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the same time, many supply chain partners engage in information sharing
so that manufactures are able to use retailers up to date sales data to
better predict demand and
reduce lead times.
A number of approaches have been applied by industry to manage risk in
their supply chains:
Building redundancy into the supply chain so that if one portion fails,
the supply chain can still satisfy demand.
Using information to better sense and respond to disruptive events
Incorporating flexibility into supply contracts to better match supply
and demand
Improving supply chain processes by including risk assessment
measures.
Q: If firms have improved supply chain performance by focusing on
strategic partnering, using information sharing and technology, or by
applying risk mitigation strategies, what inhibits other firms from adopting
the same techniques to improve their supply chain performance?
1. The ability to match supply chain strategies with product
characteristics. There is a difference in fast clock speed products and
slow clock speed products.
2. The ability to replace traditional supply chain strategies, in which
each facility or party in the chain makes decisions with little regard
to their impact on other supply chain partners, by those that yield a
globally optimized supply chain.
3. The ability to effectively manage uncertainty and risk.
Quality
Price
Push-Pull Strategy
Supply chain time line the time that elapses between the procurement
of raw material (=beginning of time line), and the delivery of order to the
customer (=end of time line)
Postponement/Delayed differentiation in product design: Firms
designs the product and manufacturing process so that decisions about
which specific product is being manufactured can be delayed as long as
possible. (e.g. DELL locates the push-pull boundary at the assembly point)
Production strategy
Distribution strategy
Box A: represents products with short lead time and high uncertainty e.g.
PCs Pull Strategy
Box B: represents items with long lead-time and low demand uncertainty
e.g. groceries Push Strategy
Box C: includes products with short supply lead time and highly
predictable demand e.g. groceries with short life cycle such as bread and
dairy products.
Box D: Long lead times and demand is not predictable (inventory is
critical)
The firm can employ supply chain strategies to increase forecast accuracy
and decrease forecast error:
Select the push-pull boundary so that demand is aggregated over
one or more of the following dimensions: demand is aggregated
across products, demand is aggregated across geography and
demand is aggregated across time. Principle 1
Use market analysis and demographic and economic trends to
improve forecast accuracy.
Determine the optimal assortment of products by store so as to
reduce the number of SKUs competing in the same market.
Incorporate collaborative planning and forecasting processes with
your customers so as to achieve a better understanding of market
demand, impact of promotions, pricing events and advertising.
7 principles
1. Need Based segmentation:
Segment customers based on the
service needs of distinct groups
and adapt the supply chain to
serve these segments profitable.
Traditional Segmentation Approach
- industry, product, trade channel or
geography
- one size fits all approach
- not aware of the relative value
customer places on the service offerings
- Tools used include surveys, interviews
and industry research
Need Based Segmentation
- Segment customers based on their
particular needs
- Develop a portfolio of services tailored to various segments
- Goal is to find the degree of segmentation and need to maximize
profitability
2. Customize the logistic network to the service requirements
and profitability of customer segments
Move away from the conventional monolithic approach to logistic
network design
Develop Logistics (delivery response) as a differentiator
Flexible logistics network
Use modern methods like
Manufacturers have
traditionally based
production goals on
projections of the
demand for finished
goods and have
stockpiled inventory
to offset forecasting
errors. These
manufacturers tend
to view lead times in
the system as fixed,
with only a finite
window of time in
which to convert
materials into
products that meet
customer
requirements.
great potential
remains in less traditional strategies such as mass customization. For
example, manufacturers striving to meet individual customer needs
efficiently through strategies such as mass customization are discovering
the value of postponement.
delaying product differentiation to the last possible moment and thus
overcoming the problem.
The hardware manufacturer in Exhibit 3 solved problem by determining
the point at which a standard bracket turned into multiple SKUs (stock
keeping unit). This point came when the bracket had to be packaged 16
ways to meet particular customer requirements. The manufacturer further
concluded that overall demand for these brackets is relatively stable and
easy to forecast, while demand for the 16 SKUs is much more volatile. The
solution: make brackets in the factory but package them at the
distribution center, within the customer order cycle. This strategy
improved asset utilization by cutting inventory levels by more than 50
percent. Realizing that time really is money, many manufacturers are
questioning the conventional wisdom that lead times in the supply chain
are fixed. They are strengthening their ability to react to market signals by
compressing lead times along the supply chain, speeding the conversion
from raw materials to finished products tailored to customer
requirements. This
5. Manage sources of supply strategically to reduce the total
cost of owning materials and services.
Strategic Scope
Intra
Intra
Intra
Inter
company
company
company
company
Intra
Intra
Inter
Inter
Demand forecasting
Lead time
Batch ordering
Price fluctuation
Inflated orders
3. Lead-time reduction
the results presented in the previous subsections clearly indicate
that lead times serve to magnify the increase in variability due to
demand forecasting. Lead time reduction can significantly reduce
the bullwhip effect throughout a supply chain. Lead times typically
include two components: order lead times and information lead
times
4. Strategic partnerships
strategic partnerships change the way information is shared and
inventory is managed within a supply chain, possibly eliminating the
impact of the bullwhip effect.
