lecture 12 supply chain mgmt - georgia state universitydscgpz/mgs4700/chap10.pdf · supply chain...
TRANSCRIPT
Supply Chain Management
MGS4700 Operations Management
Lecture 12
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
2
Lecture Outline
Supply Chain ManagementSupply Chain Uncertainty: The Bullwhip Effect Information Technology: A Supply Chain EnablerSupply Chain IntegrationMeasuring Supply Chain Performance
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
3
What Is Supply Chain & Supply Chain Management?
Supply ChainThe facilities, functions, and activities involved in producing and delivering a product or service from suppliers (and their suppliers) to customers (and their customers)
Supply Chain Management (SCM)A total system approach to managing the entire flow of information, goods, and services from raw-material suppliers through factories and warehouses to the end customer to achieve a level of synchronization to serve customers more promptly with lower costs.
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
4
Supply Chain Illustration
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
5
Supply Chain Processes
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
6
Supply Chain Flows
Capacity, promotion plans, delivery schedules
Raw materials, Intermediate products, finished goods
Credits, consignment, payment terms, invoice
Information
MaterialFinance
Payments, consignment
Returns, repairs, servicing, recycling, disposal
Suppliers Manufacturers Distributors Retailers Customers
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
7
Supply Chain Uncertainty
A goal of SCM is to respond to uncertainty in customer demand without creating costly excess inventory
Inventory - insurance against supply chain uncertaintyFactors that contribute to uncertainty
inaccurate demand forecastinglong variable lead timeslate deliveriesincomplete shipmentsproduct changes batch ordering price fluctuations and discountsinflated orders
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
8
Information Distortion in Supply Chain
The Bullwhip EffectRetailer’s Ordersto Wholesalers
Wholesaler’s Ordersto Manufacturers
Manufacturer’s Ordersto Suppliers
Time
Customer’s Demandto Retailers
Time
Time Time
Bullwhip Effect: The increasing variability in demand orders from downstream customers to upstream suppliers
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
The Bullwhip Effect
Slight demand variability is magnified as information moves back upstream
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
10
The Bullwhip Effect Example
P&G’s Pampers Diaper
01020304050607080
1 3 5 7 9 11 13 15 17 19 21
Week
Ord
er
FactoryDistributorWholesalerRetailerCustomer
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
11
The Bullwhip Effect Example
Campbell Soup
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
12
The Bullwhip Effect
ConsequencesInefficiency and/or irresponsiveness in the supply chain operations
Excessive inventoryUncertain production planning with excessive revisionsInsufficient or excessive capacitiesPoor customer services due to unavailable products or long backlogsHigh costs for corrections such as expedited shipments or overtime
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
13
Causes of The Bullwhip Effect:
1. Demand Forecast Updating
Every company in a supply chain usually makes product forecasting for its production planning, inventory control etc.Forecasting is often done myopically based on the order history from the company’s immediate customers.
Manufacturer Wholesaler/distributor Retailer Consumer Supplier
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
14
Causes of The Bullwhip Effect:
2. Order Batching
time
Retailer
April 1 June 1May1
sale
s
Retailer experiences demand every day but does not order from the supplier every day because of
ordering costtransportation cost
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
15
orde
rs re
ceiv
ed
Supplier
timeApril 1 June 1May1
Consider a retailer that orders once a month from its supplier. The supplier faces a highly erratic stream of orders. There is a spike in demand at one time during the month, followed by no demands for the rest of the month.
Causes of The Bullwhip Effect:
2. Order Batching (cont.)
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
16
Causes of The Bullwhip Effect:
3. Price FluctuationWhat Happens:
Supplier offers a sales promotion (temporary discount)Buyer purchases more than they needBuyer’s inventory goes up, supplier may get backloggedSupplier ends promotionBuyer orders less because they have larger inventory
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
17
Causes of The Bullwhip Effect:
3. Price Fluctuation (cont.)It was estimated that 80 percent of the transactions between distributors and manufacturers in the grocery industry are made in a forward buy arrangement
A forward buy is one in which items are bought in advance of requirements, usually because of a manufacturer’s attractive price offer With price fluctuations, customers buy in quantities that do not reflect their immediate needs:
They buy in larger quantities and stock up when price is lowThey postpone purchases when price is regular or high
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
18
Causes of The Bullwhip Effect:
4. Rationing & Shortage Gaming
When a product's anticipated demand exceeds supply, manufacturer may ration its products and retailers tend to order more just in case that they may not be able to get enough later onConsider the following example:
1. Normally you order 100 cases of soda per week, but on Memorial Day you order 200. Due to shortage, the wholesaler only ships you 150.
2. You want to get 200 cases for July 4 weekend. How many do you order?
3. How do you respond when the excess finally arrives?
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
19
How to Counteract the Bullwhip Effect?
