Introduction

Integration

  • coordinate
    • production
    • transportation
    • inventory decisions
  • integrate
    • the front-end of the SC, customer demand, to the back-end of the SC, the production & manufacturing portion

Opportunities and challenges

  • information availability
  • activity coordination across the SC
  • details
    • reduce cost
    • better utilize resources
    • increase service level
    • reduce the bullwhip effect
    • effectively respond to changes in the market

Exemplary approach

  • strategy
    • push, pull, and push-pull strategy
    • demand driven strategy
    • internet strategy
  • integration
    • centralized vs. decentralized operation
    • alternate ways to utilize warehouses
    • meeting customer demand

Push vs. Pull Systems

Definition

  • a push system
    • using demand projection
    • production decisions are based on long-term forecasts
      • much longer to react to the market
        • the inability to meet changing demand patterns
        • the obsolescence of supply chain inventory as demand for certain products disappears
      • inefficient resource utilization
        • excessive inventories (large safety stocks)
        • larger & more variable production batches
        • unacceptable service levels
        • product obsolescence
      • increase in variability (bullwhip effect)
        • production or transportation capacity is based on peak or average demand
        • increased transportation costs, high inventory levels and/or high manufacturing costs
  • a pull system
    • using actual demand
    • production is demand driven - coordinated with true customer demand, not a forecast
      • firms respond to specific orders
      • fast information flow mechanisms
    • advantages
      • decrease in lead times
        • ability to better anticipate incoming orders from the retailers
      • decreased inventory at the manufacturer due to the reduction in variability
      • decrease in inventory (retailers) - inventory levels increase with lead times
      • decrease in variability in the system and variability faced by manufacturers due to lead time reduction
      • better response to changing markets
    • disadvantages
      • difficult to implement when lead times are so long that it is impractical to react to demand information
      • more difficulty to take advantage of Economics of Scale (EOS) in manufacturing & transportation

Push-pull supply chain

  • supply chain time line
    • procurement of raw material
    • the delivery of an order to the customer
    • push - portion prior to assembly
    • pull – from assembly; actual customer demand
    • push-pull boundary - beginning of assembly
  • a new supply chain paradigm
    • a shift from a push System to a push-pull system
      • initial portion of the SC is replenished based on long-term forecasts, e.g., parts inventory may be replenished based on forecasts
      • final supply chain stages based on actual customer demand, e.g., assembly may be based on actual orders
    • build to stock vs. build to order
      • component inventory - based on the forecast
      • final assembly - to a specific customer request
  • two PC manufacturers
    • build to stock
      • forecast demand
      • buys components
      • assembles computers
      • observes demand & meets demand if possible
      • a traditional push system
    • build to order
      • forecast demand
      • buys components
      • observes demand
      • assembles computers
      • meets demand
      • a push-pull system
  • locating the push-pull boundary
    • the push section
      • uncertainty is relatively low
      • economies of scale important
      • long lead times
      • complex SC structures & resource allocation
      • 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
  • push-pull strategies
    • demand for a component is an aggregation of demand for all finished products using it
      • aggregate forecasts are more accurate
      • the longer the horizon the worse is the forecast
      • uncertainty in component demand is much smaller than that in finished goods demand
      • e.g., Dell computers
    • postponement, or delayed differentiation
      • generic or family product
      • differentiated to a specific end-product when demand is revealed
      • e.g., Benetton sweater production
  • uncertainty of customer demand
    • higher demand uncertainty
      • leads to a preference for managing the supply chain based on realized demand: a pull strategy
    • smaller demand uncertainty
      • leads to an interest in managing the supply chain based on a long-term forecast: a push strategy
  • economies of scale
    • higher the importance of economies of scale
      • in reducing cost, the greater the value of aggregating demand, and thus the greater the importance of managing the SC based on long-term forecast: a push strategy
    • if economies of scale are not important
      • aggregating does not reduce cost, so a pull- based strategy makes more sense
  • matching supply chain strategies
    • high uncertainty / EOS not important
      • e.g. computer industry implies pull
      • demand is stable
    • low uncertainty / EOS important
      • e.g. groceries
      • demand is stable, transportation cost reduction is critical
      • pull would not be appropriate here
    • low uncertainty / low value of EOS
      • e.g. high volume books and CD’s
      • either push strategies or push/pull strategies might be most appropriate
    • high uncertainty / high value of EOS
      • e.g. the furniture industry
  • demand-driven strategies
    • integrating demand information into the supply chain planning process
    • improve the forecast accuracy
      • select pull-push boundary – aggregation across products, geography, and time
      • market analysis, demographics, and economic trends
      • determine the optimal assortment of products by store
      • incorporate collaborative planning and forecasting processes with the customers
  • interatctions of the two portions
    • a push-pull boundary
      • typically through buffer inventory (safety stock)
      • in push portion, part of the output generated by the tactical planning process
      • in pull system, input to the fulfillment process
    • interface is forecast demand
      • forecast based on historical data obtained from the pull portion
      • used to drive the supply chain planning process and determine the buffer inventory
  • impact of lead time
    • box A
      • items with short lead time and high demand uncertainty
      • pull strategy should be applied as much as possible
    • box B
      • items with long supply lead time and low demand uncertainty
      • appropriate supply chain strategy is push
    • box C
      • items with short supply lead time and highly predictable demand
      • continuous replenishment strategy
        • a pull strategy at the production and distribution stages and push at the retail outlets
    • box D
      • items with long lead times are long and unpredictable demand
        • inventory is critical in this type of environment
        • requires positioning inventory strategically in the supply chain

The Impact of the Internet on SC Strategy

Overview

  • the impact of the internet on supply chain strategy
    • e-business & e-commerce
      • the book industry
      • the grocery industry
      • the retailer industry
    • e-business strategies were supposed to
      • reduce cost
      • increase service level
      • increase flexibility
      • increase profit
    • impact on transportation & fulfilment
  • e-business
    • a collection of business models & processes motivated by IT, and focusing on improving the extended enterprise performance
      • perform major commerce transactions electronically
      • e-commerce is part of e-business
      • internet technology is the driver of the business change & can have a huge impact on SC performance
      • the focus is on the extended enterprise
      • B2B, B2C, etc.
  • e-fulfillment
    • from shipping cases to single items
    • from shipping to a relatively small number of stores to individual end users

E-business opportunities

  • reduce facility costs
    • eliminate retail/distributor sites
  • reduce inventory costs
    • apply the risk-pooling concept, centralized stocking, postponement of product differentiation
  • reduction in the bullwhip effect
    • reduction in inventory
    • improved service level
    • better utilization of resources
  • improve supply chain performance