International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
Management of Uncertainty In Supply Chain
Prof.D.P.Patil1, Prof.A.P.Shrotri2, Prof.A.R.Dandekar3
1,2,3
Associate Professor, PVPIT (BUDHGAON), Dist. Sangli(M.S.)
sdattatrayap_patil@yahoo.co.in
amod_shrotri@rediffmail.com
ashutoshdandekar@gmail.com
Abstract- In today’s competitive world management of
supply chain is a crucial factor for becoming
competitive and successful. The supply chain includes
every link to the transformation of customer needs in to
useful products and to cater them back to the
customers .So it is important that smooth operations of
every link in the supply chain should be taken care of.
Uncertainty in the functioning of any of the links may
lead to delays and bottlenecking and may hamper the
performance output of the supply chain. So it is
necessary to control the various factors which are
responsible for supply chain. Proper planning and
dealing with uncertainties will certainly lead to better
scheduling, up to the mark production levels, timely
deliveries and ultimately greater customer satisfaction.
2) Protection against fluctuations in demand
3) Better use of men, material and machines
4) Protection against fluctuations in output
5) Customer Satisfaction
6) Protection against fluctuations in demand
7) Better use of men, material and machines
8) Protection against fluctuations in output
The starting point of the management activity to
understand the customer’s demands. It further extends to
better asset utilization due to optimization and tries to
eliminate the excess vendors, high inventories,
uncertainties and resulting longer lead time. Thus it is an
attempt to reduce overall inefficiencies in the supply chain.
It considers any constrain that may affect the supply chain
and its smooth working,andremedial action plan is
incarporated.The data is further utilized for future
forecasts.Italso rationalizes the vendors and reduces the
uncertainties in planning with vendors and yields better
scheduling. It reduces unnecessary vendoring and can have
economies-of-scale benefits.The main target of managing
the supply chain is to realize and neutralize the
uncertainties in the supply chain.
Keywords-Customer’s
satisfaction,
Managing
uncertainties, supply chain management, uncertainties
in supply chain, Supply chain planning tools.
I.
CONCEPT OF SUPPLY CHAIN
A supply chain consists of all stages involved, directly
or indirectly, in fulfilling the customer request. The supply
chain not only includes the manufacturer or suppliers, but
also transporters, warehouses, retailers, and customers
themselves. Within each organization such a manufacturer,
the supply chain includes all functions involved in
fulfilling a customer’s request. It includes every link in
catering the needs of customers right from transformation
up to installation.
II.
III.
UNCERTAINTY IN SUPPLY CHAIN
Uncertainties in supply, process and demand are
recognized to have a major impact on the manufacturing
function. Uncertainty propagates throughout the network
and leads to inefficient processing and non-value adding
activities. This uncertainty is expressed in questions such
as: what will my customers order? how many products
should we have in stock? and will the supplier deliver the
requested goods on time and according to the demanded
specifications?
MANAGEMENT OF SUPPLY CHAIN
OBJECTIVES
1) Customer Satisfaction
303
International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
Because of the specific product and process
characteristics in food supply chains, such as perish ability
of end products, variable harvest and production yields and
the huge impact of weather conditions on consumer
demand, these chains are especially vulnerable to this type
of uncertainty. The following table no.1 shows Impact of
customer needs on implied demand uncertainty.
Table no 1[1]
The presence of uncertainty stimulates the decision
maker to create safety buffers in time, capacity or
inventory to prevent a bad chain performance. These
buffers will restrict operational performances and suspend
competitive advantage. Those companies which cope best
with uncertainty are most likely to produce internationally
competitive bottom-line performances.
Meaning of Uncertainty
Impact of customer needs on implied demand
uncertainty
Definition of supply chain uncertainty is based on the
five requirements for effective system management by De
Leeuw (2000). If one or more of these requirements is not
fulfilled, decision makers in the supply chain will
experience uncertainty resulting in ineffectiveness:
Sr.no.
1
Attribute
Low implied
uncertainty
low
High implied
uncertainty
high
Product
margin
2
Average
10%
40-100%
forecast
error
3
Average
1-2%
10-40%
stock out
rate
4
Average
0%
10-25%
forced
season end
markdown
The following table no 2 shows the Impact of customer
needs on implied demand uncertainty.
(1) The managing system should have an objective and
corresponding performance indicators to manage the
supply chain in the right direction.
(2) To estimate future system states one has to have
information on the environment and current supply chain
state.
(3) There should be enough information processing
capacities to process information on the environment and
supply chain state.
Table no 2[1]
(4) In order to direct the managed system in the right
direction one should be able to estimate the impact of
alternative actions. This requires a model of the system,
presenting the relationships between available redesign
variables and performance indicators.
Impact of customer needs on implied demand
uncertainty
(5) There should be enough potential control actions.
Sr
no
Customer Needs
1
Range of quantity required
increases
2
Lead time decreases
3
Variety of product required
increases
IV. SOURCES OF UNCERTAINTY
These sources of supply chain uncertainty can be
categorized as:
Inherent characteristics that cause more or less predictable
fluctuations. Uncertainty may take the form of high
variability in demand, process or supply, which in turn
creates problems in planning, scheduling and control.
304
Causes Implied
demand
uncertainty to
Increase because
a wider range of
the quality
required implies
greater variances
in demand.
Increase because
there is less time
in which to react
to order.
Increase because
demand per
International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
product becomes
more
disaggregates.
4
Number of channels through
Increase because
which product may be acquired the total customer
increases
demand is now
disaggregated
over more
channels.
5
Rate of innovation increases
Increase because
new products
tend to have
more uncertainty
demand.
(2) Characteristic features of the chain those results in
potential disturbances of system


