Post on 18-Dec-2015
description
Chapter 4
Supply Chain Integrations
Fajar Hidayat, ST, MsMM, CPIM
Outline
Push and Pull Strategy
Distributions Strategy
Push vs Pull
Push Strategy
Pull Strategy
The Old Paradigm:
Push Strategies
Production decisions based on long-term forecasts
Ordering decisions based on inventory & forecasts
What are the problems with push strategies? Inability to meet changing demand patterns
Obsolescence
The bullwhip effect: Excessive inventory
Excessive production variability
Poor service levels
A Newer Paradigm:
Pull Strategies
Production is demand driven Production and distribution coordinated with true customer
demand
Firms respond to specific orders
Pull Strategies result in: Reduced lead times (better anticipation)
Decreased inventory levels at retailers and manufacturers
Decreased system variability
Better response to changing markets
But: Harder to leverage economies of scale
Doesnt work in all cases
Push and Pull Systems
What are the advantages of push systems?
What are the advantages of pull systems?
Is there a system that has the advantages of both systems?
A new Supply Chain Paradigm
A shift from a Push System...
Production decisions are based on forecast
to a Push-Pull System
Push-Pull Supply Chains
Push-Pull Boundary
PUSH STRATEGY PULL STRATEGY
Low Uncertainty High Uncertainty
The Supply Chain Time Line
Customers Suppliers
A new Supply Chain Paradigm
A shift from a Push System... Production decisions are based on forecast
to a Push-Pull System Initial portion of the supply chain is replenis
hed based on long-term forecasts For example, parts inventory may be replenished
based on forecasts
Final supply chain stages based on actual customer demand. For example, assembly may based on actual orde
rs.
Push-Pull Strategies
The push-pull system takes advantage of the rules of forecasting:
Forecasts are always wrong
The longer the forecast horizon the worst is the
forecast
Aggregate forecasts are more accurate
The Risk Pooling Concept
Delayed differentiation is another example
What is the Best Strategy?
Pull Push
Pull
Push
I
Computer II
IV
III
Demand uncertainty
(C.V.)
Delivery cost
Unit price
L H
H
L
Economies
of Scale
Selecting the Best SC Strategy
Higher demand uncertainty suggests pull
Higher importance of economies of scale suggests push
High uncertainty/ EOS not important such as the computer industry implies pull
Low uncertainty/ EOS important such as groceries implies push Demand is stable
Transportation cost reduction is critical
Pull would not be appropriate here.
Selecting the Best SC Strategy
Low uncertainty but low value of economies of scale (high volume books and cds) Either push strategies or push/pull strategies mi
ght be most appropriate
High uncertainty and high value of economies of scale For example, the furniture industry
How can production be pull but delivery push?
Is this a pull-push system?
Characteristics and Skills
Raw
Material Customers
Pull Push
Low Uncertainty
Long Lead Times
Cost Minimization
Resource Allocation
High Uncertainty
Short Cycle Times
Service Level
Responsiveness
Locating the Push-Pull Boundary
The push section: Uncertainty is relatively low Economies of scale important Long lead times Complex supply chain structures:
Thus Management based on forecasts is appropriate Focus is on cost minimization Achieved by effective resource utilization supply chain optimization
The pull section: High uncertainty Simple supply chain structure Short lead times
Thus Reacting to realized demand is important Focus on service level Flexible and responsive approaches
Locating the Push-Pull Boundary
The push section requires: Supply chain planning
Long term strategies
The pull section requires: Order fulfillment processes
Customer relationship management
Buffer inventory at the boundaries: The output of the tactical planning process
The input to the order fulfillment process.
Locating the Push-Pull Boundary
Impact of the Internet Expectations Were High
E-business strategies were supposed to:
Reduce cost
Increase service level
Increase flexibility
Increase Profit
Reality is Different..
Amazon.com Example Founded in 1995; 1st Internet purchase for most people
1996: $16M Sales, $6M Loss
1999: $1.6B Sales, $720M Loss
2000: $2.7B Sales, $1.4B Loss
Last quarter of 2001: $50M Profit
Total debt: $2.2B
Peapod Example Founded 1989
140,000 members, largest on-line grocer
Revenue tripled to $73 million in 1999
1st Quarter of 2000: $25M Sales, Loss: $8M
Reality is Different.
Furniture.com launched in 1999, with thousands of products
$22 Million in sales the first nine months
Over 1,000,000 visitors per month
Died November 6, 2000
Logistics costs too high
Reality is Different.
Dell Example: Dell Computer has outperformed the competition
in terms of shareholder value growth over the eight years period, 1988-1996, by over 3,000% (see Anderson and Lee, 1999)
What is E-Business?
E-business is a collection of business models and processes motivated by Internet technology, and focusing on improving the extended enterprise performance
E-commerce is the ability to perform major commerce transactions electronically e-commerce is part of e-Business Internet technology is the driver of the business change The focus is on the extended enterprise:
Intra-organizational Business to Consumer (B2C) Business to Business (B2B)
The Internet can have a huge impact on supply chain performance.
