Supply Chains Lecture Flashcards
Key issues for supply chain success
1) Coordination and collaboration
2) value of information sharing
Supply Chain management considerations
- what are materials sourced or built?
- what channels of distribution are used?
- how are strong relationships built with suppliers and customers?
- how is direct information from the end consumer gathered and accessed?
- what logistics structure is used?
- how are information flows and systems coordinated globally?
- how can incentive systems for all partnership in the supply chain be set up so that overall performance of the chain is optimized?
Definition of supply chain management
the effective control of the flows of material, information, and finance in a network consisting of suppliers, manufacturers, distributors, and customers
how has digitization and the app economy changed supply chain management
significant increase in the customization available after the point of sale - products can be customized to an individual’s needs after purchase by adding apps that add functionality, also allows continuous updating
Demand-side inter-dependencies
inter-dependencies that arise after the consumer procures the product. The relationship between consumer and company going forward (need for updates etc…)
Downstream supply chain flows
Material/ information from from the supplier to the customer
downstream on the supply chain = closer to the customer
Upstream supply chain flows
material/information from the customer to the supplier
upstream on the supply chain = closer to the source of raw materials
attributes of product demand to consider when choosing supply chain structure
- Product life cycle (PLC)
- demand predictability
- product variety
- market standards for lead times and services
Product life cycle stage implications for supply chain
New products: more important to avoid stock outs
Mature/ well known products: stock outs may not effect customer loyalty
Major demand patterns
- Functional
vs - innovative
Characteristics of items/services with a functional demand pattern
- tend to be staple (commodity) items or services for which the need does not change significantly over time
- demand is predictable and easy to forecast
- available in a wide range of outlets
- many substitutes
- low profit margins from high competition
- volume business
- low cost becomes primary supply chain concern
- key information comes from within the supply chain
Characteristics of items/ services with an innovative demand pattern
-tend to be new products or services with short life cycles
- require fast shipping and production response times
- very little time to correct for failed forecasts
- demand tends to be volatile
- potentially high profit margins
- market mediation function of supply chain most important
- important information comes from outside of the supply chain (market demand, trends)
Physical function of the supply chain
- logistics
- conversion and transportation
Market mediation function of the supply chain
to ensure the variety of products reaching the marketplace matches what the customer wants to buy. information flows
vital for innovative products
supply chain type for functional product/ services
physically efficient supply chain
- focus on low cost
- manufacturing focus on avoiding idle time (high utilization rate)
- want to minimize inventory throughout the supply chain
- short lead times important only insofar as it doesn’t increase cost
Supply chain type for innovative products/ services
market responsive supply chain
- focus on quick and flexible response to minimize stock outs (and also obsolete inventory)
- manufacturing side may buy up excess capacity in advance and deploy when demand is known
- inventory includes significant buffer stock of parts or finished goods
- short lead times of vital importance
How does the supply chain impact a firm’s revenues
- lead time
- time to market for new products
-response time for customer requests - on-time delivery
- product quality
- product return process
- stock out’s
- fill rates
(all determine what is available to be sold and also customer satisfaction)
How does the supply chain affect product costs
- transportation costs
- network distance
- procurement costs
- inventory costs (all inventory types)
- storage costs
- packaging costs
- waste
- stock outs
- forecast accuracy
- number of suppliers / choice of suppliers
- product remediation costs
How does the supply chain affect sales/general/administrative costs
- warranty costs
- selling costs
- transaction accuracy
- exchange rate control
working capital
= current assets - current liabiltiies
How does the supply chain affect working capital
inventory (especially pipeline inventory) is a current asset that is not cash. affects how much of working capital is immediately usable by the company
cash conversion cycle
= inventory days + accounts receivable days - accounts payable days
essentially how long it takes for inventory to become cash
inventory days
= 365/ (cost of goods sold / average inventory balance)
accounts receivable days
= 365/ (sales/average accounts receivable balance)
accounts payable days
= 365 / (cost of goods sold / average accounts payable balance)
supply chain affect on working capital: inventory days
- higher inventory days = higher holding costs
supply chain affect on working capital: accounts receivable days
- higher accounts receivable days = sales not becoming cash, incurs more costs as payments tracked down
supply chain affect on working capital: accounts payable days