Innovative companies in different industries have found that they can control the bullwhip effect and improve their supply chain performance by coordinating information and planning along the supply chain
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
20
Counteract the Bullwhip
Sharing sales and inventory dataAllocation based on past sales
4. Shortage Gaming
Every day low price (EDLP)3. Price Fluctuations
Use of EDI (to reduce ordering costs)Logistics outsourcing
2. Order Batching
Use of point-of-sale (POS) dataElectronic data interchange (EDI)Vendor-managed inventoryCollaborative forecasting (CPFR)
1. Demand Forecasts Updating
ApproachesCause of Bullwhip
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
21
Counteract the Bullwhip Effect
Avoid Multiple Demand Forecast Updates
Make demand data at a downstream site available to the upstream site, e.g. point-of sale data via EDICollaborative Planning, Forecasting and Replenishment (CPFR)Vendor Managed Inventory (VMI)
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
22
Electronic Data Interchange (EDI)
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
23
Counteract the Bullwhip Effect
Break Order Batches
Let distributor and retailer order more often:Use electronic transactions (EDI) to decrease ordering cost;Induce distributors and retailers to order assortments of different products so that a truck is full load and as a result, transportation cost can be reduced.Third party logistics (logistics outsourcing)
P&G has been giving discounts to distributorsthat are willing to order its mixed products.
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
24
Counteract the Bullwhip Effect
Stabilize Prices
Manufacturers can establish a uniform wholesale pricing policyRetailers give an every day low price
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
25
Counteract the Bullwhip Effect
Eliminating Shortage Gaming
When a supplier faces a shortage, it can allocate in proportion to past sales records. Customers then have no incentives to exaggerate their orders.Penalty for order cancellation can also mitigate retailers’ order exaggeration.
GM allocates popular products to dealers based on past sales
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
26
Keys to Effective SCM
informationcommunicationcooperationtrust Information
Communication
CooperationTrust customer
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
27
Information Technology: A Supply Chain Enabler
Information links all aspects of the supply chain
Electronic data interchange (EDI)Bar code and point-of-saleRadio frequency identification (RFID)Internet
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
28
Measuring Supply Chain PerformanceKey performance indicators
inventory turnovercost of annual sales per inventory unit
inventory days of supplynumber of days inventory is available at any point in time
fill ratefraction of orders filled by a distribution center within a specific time period
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
29
Inventory turns =Average aggregate value of inventory
Cost of goods sold
Average aggregate value of inventory == Σ (average inventory for item i) X (unit value item i)
Days of supply =(Costs of goods sold)/(365 days)Average aggregate value of inventory
Measuring Supply Chain Performance
Inventory Related Indicators
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
30
SC Performance Indicators
Example (Problem 10-1, p.429)
Inventory turns =$33.2
$470
Days of supply =($470)/(365)
$33.2
= 14.2
= 25.8
1. Cost of goods sold: $4702. Raw materials: $17.53. Work-in-process: $9.34. Finished goods: $6.45. Total average aggregate value of inventory (2+3+4): $33.2
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
31
The SCOR Model(Supply Chain Operations Reference)
PlanDevelop a course of action that best meets sourcing, production and delivery requirements
SourceProcure goodsand services tomeet plannedor actualdemand
MakeTransformproduct to a finished state to meet planned or actualdemand
DeliverProvide products to meet demand, including ordermanagement, transportation and distribution Return
Returnproducts,post-deliverycustomersupporta cross industry supply chain diagnostic tool
maintained by the Supply Chain CouncilSeeks to establish targets to achieve “best in class” performance
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
32
SCOR - Metrics
Customer FacingSC Delivery Reliability
Delivery performanceFill rate Perfect order fulfillment
SC ResponsivenessOrder fulfillment lead time
SC FlexibilitySC response timeProduction flexibility
Internal FacingSC Cost
SCM costCost of goods soldValue-added productivityWarranty/returns processing
SC Asset Mgt EfficiencyCash-to-cash cycle time Inventory days of supply Asset turns
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
Radio Frequency IDentification (RFID)
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
34
Bar Codes
The machine-readable representation of the Universal Product Code (UPC)UPC is a unique 12-digit number assigned to retail merchandise that identifies both the product and the vendor that sells the product The first six digits identifies the vendor. The next five digits are the product’s unique reference number. The last number is called the check digit that is used to verify that the UPC for that specific product is correct
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
35
Radio Frequency Identification (RFID)
A major technology for tracking goods and assets around the world --- from the point of manufacturing through to the retail point-of-sale.
Universal Product Code (UPC)
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
36
Some Applications
Manufacturing, logistics and material handling (e.g., Pharmaceutical companies can use RFID to ensure medicines are put into correctly labored packages.)Inventory tracking and managementSafety and securityCashless paymentCustomer service
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
37
State of RFID Deployment
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
38
How Does RFID Work?
RFID uses low-power radio signals to exchange data wirelessly between chips and readers/encoders.RFID tags: an integrated circuit (IC ) attached to an antenna.RFID reader
Handheld terminalsFixed and positioned at strategic points
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
39
How Does RFID Work?
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
RFID Capabilities
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
RFID Capabilities (cont.)
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
42
Benefits of RFID-Consumers
Convenience
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
43
Benefits of RFID-Retailers
Efficiency in Inventory Eliminate Overstocking
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
44
Benefits of RFID--Supply Chain Automation
Computers will be able to 'see' physical objects, allowing manufacturers to be able to track and trace items automatically throughout the supply chain. This technology will revolutionize the way that products are manufactured, transported, stored, and purchased.
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________