1. Enterprise Business Processes and Applications (IS 6006) Masters in Business Information Systems 2 nd Dec 2008 Fergal Carton Business Information Systems

2. Two weeks ago SIT case discussion –Hockey stick effect and causes (pricing strategy) –Other causes of unplanned hikes in sales (new products hitting market, competitors products, natural or man-made disasters, …) –Configure to order model / assemble to order –MRP principles can be applied without ERP –Postponement strategies (delay configuration till latest possible time) –Planning is about thinking ahead, managing business relationships –If planning is well done, emergencies can be catered for Solutions to planning at SIT –Incentivise early quarter sales product price most effective way to influence sale early payment incentives customer discounts commission payments … –Move towards a build to order model? –Customers can only order what is currently being built Smart phone sales example (O2, Spectra and Vodaphone) Sample BOM’s Bullwhip effect

3. This week Feedback on assessment Bullwhip effect –Causes –Consequences Production planning models Supply chain strategies

4. Feedback on assessment Difference between Kellog’s and SIT? –Other companies like Kellog’s –Other companies like SIT? –How would we represent a framework for both? Is it OK to say no to a customer? –Large order hits late in the quarter Separate flows for production at SIT: –Standard configurations –Specific deals with particular configurations Why can’t people use generic reports? –Because it’s not saying what it “should” say Biggest problem of quarter end is resources –That’s why we design processes, isn’t it?

5. 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

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

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

8. 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.

9. 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

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

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

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

13. 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

14. Locating the Push-Pull Boundary

15. 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

16. 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?