Performance:
All the above functions are now-a-days possible by an
intuitive and configurable graphical user interface to
manage and optimize the supply chain.


chain configuration (e.g. inflexible capacities)
chain control structure (e.g. wrong decision rules
applied)
 chain information system (e.g. information delays)
 chain organization and governance structure (e.g.
misjudgment by a decision maker)
(3) Exogenous phenomena that disturb the system, such as
changes in markets, products, technology, competitors and
governmental regulations.
V.
VII.


SOLUTIONS T O UNCERTAINTY
A) Managing Supply
A firm can vary supply of product by controlling a
combination of the following factors

Managing Production Capacity When managing
capacity firms use a combination of the following
approaches:

Time flexibility from workforce
In this approach, a firm uses flexible work hours from
the workforce to better match the production with demand.
In many instances, plants do not operate continually & are
left idle during portions of the day & week. Therefore,
spare plant capacity exists in the form of hours when the
plant is not operational. For example, many plants do not
run three shifts, so existing workforce could work overtime
during peak periods to produce more to meet demand. The
overtime used is varied to match the variation in demand.
This system would allow production from the plant to more
closely match the demand from customers. Telemarketing
centers and banks use part time workers extensively to
match supply & demand better.
DEALING WITH UNCERTAINTY
Uncertainties in supply, process and demand are
recognized to have a major impact on the optimistic
functioning of a company. This barrier in the efficient
working of the supply chain should be better t6aken care
of. This task is handled by the supply chain planning tools.
VI.
through the entire supply chain to optimize the
logistic network.
Production planning:-This gives a smooth and
optimal flow of the resources by promoting
optimized production schedules to maximize the
returns on the assets, minimize delays, improved
resource utilization and reduce the work in
process inventory.
Availability planning:-This provides a global,
multilevel ,rule based strategic planning facility to
match the supply chain with customer demands
and to upkeep the precise delivery commitment
for customer orders, and thereby fulfilling the
promise made to the customer.
SUPPLY CHAIN P LANNING T OOLS
Demand planning: - It provides for advanced
forecasting and demand planning tool to keep
pace with volatile changes in demand and produce
accurate forecasts.
Supply network planning:-It synchronizes the
market demand dynamically with sourcing and
production activities and plan material flow
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International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)

B. Managing Inventory
Use of seasonal workforce
In this approach, a firm uses a temporary workforce
during the peak
season to increase capacity to match the
demand. The tourism industry often employs this approach,
in which a base of full time employees exists & the rest are
hired only for the peak season. Agriculture also uses this
approach for both harvesting & processing. This approach
may be hard to sustain if the labor market is tight.

Using common components across multiple products
In this approach, a firm designs common components
across multiple products, each with a predictably variable
demand but with a relatively constant overall demand.
Using common components across these products will
result in the demand for the components being relatively
constant. Therefore a part of supply chain producing
components can easily synchronize supply with demand &
a relatively low inventory of parts will have to be built up.

Use of subcontracting
In this approach, a firm subcontracts peak production
so that internal production remains level & can be done
cheaply. With the subcontractor handling the peaks, the
company is able to build a relatively inflexible but low cost
facility where the production rates are kept relatively
constant. A key here is the availability of relatively flexible
subcontractor capacity. For example, most of power
companies do not have the capacity to supply their
customers with all the electricity demanded on the peak
days. They instead rely on being able to purchase that
power from suppliers & subcontractors who have excess
electricity. This allows power companies to maintain a
level supply and a lower cost.