high accounts payable days may cost the company money in discounts not taken, late fees, and potential issues with suppliers
demand and supply uncertainty matrix
Demand Uncertainty: Low (functional products) to high (innovative products)
Supply uncertainty: Low (stable process) to high (evolving process)
Different types of supply chain strategies correspond to each position in the matrix
How supply chain strategies fit the supply and demand uncertainty matrix
Low demand uncertainty & low supply uncertainty: Efficient supply chain
High demand uncertainty & low supply uncertainty: Responsive supply chains (delayed differentiation)
Low demand uncertainty & high supply uncertainty: risk-hedging supply chains (risk pooling)
High demand uncertainty & high supply uncertainty: Agile supply chains
Efficient supply chains
best when demand and supply uncertainty are both low - all about creating cost efficiencies in the supply chain which means it does not react quickly to change. better with stable processes
Risk-hedging supply chains
best when demand uncertainty is low, but supply uncertainty is high (uncertainty regarding yield, process reliability, source reliability, lead time)
focus on pooling resources to share risks of supply disruption
IT can assist to ensure pooled supply goes to the right place
Responsive supply chains
best when demand uncertainty is high but supply uncertainty is low - allows for quick changes in response to diverse customer needs. Often use strategies like delayed differentiation or build to order to get almost completed product close to customer so can add customization and deliver on demand
good for short selling season when you don’t want to build up a large inventory of what could become obsolete products
may be willing to spend more for fast transportation (balanced by reduced costs of not maintaining large inventories
Low utilization
not using the full capacity of facilities for day to day operations in order to have significant available facility in the busy season when demand becomes more accurately known
Agile supply chains
best when both supply and demand uncertainty are high
focus on flexibility and ability to change, may also use pooling to hedge against shortages and disruptions
Fabless
aka without fabrication
manufacturing is outsourced while design, development and marketing stay in house
Supply chain tradeoffs
between quality, time, and cost
Level of responsiveness: trade off between time and quality
Level of efficiency: trade off between quality and cost
Level of agility: trade off between time and cost
How does random stow work
Creates a system where items are stored in multiple random places so the system can decide which one is closer and create the most efficient movement patter
What is the netflix effect
real-time access to content. pushed for increasing visibility throughout the supply chain which allows for more timely decision making
also influenced order management in the concept of centralizing controls in one place and using big data to predict customer behavior
What is the amazon effect
Basically speeding up the supply chain process
convenience
speed of delivery / ability to handle volumes
vast product offerings
inventory processing automation (ainventory tracking)
3PL
third party logistics
Cycle view of a supply chain
processes in a supply chain are divided into a series of cycles, all interconnected
- customer order cycle (customer and retailer)
- replenishment cycle (retailer and distributor)
- manufacturing cycle (distributor and manufacturer)
- Procurement cycle (manufacturer and supplier)
push/ pull view of a supply chain
processes in a supply chain are divided into two categories:
- pull (processes executed in response to a customer order. reactive)
and
- push (process executed in ANTICIPATION of a customer order. speculative)
supply chains may be made up of both sorts of processes (push to a certain point and then wait for pull)
What kind of supply chain process are Just In Time systems
Pull processes - trying to make everything in response to customer demands
Push-type supply chain strategies
- more traditional method
- depends on long-range manufacturing forecasts
- order times tend to be longer
- any minor increase in variability of demand at the customer level as the potential to create a bullwhip effect, leading to larger variability upstream in the supply chain
Pull-type supply chain strategies
- since demand-driven are more coordinated with actual customer demand
- minimizes inventory held and decreases lead time
- since depends on knowing demand, requires fast information flow
Hybrid push-pull strategies
process is push up to a point (boundary) and then becomes pull for the last stages
implied demand uncertainty
resulting uncertainty for the supply chain given the portion of the demand the supply chain plans to satisfy based on the attributes the customer desires
what can cause supply uncertainty to increase
- frequent production breakdowns
- unpredictable and low yields
- poor or unpredictable quality
- limited supply capacity
- inflexible supply capacity
- evolving production process
cost-responsiveness efficient frontier
line showing the lowest possible cost for a given rate of responsiveness
High efficiency = high costs, low costs = low efficiency
processes inside the curve are inefficient
can only shift the curve outward by decreasing cost of responsiveness (new technologies)
supply chain strategic fit
For supply chains facing high uncertainty high responsiveness is better, never mind the cost.
