03 Supply Chain Technology and Collaboration[1]

8/2/2019 03 Supply Chain Technology and Collaboration[1]

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Supply Chain

Technology and Collaboration

Informatio

Prof. M

Operations M

Management Development I

Supply

Chapter-03

[email protected]

http://mks507.vistapanel.net


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Supply Chain TechnologyInformation Visibility: RFI

Part

01


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Technology Technology Technol

Technology Technology

Customer Customer Server

Server Server

Server

CustomerCustomer

Customer

D. Technology-Mediated

Service Encounter

E. Technology-Generated

Service Encounter

A. Technology-Free

Service Encounter

B. Technology-Assisted

Service Encounter

C. Technolo

Service

Role of Technology in Services

Source: Craig M. Froehle and Aleda V. Roth, New Measurement Scales for Evaluating Perceptions of the TechService Experience, Journal of Operations Management


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Radio Frequency Identification

Identification system thatconsists of chip-based tags

and readers

Data is storeretrieved remradio waves

OnboardProduct i

Major Player: IBM, Texas Instruments

The RFID device servea bar code or a magne

credit card or ATM caidentifier fo


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What is EPC?

The Electronic Product Code (EPC) is an identification schemidentifying physical objects via Radio Frequency Identification

other means.

Extremely long barcodes, this greater data capacity affecprocess because it in turn allows a greater degree of unique id

The Key Difference

UPC contains just enough information to identify the class of a p

EPC contains more information to identify the product uniquely

It is not necessary for UPC to be universal

A typical example would be an automotive tyre

Universal Product Code (UPC) will say this is a class-x tyre

The Electronic Product Code (EPC) will say this is a class-x

#35686975.


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RFID: UPC vs. EPC

UPC-Requires line-of-sight

readers-Only one product can bescanned at a time

EPC-Tags can be read from

-Many products can besimultaneously

-Tags can store large adata

-Uniquely identifies pr


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Research says worldwide RFID spending will jump

from $300 million in 2004 to $2.8 billion by 2009,

and that most will centre on the global supply chain

(EPC Global the Source January 2005)

An AMR Research study found early EPC/RFID adopters in the retail

packaged goods (CPG) industries have lowered their supply chain c

three and five percent.

EPC= specific instaUPC= A class of product

B d B d


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Beyond Barcode268 million companies can each categorize 16 million different products and eac

may contain over 687 billion individual items.


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Architecture


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How It works.

C


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RFID Tag Components


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Types of Tags

Passive

Operational power scavenged

from reader radiated power

Require no internal power source or maintenance

Semi-passive

Operational power provided by battery

Active

Operational power provided by battery - transmitter built i

More reliable and efficient in rugged environments


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100 kHz 1 MHz 10 MHz 100 MHz GHz

LowFreq.

HighFreq.

MediumFreq.

134 kHz 13.56 MHz 915 MHT1-RFID T1-RFID UHF T1-RFI

Ultra HighFreq.

ITEM PACKAGING TRANSPORT UNIT UNIT LOAD CONTAINER

LF MF HF VHF UF

Active RFID

ISO 18000-7

Passive RFID

125 kHz & 13.56 MHz ISO 15693 & ISO 14443-3

868 MHz EPCglobal Gen 2 ISO 18000-6

Bar Code

Frequencies of operation


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Frequency Range Tag cost Applic

Low-frequency125 - 148 KHz

3 feet $1+ Pet and ranch animal idCar key locks

High-frequency13.56 MHz

3 feet $0.50 Library book identificaClothing identificationsmart cards

Ultra-high freq915 MHz

25 feet $0.50

Supply chain tracking: Box, pallet, container,

Microwave:2.45GHz

100 feet $25+ Highway toll collectionVehicle fleet identificat

Tags need to be closer to the readerPoor discrimination

Tags can be read from relatively greater distancesTags can hold more information

Frequencies ofoperation


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Applications of RFID


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Applications

Keyless entry

EPC

Proximity cards Libraries

Security device Bookstores

Animal and human imp

Avid

Pet-ID VeriChip

RFID-privacy legislatio

REAL ID Act


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. Size compariso(RFID chip, Dime, Rice

How is an RFID chip implanted?