The Book Selling Industry
From Push Systems... Barnes and Noble
...To Pull Systems Amazon.com, 1996-1999 No inventory, used Ingram to meet most demand Why?
And, finally to Push-Pull Systems Amazon.com, 1999-present
7 warehouses, 3M sq. ft.,
Why the switch? Margins, service, etc. Volume grew
Industry Benchmarks:
Number of Distribution Centers
Sources: CLM 1999, Herbert W. Davis & Co; LogicTools
Avg.
# of
WH 3 14 25
Pharmaceuticals Food Companies Chemicals
- High margin product
- Service not important (or
easy to ship express)
- Inventory expensive
relative to transportation
- Low margin product
- Service very important
- Outbound transportation
expensive relative to inbound
The Grocery Industry
From Push Systems... Supermarket supply chain
...To Pull Systems Peapod, 1989-1999
Picks inventory from stores
Stock outs 8% to 10%
And, finally to Push-Pull Systems Peapod, 1999-present
Dedicated warehouses allow risk pooling
Stock outs less than 2%
Challenges for On-line Grocery Store
s
Transportation cost
Density of customers
Very short order cycle times Less than 12 hours
Difficult to compete on cost Must provide some added value such as convenience
Is a push-pull strategy appropriate?
What might be a better strategy?
The Retail Industry
Brick-and-mortar companies establish virtual retail stores
Wal-Mart, K-Mart, Barnes & Noble, Circuit City
An effective approach - hybrid stocking strategy
High volume/fast moving products for local storage
Low volume/slow moving products for browsing and purchase on line (risk pooling)
Danger of channel conflict
E-Fulfillment
How have strategies changed?
From shipping cases to single items
From shipping to a relatively small number of stores to individual end users
What is the difference between on-line and catalogue selling?
Consider for instance Lands End which has both channels
E-Fulfillment Requires a New Logistics I
nfrastructure
Traditional Supply Chain e-Supply Chain
Supply Chain Strategy Push Push-Pull
Shipment Type Bulk Parcel
Inventory Flow Unidirectional Bi-directional
Reverse Logistics Simple Highly Complex
Destination Small Number of Stores Highly Dispersed Customers
Lead Times Depends Short
E-business Opportunities:
Reduce Facility Costs
Eliminate retail/distributor sites
Reduce Inventory Costs
Apply the risk-pooling concept
Centralized stocking
Postponement of product differentiation
Use Dynamic Pricing Strategies to Improve Supply Chain Performance
E-business Opportunities:
Supply Chain Visibility
Reduction in the Bullwhip Effect Reduction in Inventory
Improved service level
Better utilization of Resources
Improve supply chain performance Provide key performance measures
Identify and alert when violations occur
Allow planning based on global supply chain data
Distribution Strategies
Warehousing
Direct Shipping
No DC needed
Lead times reduced
smaller trucks
no risk pooling effects
Cross-Docking
Cross Docking
In 1979 Kmart had 1891 stores and average revenues per store of
$7.25 million
Wal-Mart was a small niche retailer in the South with only 229 stores and average revenues under $3.5 million
10 Years later Wal-Mart had
highest sales per square foot of any discount retailer
highest inventory turnover of any discount retailer
Highest operating profit of any discount retailer.
Today Wal-Mart is the largest and highest profit retailer in the world
Kmart ????
What accounts for Wal-Marts remarkable success
A focus on satisfying customer needs providing customers access to goods when and where they
want them cost structures that enable competitive pricing
This was achieved by way the company replenished inventory the centerpiece of its strategy.
Wal-Mart employed a logistics technique known as cross-docking goods are continuously delivered to warehouses where they
are dispatched to stores without ever sitting in inventory.
This strategy reduced Wal-Marts cost of sales significantly and made it possible to offer everyday low prices to their customers.
Characteristics of Cross-Docking:
Goods spend at most 48 hours in the warehouse
Cross Docking avoids inventory and handling costs,
Wal-Mart delivers about 85% of its goods through its warehouse system, compared to about 50% for Kmart
Stores trigger orders for products.
System Characteristics:
Very difficult to manage Requires advanced information technology. Why?
What kind of technology? All of Wal-Marts distribution centers, suppliers and
stores are electronically linked to guarantee that any order is processed and executed in a matter of hours
Wal-Mart operates a private satellite-communications system that sends point-of-sale data to all its vendors allowing them to have a clear vision of sales at the stores
System Characteristics:
Needs a fast and responsive transportation system. Why?
Wal-Mart has a dedicated fleet of 2000 truck that serve their 19 warehouses
This allows them to ship goods from warehouses to stores in
less than 48 hours replenish stores twice a week on average.
Strategy
Attribute
Direct
Shipment
Cross
Docking
Inventory at
Warehouses
Risk
Pooling
Take
Advantage
Transportation
Costs
Reduced
Inbound Costs
Reduced
Inbound Costs
Holding
Costs
No Warehouse
Costs
No Holding
Costs
Demand
Variability
Delayed
Allocation
Delayed
Allocation
Distribution Strategies
Thank You