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