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Supply Chain Integration

Designing & Managing The Supply Chain Chapter 5. Supply Chain Integration. Zhang Xiaohui. Case: Modern Book Distribution. Seven regional warehouses, services major bookstore chains and smaller independent booksellers Bookselling industry change

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Supply Chain Integration

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  1. Designing & Managing The Supply Chain Chapter 5 Supply Chain Integration Zhang Xiaohui

  2. Case: Modern Book Distribution • Seven regional warehouses, services major bookstore chains and smaller independent booksellers • Bookselling industry change • superstores: require MDB ship directly to stores • online booksellers: establish their own DC • Opportunities and challenges for MDB

  3. Contents • Introduction • Push, pull, push-pull systems • Demand-driven strategies • Impact of the Internet on supply chain strategies • Distribution strategies • Central versus Decentralized Control • Central versus local facilities • Summary

  4. Introduction • Supply chain integration coordinate activities across the supply chain, including coordinating production, transportation, inventory decisions and more generally, integrating the front-end of the supply chain – customer demand, to the back-end of the supply chain – the production and manufacturing portion. • Purpose • reduce cost • increase service level • reduce the bullwhip effect • better utilize resources • effectively respond to changes in the market place

  5. Push, pull, push-pull systems • Push-based supply chain production and distribution decisions are based on long-term forecasts. • React slow and large variability lead to: • Inability to meet changing demand patterns • Excessive inventories • Larger and more variable production batches • Unacceptable service levels • Product obsolescence

  6. Push, pull, push-pull systems. cont • Pull-based supply chain • production and distribution are demand driven. • Effect: • decrease lead times • decrease inventory of retailers • decrease variability in the system • decrease inventory of manufacturer • Lead times too long, difficult to implement pull-based systems • Difficult to take advantage of economies of scale in manufacturing and transportation

  7. Push-pull boundary Push strategy Pull strategy Raw materials End customer Push, pull, push-pull systems. cont • Push-pull supply chain some stages operated in a push-based manner, the remaining stages employ a pull-based strategy. (PC, delayed differentiation) • The interface: push-pull boundary Supply chain time line

  8. Push, pull, push-pull systems. cont • Aggregate forecasts • PC manufacturer components: push-based assembly: pull-based • Postpone/delay differentiation produce a generic or family product: push-based specific end-products: pull-based

  9. Push, pull, push-pull systems. cont • Identifying the appropriate supply chain strategy Demand uncertainty pull Ⅰ computer Ⅱ furniture H Ⅳ Books & CDs Ⅲ grocery push L Economies of scale H L pull push

  10. Push, pull, push-pull systems. cont • Box Ⅱ • high demand uncertainty: pull • important economies of scale: push • furniture industry: production-pull; delivery-push • Box Ⅳ • low demand uncertainty: push • low economies of scale: pull • books & CDs: push-pull strategy • Box Ⅱ • automobile: push-based strategy • failure of GM’s push-pull strategy Demand uncertainty pull Ⅰ Ⅱ H Ⅳ Ⅲ push L L H pull push Economies of scale

  11. Push, pull, push-pull systems. cont • Implementing a push-pull strategy in the supply chain:

  12. Demand-driven strategies • Demand forecast use historical demand to develop long-term estimates of expected demand • Demand shaping determines the impact of various marketing plans (promotion, rebates) • Accuracy – forecast error: standard deviation

  13. Demand-driven strategies .cont • Increase forecast accuracy • push-pull boundary • market analysis, demographic and economic trends • optimal assortment • incorporate collaborative planning and forecasting processes • Supply and demand management • allocate marketing budgets and associate resources • impact of deviations from forecast demand • impact of changes in supply chain lead times • impact of competitors’ promotional activities

  14. Impact of the Internet on supply chain strategies • B2B increase from $43 billion in 1998 to $1.3 trillion in 2003 • Living.com • Furniture.com • Peapod • Amazon.com • Dell computers • Cisco

  15. Impact of the Internet .cont • E-business a collection of business models and processes motivated by Internet technology and focusing on improvement of extended enterprise performance • E-commerce the ability to perform major commerce transactions electronically • E-commerce is only part of e-bussiness • Internet technology is the force behind the business change • The focus in e-business is on the extended enterprise (B2B, B2C)

  16. Impact of the Internet .cont • Grocery industry • Peapod change from a pure pull strategy to a push-pull strategy • most on-line grocers have failed • low level of demand uncertainty, high economies of scale • a push-based strategy is more appropriate • Book industry (Amazon.com) • a pure pull system in the first few years(Ingram Book Group) • a push-pull system (several warehouses) • Retail industry (Wal-Mart, Kmart, Target) • distribution and warehousing infrastructure in place • high-volume, fast-moving products: push strategy • low-volume, slow-moving products: push-pull strategy

  17. Impact of the Internet .cont • Transportation and Fulfillment

  18. Distribution strategies • Direct shipment directly from the supplier to the retail stores without going through DCs • Warehousing (classical strategy) warehouses keep stock and provide items to customers • Cross-docking distribute continuously from the suppliers through warehouses to customers (keep items no more than 10 to 15 hours)

  19. Direct shipment • Advantages retailer avoids the expenses of operating a distribution center lead times are reduced • Disadvantages risk-pooling effects are negated transportation costs increase • Common when: Fully loaded trucks Lead time is critical (grocery industry)

  20. Cross-docking • Warehouses function as inventory coordination points • Store often less than 12 hours • Difficult to manage: • advanced information systems • fast and responsive transportation system • forecasts are critical, sharing of information • effective only for large distribution systems • Wal-Mart

  21. Distribution strategies .cont • Factors influence distribution strategies: • customer demand and demand variability • service level • transportation costs • inventory costs • Comparison

  22. Distribution strategies .cont • Transshipment shipment of items between different facilities at the same level in the SCM to meet some immediate need • Retailer level ship the items either to the store where the customer originally tried to purchase or to the customer’s home • Conditions • appropriate information systems • reasonable shipment costs • same owner • Take advantage of risk-pooling one can view inventory in different retail outlets

  23. Centralized versus decentralized control

  24. Central versus local facilities

  25. Summary • Push-pull strategies • Demand-driven strategies • Internet revolutionize SCM • Distribution strategy

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