What was the demand like for the simulation and can we blame it for the problems
4 for the first 4 weeks then 8 for the next 32 weeks, No we cannot
What caused people to act the way they did, what does it lead to
- Lack of communication / cooperation
- leads to guessing of customer demand
- which then leads to arbitrary ordering decisions (guessing)
- which results in the bullwhip effect - long lead time
- it was 3 weeks long, 1 for transmitting outgoing order, 1 for filling and packaging order, 1 for shipping the order
- longer lead time will lead to panic, which is when inventory does not instantly arrive and solve the growing backlog, you panic and order even more
what is the bullwhip effect
information (orders) going back through the supply chain is distorted and then amplified
what does the bullwhip effect cause
causes members of the supply chain to overreact to changes in demand at the retail level, minor demand changes at the consumer level may result in large ones at the supplier level
what are the business implications (what happens because) of the supply chain structure, what do they lead to?
- Stockouts at times
- leads to lost profit and potential lost goodwill - excess inventory at times
- holding costs, risk of obsolescence - overtime costs
- 50%-100% increase in labour costs - layoffs / re-hiring costs
- match staffing levels to fluctuating demand - expediting
- rush transportation costs
what does high costs in the
supply chain structure lead to
leads to high costs throughout the supply chain, leading to a higher end price for the consumer
Example of the bullwhip effect, Tyson Foods Chicken.
incorrectly forecasted demand because of demand increasing greatly after pandemic since people were going back to restaurants more, led to them having to layoff thousands of employees and multiple plants
formula for bullwhip, when is the bullwhip effect present (at what measure?)
Formula: Bullwhip = (variance of orders) / (variance of demand)
if the bullwhip measure is greater than 1, bullwhip effect is present
Example of a company who did well during the pandemic
Stanley black and decker inc., They saw that retailer’s inventories were selling 30% more since the pandemic caused people to want to do home renovations and yard work, they decided that since the retailers werent putting in orders, they were all going to put panic orders all at once last minute so to meet this demand they built 600 million dollars worth of tools. they also heavily pushed their suppliers to producing more for them
how can we improve the supply chain and what do we have to improve within those methods to achieve the goals
- communication and cooperations
- actual consumer demand
- encouragin cooperation and communication
- forecasting - Decrease lead time
- adminstration (ordering) lead time
- physical manufacturing lead time
- transportation lead time
how can we know the actual consumer demand
- information technology
- avoid converting fairly constant customer demand into lumpy demand by lot sizes - dont stress your supply chain
how can we encourage cooperation and communication
- incentives to share informaiton (lower unit cost for actual data)
- vendor managed inventory (VMI), leads to lower admin costs for retailer and vendor sees actual consumer demand
how can we forecast
- collaborative planning forecasting and replenishment (CPFR), this is achieved through sharing forecasts, product and distribution schedules, ideally decision making as well
what did Mattel do
she knew the importance of daily demand data in 1955, basically she hired a bunch of employees around the country to keep track of all the stock in the retail stores across the country for her toys which took 6 weeks before she hired these employees. Because she hired them she was getting info in a day, while the competition was 6 weeks behind
Collaborative planning forecasting & replenishment example
Canadian tire implemented it, giving suppliers a 26 week planned order stream for each stock keeping unit with weekly regenerations, which allows suppliers to see far in advance the demands for the products that will “pop”
how can administration (ordering) lead time improve so that it can lead to less overall lead time
information technology
how can physical manufacturing lead time be improved so that it can reduce overall lead time
just-in-time production systems (low setup time), very small batches = faster production completion
how can transportation lead time be reduced to help overall lead time
have suppliers geographically close by
what is onshoring
when you open a manufacturing plant or source your inventory from within the borders of your country, usually through the least expensive supplier if you are not manufacturing
what is offshoring
getting your inventory from you manufacturing facilities outside your country or getting them through suppliers outside your country
who are two companies to use as an example of onshoring
Ikea, did it in 2008 by building manufacturing facility in the U.S.. reduced many costs and lead times overall
ford’s chicago assembly plant has a supplier campus less than 1 mile away, takes 90 minutes after some components are made at the campus to go into a vehicle, previously ford sourced from cheaper cost countries (offshoring) and had to wait 8 weeks for lead time
what is next shoring and what benefits does it create
local production near demand (‘next to’), it is a growing focus on countering traditional offshoring
- reduces logstics costs, improving environmental performance
- reduces length of lead times
- reduces variability of lead times
- easier to identify local needs
- consumer perception, meaning there is more jobs in the home country
what should you do if you cannot change the supply chain structure (usually because you are a small or medium sized enterprise (SME))?
if you have an understanding of your structure you can adapt to it without changing it
- the asprin rule: 10 mins after taking 2 your headache doesnt go away, do you take 2 more? no. This relates to the long lead time, you should be aware of the lead time and not to panic from it
- reasons teams performed well in beer game was because they adapted to the given supply chain structure, they didnt panic and recognized delays, they thought systemically; analyzing how it will impact the supply chain
how can we avoid supply chain problems
- Change supply chain structure if possible, done by communication & cooperation, shorter lead times
- if you cant change the structure then adapt and recognize delays and make smarter predictions for ordering impacts
- choose “capable” suppliers (dont just focus on cost), see if the suppliers can adapt to fast temporary demand changes and if they are willing and able to collaborate (share info)
