Emerging Practices in SCM

Logistics and Supply ChainChapter 16

1. Negative effects in SCM1. Large order quantities2. Few customers3. Long leadtimes4. Non-alligned planning and control5. Not sharing Point-Of-Sales (POS) data6. Price fluctuations and promotions7. Rationing and shortage gaming

Bullwhip Effect See figure 16.1 page 367 Variations are growing upstream the SCM

due to the lack of co-ordination in information and materials flow

Can be conducted using Vendor Managed Inventory VMI Customer Managed Ordering CMO

Figure 16.1

Localstore

Localstore

Regionalstore

Centralstore

1.6 Price fluctuations Temporary sales price changes or sales

promotions

Can increase volumes in the short term, but Buyers will stop buying when prices are high,

only buying again when discount prices are offered

Many retailers adopt an everyday low price

The Bullwhip Effect – Time delay Transfer of demand information in the

supply chain – see figure 16.2 page 369 The changes in the market demand is

registered at the manufacturer with a time delay

Meaning that the production is short of materials and then gaining back-orders

When these are delivered – the demand has lowered again, causing that the retailer will wait ordering more and so on

Figure 16.2

Supplier Product Regional Localmanufacturer distributor distributor

Endconsumer

Replenishmentorder

Replenishmentorder

Replenishmentorder

Development towards make-to-order Make-to-order means that the supplier can

be involved in the process of adding value in conjuction with customer orders

The time when no value is added often arises in transisition between sequential valueadding resources

Examples: Vola (internal transisition) Nike (global transition)

2. Driving forces towards increased co-opreration in Supply Chain1. Uncertain demand2. Operative dependency relationships3. Outsourcing and transaction costs

2.1 Uncertain demand p 370 Increasing difficulty in predicting future

demand Ever-shorter product life cycles Requirements to react faster to market

changes Increased importance in avoiding time delay –

which means a better Co-ordination of the flows of information and

materials

2.2 Operative dependency relationships Companies are increasingly avoiding

different types of buffers Materials: reduction of stocks Information: reduction af leadtimes

This tendency will cause strong dependency relationships

Only possible if it takes place in a spirit of co-operation between companies

2.3 Outsourcing and transaction costs pp 371-372 Transactions become more complex and

costly when carried out between external partners

Example: Orders changed from 100 to 10 pieces per order - the transaction costs will be multiplied by 10

Be careful when using value-adding transistions

Use a joint perspective to become efficient

3. Supply Chain Collaboration Conceptspage 3721. Customer Managed Ordering – CMO2. Vendor Managed Inventory – VMI3. Quick Respons4. Efficient Consumer Response – ECR5. Collaborative Planning Forecasting and

Replenisment – CPFR1+2: more optimal allocation of

administrative work etc.3+4+5: Strive to co-ordinate flows

3.1 Customer Managed Ordering CMO See figure 16.4 page 373 Reducing the total amount of

administrative work and the leadtime ERP-systems shared or bridged (extranet) The customer can manage more of the

ordering process himself or The entire ordering process, meaning that

no order confirmation

Figure 16.4

A common inter-organisational process for cross-company material flows

Purcha-sing

Inventorycontrol

Finance Transport

Forwarding

Store Orderentry

Pick

Pack

Invoicing

Accountsreceivable

Procurementprocess Order-to-delivery

process

Transport

Forwarding

Store Orderentry

Pick

Pack

Finance

Invoicing

Accountsreceivable

Purcha-sing

Inventorycontrol

Finance

Invoicing

Accountsreceivable

Transport

Forwarding

Supplier Customer

Figure 16.5

Supplier Customer

3.2 Vendor Managed Inventory VMI Who owns thw stocks that the vendor is

managing? Vendor´s deliveries are usually regulated

by an agreement between the parties Often the vendor will own the stocks The customer will then be invoiced when

products are withdrawn from the stock See figure 16.6 page 376

Figure 16.6

Supplier Customer

3.3 Quick Respons Enabling company to react faster to

market changes Holistic view of the supply chain Focus on synchronisation Based on access to and willingness to

exchange information Point-Of-Sales - POS-system See figure 16.7 page 378

Figure 16.7

Wholesaler Retailer

Sales information from point-of-sale via EDI

Sales paced stock replenishment

Customer

3.4 Efficient Consumer Respons ECR A joint initiative by members of the supply

chain to work to improve and optimise aspects of SCM in order to

Create benefits for the consumer: Lower prices More variants Better availability

See figure 16.8 page 379

Figure 16.8

Efficientpromotion

Efficient productlaunching

Efficient productrange control

Efficient goodssupply

3.5 Colaborative Planning Forecasting and Replenisment CPFR Aimed at creating collaborative

relationships between suppliers and customers through Common processes Structured exchange of information

To achieve Increased sales Cost effectiive material flow Less tied-up capital

P 380-381

4. Supply Chain Design Vertically

One owner has ownership influence over the parts of the supply chain (Zara and Ikea to some extent)

Laterally Supply Chain structured around several

independent organisations What a laterally SC gains i core

competence focus and flexibility it may lose in lack of understanding and control of the SC as a whole

See figure 16.10 page 382

Figure 16.10

Supplier Manufacturer Distributor Retailer

Endconsumer

Supplier Manufacturer Distributor Retailer

Endconsumer

b) Vertical integration – Degree to which a firm directly controls multiple links in the supply chain

a) Lateral integration – Coordinated management of separately owned links in the supply chain

Based on APICS (2005)

4.1 Physical vs. Market-Responsive SC Physical efficient SC (Lean Supply Chains)

Cost minimising Supporting functional products

Market-Responsive SC Focus on demand and flexibility Supporting innovative products

See how to match market and produst – figure 16.11 page 386

Figure 16.11

Functional InnovativeProduct type

Typ

eof

sup

ply

chai

n

Res

pons

ive

Ph

ysic

alef

feic

ient

Match

Match

Mismatch

Mismatch

Source: Fisher (1997)

4.2 Multiple SC – Combining Two approaches Focus on differentiating the SC before and

after the Customer Order Decoupling Point (CODP) (figure 16.12 page 388)

Focus on Base Demand and Surge Demand Base is predictable and forecasted (figure 16.13 page 389)

Figure 16.12

Delivery timeLead-time gap

Material supply Production Delivery

Total lead-time

Customer orderde-coupling point

Delivery timeLead-time gap

Material supply Production Delivery

Total lead-time

Customer orderde-coupling point

Physical efficientSupply chain

ResponsiveSupply chain

Figure 16.13

Dem

and

Time

Base

Surge

a) Same product b) Different products

Surge demand

80%

% of products%

of v

olu

me

by

valu

e

LowvolumeproductsMake-to-order

High volumeproductsMake-to-stockEconomyof scale

Surge demand

80%

% of products%

of v

olu

me

by

valu

e

LowvolumeproductsMake-to-order

High volumeproductsMake-to-stockEconomyof scale

High priority

Basedemand

5. Risk Management Strategies Risk Identification

Environmental risks, supply risks, demand risks, process risks, control risks

See figure 16.14 page 390 Risk Analysis

Gravity and probability See figure 16.15 page 391

Risk Management Strategy See case study 16.4 page 393 (Nokia –

Ericsson)

Figure 16.14

Supply risk

Control risk

Demand riskProcess risk

Environmental risk

Figure 16.15

Leve

lof g

ravi

dity

Risk probabilityLow High

Low

Hig

h

Low risk criticality

High risk criticality