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How is an RFID chip implanted?

T ki I t


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Wireless / BatchInventory Management

Material HandlingBy Destination

Material HandlingInspecting / Maintaining

Material HandlingAggregate / De-aggregate

Where is it?What is it?What is insidethe box?

Where is it going? Where has Should it be here?

What have I assembled or disassembled?How many do I have? Do I have enough?

Has this been repaired?Is this under warrantee?Has this been inspected?Is this complete?What is the assets status or

Tracking Inventory


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Human

Tracking


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Animals

Tracking


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Shops

Security

Doors and


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Doors and

Garages

Security


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Product Mon

and Cont


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Shoppin


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RFID

Implant


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Electronic

Passport


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Contactless

payment

Library Inventory Process


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RFID also has had a significant impact on inventoryprocesses in libraries. With a full hand-held wand which ispassed alongside the books on the shelves; by taggedcollection, inventory can be taken with a portable, he readerpicks up the individual signals from each item's tag, withoutneeding to remove or even tip the books outward from the

shelves.

With RFID not only does the cost of doing an inventory in the library go down, the odds of actuinventories goes up. Inventory with RFID has also proven to be extremely useful and cost-effectiveor miss helved items. Even Searching for books by just typing its name on the Reader .

Internet of Things


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Internet of ThingsCivil liberties groups (among others) have become increasingly concerned about the

use of RFIDs to track the movements of individuals. For example, passports will

soon be required to contain some sort of RFID device to speed border crossings.

Scanners placed throughout an airport, for example, could track the location of

every passport over time, from the moment you left the parking lot to the moment

you got on your plane.There are also concerns about the fact that, even after you leave the store, any RFID

devices in the things you buy are still active. This means that a thief could walk past

you in the mall and know exactly what you have in your bags, marking you as a

potential victim. A thief could even circle your house with an RFID scanner and pull

up data on what you have in your house before he robs it. Military hardware and

even clothing make use of RFID tags to help track each item through the supply

chain. Some analysts are concerned that, if there are particular items associated

with high-level officers, roadside bombs could be set to go off when triggered by anRFID scan of cars going by.

There was a recent report revealing clandestine tests at a Wal-Mart store where

RFID tags were inserted in packages of lipstick, with scanners hidden on nearby

shelves. When a customer picked up a lipstick and put it in her cart, the movement

of the tag was registered by the scanners, which triggered surveillance cameras.

This allowed researchers 750 miles away to watch those consumers as they walked

through the store, looking for related items.

"Imagine an Interneeveryday objects, roconnected to one andigital world.

RFID Capabilities


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RFID Capabilities

RFID Capabilities


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RFID Capabilities


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1995


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Comprehensiveness


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2003

Source: http://www.symbol.com/prod


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Supply Chain Coordinatio(Bullwhip effect)

Part

02

No clear identification of owner and customers of measures


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Fill

The

Ga

ps

No clear identification of owner and customers of measures

(joint determination is very essential)

Not evaluating consequences and outcomes

(Efficacy is prerequisite to customer satisfaction)

Imbalance between efficiency and effectiveness(key processes has to be identified and owned)

Lack of Process Orientation of measurement

(Physical Orientation alone is not a suitable indicator)

Lack of Measures of relationships

(economic, physical, psychological measures are equallyLack of real-time visibility

(every affected party must be informed)

Lack of Multi-firm optimization

(have to look beyond sub-optimization)

*

Supply Chain Problems


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Adding value along the chain is essential for competitiveness, however problems exis

complex or long chains and in cases where many business partners are involved.

due to

uncertainties need to coordinate several activities, internal units, and business partners.

