Supply Chain Management Flashcards
Supply Chain or Value Chains
Is a network of interconnected facilities, that have diverse ownership with flows of materials and information between them
ie. Manufacturers, Suppliers, Distributors, Retailers
Goal of Supply Chain (SC)
Match customer demand with supply
eg. Provide the correct amount of product to the correct store at the correct price. To maximize some object
Product Flow Sc
- Supplier
- Manufacturer
- Distributor
- Retailer
- Customer
Busting SC Myths
- The network is not always linear
What are the type of flows exist in a Supply Chain
- Material Flow
- Information Flow
- Financial (Funds) Flow
What is the Bullwhip Effect?
When small changes in customer demand cause increasingly large swings in inventory and orders up the supply chain.
What causes the Bullwhip Effect?
Forecast updates
Lead time delays
Order batching
Price fluctuations
Shortage gaming
Poor communication
Shortage Gaming
When companies think a product will run out, they order even more than they actually need (just to be safe).
🔍 Example:
During COVID, stores thought toilet paper would run out.
They ordered 10x their normal amounts.
Suppliers got overwhelmed and overproduced.
Result: Fear of shortages creates panic orders and bigger swings.
Order Batching
Instead of ordering small amounts often, companies order in big batches to save money (like shipping costs).
Example:
A retailer places one big order every month instead of small weekly orders.
The wholesaler sees huge spikes once a month.
Manufacturer thinks, “Wow, demand is wild!” and ramps up production unnecessarily.
Result: Batches cause artificial surges in the supply chain.
Forecast Updates
Meaning:
Every stage (retailer, wholesaler, etc.) guesses future demand based on past orders, not real customer sales.
Example:
If a retailer suddenly sees a small rise in sales this week, they think, “Maybe demand is growing!”
They order extra inventory just in case.
The wholesaler sees a bigger order and thinks demand is exploding → they order even more from the manufacturer!
Result: Overreacting makes orders bigger and bigger.
Price Fluctuations
When prices go on sale or promotions happen, companies buy a lot more than they normally would.
Example:
A supplier has a 20% discount in May.
Retailers stock up way more than needed to take advantage of the low price.
Supplier thinks real demand increased and makes too much.
Result: Promotions cause false demand spikes.
Lead Time
Ordering extra to cover slow deliveries
How can we reduce the Bullwhip Effect?
Share real-time demand info
Reduce lead times
Eliminate price promotions
Use centralized forecasting
Build trust with partners
What are challenges at different SC stages?
Suppliers: Need stable volume
Manufacturers: Pressure to deliver high quality at low cost
Distributors: Must replenish quickly
Retailers: Want short lead times and high variety
Customers: Demand low prices and fast delivery
What is demand amplification in the Newsvendor model?
When each stage in the chain bases its forecast on orders from the previous stage, not customer demand — causing variability to grow as you move upstream.
What are some solutions to improve supply chain performance?
Vendor-managed inventory (VMI)
Shorter lead times
Better demand forecasting
Strong collaboration and transparency
Integrated planning tools
Supplier
They provide the raw materials, components, or products that other businesses need to make or sell their goods.
A supplier sends materials to the manufacturer.
Without the supplier, the whole chain can’t start.
Manufacturers
A manufacturer is a company or person that takes raw materials or components from suppliers and turns them into finished products.
They are the “makers” in the supply chain.
Distributor
A distributor is the middleman between the manufacturer and the retailer.
They buy in bulk from manufacturers and deliver smaller quantities to retailers.
Electronics Ingram Micro distributes laptops from HP or Dell to Best Buy or Amazon.
S’
S′ is the order quantity the manufacturer sends to the supplier.
It’s based on the average and SD of recent demand (e.g., past 5 days) and includes a 1-day lead time before it arrives.
How do we adress challenges in SCM ?
Reduce Uncertainty
Centralized Demand
Reducing Variability
Reduce Lead-times
Strategic Partnership
Suppliers with long lead times are better suitted for…
More Stable Demand
Suppliers with short-lead times are better suitted for
More Variable Demand to be able to make changes