For supply chains facing low uncertainty high efficiency is more important
roles within supply chains
basically whoever in the supply chain absorbs the most of the uncertainty needs to be the most responsive (probably hold the most inventory). Whatever part of the supply chain absorbs the least uncertainty needs to be the most efficient (come in at lowest cost)
Traditional brick and mortar supply chain
a few plants supply materials and products to many different warehouses, which then ship to a variety of retailers
logistics is designed for large quantities of materials being shipped long distances which overall lowered transportation costs
E-commerce style supply chain
a bunch of plants of various sizes ship to large, centralized fulfillment centers, which then ship small quantities of product directly to the customers
outgoing shipments is a HUGE volume of very small orders necessitating a complete cost structure change, emphasizing importance of supply chains
impact of online sales on customer service
- continually shortens response time to customers
- increases ease of access to wide product variety
- products available to a wider range of customers
- customers have more control over their own experience
- can get products to market faster
- improved order visibility
- but does increase difficulty of returns (reversing the supply chain)
- increase direct sales to customers
- easier to implement flexible pricing and change product portfolio
- ecommerce makes for more efficient funds transfer
Impact of online sales on cost
- information can be “transported” at minimal to almost no cost
- but there is a cost to build and maintain the information infrastructure
- transportation of nondigital items is a major cost
Current challenges to supply chain management
- increasing product variety and shrinking product life cycles increase demand uncertainty and stress of quick deliveries
- globalization has brought its own uncertainties in the form of exchange rate fluctuations, global demand considerations, and transportation costs
- fragmentation of supply chain ownership means aligning the incentives of members of a widely diversified supply chain is harder than ever
- keeping up with technology is expensive but also vital
- increasing need to focus on environmental sustainabiltiy
bullwhip effect in the pandemic
- at the beginning of the pandemic there was a huge surge in demand + shortage of supply
- retailers order more goods to address this surging demand (new orders reflect replenishment + a forecast of future high demand + potential supply uncertainty creates much larger orders)
- whosalers order more goods to address that demand - more safety stock inventory at every tier creates hugely increasing orders overall
- demand drops (and more in face of oncoming recession)
- resulting in overstock
bullwhip effect when demand drops
essentially reverse
- demand drops
- retailers and suppliers find they have overinvested and stop placing new orders/ cancel outstanding orders
- each tier up the supply chain realizes an increased, aggregated fall of in demand
- eventually leads to lay-offs
How companies can prepare for the bullwhip effect
1) identify essential partners
2) assess partners’ financial resilience
3) monitor partners and their situation
4) support threatened parties
all of this emphasises the importance of communication and collaboration between supply chain partners and visibility in supply chains
who is more vulnerable to sharp changes in demand
the further upstream a supplier is the larger effect the bullwhip effect has
tactics for managing in a downturn
- conserve cash (reduce inventory, increase days payable outstanding, reduce days receivable)
- reduce number of suppliers
- reduce number of product varieties to focus on fast sellers
- focus on economical (slower) modes of transporation
- potentially rationing customer orders
what leads to lack of coordination in a supply chain
- conflicting objectives at different supply chain stages
- delayed or distorted information moving between stages
Results of lack of supply chain coordination
bullwhip effect
- as order fluctuations increase moving up the supply chain demand is increasingly distorted from actual market situation
obstacles to supply chain coordination
- incentive dis-alignment
- information processing obstacles
- operational obstacles
- pricing obstacles
- behavioral obstacles
Incentive obstacles to supply chain coordination
- Everyone is optimizing for themselves which means that the supply chain overall is not being optimized because these optimizations oppose
- Quota based sales force incentives may create inaccurate sales data: Distorts demand information when you incentivize inaccurate ordering. Have to look at sell throughs- all the way though to shipping
Information processing obstacles
When information gets distorted as it moves through the supply chain leading to increased variability in orders
forecasting based on orders received instead of actual demand (why many suppliers are now demanding sales data)
Operational obstacles
- variability in timing of orders
- batching may creating inaccurate depictions of demand trends
- rationing and shortage gaming (inflated orders trying to game a system of rationing end up with inaccurate information)
pricing obstacles
promotional pricing and quantity discounts may lead to forward buying which skews perceived demand.
everyday low pricing may be used to mitigate this variability
Managerial levers to achieve supply chain coordination
- Aligning goals and incentives
- Improve information accuracy using real time data
- Improving operation performance
- Designing pricing strategies to stabilize orders
- Building partnerships and trust
Aligning goals across the supply chain
- Create a win win scenario
- Pricing so that it is easy to coordinate to between entities in the supply chain
- Sales force incentives: not for selling to the retailer (sell-in) but rather for sell-through (sales by the retailer to the end customer)
- consider ways to mitigate risks to more vulnerable parts of supply chain
Improving information visibility and accuracy across the supply chain
- sharing POS data
- implement collaborative forecasting and panning
- Collaborative Planning Forecasting and Replenishment (CPFR)
- Vendor Managed Inventory
Improving operational performance across the supply chain
- reduce lead time
- reduce lot sizes
- rationing orders based on sales and sharing information to limit gaming
Designing pricing strategies to stabilize order
- incentivize retailers to order in smaller lots and reduce forward buying
- give overall volume based discounts instead of lot size-based discounts
- everyday low pricing
- build strategic partnerships and trust
Cross-docking
- Way to minimize pipeline inventory/ pipeline inventory holding costs
- Instead of sending inventory to the warehouse to be store, sending to warehouse to sort and distribute to stores. Warehouse becomes staging area rather than holding area
- Minimizes or even eliminates pipeline inventory: inventory either in store or in production plan, but not being held in transit
Designing products for logistical efficiency
- economic packaging or transportation
- items packed so constraints on transport are only weight, not size
- minimize shelf space and design for easy display
- postponing differentiation (and designing to do so)
- designing products with parts common between products (commonality)