Demand forecasts are a major source of uncertainties Competition

Prices

Weather conditions

Technological development

Customer confidenceUncertainties exist in delivery times

Machine failures

Road conditions

Shipments

Quality problems may also create production delays



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Coordination

in supply chains

Obstacles

Coo


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Incentive Obstacles

Information Processing Obstacles

Operational Obstacles

Pricing Obstacles

Behavioral Obstacles

Manageria

Aligning Goals and Incentives Improving Information Accuracy

Improving Operational Performanc

Designing Pricing Strategies to Stab

Building Strategic Partnerships and

in a Sup

Achieving Coordination in Practice


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c e g Coo d a o ac ce

Quantify the bullwhip effect

Get top management commitment for coordination

Devote resources to coordination

Focus on communication with other stages

Try to achieve coordination in the entire supply cha

Use technology to improve connectivity in the supp

Share the benefits of coordination equitably

Obstacles to Coordination in a Supply


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Obstacles to Coordination in a Supply

Incentive Obstacles

Information Processing Obstacles

Operational Obstacles

Pricing Obstacles

Behavioral Obstacles

Managerial Levers to Achieve Coordin


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Managerial Levers to Achieve Coordin

Aligning Goals and Incentives

Improving Information Accuracy

Improving Operational Performance

Designing Pricing Strategies to Stabilize Order

Building Strategic Partnerships and Trust


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What a Supply Chain Problem can do

Problems with the Supply Chain have caused armies to lose

companies to go out of business, for example

In 1999 ToysRUS

had problems

supplying to

holiday shoppers

& lost business.

In WW II, Germany

encountered problems

supplying troops in

Russia, which

contributed to their

collapse.



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Adding value along the chain is essential for competitiveness, however problems exis

complex or long chains and in cases where many business partners are involved.

due to

uncertainties

need to coordinate several activities, internal units, and business partners.

Demand forecasts are a major source of uncertainties Competition

Prices

Weather conditions

Technological development

Customer confidenceUncertainties exist in delivery times

Machine failures

Road conditions

Shipments

Quality problems may also create production delays


Local optimization and lack of global fit


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SCM is big:

Variety of products and services

Spoiled/ demanding customers

Multiple owners (procurement, production, inventory, marketing) / multiple o Globalization

p g

Instability and Randomness: Increasing product variety

Shrinking life cycle

Customer fragmentation

Increasing implied uncertainty

Conflicting Objectives in Supply Chain


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Conflicting Objectives in Supply Chain

1. Decentralized supply chain: each member has his own interest and ac

2. Self-interested decision makers: every member of the supply chain opobjective.

3. These self-interested members decisions may not align with the optimthe overall performance of the supply chain.

4. Inefficiencies across supply chain lead to decentralization cost

5. Solution: to coordinate the members to act as if they are a centralized(i.e., one decision-maker makes decisions in behalf of the whole supp

Supply Chain Uncertainty


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Supply Chain Uncertainty

One goal in SCM:

respond to uncertainty in customerdemand without creating costly excessinventory

Negative effects of uncertainty lateness incomplete orders

Inventory insurance against supply chain

uncertainty

Factors that contriuncertainty

inaccurate dema long variable lea late deliveries incomplete shipm product changes price fluctuation inflated orders

Distinctions between the primary modes of int


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Distinctions between the primary modes of int

Cross-functional integration

within a selected organization

Integration with selected fi

increasingly second tier sup

Integration with selected first tier

customers or service providers

Integration with suppliers and customers

InefficientFrequent Supply

shortagesLow ord

rate


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Tier 1Supplier

Manufacturer Distributor Retailer Custom

logistics

Ineffectivepromotions

g

High inventoriesthrough the chain

Glitch-Wrong Material,Machine is Down

effect snowballs


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Bullwhip effect

What is Bullwhip Effect?


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The bullwhip effect is a phenomenon observed in supply chademand variability increases as one moves up the supply c

customers towards to distributors to manufacture

Bullwhip effect refers to the phenomenon where orders to theto have larger variance than sales to the buyer (i.e., informatioand the distortion propagates upstream in an amplified form (amplification).

