Information as an Enabler
to Supply Chain
Value of Information
 “In modern supply chains, information
replaces inventory”
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Why is this true?
Why is this false?
 Information is always better than no
information. Why?
 Information is the supply chain driver that
serves as a glue allowing the other drivers to
work together to create an integrated,
coordinated supply chain
Types of Information
 Supplier information
 Manufacturing information
 Distribution and retailing information
 Demand information
Characteristics of good information
 Information must be accurate
 Information must be accessible in a timely
fashion
 Information must be of the right kind
Value of Information
 Information
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Helps reduce variability
Helps improve forecasts
Enables coordination of systems and
strategies
Improves customer service
Facilitates lead time reductions
Enables firms to react more quickly to
changing market conditions
Information for Coordination of Systems
 Information is required to move from local to
global optimization
 Information is needed :
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Production status and costs
Transportation availability and costs
Inventory information
Capacity information
Demand information
Increasing Variability Upstream the Supply
Chain –Bullwhip Effect
Bullwhip Effect
Increasing propagation of variability
upstream through the supply chain
We Conclude ….
 Order variability is amplified up the
supply chain; upstream echelons
face higher variability.
 What you see is not what they face.
What are the Causes….
 Demand forecasting
 Min-max inventory level
 Order-up-to level
 orders increase more than forecasts
 Long cycle times
 Long lead times magnify this effect
 Impact on safety stock
 Product life cycle
 Batch ordering
 Volume & transportation discount
What are the Causes….
 Price fluctuation
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Promotional sales
Forward buying
 Inflated orders
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Orders placed increase during shortage
periods
IBM Aptiva orders increased by 2-3 times
when retailers thought that IBM would be out
of stock over Christmas
What are the Causes….
 Single retailer, single manufacturer.
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Dt
Retailer observes customer demand, Dt.
Retailer orders qt from manufacturer.
Retailer
qt
L
Manufacturer
Consequences….
Increased safety stock
Reduced service level
Inefficient allocation of
resources
Increased transportation costs
Ways to Cope with the Bullwhip Effect
 Reducing uncertainty
 Centralizing demand information
 Bullwhip inherent in use of various forecasting techniques
 Reducing variability
 Use of EDLP strategy (Payless)
 Lead time reduction
 Order lead time (time to produce and ship)
 Information lead time (time to process order)
 Efficient network distribution design
 Strategic partnership
 Vendor managed inventory (VMI)
 Sharing of customer information
 Collaborative forecasting
Coping with the Bullwhip Effect
in Leading Companies
 Reduce uncertainty
POS
 Sharing information
 Sharing forecasts and policies
 Reduce variability
 Eliminate promotions
 Year-round low pricing
 Reduce lead times
 EDI
 Cross docking
 Transmitting POS data upstream
 Strategic partnerships
 Vendor managed inventory
 Data sharing
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Information for Effective Forecasts
 Pricing, promotion, new products
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Different parties have this information
Retailers may set pricing or promotion without
telling distributor
Distributor/Manufacturer might have new
product or availability information
 Collaborative Forecasting addresses these
issues.
Locating Desired Products
 How can demand be met if products are not
in inventory?
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Locating products at other stores
What about at other dealers?
 What level of customer service will be
perceived?
Lead-Time Reduction
 Why?
 Customer orders are filled quickly
 Bullwhip effect is reduced
 Forecasts are more accurate
 Inventory levels are reduced
 How?
 EDI
 POS data leading to anticipating incoming
orders.
Information to Address Conflicts
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Lot Size – Inventory:
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Inventory -- Transportation:
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Lower transportation costs
Improved forecasting
Lower order lead times
Product Variety – Inventory:
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Lead time reduction for batching
Information systems for combining shipments
Cross docking
Advanced DSS
Lead Time – Transportation:
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Advanced manufacturing systems
POS data for advance warnings
Delayed differentiation
Cost – Customer Service:
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Transshipment
Impact of the Bullwhip Effect
Performance Measure
Impact on Performance
Manufacturing Cost
Inventories
Lead Time
Transport Cost
Shipping & Receiving Cost
Customer Service Level
Profitability
Bull Whip Effect - Operational
Obstacles (Batching)
 Contributing factors
 High Order Cost
 Full TL economies
 Random or correlated ordering
 Counter Measures
 EDI & Computer Assisted Ordering (CAO)
 Discounted on Assorted Truckload, consolidated by 3rd
party logistics
 Regular delivery appointment
 Volume and not lot size discounts
 State of Practice
 McKesson, Nabisco, ...
 3rd party logistics in Europe, emerging in the U.S.
 P&G
Bull Whip Effect - Pricing
Obstacles
 Contributing factors
 High-Low Pricing leading to forward buy
 Delivery and Purchase not synchronized
 Counter Measures
 EDLP
 Limited purchase quantities
 Scan based promotions
 State of Practice
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P&G (resisted by some retailers)
Scan based promotion
The Bullwhip Effect: Information
Processing Obstacles
 Contributing factors
 No visibility of end demand
 Multiple forecasts
 Long lead-time
 Counter Measures
 Access sell-thru or POS data
 Direct sales (natural on web)
 Single control of replenishment
 Lead time reduction
 State of Practice
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Sell-thru data in contracts (e.g., HP, Apple, IBM)
CFAR, CPFR, CRP, VMI (P&G and Wal-Mart)
Quick Response Mfg. Strategy
Bull Whip Effect - Operational
Obstacles
 Contributing factors
 Proportional rationing scheme
 Ignorance of supply conditions
 Unrestricted orders & free return policy
 Counter Measures
 Allocation based on past sales.
 Shared Capacity and Supply Information
 Flexibility Limited over time, capacity reservation
 State of Practice
 Saturn, HP
 Schedule Sharing (HP with TI and Motorola)
 HP, Sun, Seagate
Managerial Implications of the Bull
Whip Effect - Behavioral Factors
 Contributing factors
 Lack of trust
 Local reaction
 Counter Measures
 Building trust and partnership
 State of Practice
 Wal-Mart and P&G with CFAR
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 significantly
reduce the bullwhip effect, but will not eliminate it.
Steps in Cycle Time Reduction
 Establish a cycle-time reduction team
 Develop an understanding of given SC
processes and current cycle time
performance
 Identify opportunities for cycle time reduction
 Develop and implement recommendations for
cycle time reduction
 Measure process cycle time reduction
 Conduct CI efforts for process cycle time
reduction
CSF of Cycle Time Reduction
 Top management support
 Commitment to significant cycle time
reduction
 Use of cross function teams
 Application of TQM tools
 Training in cycle time reduction approaches
 Establish, monitor, and report cycle time
performance measures
 Collaboration with supply chain member
Locating Desired Products
 How can demand be met if products are not
in inventory?

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Locating products at other stores
What about at other dealers?
 What level of customer service will be
perceived?