Chapter 8
Question
The term supply chain is commonly used to refer to a collection of companies and
processes involved in moving a product from the suppliers of raw materials to the
customers.
Benefits and Problems with Supply Chains
-Potential benefits (the well oiled machine!)
-Process innovations
-Just-In-Time Production (JIT)
-Vendor-Managed Inventory (VMI)
-Potential problems (with primitive supply chains)
-Distorted information
-Excessive inventories
-Inaccurate capacity plans
-Missed product schedules
Forcasting issues
Which of the following statements about just-in-time strategies is true?
-Companies using this strategy are trying to optimize their ordering
quantities such that parts or raw material arrive just when they are needed for
production.
Computer maker, Dell, realized the problems with keeping large inventories,
especially because of the fast rate of obsolescence of electronics components. Dell
now keeps only about two hours of inventory in its factories. The company is most
likely using a Just-in-time inventory management system.
Just-in-Time Production (JIT)
-Keeping inventory is costly (storage, capital, missed production schedules).
-JIT optimizes ordering quantities
-Parts and raw materials arrive when needed for production.
-As orders arriver in smaller quantities, buy at higher frequency
investment in storage space and inventory is minimize
-The approach was pioneered by Toyota.
-It is used extensively by computer manufacturers to avoid component
obsolescence.
-ex. Dell keeps only two hours of inventory in stock
-JIT requires tight cooperation between all partners in the supply network.
Vendor-Managed Inventory (VMI)
-VMI is a business model in which suppliers manage the manufacturer’s (or
retailer’s) inventory levels based on pre-established service levels.
-Supplier monitor’s stock levels and sales data.
-VMI requires manufacturer (retailer) to share real-time data.
-Benefits?
-Cost savings
-Minimized stock-out situations
-Accurate forecasts
-Reduced errors
-Prioritized goods shipments
-What would be even better than this?
Not based on inventory but based on ordering.
Functions That Optimize the Supply Network
-Supply chain Management (SCM) improves the coordination of supplier,
product, or service production and distribution
Given this, why would we want to integrate our SCM tools with our ERP?
-ERP systems are primarily used to optimize business processes within the
organization
-SCM is used to improve business processes that span organizational
boundaries.
-Take cost our of an organization
Supply chain planning involves the development of various resource plans to
support the efficient and effective production of good s and services.
Inventory and safety stock planning focuses on the development of inventory
estimates.
Supply Chain Visibility and Analytics
-Supply chain visibility- the ability to track products as they move through
the supply chain but also to foresee external events.
-Supply chain analytics- the use of key
Radio Frequency Identification (RFID)
-Increases the efficiency of a firm
-Real time information about items
Bullwhip effect in SC
-When a minimal shock ripples up the supply chain
-Downstream has incentive to exaggerate demand
-Especially true for hot items
-In fear of out of stock, retailers exaggerate demand to get more quota
-Example:hot cell phone- orders are 3 times of real demand
-Promotions
-Distort the natural demand from consumers
-Information not shared through the supply chain
Solution to Bullwhip problem
-Sharing information across the supply chain
-All parties face the same demand information
-Make decisions based on the same information
-Exaggeration is eliminated
-Example: vendor managed inventory
-However, not everyone wants to share information
-Holding information privately can give you stronger negotiation
power
-Recall Porter five forces model
-Information advantage
-Retailer or manufacturer?
-Before the bar code revolution
-After the bar ode revolution
-Supply chain management system is reshaping the
balance
-Incentive design