At P&G, diapdistributors hvariability that cconsumer fluct

At Hewlett-Packto the printer have much

variations that c


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0

S

0Time

Stores orders towholesaler

Time

Wholesalersorders to

manufacturer

0

Manufacturersorders to its

suppliers

0Time

RetailStore

Whole-saler

Manu-facturer

Supplier

Time

Inaccurate information can cause minor fluctuations in demand for a produas one moves further back in the supply chain. Minor fluctuations in retail s

can create excess inventory for distributors, manufacturers, and s


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Babies dailydemand for diapers

Retailers dailyorders to

distribution center

DCs weekly ordersto Manufacturer w

9,000

7,000

5,000

3,000

0

Orde

rquantity

Day 1 Day 30 Day 1 Day 30 Day 1 Day 30 Da


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Causes


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erratic shifts in orders up and down the supply ch

order batching

rationing within thechain

price fluctuation

poor demandforecasting

Bullwhip Effect

Order synchronization Multiple retailers who tend to order around the same time period

M f t di t MRP t th t l t i l d t th b i i

Bullwhip effec


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Manufacturers responding to an MRP system that place raw material orders at the beginnin

Order batching In order to save on shipping or ordering costs, firms order a full pallet or full truck load

Trade promotions and forward buying

Supplier offers a discount on product ordered in a specific time period Supplier offers a quantity discount

A retailer orders a large quantity intending to take advantage of a discount and sells excesssecond retailer (this strategy is called diversion)

Reactive and over-reactive ordering A retailer who is not sure that demand is stable over time may act aggressively when faced

lower or higher than expected demand

Shortage gaming A retailer who wants to insure product from an under-capacitated supplier may over order e

receive a portion of the ordered quantity

Demand forecast updating / Inflated Orders IBM Aptiva orders increased by 2-3 times when retailers thought that IBM would be out of s

Long cycle times Long lead times magnify this effect


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Effects

Distorted information can lead totremendous inefficiencies

Even slight demand


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A common way to solve the bullwhip problem is by sharing information a

chain through EDI, extranets, and groupware technologies. For exampl

vendor-managed inventory (VMI) strategy, the vendor monitors inventory l

falls below the threshold for each product this automatically triggers a

shipment.

tremendous inefficiencies

excessive inventoriespoor customer service

lost revenuesineffective shipmentsmissed production schedules.

uncertainties and variabilitybecome magnified if eachdistinct entity on the chain,

makes ordering andinventory decisions withrespect to its own interestabove those of the chain


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Remedies

Centralizing demand information occurs when customer demand informa

Bullwhip effect


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Centralizing demand information occurs when customer demand informaall members of the supply chain.

Reducing uncertainty. This can be accomplished by centralizing demand

Reducing variability. This can be accomplished by using a technique madWalMartand then Home Depotcalled everyday low pricing(EDLP). EDLPpromotions as well as the shifts in demand that accompany them.

Reducing lead time. Order times can be reduced by using EDI (electronic

Strategic partnerships. The use of strategic partnerships can change howshared and how inventory is managed within the supply chain. These will b

Cross-docking. This involves unloading goods arriving from a supplier and immegoods onto outbound trucks bound for various retailer locations. This eliminates stoinbound warehouse, cuts the lead time, and has been used very successfully by WalMothers


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others.

Delayed differentiation. This involves adding differentiating features to standardprocess. For example, Bennettondecided to make all of their wool sweaters in undyethe sweaters when they had more accurate demand data. Another term for delayed d

postponement.

Direct shipping. This allows a firm to ship directly to customers rather than throuapproach eliminates steps in the supply chain and reduces lead time. Reducing one supply chain is known as disintermediation. Companies such as Delluse this approa

Sharing Information: Retailers may give the supplier frequent access to actual co

so that the supplier can make its production plans accordingly.

Vendor Managed inventory: The retailer no longer decides when and how muchInstead, the supplier decides the timing and quantity of shipments to the retailer (e.g.

Smoothing the flow of products: Supplier and the retailers coordinate the timinretailers do not place orders at the same time.


