Coursera KAIST: SCM101

Supply Chain Management

A Learning Perspective
Lecture 7

Professor Bowon Kim

KAIST Business School

2014 Bowon Kim

Supply Chain Coordination

Coordination between supply chain partners

To enable the firm to achieve both efficiency-driven and
responsiveness-driven value
Supply chain partners
Internal employees, workers, managers at the same
company
External companies that share the same value chain, e.g.,
suppliers, vendors, distributors, customers
Supply Chain Coordination

Coordination areas
Choice of products/services
Information sharing information about the market demand,
customer requirements
New product development
R&D
Joint decision making
Critical issues
Who has more knowledge, expertise, experience
How to measure the performance improvement
How to share the benefit
How to prevent leakage of proprietary technology/information
How to forge sustainable relationship
 Bullwhip Effect Coordination Failure

What happens when coordination fails?

Bullwhip effect

S M D C
Suppliers Manufacturers Distributors Customers
Vendors Service Support Operations Local Service Providers End Users
Order/ Order/ Order/ Order
Production Production Production

Time Time Time Time

Information Quality

Uncertainty and information quality

Information Quality (IQ) accuracy, precision, reliability

S M D C
Suppliers Manufacturers Distributors Customers
Vendors Service Support Operations Local Service Providers End Users

As the physical/psychological distance between information source and decision point increases
Information Quality
As the number of gatekeepers between information source and decision point increases
Information Quality
IQs cascading effect throughout the supply chain
S M D C
Suppliers Manufacturers Distributors Customers
Vendors Service Support Operations Local Service Providers End Users

Order/ Order/ Order/ Order

Production Production Production

Time Time Time Time

Magnitude of Fluctuation

Time-to-Stability

Magnitude of Fluctuation
Uncertainty Inventory
Vendor-managed Inventory (VMI)

VMI one of key coordination mechanisms

Supplier (vendor) manages the inventory at the customers
premise

Buyer (Customer) e.g., LGE, E-Mart

Warehouse
Plant or
Ship and shelf space
manage
inventory Inventory End product End
Supplier Input or
managed-by- Customer;
Vendor finished
Payment vendor Payment Consumer
(e.g., LGD, CJ)
 Key issues that must be resolved.

Vendor-managed Inventory (VMI)

VMI pros and cons for each partner

Vendor Customer
+ +
+ +

+
+
- -

-

Key issues that must be resolved

Postponement

Recall the concept of mass customization

How to achieve mass customization?
Postponement
Delaying the product differentiating point
Maintaining commonality as long as possible
When having enough market information, differentiating the
products
Requiring channel (supply chain) capability
Requiring modularity principles
Benefits?
Costs?
Postponement

Beginning Sales Start

Type A: Compact Car

Common
Platform Type B: Passenger Sedan

Type C: SUV

Type A: Compact

Common Platform Type B: Sedan

Type C: SUV
Postponement an example
0.0005

0.0004

0.0003

0.0002

0.0001

0
0 2000 4000 6000 8000 10000 12000 14000 16000 18000

Early Differentiation Postponement

Early differentiation Postponed differentiation

Production Mismatch Production Mismatch Actual
(mean value) (mean Value)
Product type demand
A 300 250 200
B 500 320 300
C 200 430 500
Total Mismatch