Description
The PPT about how to integrate supply chain by combating bullwhip effect.
Supply Chain Integration Bullwhip and Integration
1
What is the bullwhip effect?
• Demand variability increases as you move up the supply chain from customers towards supply
Equipment Tier 1 Supplier
Factory
Distributor
Retailer
Customer
2
Bullwhip effect in autos to machine tools
Machine tools
Autos
80%
% change in demand
60% 40% 20% 0% -20% -40% -60% -80%
GDP = solid line
Source:Anderson, Fine and Parker (1996)
3
Consequences of the bullwhip effect
• • • excessive inventory. Necessity to have capacity far exceeding average demand. Poor customer service due to stockouts.
4
Causes of the bullwhip effect
• • • Order synchronization Order batching Trade promotions and forward buying
•
Reactive and over-reactive ordering
5
Impact of Forecast Updating: Buyer–Supplier Link
• Buyer- supplier • Lead-time for buyer = 2 weeks – 1 Week for order transmission & 1 week for delivery • Manufacturing Lead-time for supplier = 2 weeks • Forecasting and SS policy used by buyer & supplier – Forecast = current period demand – Safety stock = 2 weeks of cover
Demand Distortion Across a Chain
Demand Distortion: Unnecessary Inventory at Buyer–supplier Interface
Material flow Information PVC pipe producer
Supplier Plant
PVC producer
Customer plant
FG inventory at RM inventory at supplier plant customer’s plant Demand as perceived by supplier
Consumption pattern at customer’s end
Challenges in Supply Chain Integration
• Firms tend to focus on value appropriation and not on value creation
– Power balance in chain
• Inherent conflict which can not be addressed by incentive alignment
– Different stakeholders – Different objectives – Different worldview of future
• Dynamic nature of relationships
Strategies to combat the bullwhip effect
• Information sharing: – Collaborative Planning, Forecasting and Replenishment (CPFR) Smooth the flow of products – Coordinate with retailers to spread deliveries evenly. – Reduce minimum batch sizes. – Smaller and more frequent replenishments (EDI). Eliminate pathological incentives – Every day low price – Restrict returns and order cancellations – Order allocation based on past sales in case of shortages Vendor Managed Inventory (VMI): delegation of stocking decisions – Used by Barilla, P&G/Wal-Mart and others. •
•
•
10
Conceptual View of the ECR
Multi Echelon Inventory Models
• With the use of IT, the inventory information at say retail outlets and warehouse will become available to the firm (like say Spencer) , then should the firm use the previous inventory results while managing inventories.
12
• The decision maker can use of the system wide information to reduce system wide costs.
• This is where multi echelon inventory models can be useful • Is the old theory completely useless then ?
13
• Echelon inventory = • inventory on the shelf at the echelon + inventory available at its customers shelves + inventory in transit to its customers Echelon Inventory position = Echelon Inventory + inventory ordered by that echelon – backordered items
14
• Echelon lead time = The total lead time required to move the product from its vendor to the final end customer.
• For example, at retailer’s warehouse , • It would be the lead time between the retailer outlet and warehouse and the lead time between the warehouse and the supplier
15
• Suppose For Gemini Sunflower oil, Shopper Sprite faces an average daily demand of 45 bags with standard deviation of 32 bags. Average lead time between the retail outlet in Mulund and the company’s warehouse is 1 day. Also the lead time between the company’s warehouse and CFA is 1 day. Design the appropriate inventory policy. Use 97 % service level.
16
Using R, Q policy
• Reorder point at the Mulund Outlet • = 1 x 45 + 1.88 x 32 x SQRT(1) • = 105 bags • Reorder point at the Vikroli Warehouse • = 2 x 45 + 1.88 x 32 x SQRT(2) • = 175 bags
17
doc_512922399.ppt
The PPT about how to integrate supply chain by combating bullwhip effect.
Supply Chain Integration Bullwhip and Integration
1
What is the bullwhip effect?
• Demand variability increases as you move up the supply chain from customers towards supply
Equipment Tier 1 Supplier
Factory
Distributor
Retailer
Customer
2
Bullwhip effect in autos to machine tools
Machine tools
Autos
80%
% change in demand
60% 40% 20% 0% -20% -40% -60% -80%
GDP = solid line
Source:Anderson, Fine and Parker (1996)
3
Consequences of the bullwhip effect
• • • excessive inventory. Necessity to have capacity far exceeding average demand. Poor customer service due to stockouts.
4
Causes of the bullwhip effect
• • • Order synchronization Order batching Trade promotions and forward buying
•
Reactive and over-reactive ordering
5
Impact of Forecast Updating: Buyer–Supplier Link
• Buyer- supplier • Lead-time for buyer = 2 weeks – 1 Week for order transmission & 1 week for delivery • Manufacturing Lead-time for supplier = 2 weeks • Forecasting and SS policy used by buyer & supplier – Forecast = current period demand – Safety stock = 2 weeks of cover
Demand Distortion Across a Chain
Demand Distortion: Unnecessary Inventory at Buyer–supplier Interface
Material flow Information PVC pipe producer
Supplier Plant
PVC producer
Customer plant
FG inventory at RM inventory at supplier plant customer’s plant Demand as perceived by supplier
Consumption pattern at customer’s end
Challenges in Supply Chain Integration
• Firms tend to focus on value appropriation and not on value creation
– Power balance in chain
• Inherent conflict which can not be addressed by incentive alignment
– Different stakeholders – Different objectives – Different worldview of future
• Dynamic nature of relationships
Strategies to combat the bullwhip effect
• Information sharing: – Collaborative Planning, Forecasting and Replenishment (CPFR) Smooth the flow of products – Coordinate with retailers to spread deliveries evenly. – Reduce minimum batch sizes. – Smaller and more frequent replenishments (EDI). Eliminate pathological incentives – Every day low price – Restrict returns and order cancellations – Order allocation based on past sales in case of shortages Vendor Managed Inventory (VMI): delegation of stocking decisions – Used by Barilla, P&G/Wal-Mart and others. •
•
•
10
Conceptual View of the ECR
Multi Echelon Inventory Models
• With the use of IT, the inventory information at say retail outlets and warehouse will become available to the firm (like say Spencer) , then should the firm use the previous inventory results while managing inventories.
12
• The decision maker can use of the system wide information to reduce system wide costs.
• This is where multi echelon inventory models can be useful • Is the old theory completely useless then ?
13
• Echelon inventory = • inventory on the shelf at the echelon + inventory available at its customers shelves + inventory in transit to its customers Echelon Inventory position = Echelon Inventory + inventory ordered by that echelon – backordered items
14
• Echelon lead time = The total lead time required to move the product from its vendor to the final end customer.
• For example, at retailer’s warehouse , • It would be the lead time between the retailer outlet and warehouse and the lead time between the warehouse and the supplier
15
• Suppose For Gemini Sunflower oil, Shopper Sprite faces an average daily demand of 45 bags with standard deviation of 32 bags. Average lead time between the retail outlet in Mulund and the company’s warehouse is 1 day. Also the lead time between the company’s warehouse and CFA is 1 day. Design the appropriate inventory policy. Use 97 % service level.
16
Using R, Q policy
• Reorder point at the Mulund Outlet • = 1 x 45 + 1.88 x 32 x SQRT(1) • = 105 bags • Reorder point at the Vikroli Warehouse • = 2 x 45 + 1.88 x 32 x SQRT(2) • = 175 bags
17
doc_512922399.ppt