Transcript
S. Chopra/Operations/Supply Chain 1
Supply Chain Management Managing Material Waiting Time
S. Chopra/Operations/Supply Chain 2
Outline
A key to matching supply and demand Levers for improved matching of supply and
demand The bullwhip effect: Barilla The impact of aggregation
S. Chopra/Operations/Supply Chain 3
The Supply Chain
The Procurementor supply system
The OperatingSystem The Distribution System
Raw Materialsupply points
Movement/Transport
Raw MaterialStorage Movement/
TransportMovement/Transport
STORAGE
STORAGE
STORAGE
PLANT 1
PLANT 2
PLANT 3
WAREHOUSE
WAREHOUSE
WAREHOUSE
Movement/Transport
MARKETS
ManufacturingFinished GoodsStorage
A
B
C
S. Chopra/Operations/Supply Chain 4
Key Financial Indicators of Supply Chain Performance
Return on Assets Net Present Value … …
These are LAGGING indicators. What must the supply chain do to achieve this?
S. Chopra/Operations/Supply Chain 5
Costs of not Matching Supply and Demand
Cost of overstocking – liquidation, obsolescence, holding
Cost of under-stocking – lost sales and resulting lost margin
S. Chopra/Operations/Supply Chain 6
Accurately Matching Demand with Supply is the Key Challenge: Inventories ... by 1990 Wal-Mart was already winning an important
technological war that other discounters did not seem to know was on. “Wal-Mart has the most advanced inventory technology in the business and they have invested billions in it”. (NYT, Nov. 95).
WSJ, Aug. 93: Dell Computer stock plunges. The company was sharply off in forecast of demand resulting in inventory writedowns.
BW 1997:
S. Chopra/Operations/Supply Chain 7
Mass Customization
Mass Production– Produce goods and services at low enough cost that
nearly everyone can afford them Mass Customization
– Produce goods and services at affordable prices with enough variety and customization that nearly everyone can find exactly what they want
S. Chopra/Operations/Supply Chain 8
Implications
Markets have become increasingly heterogeneous Demand for individual products is very unstable Along with shorter development cycles comes
shorter product life cycles How to provide increased variety and keep costs
down?
S. Chopra/Operations/Supply Chain 9
A Key to Matching Supply and Demand
When would you rather place your bet?
A B C DA: A month before start of DerbyB: The Monday before start of DerbyC: The morning of start of DerbyD: The lead horse is an inch from the finish line
S. Chopra/Operations/Supply Chain 10
Push/Pull View of Supply Chains
Procurement,Manufacturing andReplenishment cycles
Customer OrderCycle
CustomerOrder Arrives
PUSH PROCESSES PULL PROCESSES
S. Chopra/Operations/Supply Chain 11
Role of Inventory in the Supply ChainImprove Matching of Supply
and Demand
Improved Forecasting
Reduce Material Flow Time
Reduce Waiting Time
Reduce Buffer Inventory
Economies of ScaleSupply / Demand
VariabilitySeasonal
Variability
Cycle Inventory Safety InventoryFigure Error! No text of
Seasonal Inventory
S. Chopra/Operations/Supply Chain 12
Demand uncertainty and forecasting Forecasts are usually (always?) wrong A good forecast includes a measure of forecast
error, e.g., standard deviation The forecast horizon must at least be as large as
the lead time. The longer the forecast horizon, the less accurate the forecast
Aggregate forecasts tend to be more accurate than disaggregate forecasts.
S. Chopra/Operations/Supply Chain 13
Demand uncertainty and forecasting
Year Demand Forecast Error1986 2701987 3091988 2741989 2681990 2681991 316
S. Chopra/Operations/Supply Chain 14
Uncertainty
Uncertainty
InformationUncertainty
CustomerDemand
Uncertainty
S. Chopra/Operations/Supply Chain 15
S. Chopra/Operations/Supply Chain 16
S. Chopra/Operations/Supply Chain 17
S. Chopra/Operations/Supply Chain 18
Information Uncertainty: Barilla Spa
Why are order sizes at Pedrignano so much more variable than those at Cortese?
What can Barilla do to improve coordination in its supply chain?
S. Chopra/Operations/Supply Chain 19
The Bull-Whip Effect:Causes
Rational and Optimizing Players in Supply Chain– Order Batching – Price Variations– Sales Force Incentives– Demand Signal Processing – Rationing Game
S. Chopra/Operations/Supply Chain 20
Reducing Batch Size
Wal-Mart: 3 day replenishment cycle Seven Eleven Japan: Multiple daily replenishment P&G: Mixed truck loads Efforts required in:
– Transportation (Cross docking)– Information– Receiving
S. Chopra/Operations/Supply Chain 21
Quantity Discounts
Cost/Unit
Order Quantity
$3$2.96
$2.92
5,000 10,000
Quantity Discounts
S. Chopra/Operations/Supply Chain 22
Trade Promotions
0
50
100
150
200
250
300
350
Consumption
•Trade Promotions
S. Chopra/Operations/Supply Chain 23
Trade promotions
0
100
200
300
400
500
600
700
800
ShipmentsConsumption
•Trade Promotions
S. Chopra/Operations/Supply Chain 24
The Bullwhip Effect: Countermeasures Order Batching
– Reduce setup cost, aggregation during transport, switch to volume based quantity discounts (rolling horizon)
Price Variations– Every day low pricing, sell-thru based promotions
Sales Force Incentives– Incentives based on sell-thru, rolling horizon
Demand Signal Processing – Supply chain visibility, collaborative forecasting and planning
Rationing Game– Turn and earn
S. Chopra/Operations/Supply Chain 25
S. Chopra/Operations/Supply Chain 26
S. Chopra/Operations/Supply Chain 27
Tackling Demand Uncertainty
The longer the forecast horizon, the less accurate the forecast– Supply Chain Goal: Quick Response
Aggregate forecasts tend to be more accurate than disaggregate forecasts– Supply Chain Goal: Accurate Response
S. Chopra/Operations/Supply Chain 28
Quick Response
Shorten supply lead time Increase replenishment frequency Coordinate supply chain
S. Chopra/Operations/Supply Chain 29
A Key to Accurate Response: Inventory Pooling
System A (Decentralized) System B (Centralized)
Which of the two systems provides a higher level of service for a given levelof safety stock?
S. Chopra/Operations/Supply Chain 30
Accurate Response Examples
Information centralization: Wal-Mart, The Gap, mail order
Specialization: W.W. Grainger
Product substitution: Dell, Category
Management
S. Chopra/Operations/Supply Chain 31
Accurate Response at Dell
•Geographical aggregation: One location in the US; three locations worldwide
•SKU aggregation: Postponement and componentcommonality
Customer orderarrives
Final Assembly and deliveryManufacture common components
S. Chopra/Operations/Supply Chain 32
Hewlett Packard: Postponement
Vancouver DC Sale
NoPostponement(unit cost cheap)
Postponement(unit costexpensive)
Localization at DC
Localization at Vancouver
S. Chopra/Operations/Supply Chain 33
Improved Matching of Supply and Demand
Improve Matching ofSupply and Demand
Improved Forecasting
Reduce Material FlowTime
Reduce Waiting Time
Reduce Buffer Inventory
Economies of ScaleSupply / Demand
Variability Seasonal Variability
1. Reduce fixed cost perbatch
2. Evaluate quantitydiscounts
3. Reduce trade promotions
1. Reduce demand variability2. Reduce delivery lead time3. Reduce variability of delivery lead time4. Pool the safety stock using
Physical Centralization Information centralization Specialization Raw material commonality / postponement Substitution
Reduceinformationuncertainty
top related