isqa 458/558 distribution & replenishment professor mellie pullman
Post on 22-Dec-2015
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ISQA 458/558
Distribution & Replenishment
Professor Mellie Pullman
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Point-of-sales Data: Original
POS Data After Removing Promotions
Promotions and their Impact on the Supply Chain
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POS Data After Removing Promotion & Trend
Promotion & TrendImpact on the Supply Chain
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Increasing Variability of Orders Up the Supply Chain
= Bullwhip Effect
Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review
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We Conclude ….
• Order Variability is amplified up the supply chain; upstream echelons face higher variability.
• What one member experiences is not what upstream members face.
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What are the Causes….
• Promotional sales
• Inflated orders to manage risk
- IBM Aptiva orders increased by 2-3 times when retailers though that IBM would be out of stock over Christmas
• Demand Forecast
• Long cycle times
• Order Batching
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Consequences….
• Increased safety stock
• Reduced service level
• Inefficient allocation of resources
• Increased transportation costs
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The Bullwhip Effect:Managerial Insights
• Exists, in part, due to the retailer’s need to estimate the mean and variance of demand.
• The increase in variability is an increasing function of the lead time.
• The more complicated the demand models and the forecasting techniques, the greater the increase.
• Centralized demand information can reduce the bullwhip effect, but will not eliminate it.
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Coping with the Bullwhip Effect
• Reduce Variability and Uncertainty
- POS
- Sharing Information
- Year-round low pricing (Every day Low Prices EDLP)• Reduce Lead Times
- EDI
- Cross Docking• Alliance Arrangements
– Vendor managed inventory– On-site vendor representatives
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Distribution Strategiesand Information Systems
Pull Vs. Push Strategies
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Push Strategies• Single retailer, single manufacturer.
– Retailer observes customer demand, Dt.
– Retailer orders qt from manufacturer.
Retailer ManufacturerDt qt
L
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Problems with Push Strategies:
• Excess finished goods inventory • Inefficient production• Inefficient operations, high costs, low service
levels
- Excess capacity
- Low utilization of resources
- High transportation cost
Distribution Strategiesand Information Systems
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Pull Strategies
POS Data
Retailer ManufacturerDt qt
L
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Pull Strategies• Production is demand driven• Faster information flow mechanisms are used• Inventory levels are reduced• Distribution facilities are transformed from
storage points to coordinators of flow.• But:
– Harder to leverage economies of scale– Doesn’t work in all cases
Distribution Strategies and Information Systems
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Distribution Strategies
• Warehousing
• Direct Shipping– No DC needed– Lead times reduced– “smaller trucks”– no risk pooling effects
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Distribution StrategiesStrategy Attribute
Direct Shipment
Cross Docking
Inventory at Warehouses
Risk Pooling
Take Advantage
Transportation Costs
Reduced Inbound Costs
Reduced Inbound Costs
Holding Costs
No Warehouse Costs
No Holding Costs
Demand Variability
Delayed Allocation
Delayed Allocation
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Supply Chain Management:Pitfalls and Opportunities
Conflicting Objectives in the Supply Chain1. Purchasing
• Stable volume requirements• Flexible delivery time• little variation in mix• large quantities
2. Manufacturing• Long run production• High quality• High productivity• Low production cost
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Supply Chain Management:Pitfalls and Opportunities
3. Warehousing• Low inventory• Reduced transportation costs• Quick replenishment capability
4. Customers• Short order lead time• High in stock• Enormous variety of products• Low prices