Supply Chain Integration
Management revolve around efficient integration between suppliers, manufacturers, warehouses, and stores. The challenge is on how to coordinate all the activities, in order to: * Improve performance * Reduce cost * Increase service level * Reduce Bullwhip effect * Better utilise resources * Respond effectively to changes in market places Not merely coordinating production, transportation and inventory, but also integrate front end to back end of SC. Various SC integration strategies: * Push, pull, push–pull strategy. Matching products and industries with supply chain strategies. * Demand-driven supply chain strategies. * The impact of the Internet on supply chain integration. Push-Based SC * Production and distribution decisions based on long-term forecasts. * Manufacturer demand forecasts based on orders received from the retailer’s warehouses. , leading to: * Longer reaction time to changing marketplace * Inability to meet changing demand patterns. * Obsolescence of supply chain inventory as demand for certain products disappears. *
Variability of orders received from retailers and suppliers are much larger than the variability in customer demand due to the bullwhip effect, this leads to: * Excessive inventories due to the need for large safety stocks * Larger and more variable production batches * Unacceptable service levels * Product obsolescence * Bullwhip effect: occurs when the demand order variabilities in the supply chain are amplified as they moved up the supply chain , will leads to inefficient resource utilization because planning and managing are much more difficult. Push Based SC usually results in: * Higher transportation costs * Higher inventory levels and/or higher manufacturing costs * More emergency production changeovers Pull- Based SC * Production and distribution demand driven * Coordinated with true customer demand rather than forecast demand * Firm does not hold any inventory and only responds to specific orders. * Enabled by fast information flow mechanism to transfer customer demand to SC participants. * Intuitively attractive, due to: * Reduced lead times through the ability to better anticipate incoming orders from the retailers. Reduced inventory since inventory levels increase with lead times *
Less variability in the system, particularly in manufacturing process * Decreased inventory at the manufacturer due to the reduction in variability. * Often difficult to implement when lead times are long, because * Impractical to react to demand information. * more difficult to take advantage of economies of scale New supply chain strategy that takes the best of both, a hybrid Push–pull supply chain strategy Push-Pull SC Typically the intial stages in the SC are operated in push manner, while the remaining employ pull based strategy. * Interface between push and pull strategy called push-pull boundaries. * For example, in PC industry ,the inventory of the component is managed based ion forecast (push) while the final assembly implies is in response to a specific customer request (pull). The portion prior to assembly is a push part, while pull part starts with assembly and performed based on actual customers demand. The push-pull boundaries is at the beginning of the assembly. Manufacturer takes advantage of the fact that aggregate forecast are more accurate. *
Postponement or delayed differentiation in product design is an example of this push-push strategy, where the decisions about specific product can be delayed as long as possible. Identify Appropriate Strategy * Higher demand uncertainty leads to PULL strategy; lower demand uncertainty leads to PUSH strategy * Higher importance of Economies of Scales (value of aggregate demand, imporatance of managing SC based on long term forecast) lead to PUSH strategy; the other way around for PULL strategy. Box I is Pull and Box III is push: understood. * In box IV, more careful analysis is required, depending on specific cost and uncertainties. * For box II, it is an excellent example for push-pull strategy. Implementing Push-Pull Strategy * Low demand uncertainty in PUSH Strategy characterized by long lead time and complex supply chain structure. It’s also means that the firm can focus on cost minimization and resource utilization * In PULL portion, there is high uncertainty, simple SC structure and short cycle time.
The focus is on service level, which can be achieved through flexible and responsive SC, adapt quickly to customers demand. Order fulfilment process are typically applied to maintain service level. Demand Driven Strategy * Demand forecast: Use historical data to develop long term estimate of expected demand * Demand Shaping: Determines the impact of marketing plans (promotion, advertising, discounts, rebates, etc) on demand forecast.
To increase forecast efficiency and reduce forecast error, there are few approach: * Select push-pull boundaries where demand is aggregated over one or more dimensions across products, geography, or time * Use market analysis and demographic/ economic trends to improve forecast accuracy * Determine optimal assortment of products by store to reduce the number of SKU competing in same market * Incorporate collaborative planning and forecasting process with your customers to achieve better understanding of market demand, impact of promotions and ads.
At the end, the firm has a demand forecast by SKU by location. The next step is to analyse the SC chain and see if it can support the demand forecast. This process called balancing supply and demand. Impact of Internet in Supply Chain Strategies * Internet and emerging e-business has raised expectations that many SC problems could be solved.
E business strategy supposed to reduce cost, increase service level and flexibility, and of course profit. * In reality, these expectations frequently unmet. E business: A collection of business models and process motivated by internet technology and focusing on improving the extended enterprise performance E commerce: Ability to perform major commerce transactions electronically