What is Supply Chain
Flow and transformation of goods and services from raw materials to customer as well as associate information flows
•An integrated group of processes to “source,” “make,” and “deliver” products or services
- (Procurement, Production and Distribution) with flows of information
Example of Supply Chain Management (Denim Jeans)
Tier 3 (Cotton suppliers, Indigo dye in China/Mexico/India) > Ship to TIER 2 thread manufacturer in China and later to another factory to manufacture denim cloth > Ship to Tier 1 to manufacture denim jeans US/China/Mexico then ship to the Distribution Center in US/France/China > then later transport to retailers across countries (Walmart/Amazon/Levi’s)
Supply Chain for Service
- Does not focus on flow of physical goods
- Focuses on human resources and support services
- More compact and less extended
Keys to effective Supply Chain Management
- Information
- Communication
- Cooperation
- Trust
- Synchronization between suppliers in the supply chain through the managing the flow of information to be responsive to customer needs while lowering cost
A major objective of SCM
- Respond to uncertainty in customer demand without creating costly excess inventory
- Maximize overall value generated / Profitability
- Lower the cost (materials, inventory, transportation,/ improve quality, innovation
- Focus on core competencies/ outsourcing
- Become more flexible
- Benchmarking other companies to find best practice
Factors that contribute to uncertainty
- inaccurate demand forecasting
- long variable lead times
- late deliveries
- incomplete shipments
- product changes
- Batch ordering
- Price fluctuation and discounts
- Inflated orders
BULLWHIP EFFECT
The changes in little demand of end customer cause amplifies swing as move upstream in the production end
Result in either Inefficient production or Excessive inventory
Example of Bullwhip Effect
- VOLVO was suffering with excess of green cars
- so sales and marketing developed a program to move the excess inventory
- They successfully generating demand through the promotion
- However, the manufacturing didn’t know about the promotion plans but instead increase the production of green cars to match with the increase of demand
Causes of Bull Whip Effect
- Customers demand is rarely stable
- Businesses must forecast demand to properly position inventory and other resources
- Forecast based on statistics are rarely perfectly accurate
- so companies often carry a safety stock
- Forecast errors
- Panic ordering reaction after unmet demand
- Misuse of base-stock policies
- Misperceptions of feedback and time delays
Why Supply Chain Integration
- Share information among supply chain member
- Reduced bullwhip effect
- Early problem detection
- Faster response
- Builds trust and confidence - Collaborative planning, forecasting, replenishment and design (CPFR)
- Reduced bullwhip effect
- Lower costs (material, logistics, operating, etc)
- Higher capacity utilization
- Improved customer service levels
