3 Supply Chain Strategies (Integration Distribution) (Moodle) [Compatibility Mode]

8/11/2019 3 Supply Chain Strategies (Integration Distribution) (Moodle) [Compatibility Mode]

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Supply Chain Strategy


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Various supply chain strategies

Push strategies

Pull strategies Push-pull systems

Matching products/industries with supply chain

strategies

Impact of the Internet on supply chain integration Effective distribution strategies

Direct shipment

Warehousing

Cross-docking


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Push Strategies

Production decisions based on long-term forecasts

Ordering decisions based on inventory & forecasts

What are the problems with push strategies?

Inabili ty to meet changing demand patterns

Obsolescence

The bullwhip effect:

Excessive inventory

Excessive production variability

Poor service levels

Hard to predict production capacity or transportation

capacity hence inefficient system


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Pull Strategies

Production is demand driven

Production and distribution coordinated with true

customer demand

Firms respond to specific orders

Pull Strategies result in:

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


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Push-Pull Supply Chains

The Supply Chain Time Line

Low Uncertainty

Long lead times

High Uncertainty

Short lead times

CustomersSuppliers

PUSH STRATEGY PULL STRATEGY

Push-Pull Boundary


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Push-pull systems

A shift from a Push System...

Production decisions are based on forecast

to a Push-Pull System

Initial portion of the supply chain is replenished 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 orders.


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Consider Two PC Manufacturers:

Build to Stock

Forecast demand

Buys components

Assembles computers

Observes demand and

meets demand if

possible.

A traditional pushsystem

Build to order

Forecast demand

Buys components

Observes demand

Assembles computers

Meets demand

A push-pull system


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Push-Pull Strategies

The push-pull system takes advantage of the rules

of forecasting: Forecasts are always wrong

The longer the forecast horizon the worse the forecast

Aggregate forecasts are more accurate

Risk Pooling impact


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Characteristics and Skills

Raw

Material Customers

PullPush

Low Uncertainty

Long Lead Times

Cost Minimization

Resource

Allocation/utilization

High Uncertainty

Short CycleTimes

Service Level

Responsiveness


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What is the Best Strategy?

Pull Push

Pull

Push

Demanduncertainty

(C.V.)

Delivery cost

Unit price

L H

H

L

Economies of

Scale

I II

IV III


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Locating the Push-Pull Boundary

The push section requires:

Supply chain planning

Long term strategies

The pull section requires:

Order ful fillment processes

Customer relationship management

Buffer inventory at the boundaries:

The output of the tactical planning process

The input to the order fulfi llment process.


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Postponement Strategy in Build-to-

Order (BTO) Model in Dell

Pull-based strategy

De-coupling point

part supplier OEMproduction

center logistics customers

assemblymanufacturingform packaging & logistics


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Demand-driven strategies

Demand forecast: Using historical data to develop long-term estimates of

expected demand

Demand shaping: Determining the impact various marketing p lans such as

promotions, pricing discounts, rebates, new product introductions and productwithdrawal on demand forecasts

Inaccuracy of the forecast has a detrimental impact on supply chain

performance: lost sales, obsolete inventory, inefficient resource utilization

Employing supply chain strategies to reduce the impacts of forecast

inaccuracy

Select the push-pull boundary so that the demand is aggregated over different

dimensions: products, geography, time

Use market analysis and demographic and economic trends to improve forecast

Determine the optimal assortment of products by store to reduce the impact of

competing SKUs in the same market

Incorporate collaborative planning and forecasting processes with customers to better

understand market demand, impact of promotions, pricing and advertising


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What does internet change for a SC?

Enables a whole new business model.

Online purchasing, direct shipping, auctioning, secondary markets

Improves or enables integration between different parties of

the supply chain

Enables information sharing

Enables col laboration

Reduces lead time

Reduction in order processing times

Improves product availability


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Impact of internet

E-business: a collection of business models and processes

motivated by Internet technology and focusing on

improvement of extended enterprise performance

Business-to-consumer (B2C): direct to customer, retail activi ties over

the internet

Business-to-business (B2B): business conducted over the internet

between businesses


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E-business Opportunities:

Reduce Facili ty Costs

Eliminate retail/distr ibutor si tes

Reduce Inventory Costs

Apply the risk-pooling concept

Centralized stocking

Postponement of product differentiation

Use Dynamic Pricing Strategies to Improve SupplyChain Performance


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E-business Opportunities:

Supply Chain Visibil ity

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

Al low planning based on g lobal supply chain data


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Distribution Strategies


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Direct Shipping: items are shipped directly from

the supplier to the retail stores without going

through distribution centers. Lead times reduced

smaller trucks

no risk pooling effects

Warehousing: warehouses keep stock and provide

customers with items as required.

Cross-docking: items are distributed continuously

from suppliers through warehouses to customers.

