10225_scm-2016- supply chain coordination and value of information

8/18/2019 10225_SCM-2016- Supply Chain Coordination and Value of Information

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Supply Chain Coordination : Value of

Information and Bullwhip E ect

W S William



Lack of Supply Chain Coordinationand the Bullwhip E ect

• Supply chain coordination – all stages of the chain takeactions that are aligned and increase total supply chain

surplus

• Requires that each stage share information and take intoaccount the e ects of its actions on the other stages

• Lack of coordination results when:

Objecti es of di erent stages con!ict

"nformation mo ing between stages is delayed or distorted



Bullwhip E ect

• #luctuations in orders increase as they mo e up thesupply chain from retailers to wholesalers to

manufacturers to suppliers

• $istorts demand information within the supply chain

• Results from a loss of supply chain coordination



Demand at Di erent Stage



!he E ect on "erformance

• Supply chain lacks coordination if each stage optimi%es only

its local objecti e• Reduces total pro&ts• 'erformance measures include

(anufacturing cost

"n entory cost

Replenishment lead time

)ransportation cost

Labor cost for shipping and recei ing

Le el of product a ailability

Relationships across the supply chain



!he E ect on "erformance

'erformance (easure "mpact of the Lack of*oordination

#anufacturing co t Increa eIn$entory co t Increa e%epleni hment lead time Increa e

!ran portation co t Increa eShipping and recei$ing co t Increa eLe$el of product a$aila&ility Decrea e"ro'ta&ility Decrea e



!he &ullwhip e ect: Importance and cau e

• Information Di tortion• (rder Batching• "romotion• )llocation *aming



Information Di tortion

• Each tage may do it own foreca ting+there&y treating order recei$ed at that

tage a a ignal regarding demand, while

in fact+ the true demand ignal i the rateof cu tomer-con umer purcha e or u e• Long lead time &etween tage

e.acer&ate the Bullwhip E ect• /0ockey Stick1 &eha$iour: end2of23uarter

urge in order + followed &y lower2than2a$erage order immediately afterward



(rder Batching

• )dmini trati$e co t a ociated with placingand recei$ing an order from a upplier

• 4uantity di count &ecome una$aila&le ortougher to negotiate

• /5ull truckload1 and related economic•

Infre3uent running of #%" y tem !hu to handle the a&o$e i ue + 3uantity oforder may &ecome /lumpy1



"romotion

Why do 'rm run promotion 6• !o deal with e.ce in$entory or a a

way of getting cu tomer 7 attentionin the retail di play pace

5rom a upply chain $iewpoint+promotion cau e ale to e.ceedcon umption temporarily8 )fter thepromotion end + there i a drop inorder 8 !hi cau e Bullwhip E ect8



)llocation *aming

• #any purcha er will attempt to/game1 the y tem &y putting inmultiple order + perhap $ia di erentchannel + to try to en ure they willget u9cient product

• (nce the product goe /oallocation1+ many of the e duplicateor /phantom1 order are cancelled8

!hi create Bullwhip E ect



Countering Information Di tortion:

)ttacking 5oreca ting "ro&lem andthe 0ockey Stick E ect



• Sharing ale foreca t with partneralong one7 upply chain call forcomplete tru t;

• In retail operation there i anopportunity to hare "oint2of2Sale

"(S; data with all mem&er of theupply chain

• Colla&orati$e "lanning+ 5oreca ting <%epleni hment C"5%;



5ew E.periment

• C"5% application in con umerpackaged good =a&i co;+ peanutand pet food:

• Warehou e 'll rate increa ed from>?@ to >A@

• In$entory wa reduced &y @• Sale increa ed &y ?@

!he re$enue increa ed &ecau e ofle er tock out 8



Continued

Fmart e.perience:

•

5ill rate increa ed from G8 @ to>?8H• Increa e in ale &y H@•

In$entory le$el unchanged



)ttacking the hockey tick

• Change the ale force incenti$e 8• *i$e ale people commi ion

&a ed on ell2through datadown tream ideally "(S;

