Operations Management: Supply Chain Management

University:
California State University, Northridge
Course:
MSE 602 | Entrepreneurship and Innovation for Engineering Professionals
Academic year:

2024
Views:

218

Pages:

15
Author:

rdespairqq7

Lean Operations: Process Synchronization and Improvement Operations Management: Supply Chain Management Improving Supply Chain Performance (The bullwhip effect) − Causes of bullwhip effect − Managerial implications − ECR and QR 56 Information Distortion: Lean Operations: Process Synchronization and Improvement The Bull Whip Effect What is the Bull-Whip Effect? » The variance of orders is greater than that of sales, and the distortion increases as one moves upstream. Causes Managerial Implications 57 Causes of Bull Whip Effect: Lean Operations: Process Synchronization and Improvement Order Batching 58 Economies of Scale in Ordering Quantity Discounts Short Term Discounting (Trade Promotions) Periodic Review System with Review Period T > 1 period (Order at least T period demands). Correlation of order timing. Causes of Bull Whip Effect: Lean Operations: Process Synchronization and Improvement Demand Signal Processing Demand is non-stationary over time. Demand forecasts are updated based on observed demand. Order Policy: Dynamic Order Upto Points » implies that a large demand this period will lead to an estimate of higher order-upto point for next period » Implies, Order quantity for next period will be greater than demand realized for this period 60 Causes of Bull Whip Effect: Lean Operations: Process Synchronization and Improvement Rationing Game Suppose, limited production capacity, say during peak season Supplier / Manufacturer will ration the supply to satisfy retailers’ orders. Retailers’ know this. They exaggerate orders in order to secure a larger share of the limited capacity. During off-peak, no capacity limits. So orders are back to normal. 61 Causes of Bull Whip Effect: Lean Operations: Process Synchronization and Improvement Behavioral Issues* Misperceptions of feedback » Stages do not see how their actions affect others » When problems arise they blame others » when they get “proactive” and place more orders, they male matters worse » They don’t learn from their experience since consequences of their actions occur elsewhere 62 Managerial Implications of the Bull Whip Effect Lean Operations: Process Synchronization and Improvement Cause » Order Batching Contributing factors » High Order Cost » Full TL economies » Random or correlated ordering Counter Measures » EDI & Computer Assisted Ordering (CAO) » Discounted on Assorted Truckload, consolidated by 3rd party logistics » Regular delivery appointment State of Practice » 3rd party logistics in Europe, emerging in the U.S. » P&G 63 Managerial Implications of the Bull Whip Effect Cause Lean Operations: Process Synchronization and Improvement − Fluctuating Prices Contributing factors − High-Low Pricing − Sell-in and Sell-thru not synchronized Counter Measures − EDLP − Special Purchase Contract State of Practice − P&G (resisted by some retailers) 64 Managerial Implications of the Bull Whip Effect Lean Operations: Process Synchronization and Improvement Cause » Demand Signal Processing Contributing factors » No visibility of end demand » Multiple forecasts » Long lead-time Counter Measures » Access sell-thru or POS data » Single control of replenishment » Leadtime reduction State of Practice » Sell-thru data in contracts (e.g., HP, Apple, IBM) » VMI (P&G and Walmart) » EDI and Cross docking 65 Managerial Implications of the Bull Whip Effect Lean Operations: Process Synchronization and Improvement Cause » Shortage / Rationing Game Contributing factors » Proportional rationing scheme » Ignorance of supply conditions » Unrestricted orders & free return policy Counter Measures » Allocation based on past sales. » Shared Capacity and Supply Information » Flexibility Limited over time, capacity reservation State of Practice » Saturn, HP » Schedule Sharing (HP with TI and Motorola) » HP, Sun, Seagate 66 Lean Operations: Process Synchronization and Improvement Efficient Consumer Response Unlinked Replenishment In Supply Chain Supplier Warehouse 67 Demand Flow Distributor Warehouse Retail Store Consumer Household Product Flow A Single ECR Grocery Supply Chain Supplier Warehouse Demand Flow Distributor Warehouse Product Flow Retail Store Consumer Household Lean Operations: Process Synchronization and Improvement Comparison of Cycle Times Before and After ECR 68 DRY GROCERY CHAIN BEFORE ECR Packing Line Distributor Warehouse (Forward buy 9 days, Inventory turn 31 days) 40 days Supplier Warehouse 38 days Retail Store 26 days Consumer Purchase 104 days DRY GROCERY CHAIN AFTER ECR Packing Line Supplier Warehouse 27 days Distributor Warehouse Retail Store 12 days 22 days 61 days Consumer Purchase Lean Operations: Process Synchronization and Improvement ECR Industry Update: Evidence of Change Through 1995 ECR IMPLEMENTATION 55% 46% 54% 47% 46% 34% Efficient Efficient Efficient Assortment Promotion Replenishment ECR Investments by Manufacturers were less than planned. ECR investments as a percentage of sales: - Actual ‘94 = .45 - Plan ‘95 = .60 - Actual ‘95 = .34 69 Average Industry Implementation of ECR Elements Manufacturers Brokers Wholesalers Chains Indepdendents 39% 52% 48% 70% 46% (up 3pp from YAG) (up 8pp from YAG) (up 4pp from YAG) (up 26pp from YAG) (up 14pp from YAG) Fastest Growing ECR Components • Cross-Docking Displays • Cross-Docking ‘Turn’ • Cat. Mgmt. Partnerships • Scan-based Promo/Pymnt • Cat. Mgmt. Org. Struct. +21% +20% +19% +15% +14% Lean Operations: Process Synchronization and Improvement ECR Industry Update: Investments Payback on ECR Investment is Excellent Chain Wholesalers Manufacturers Brokers 1.9 years 2.2 years 3.0 years 3.0 years Retailer Investment Priorities Manufacturer Investment Priorities • Headquarter Systems: IS/IT • Education/Training • Category Management Discipline • Business Process Re-engineering • Store Level Systems • Information Technology • Education/Training • Customer Alliances • Business Process Re-engineering • Sales and Sales Promotion 70 Lean Operations: Process Synchronization and Improvement Key Learning Objectives 71 Bullwhip effect introduces information uncertainty Causes of bullwhip effect Managerial actions to counter bullwhip effect

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