1. Challenges in Managing Supply Chains
Vinod R. Singhal
Scheller College of Business
Georgia Institute of Technology
Atlanta, GA, 30332
May 1, 2013
Presented in the MOT Program at Sogang University
Seoul, South Korea

2. What is Effective Supply Chain Management?
Matching demand and supply
Efficiently
Reliably
Responsive

3. Causes of supply-demand mismatches
Nature of demand
- higher uncertainty
- increased variety (less pooling of demand)
- short product life cycle (less demand history)
Nature of competition
- increased competition
- customization, low cost, quick response time ( customer and/or competition driven)
Nature of supply chains (more complex)
globalization
many levels to coordinate
more tightly coupled
long lead times

4. Causes of supply-demand mismatches
Operational issues
- less reliable and more inaccurate forecasts
- poor planning
- operational constraints
- long lead times
- high set up costs
Measurement issues
poor understanding of issues and costs of mismatches
no tracking of stockout costs and forecasts errors
poor measurement system to make trade-off

5. Causes of supply-demand mismatches
Bullwhip effect
- Demand information distortion
- Variability of demand seen by manufacturers is higher than that seen by retailers
- Variability of production greater than variability of demand
2,000
4,000
6,000
8,000
10,000
Units/Week
Consumer
Retailer
Manufacturer. -
Supplier
Slight variation in consumer demand can greatly impact the Supply Chain

6. Causes of supply-demand mismatches
Order batching
- High order costs
- Full Truck Load Economics
- Correlated ordering
Rationing game
- Expected shortage
- Ignorance of supply conditions (imaginary shortage)
- Unrestricted orders and free return policy
- Proportional rationing scheme
Price variations - High-low pricing
Adversarial relationship between supply chain partners

7. Solutions to reduce demand-supply mismatches
Level of capacity
- investment in new capacity
- operational improvement
Time of capacity commitment
- early commitment (speculative capacity)
- delayed commitment (reactive capacity)
- sequence products with low variability early
- use speculative capacity for less risky products (low variability/low forecast error)
- use reactive capacity for more risky products (high variability / high forecast error)
- reduce lead times

8. Solutions to reduce demand-supply mismatches
Reduce uncertainty (obtain market information earlier)
- use of information technology
- identify new sources of data that could serve as leading indicator
- incentives for ordering early / solicit early orders from customers
• Avoid uncertainty
- reduce lead times
- increase flexibility
• Hedge uncertainty
- careful placement of buffers
- excess capacity
- more inventory

9. Solutions to reduce demand-supply mismatches
Managing processing of demand signals
- Access sell through or pos data
- Single point of forecasting
- Single control of replenishment (VMI)
- Continuous replenishment programs (CRP)
- Lead time reduction
- Direct marketing (reduce intermediaries)
• Managing order batching
- EDI and CAO
- Discount on assorted truck load
- Consolidation by 3rd party logistics
- Regular delivery appointment

10. Solutions to reduce demand-supply mismatches
Rationing game
- Allocate based on past sales
- Share capacity and supply information
- Limited order change and order return flexibility over time
- Enable reservation of capacity
• Price variations
- Every day low pricing (EDLP)
- Long-term contracts (EDLP but spaced out)
• Relationship between supply chain partners
- cooperative (enlarge the pie, share the savings) versus hands off ( carve the pie differently)

11. Solutions to reduce demand-supply mismatches
Eliminate wide swings in demand distortion
Joint collaborative planning and execution demand planning (share information to get a truer demand signal)
Communication of capacity, production, and promotion plans
Joint decision making
• Need to have mutually agreeable measures of performance
• Agreement on how to achieve mutual goals and share gains

12. Solutions to reduce demand-supply mismatches
Postpone differentiation of products and services
- product design
- process design
- configuration of the entire supple chain network
• Modular Product Design (standard and unique modules)
- Manufacture and assembly standard components early, unique components late
- Manufacture modules at the same time to shorten lead time
- Easily diagnose and isolate potential quality problems
- Higher demand uncertainty, higher lead time, short product life cycle and higher distribution costs all support more standardization

13. Solutions to reduce demand-supply mismatches
Modular process design
- postponement by separating into independent sub processes (paint mix)
- re-sequencing or rearranging the sub-processes (Benetton)
- perform standard process early and customize processes late (HP)
• Supply Networks
- little or no modularity supports a centralized warehouse
- extensive modularity supports decentralized warehouses
- light manufacturing and assembly at the decentralized warehouses

14. • Match or realign supply chains and product characteristics
What to use when?
• Match or realign supply chains and product characteristics
Functional product Innovative product
Product Life cycle more than 2 years 3 to 12 months
Contribution Margin 5% to 20% 20% to 60%
Product variety Low (10 to 20 variants) high (millions)
Average Forecast error 10% 40 to 100%
Average Stock out rate 1 to 2% 10 to 40%
Average markdowns 0% 10 to 25%
Lead time required for 6 to 12 months 1 to 15 days
make-to- order
Focus of supply chain efficiency responsiveness

15. Causes of Supply-demand mismatches
Physically Efficient Market responsiveness
Purpose supply predictable respond quickly to
demand at low cost unpredictable demand
to minimize stockout
markdowns
Manufacturing focus high average utilization have excess buffer capacity
Inventory strategy high inventory turns deploy significant safety
minimize inventory stocks of parts/finished good
Lead time focus shorten lead time but invest to reduce lead time
without cost increase
Choosing suppliers select mainly for cost select mainly for flexibility
and quality speed and quality
Product-design strategy maximize performance use modular design to
minimize cost postpone differentiation
as long as possible from
Flow of information among supply chain market place to supply partners chain partners

16. Efficient supply of functional products
• Cost cutting had reached a point of diminishing returns in an organization
• Next source of leverage is better coordination across supply chains
• Share information to enable continuous replenishment program
• Avoid price promotions, go with EDLP
• Competitive model (carve the existing pie differently) or cooperative model (enlarge the existing pie and share the gains)

17. Responsive supply of innovative products
Accept uncertainty (forecasts error will be high)
• Reduce uncertainty (obtain market information earlier)
• Avoid uncertainty
• Hedge uncertainty