• Sale people hould ha$e their ale3uota calendar tart and end ontheir &irthday 8 !hi way aggregatee ect would a$erage out8




Vendor2#anaged In$entory V#I ;



• "a "(S information directly to theupplier on a continuou &a i and

al o gi$e the upplier there pon i&ility to maintain ade3uatein$entory le$el at the &uyer7 ite8

!hi i called V#I or C%" Continuou

%epleni hment "rogramme;8Succe torie : Wal2#art+ "rocter <

*am&le+ Barilla "a ta+ Camp&ell Soup

etc8



Why doe V#I work o well 6

• In a non2V#I y tem+ the factory eeonly order placed &y the di tri&utor,it doe not ee ell2through data fromthe di tri&utor8

• With V#I+ the factory ee the actualin$entory le$el at the di tri&utor+and can dynamically allocate upplywhile till pre$enting tock out atthe di tri&utor ite8



0ow doe thi work in practice 6

• Both partie mu t ha$e informationy tem linked o that repleni hment

3uantity and time can &edynamically determined &y the

upplier• J ually + e ta&li hing thi tru t i the

mo t di9cult part of implementingV#I8




Supplier #anaged )$aila&ility S#);



• #ind et change from /In$entory1 to/)$aila&ility1

• S#) i an e.ten ion of V#I• Increa ed upplier Ke.i&ility o that le

in$entory can &e held at cu tomer ite – J e of fa ter tran portation – Surge7 capacity a$aila&le at the upplier – 5a ter production time at the upplier – 0olding uncommitted in$entory at upplier7

ite



• V#I agreement pecify min2ma.le$el of in$entory+ hence limitingaction of the upplier

• In S#) thi con traint i remo$ed• In$entory le$el under S#) i lower

than in the V#I ca e• S#) could &e called V#IM



S#) agreement of N C "enny

• N8C8"enny ha recently partnered with akey o$er ea upplier of men7 hirt

• !he upplier u e "(S and in$entoryinformation at "enny7 tore todetermine when to repleni h the tore

• !he upplier repleni he each tore

directly and independently, productdoe not Kow through traditional"enny7 warehou e tructure



• !here i no minimum or ma.imumin$entory le$el re3uirement placedon the upplier that are often u edwith V#I

• !he upplier i e$aluated olely ona$aila&ility of product in the torewhen the product i needed




%educed Lead !ime + %e er$ingCapacity and Direct Sale



• %educing lead time will le eninformation di tortionShortening etup or changeo$ertime in manufacturing+ u ing fa termode of tran portation+ e.aminingadmini trati$e proce e uch aorder entry+ credit checking+ in$oicepreparation etc8



%e er$ing Capacity

• Companie are &uying or re er$ing/capacity1

• !hi ena&le the &uyer to /po tpone1the time when order for a peci'cproduct or component mu t &emade+ and thu reduce lead time inthe chain

• Why doe re er$ing capacity alterthe lead time for peci'c product 6



Direct Sale

• Dell i an e.ample of direct ale• In thi there i no intermediate

tage &etween the con umer andthe manufacturer




Feeping Safety Stock Steady



• !oo rapid adOu tment of afety tockcan e.acer&ate the Bullwhip E ect



Countering (rder Batching

• (rdering co t i the admini trati$eco t of manual order proce ing andprocurement

• Internet2&a ed procurement houldlower ordering co t igni'cantly andhence reduce order 3uantitie

• %educe tran portation &atch iPe +u e maller truck for deli$erie oru e ?"L



Countering "romotion

• E$eryday Low "rice Q• 5ind true co t of &ullwhip e ect of

price promotion u ing )cti$ity2Ba ed2Co ting

• %eal co t of promotion includee.ce i$e in$entorie + co t of dealingwith urge 7 in manufacturing+ co tof dealing with Kuctuation intran portation need and co t of

Kuctuating pace re3uirement



Countering )llocation *aming

• )llocate &a ed on pa t ell2through$olume of the product+ not on iPe ofcurrent order

• Di allow free7 order cancellation



!hank you

10225_scm-2016- supply chain coordination and value of information

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