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Managing Supply Chains

Prepared by Saroop Anwer

BS Computer Science

MS Business Management

Ph. D Scholar Supply Chain Management

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Bullwhip Effect

Small changes at retail level leading to huge swingsat manufacturing, like bullwhip

Several retailers order all at once, distributor thinkssales have jumped, they order a much bigger lot size

Demand variability increases as you move up thesupply chain

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The Dynamics of the Supply Chain

OrderS

ize

Time

Customer

Demand

Retailer Orders

Distributor Orders

Production Plan

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The Dynamics of the Supply Chain

OrderS

ize

Time

Customer

Demand

Production Plan

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Managerial insights

Bullwhip effect is caused by forecasting.

Smoother demand forecast reduces thebullwhip effect.

With longer leadtime we need to use more

demand data to reduce bullwhip effect. The magnitude of increase in variability

depends on the forecasting method

The bullwhip effect can be reduced by

centralized information

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Demand Collaboration

strategy

Supply Chain Strategies

In the future, competition will not becom pany versus company, but w i l l be Supp ly

Chain versus Supply Chain.

Adapted from Martin Christopher

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Where lies the true demand?

Any supply chain has only one point of

independent demandthat is theamount of product demanded by the end user

or real customer of the supply chain. Customers determine the true demandfor the

product that flows through the supply chain.

What ever demand that changes its shape in

the upstream flow of supply chain is deriveddemand

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What is Collaboration?

Entities of supply chain working together,

sharing processes, technologies and

information to maximize value for the whole

enterprise or more precisely a Supply Chain Other synonyms are unite, relationship,

teamwork, group effort and cooperation.

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Demand Collaboration

Sharing information of demand

Communicating all trading members

How much product to have available andwhen?

Demand drives the value chain

An extremely important objective of demand

collaboration is to dampen the bullwhip

effect & strip inventory from the supply chain

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Why at all Collaborate?

Supplier require demand stabilityat least

over a short termto optimize the

production and procurement processes.

This stability is basis for financial benefit

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To lessen the Impact of distorted

information because this.

Can lead to

tremendous inefficiencies throughout the chain,

excessive inventories,

poor customer service, lost revenues,

ineffective shipments and

missed production schedule

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Process

Regularly and routinely receiving

information on customer end about demand

Vital information only

On-hand inventory balances Order schedules and statuses

Point of sales data sharing is key

Forecasts to be shared All kinds of system updates or changes

anywhere to be shared everywhere.

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There are problem areas still.

Pace of adopting new ways of doing businessis slow

Lack of trust to share pertinent information & to

collaborate on decision making Not communicating to execute the agreed plan.

Not willing to end up in a winwin

The downstream members still think that

sharing demands would convert a demand

driven supply chain into supply driven which is

their wrong perception.

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Concept of a Demand-Driven

Supply Chain

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Benefits

When demand value is visible throughout the valuechain, it reduces uncertainty about the volume and

timing of demand

There will be less need for tactics I.e. safety stocks

as hedge against the unknown Lead times could be shortened as less unneeded

product would be made

Freeing up production capacity

Right amount of product would be available at theright point of consumption

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All this is done automatically through the use

of IT/SCM software

Key for P&G is accurate demand information

P&G has similar agreements with other majorretailers

Demand Collaboration b/w P&G-Wal-Mart

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Business Model of Dell Computers

Classic example of Demand Driven Process

Essence of the business approach is that ituses consumer demand to trigger the

materials flows As Michael Dell has explained

We tell our suppliers EXACTLY what our dailyproduction requirements are.

The basic idea is to move the actual orders asfar upstream as possible, while still retaining thecapability to meet the customer's requiredavailability date

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Virtual integration

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Virtual Integration

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Conclusion

In all of these cases, real demand data,

pushed back upstream as far as possible,

can be used to dampen what has become

known as the "bullwhip effect" of inventorycreation.

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MIT Research

In fact, recent research at MITindicatesthat information visibility and collaboration

offer savings of between 40 and 70 percent

in inventory costs for the total chain.

http://www.mit.edu/http://www.mit.edu/