Emerging Practices in SCM Logistics and Supply Chain Chapter 16

1. Negative effects in SCM 1. Large order quantities 2. Few customers 3. Long leadtimes 4. Non-alligned planning and control 5. Not sharing Point-Of-Sales (POS) data 6. Price fluctuations and promotions 7. Rationing and shortage gaming

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

Figure 16.1

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

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

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

Figure 16.2

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)

Figure 16.3

2. Driving forces towards increased co- opreration in Supply Chain 1. Uncertain demand 2. Operative dependency relationships 3. Outsourcing and transaction costs

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

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

2.3 Outsourcing and transaction costs pp  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

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

1+2: More optimal allocation of administrative work etc. 1. Customer Managed Ordering – CMO 2. 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)

Figure 16.4

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

Figure 16.5

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

Figure 16.6

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

Figure 16.7

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

Figure 16.8

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

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 page 382

Figure 16.10

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)

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

New ways of designing PUSH/PULL PUSH PULL Physical Efficient SCMarket-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

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 page 386

Figure 16.11

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

Figure 16.12

Figure 16.13

5. Risk Management Strategies  Risk Identification Environmental risks, supply risks, demand risks, process risks, control risks See figure page 390  Risk Analysis Gravity and probability See figure page 391  Risk Management Strategy See case study 16.4 page 393 (Nokia – Ericsson)

Figure 16.14

Figure 16.15