score?

Answer 20

Question 21

What is a fourth strategy that we only briefly touched upon in class?

Answer 21

Transshipment

Question 22

Explain Transshipment

Answer 22

• The shipment of items between different facilities at the same level in the supply chain to meet immediate need
• It requires:
  
  • Rapid transportation options
  • Advanced information system
• With transshipment, the retailer can enjoy risk-pooling effect with advanced information system
• However, if retailers are owned independently, it does not work as they want to avoid competitions!!!