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Illustrations

Cause 2: Rationing and Shortage Gaming


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When product demand exceeds supply, a manufacturer ofteproduct to customers. Example:

Knowing the manufacturer policy, customers exaggerate their realneeds when they order (gamethe system). Example:

As a result, customers orders give the supplier little information on a products realdemandproblem for new products

Car Manufacturer

Available = 200

Dealer 1

Dealer 2

Order = 100

Order = 200

Received = 67

Received = 133

Only 2/3 of the order can b

Car Manufacturer

Dealer 1

Dealer 2

Need = 120

Need = 180

Order = 180

Order = 270

Order more than needed so that if only 2

order is filled you still get what you actua

Available = 500

Coordinating S.C. Inventory Consider a simple demand driven supply chain: a buyer and a su

BS li C t


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The buyer produces D= 10,000 units/year of a product at a constatime the buyer places an order for a certain component, the order

$100. The buyers inventory holding cost is H= $10/yr and optimquantity:

The supplier produces an order whenever one is received from th

Each time the seller sets up to produce a batch of componentsetup cost is Ss = $300.

The suppliers total (setup) cost = Ss(D/EOQb) = 300(10,000/44

Optimal ordering quantity for the centralizedsupply chain:

BuyerSupplier Customers

2 2(10,000)(1

10

b

b

DSEOQ

H

2 ( ) 2(10, 000)(100

10

b s

SC

D S SEOQ

H

TC = 894 x 10/2 + (10000/894) x 100


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Suppliers cost (at Q=4

= Ss (D/E

= $6,711

Buyers cost (at Q=447

= (2 x D= (2 x 10= $ 4,472

Suppliers cost (at Q=8

= Ss (D/E

= $3,356

SC overall cost (at Q=8

= (2 x D= (2 x 10= $ 8,944

$ 8,944

$ 5,589

$ 3,356

$ 4,472

$ 6,711

$ 11,184

TC = 894 x 10/2 + (10000/894) x 100= $ 5,589

Buyer's optimalquantity

Centralized supply chain'soptimal quantity Cost saving

Q=447 Q=894


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If buyer orders Q=894, supply chains total cost is reduced

But, buyer incurs a higher cost, and will not order Q=894

The SC is NOT coordinated without a compensation for buyer

Supplier cost $6,711 $3,356 $3,356

Buyer cost $4,472 $5,589 -$1,116

Supply chain cost $11,184 $8,944 $2,239

For any order quantity Q, the buyer always bears a fraction of of the total chain

Supplier promises to pay buyer = (1) (buys total holding a The buyer promises to pay the supplier = () (suppliers total setup c

Buys optimal quantity = SCs optimal quantity = centralized SCs optimal qu

There exist a such that buyer and suppliers are both better off than orderi

Solutions for Battling Bullwhip Effect


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Vendor Managed Inventory (VMI)

Vendors take control of inventory management at

retailers

Quick Response (QR)

Vendors receive POS data from retailers, and use tinformation to synchronize their production and inactivities.

Vendor Managed Inventory (VMI)


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How does it work?

The vendor (supplier) receives inventory and poin

(POS) data from the retailers and calculates how mship to retailers.

The vendor places orders for supply.

VMI projects

Dillard Department Stores, JCPenney and Wal-Mar

Sales increases of 20 to 25%

30% inventory turnover improvements

Types of vendor managed inventory in supply


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Configuration Description of collaborative or vendor managed fun

Type 0 Traditional supply chain

Type I Replenishment only

Type II Replenishment and forecasting

Type IIIReplenishment, forecasting andcustomer inventory management

Type IVReplenishment, forecasting, customer inventory maand distribution planning

Type I and II have beenimplemented in supplychains in various sectors

Type III a

more advarequire furth

and deve

Quick Response


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The supplier receives POS data from retailers,this information to synchronize their productio

inventory activities.

The retailer prepares individual orders, but thedata is used by the supplier to improve foreca

and scheduling.

Quick Response vs. VMI


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Sales information passed back to the supplier

Bullwhip effect is reduced.

Whats the difference? Who chooses the order quantity?

VMI: Supplier

QR: Retailer

Who chooses when to order? VMI: Supplier

QR: Retailer

03 Supply Chain Technology and Collaboration[1]

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