Enterprise Business Processes and Applications (IS 6006) Masters in Business Information Systems 9 th Dec 2008 Fergal Carton Business Information Systems

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This week Bullwhip effect –Causes –Consequences Production planning models Supply chain strategies Improved inventory control Tiny ERP demos

The Dynamics of the Supply Chain Order Size Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998 Customer Demand Customer Demand Retailer Orders Distributor Orders Production Plan

What are the Causes…. Promotional sales Volume and Transportation discounts –Batching Inflated orders Demand Forecast Long cycle times Lack of Visibility to demand information

Consequences…. Increased safety stock Reduced service level Inefficient allocation of resources Increased transportation costs

The Bullwhip Effect: Managerial Insights Exists, in part, due to the retailer ’ s need to estimate the mean and variance of demand. The increase in variability is an increasing function of the lead time. The more complicated the demand models and the forecasting techniques, the greater the increase. Centralized demand information can reduce the bullwhip effect, but will not eliminate it.

Coping with the Bullwhip Effect in Leading Companies Reduce Variability and Uncertainty - POS - Sharing Information - Year-round low pricing Reduce Lead Times - EDI - Cross Docking Alliance Arrangements –Vendor managed inventory –On-site vendor representatives

From Make-to-Stock Model…. Configuration Assembly Suppliers

Push-Pull Supply Chains Push-Pull Boundary PUSH STRATEGYPULL STRATEGY Low Uncertainty High Uncertainty The Supply Chain Time Line Customers Suppliers

….to Assemble-to-Order Model Configuration Assembly Suppliers

Matching Supply Chain Strategies with Products Pull Push Pull Push I Computer II IVIII Demand uncertainty (C.V.) Delivery cost Unit price L H HLHL Economies of Scale

Locating the Push-Pull Boundary

Organizational Skills Needed Raw Material Customers Pull Push Low Uncertainty Long Lead Times Cost Minimization Resource Allocation High Uncertainty Short Cycle Times Service Level Responsiveness

Communication field plant Field Factory What customers are buying What we are building Lead time for products? Granularity of information? Real-timeness of information? Where is buffer stock held?

Core of MRP: Inventory Control Recording of all flows in and out of stock comparison with physical count (once in a while) Quantities of items on hand, on order (based on delivery date) and committed to production Requirements for parts and material as in BOM Management of location and bin numbers (e.g. Musgrave)

Inventory Control - Key factors Lead times (purchasing, manufacturing) Cost of components and material (valuation) Carrying costs Order costs Economic Order Quantity (EOQ) Lot tracking

Proven benefits of CIM Reduction in design costs: % reduction of in-shop time of parts: % increase in productivity: % better product quality: % Improved product design: up to 30 times more design variants investigated