NU OPNS 430 - Supply Chain Management

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Supply Chain Management Managing Material Waiting TimeOutlineThe Supply ChainKey Financial Indicators of Supply Chain PerformanceCosts of not Matching Supply and DemandAccurately Matching Demand with Supply is the Key Challenge: InventoriesMass CustomizationImplicationsA Key to Matching Supply and DemandPush/Pull View of Supply ChainsRole of Inventory in the Supply ChainDemand uncertainty and forecastingSlide 13UncertaintySlide 15Slide 16Slide 17Information Uncertainty: Barilla SpaThe Bull-Whip Effect: CausesReducing Batch SizeQuantity DiscountsTrade PromotionsTrade promotionsThe Bullwhip Effect: CountermeasuresSlide 25Slide 26Tackling Demand UncertaintyQuick ResponseA Key to Accurate Response: Inventory PoolingAccurate Response ExamplesAccurate Response at DellHewlett Packard: PostponementImproved Matching of Supply and DemandS. Chopra/Operations/Supply Chain 1Supply Chain Management Managing Material Waiting TimeS. Chopra/Operations/Supply Chain 2OutlineA key to matching supply and demandLevers for improved matching of supply and demandThe bullwhip effect: BarillaThe impact of aggregationS. Chopra/Operations/Supply Chain 3The Supply ChainThe Procurementor supply systemThe OperatingSystemThe Distribution SystemRaw Materialsupply pointsMovement/TransportRaw MaterialStorageMovement/TransportMovement/TransportSTORAGESTORAGESTORAGEPLANT 1PLANT 2PLANT 3WAREHOUSEWAREHOUSEWAREHOUSEMovement/TransportMARKETSManufacturingFinished GoodsStorageABCS. Chopra/Operations/Supply Chain 4Key Financial Indicators of Supply Chain PerformanceReturn on AssetsNet Present Value……These are LAGGING indicators. What must the supply chain do to achieve this?S. Chopra/Operations/Supply Chain 5Costs of not Matching Supply and DemandCost of overstocking –liquidation, obsolescence, holdingCost of under-stocking –lost sales and resulting lost marginS. Chopra/Operations/Supply Chain 6Accurately Matching Demand with Supply is the Key Challenge: Inventories... by 1990 Wal-Mart was already winning an important technological war that other discounters did not seem to know was on. “Wal-Mart has the most advanced inventory technology in the business and they have invested billions in it”. (NYT, Nov. 95).WSJ, Aug. 93: Dell Computer stock plunges. The company was sharply off in forecast of demand resulting in inventory writedowns.BW 1997:S. Chopra/Operations/Supply Chain 7Mass CustomizationMass Production–Produce goods and services at low enough cost that nearly everyone can afford themMass Customization–Produce goods and services at affordable prices with enough variety and customization that nearly everyone can find exactly what they wantS. Chopra/Operations/Supply Chain 8ImplicationsMarkets have become increasingly heterogeneousDemand for individual products is very unstableAlong with shorter development cycles comes shorter product life cyclesHow to provide increased variety and keep costs down?S. Chopra/Operations/Supply Chain 9A Key to Matching Supply and DemandWhen would you rather place your bet?ABCDA: A month before start of DerbyB: The Monday before start of DerbyC: The morning of start of DerbyD: The lead horse is an inch from the finish lineS. Chopra/Operations/Supply Chain 10Push/Pull View of Supply ChainsProcurement,Manufacturing andReplenishment cyclesCustomer OrderCycleCustomerOrder ArrivesPUSH PROCESSES PULL PROCESSESS. Chopra/Operations/Supply Chain 11Role of Inventory in the Supply ChainImprove Matching of Supplyand DemandImproved ForecastingReduce Material Flow TimeReduce Waiting TimeReduce Buffer InventoryEconomies of ScaleSupply / DemandVariabilitySeasonalVariabilityCycle InventorySafety InventoryFigure Error! No text ofSeasonal InventoryS. Chopra/Operations/Supply Chain 12Demand uncertainty and forecastingForecasts are usually (always?) wrongA good forecast includes a measure of forecast error, e.g., standard deviationThe forecast horizon must at least be as large as the lead time. The longer the forecast horizon, the less accurate the forecastAggregate forecasts tend to be more accurate than disaggregate forecasts.S. Chopra/Operations/Supply Chain 13Demand uncertainty and forecastingYear Demand Forecast Error1986 2701987 3091988 2741989 2681990 2681991 316S. Chopra/Operations/Supply Chain 14UncertaintyUncertaintyInformationUncertaintyCustomerDemandUncertaintyS. Chopra/Operations/Supply Chain 15S. Chopra/Operations/Supply Chain 16S. Chopra/Operations/Supply Chain 17S. Chopra/Operations/Supply Chain 18Information Uncertainty: Barilla SpaWhy are order sizes at Pedrignano so much more variable than those at Cortese?What can Barilla do to improve coordination in its supply chain?S. Chopra/Operations/Supply Chain 19The Bull-Whip Effect:CausesRational and Optimizing Players in Supply Chain–Order Batching –Price Variations–Sales Force Incentives–Demand Signal Processing –Rationing GameS. Chopra/Operations/Supply Chain 20Reducing Batch SizeWal-Mart: 3 day replenishment cycle Seven Eleven Japan: Multiple daily replenishmentP&G: Mixed truck loadsEfforts required in:–Transportation (Cross docking)–Information–ReceivingS. Chopra/Operations/Supply Chain 21Quantity DiscountsCost/UnitOrder Quantity$3$2.96$2.925,00010,000Quantity DiscountsS. Chopra/Operations/Supply Chain 22Trade Promotions050100150200250300350Consumption•Trade PromotionsS. Chopra/Operations/Supply Chain 23Trade promotions0100200300400500600700800ShipmentsConsumption•Trade PromotionsS. Chopra/Operations/Supply Chain 24The Bullwhip Effect: CountermeasuresOrder Batching –Reduce setup cost, aggregation during transport, switch to volume based quantity discounts (rolling horizon)Price Variations–Every day low pricing, sell-thru based promotionsSales Force Incentives–Incentives based on sell-thru, rolling horizonDemand Signal Processing –Supply chain visibility, collaborative forecasting and planningRationing Game–Turn and earnS. Chopra/Operations/Supply Chain 25S. Chopra/Operations/Supply Chain 26S. Chopra/Operations/Supply Chain 27Tackling Demand UncertaintyThe longer the forecast horizon, the less accurate the forecast–Supply Chain Goal: Quick ResponseAggregate forecasts tend to be more accurate than disaggregate forecasts–Supply Chain Goal: Accurate ResponseS. Chopra/Operations/Supply Chain 28Quick ResponseShorten supply lead timeIncrease replenishment frequencyCoordinate


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