Emerging Practices in SCM

1. Emerging Practices in SCM Logistics and Supply Chain Chapter 16

2. 1. Negative effects in SCM • Large order quantities • Few customers • Long leadtimes • Non-alligned planning and control • Not sharing Point-Of-Sales (POS) data • Price fluctuations and promotions • Rationing and shortage gaming

3. 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

4. Figure 16.1

5. Synchronising the flow • 16.3 Collaboration Concepts: • Optimizing allocation: • Customer Managed Ordering (CMO) • page 372 • Vendor Managed Inventory (VMI) • page 375 • Coordinating Flows: • Quick Respons (QR) • Page 377 • Efficient Consumer Response – ECR • Page 378 • Collaborative Planning Forecasting and Replenisment – CPFR • Page 380

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

7. 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

8. Figure 16.2

9. 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)

10. Figure 16.3

11. 2. Driving forces towards increased co-opreration in Supply Chain • Uncertain demand • Operative dependency relationships • Outsourcing and transaction costs

12. 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

13. 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

14. 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

15. 3. Supply Chain Collaboration Conceptspage 372 • Customer Managed Ordering – CMO • Vendor Managed Inventory – VMI • Quick Respons • Efficient Consumer Response – ECR • Collaborative Planning Forecasting and Replenisment – CPFR 1+2: more optimal allocation of administrative work etc. 3+4+5: Strive to co-ordinate flows

16. 1+2: More optimal allocation of administrative work etc. • Customer Managed Ordering – CMO • Vendor Managed Inventory – VMI • See figure 16.4 page 373 • Reducing the total amount of administrative work and the leadtime • ERP-systems shared or bridged (extranet)

17. Figure 16.4

18. 3.1 Customer Managed Ordering CMO • The customer can manage more of the ordering process himself or • The entire ordering process, meaning that no order confirmation

19. Figure 16.5

20. 3.2 Vendor Managed Inventory VMI • Who owns the 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

21. Figure 16.6

22. 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

23. Figure 16.7

24. 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

25. Figure 16.8

26. 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

27. 4. Supply Chain Design • Vertically integrated SC • One owner has ownership influence over the parts of the supply chain • Laterally intergrated SC • Supply Chain structured around several independent organisations • What a laterally SC gains in 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

28. Figure 16.10

29. Examples of Vertical and Lateral • Vertical integration • Zara and Ikea are examples of companies building their supply chains on vertical integration to some extent • Lateral integration • SuperBest, Nyt Syn and Sportsmaster are examples • (120 frivillige kæder i DK) • (Matas og Tøjseksperten er eksempler på kæder der er blevet solgt og dermed er blevet egentlige kæder) • (Detailomsætning i DK • uafhængige forretninger omkring 1/6 • frivillige kæder, står for ca. 1/3 • butikker ejet af kapitalkæder har lidt under 1/2)

30. PUSH and PULL • PUSH • Produces goods in accordance to forecasts and then PUSHes the goods along the SC • PULL • Starts producing when an order is received from the customer and deliver in a short time. The customer is then PULLing the goods out of the supplier

31. New ways of designing PUSH/PULL PULL PUSH Physical Efficient SC Market-Responsive SC • Both Chains require short leadtimes but differ with respect to • Costs and • Adaptability • Physical Efficient SC (Lean SC) focus on: • High utilisation of capacity in production • Reducing stocks • Market-Responsive SC (Agile SC) focus on: • Where it is best to have storage and extra production capacity • How to satisfy the unpredictable demand at the lowest possible cost

32. 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

33. Figure 16.11

34. Multiple Supply Chain • Combining physical efficient and market-responsive approaches • Vertical combination • Before and after the Customer Order Decoupling Point (see fig. 16.12) • Horisontal combination • Base demand and surge demand (see fig 16.13)

35. Figure 16.12

36. Figure 16.13

37. 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)

38. Figure 16.14

39. Figure 16.15