Items rarely kept for more than 10 to 15 hours


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Direct Shipment Distribution Strategies

Advantages:

Retailer avoids the expenses of operating a distribution center

Lead times are reduced.

Disadvantages:

Risk-pooling effects are negated

Manufacturer and dist ributor transportation costs increase

Commonly used scenarios:

Retail store requires fully loaded trucks

Often mandated by powerful retailers

Lead time is cri tical.

Prevalent in the grocery industry: lead times are critical because of

perishable goods.


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Intermediate Inventory Storage

Point Strategies

Based on length of time inventory is stored at

warehouses/distr ibut ion centers 3 different strategies:

1. Traditional warehousing strategy distr ibution centers and warehouses hold stock inventory & provide

their downstream customers with inventory as needed.

2. Cross-docking strategy:

Warehouses/distribution centers serve as transfer points for inventory no inventory is held at these transfer points .

3. Centralized pooling and transshipment strategies:may be useful when there is a large variety of d ifferent products


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Issues in Traditional Warehousing

Inventory management and r isk pooling key factors

Other factors also play a significant role

Centralized vs Decentralized Management

Central vs Local Facili ties


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Centralized vs Decentralized Management

Decentralized system (Leads to local optimization).

Each facility identifies its most effective strategy without

considering the impact on the other facilities in the supply chain.

Centralized system (leads to global opt imization).

decisions are made at central location for enti re supply chain.

Typical objective: minimize the total cost of the system subject

to satisfying some service-level requirements.

Al low use of coordinated strategies

If system cannot be centralized

often helpful to form partnerships to approach the advantages of

a centralized system.


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Central vs. Local Facilities

Factors affecting the decision:

Safety stock. Lower safety s tock levels wi th centralized facilit ies

Overhead. Lower total overhead cost with centralized facilit ies

Economies of scale. Greater economies of scale with centralized facilities

Lead time. Lead time to market reduced wi th local facili ties

Service level: Utilization of r isk pooling better with centralized, whereas,Shipping times better wi th local

Transportation costs: Costs between production facilities & warehouses

higher wi th local, whereas, Costs from warehouses to retailers lesser wi th

local


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Cross Docking In 1979

Kmart had 1891 stores and average revenues per store of $7.25 mill ion.

Kmart was the king of the retail industry.

Wal-Mart was a small n iche retailer in the South wi th only 229 stores andaverage revenues under $3.5 mill ion

10 Years later

Wal-Mart had

highest sales per square foot of any discount retailer

highest inventory turnover of any discount retailer

Highest operating profi t of any discount retailer.

Today Wal-Mart is largest & h ighest prof it retailer in the world

Kmart ????


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What accounts for Wal-Marts

remarkable success?

This was achieved by way company replenished inventory the

centerpiece of its strategy.

Wal-Mart employed a logist ics technique known as cross-

docking

goods are continuous ly delivered to warehouses where they are

dispatched to stores without ever sit ting in inventory.

This strategy reduced Wal-Marts cost of sales significantly and

made it possible to of fer everyday low prices to their customers.


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Characteristics of Cross-Docking:

Goods spend at most 12-15 hours in the warehouse,

lowers inventory handling costs,

Wal-Mart delivers about 85% of its goods through its cross

docking facility, compared to about 50% for Kmart,

Stores trigger orders for products.


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Issues with Cross-Docking

Require a signi ficant start-up investment and are very difficult

to manage

Supply chain partners must be linked with advanced

information systems for coordination

A fast and responsive transportation system is necessary

Forecasts are critical, necessitating the sharing of information.

Effective only for large distribution systems

Sufficient volume every day to allow shipments of fully loaded trucks from

the suppliers to the warehouses.

Sufficient demand at retail out lets to receive full truckload quantities


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Inventory Pooling: Example

Two retailers face random demand for a single product.

No differences between the retailers

Compare two systems

centralized pooled system,

retailers together operate a joint inventory facili ty

take items out of the pooled inventory to meet demand.

decentralized system

each retailer individually orders from the manufacturer to meet

demand

In both systems, inventory is owned by the retailers


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Transshipment

Shipment of items between different facilities at the same level

in the supply chain to meet some immediate need

Occurs mostly at the retail level

Takes advantage of Risk Pooling

Can be achieved:

with advanced information systems

Shipping costs are reasonable

Retailers have same owner


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Which Distribution Strategy to Adopt?

Different approaches for different products

Factors:

Customer demand and location

Service level

Costs => transportation & inventory costs

Demand Variability


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Strategy

Attribute

Direct

Shipment

Cross

Docking

Inventory at

Warehouses

RiskPooling

TakeAdvantage

Transportation

Costs

Reduced

Inbound Costs

Reduced

Inbound Costs

Holding

Costs

No Warehouse

Costs

No Holding

Costs

Demand

Variability

Delayed

Allocation

Delayed

Allocation


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THANKYOU

3 Supply Chain Strategies (Integration Distribution) (Moodle) [Compatibility Mode]

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