Bullwhip effect can be reducing the bullwhip effect. When demand
information is centralized, each stage of the supply chain can use the data
to estimate the demand.
When demand information is not shared each stage must use the orders
placed by the previous stage to estimate the average demand.
Bullwhip never goes away.
Lead time reduction leads to
1. The ability to quickly fill customers order that cant be filled from
stock
2. Reduction in the bullwhip effect
3. More accurate forecasts due to a decreased forecast horizon
4. Reduction in finished goods inventory levels; One can stock raw
materials and packaging materials inventories to reduces finished
good cycle time.
Tools
Process
Culture
S&OP is not just a set of tools and processes; it sets the behavior for a
company.
5. Increased flexibility
o Ability to better react to changes in customer demand
o Suppliers knowledge to accelerate NPI (new product
investment)
o Access to new technologies and innovation
High tech where technologies change very frequently
Fashion where products have a short life-cycle
Risks
1. Loss of competitive knowledge it may open u opportunities
for competitors and implies that companies lose their ability to
introduce new designs.
Outsourcing critical components to suppliers may open up
opportunities for competitors
New designs based on suppliers agenda rather than your own.
Outsourcing to too many suppliers may prevent the development of
new insights, innovations, and solutions that typically require crossfunctional teamwork
1. Conflicting objectives increased flexibility is a key objective when
buyers outsource the manufacturing.
Demand Issues
In a good economy demand is high, and in a slow economy
demand is significantly low. This could lead to losses due to
contractual obligations with suppliers
Product design issues
Buyers insist on flexibility: Solve design problems as fast as
possible
Suppliers focus on cost reduction: Prefers slow responsiveness
to design changes
Produ
ct
Dependency on
knowledge and
capacity
Modul
ar
Outsourcing is risky
Integr
al
Outsourcing is very
risky
Independent for
knowledge,
dependent for
capacity
Outsourcing is an
opportunity
Outsourcing is an
option
Independent for
knowledge and
capacity
Opportunity to reduce
cost through
outsourcing
Keep production
internal
2.
Customer importance
How important is the component to the customer?
What is the impact of the component on customers experience?
Does the component affect the customers choice?
Component clock speeds
How fast does the components technology change relative to other
components in the system?
3. Competitive position
Procurement strategies
Kraljics Matrix
Component
Component
Component
Component
forecast accuracy
supply risk
financial impact
clock speed
E-Procurement
Value proposition of e-Procurement
For Buyers
Serving as an intermediary between buyers and suppliers
Identifying saving opportunities
Increasing the number of suppliers involved in the bidding event
Identifying, qualifying, and supporting suppliers.
Conduction the bidding event
For Supplier
Relative small suppliers could expand their market horizon
Allows suppliers to access spot markets. Advantageous in:
o Fragmented market
o Reducing marketing & sales costs
o Increasing ability to compete on price
Allows suppliers to better utilize their available capacities and
inventories
3.
Grey box.
Formal supplier integration
Collaborative teams between buyers and suppliers engineers
Joint development
4. Black box.
Buyer gives the supplier a set of interface requirements
Supplier independently designs and develops the required
components
Production reliability
Acceptable risk is defined by safety factor / service level.
Cross-Docking
Strategy
Attribute
Direct
shipment
Cross-docking
Risk pooling
Take advantage
Transportation
costs
Holding costs
Allocation
Inventory at
warehouses
Reduced inbound
costs
No warehouse
cost
Reduced inbound
costs
No holding costs
Delayed
Delayed
Network planning Process by which the firm structures and manages the
supply chain in order to
Network design
Number, locations and size of manufacturing plants and warehouses
Assignment of retail outlets to warehouses
Major sourcing decisions
Typical planning horizon is a few years.
Inventory positioning:
Identifying stocking points
Selecting facilities that will produce to stock and thus keep inventory
Facilities that will produce to order and hence keep no inventory
Related to the inventory management strategies
4. Resource allocation:
Determine whether production and packaging of different products is
done at the right facility
What should be the plants sourcing strategies?
How much capacity each plant should have to meet seasonal
demand?
Warehouse costs
Handling costs (straight forward to calculate)
Labor and utility costs
Proportional to annual flow through the warehouse.
Fixed costs (difficult to calculate)
All cost components not proportional to the amount of flow
Typically, proportional to warehouse size (capacity) but in a
nonlinear way.
Storage costs (difficult to calculate)
Inventory holding costs
Proportional to average positive inventory levels
Warehouse capacity
Week 7
Results...
Companies with mature business processes have lower inventory
levels
Improvements in certain areas demand IT investments
Best-in-class companies with mature processes achieve superior
financial performance
Investing only in IT infrastructure leads to significant inefficiencies
Priority in IT investments depends on your objectives
Box A
Immature business processes and IT systems.
Below average business performance.
Box B
mature business processes and immature systems.
Perform significantly better than those who did not
invest in either processes or systems, but they leave a
lot on the table.
Box C
mature systems and processes.
Enjoy significant improvements in operational
performance.
Box D
mature IT systems but not processes.
Performance even worse than those with immature
systems and processes.
IT infrastructure typically requires significant
investment accompanied by expensive support staff.
IT provides only information