Build inventory of high demand or predictable demand
products
When most of the products a firm produces have the
same peak demand season, the previous approach is no
longer feasible. A firm must then decide which inventory
to build during the off season. The answer is to build
products with the more predictable demand during the off
season because there is less to be learned about their
demand by waiting. As more is known about demand
closer to selling season, production of more uncertain items
should take place.
C) Managing demand

Use of dual facilities – dedicated and flexible
In this approach, a firm builds both dedicated &
flexible facilities. Dedicated facilities produce a relatively
stable output of products over time in a very efficient
manner. Flexible facilities produce a widely varying
volume & variety of products but at higher unit costs.
To manage demand with the goal of maximizing profit,
companies must use pricing & production decisions. The
timing of the tools can have a tremendous impact on
demand. Therefore using pricing to shape demand can help
synchronize the supply chain.

Designing product flexibility into the production
processes
In this approach, a firm has the market adaptive, flexible
production system whose production rate can easily be
varied. This system senses the fluctuation in the market
demand and the Production system is then changed to
match the demand. The production lines are designed such
that changing the number of workers on a line can vary the
production rate. As long as variation of demand across
different product lines is complementary the capacity on
each line can be varied by moving the workforce from one
line to other. This requires multi skilled workforce.
D) Information Centralization
In many of the cases the company has many distribution
centers from where the needs of the customers can be
catered. This can be better managed if the demand details
and inventory status updates are readily available online
instanteniously.This can be easily achieved by centralizing
the information. The benefit of information centralization
derives from the fact that most orders are filled from the
warehouse closest to the customer, keeping transportation
costs low.
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International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
VIII. CONCLUSION
E) Specialization
From the above discussions it can be concluded that; A
supply chain consists of all stages involved, directly or
indirectly, in fulfilling the customer request. And the
prime objective of the managing system is to have a
strategy and corresponding performance indicators to
manage the supply chain in the right direction. This can be
better done by firstly identifying the sources of uncertainty
and then by synthesizing the available information and
seeking opportunities to tackle the causes to root out them.
This roadmap will certainly lead to better scheduling, up to
the mark production levels, timely deliveries and ultimately
greater customer satisfaction.
Most supply chains provide a variety of products to the
customers. When inventory is carried at multiple locations;
a key decision for a supply chain manager is whether all
products should be stocked at every location. Clearly, a
product that does not sell in a geographical region should
not be carried in inventory by the warehouse or retail store
located there.
F) Postponement strategy
A postponement strategy aims at delaying some supply
chain activities until customer demand is revealed in order
to maintain both low systems wide cost and fast response.
CASESTUDY
REFERENCE ORGANIZATION: WALL MART
STORES
1. Purchasing postponement
Delay purchasing of some expensive and fragile materials
To manage the uncertainties in supply chain the
famous store wall mart are using following strategies
2. Manufacturing postponement
Products in semi-finished forms and can be customized
quickly in Production facilities.
1) They directly procure the product from
manufacturers. All intermediate
links are
bypassed.
2) Every time conducting meetings with the vendors
to understand their cost structure
3) For transportation it has company owned 3500
trucks. The driver has to report their hours of
service to the coordinator on daily basis. The
coordinator arranges the trips according to
available driving time.
4) For better communication in store Wall mart is
using bar code systems Due to which the
information like in stock, cost is quickly available.
3. Logistics postponement
Products in semi-finished forms and can be customized
quickly in Production facilities close to customers.
4. Time postponement
Finished products are kept in central location and are
distributed quickly to customers.
5. Product development postponement
G) Demand Forecasting
COMPARISON OF WAL-MART WITH
COMPETITIORS
Forecast of future demand are essential to a supply chain
manager’s decision making and planning processes.
The Wal-Mart successfully managed the uncertainty
problems .the following table shows difference at various
stages in supply chain between Wal-Mart and the other
competitors.
307
International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
TABLE.3[3]
COMPARISON OF WAL-MART AND ITS COMPETITIORS
Sr.
Stage
in
supply
Wal-Mart
Competitors
85%
55-65%
3% of total
5% of total
expenditure
expenditure
Replenishments
Maximum 2
Maximum
time
days
days
chain
1.
Direct
inventory
supply
from
warehouse to retail
stores
2.
3.
Shipping cost
5
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