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Published by Mahesh Deshmukh

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Published by: Mahesh Deshmukh on Feb 21, 2013
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Supply chain integration

 Various supply chain strategies
 Push strategies  Pull strategies  Push-pull systems

 Matching products or industries with supply chain strategies  Impact of the Internet on supply chain integration  Effective distribution strategies
 Direct shipment  Warehousing  Cross-docking

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

 Hard to predict production capacity or transportation capacity

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  Doesn’t work in all cases .

Pull strategies – a Kanban system Inbound buffer Outbound buffer Inbound buffer Outbound buffer Suppliers Move cards Production cards Move cards Production cards Retailers .

Push-Pull Systems PushPull Boundary Push Strategy Raw Materials Pull Strategy End Customer Supply chain time line .

 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. assembly may based on actual orders. parts inventory may be replenished based on forecasts  Final supply chain stages based on actual customer demand..Push-pull systems  A shift from a Push System..  For example. .

Consider Two PC Manufacturers:  Build to Stock     Forecast demand Buys components Assembles computers Observes demand and meets demand if possible.  Build to order      Forecast demand Buys components Observes demand Assembles computers Meets demand  A traditional push system  A push-pull system .

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  Delayed differentiation is another example  Consider Benetton sweater production .

) Pull H I Computers II Furniture IV Books & CDs III Grocery H Push L L Delivery cost Unit price Economies of Scale Pull Push .What is the Best Strategy? Demand uncertainty (C.V.

.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 might 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 Portion Objective Complexity Focus Lead time Processes Push Minimize cost High Resource allocation Long Supply chain planning Pull Maximize service level Low Responsiveness Short Order fulfillment .

Locating the Push-Pull Boundary  The push section:     Uncertainty is relatively low Economies of scale important Long lead times Complex supply chain structures: Management based on forecasts is appropriate Focus is on cost minimization Achieved by effective resource utilization – supply chain optimization High uncertainty Simple supply chain structure Short lead times Reacting to realized demand is important Focus on service level Flexible and responsive approaches  Thus     The pull section:     Thus    .

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 .

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. impact of promotions. rebates. 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. new product introductions and product withdrawal on demand forecasts Inaccuracy of the forecast has a detrimental impact on supply chain performance: lost sales. obsolete inventory.Demand-driven strategies     Demand forecast: Using historical data to develop long-term estimates of expected demand Demand shaping: Determining the impact various marketing plans such as promotions. pricing discounts. pricing and advertising . geography.

Impact of Internet on SCM  What does internet change for a supply chain?  Enables a whole new business model.  Online purchasing. auctioning. secondary markets  Improves or enables integration between different parties of the supply chain  Enables information sharing  Enables collaboration  Reduces lead times  Reduction in order processing times  Improves product availability . direct shipping.

retail activities over the internet  Business-to-business (B2B): business conducted over the internet between businesses  Impact of internet  Move from push to pull systems  Significant failures as a result  Move from pull systems to push-pull systems  Many click-and-mortar companies established. Some has been successful: Dell. Amazon. Many have failed .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”. Cisco. Many brick-andmortar companies opened online stores.

etc . Problems  Service problems: significant stock-outs  Reduced profit margins  Moved to a push-pull system. When an order is received. the demand is aggregated over a larger geographical area  Transportation costs versus response time  Shipments in small batches  Response time within 12 hours  No sufficient density of customers to control transportation costs  Many failures so far: shoplink.com. Set up a number of warehouses  Stock-out rates are lower  As compared to traditional grocers.com. the products are picked from a nearby supermarket.Grocery Industry  Example: Peapod  Founded early 90s  Implemented a pure pull system. streamline.

May use parcel services. where the inventory is procured using a push strategy. orders are shipped using a pull strategy  May still use a pure pull strategy for slower items  World’s largest bookseller with $3.com. Appropriate when Amazon was building its brand name. Service issues for Amazon during peak demand  Amazon had to share its profit margins with Ingram  Amazon established several warehouses. Issues became clear later when the demand increased  Ingram’s distribution capacity supports many other booksellers. .Book industry  Example: Amazon.9 Billion sales in 2002. But yet to make a profit  Response time is not as critical as grocers. World’s largest bookseller  Founded in 1994  Implemented a pure pull system where it utilized Ingram Book Group to supply customer demand.

slow-moving products are stocked centrally and available only online  Moving from a traditional business to internet based business may require different skills that are not present in many traditional businesses . Target and Barnes and Noble.Retail industry  Traditional retailers added online shopping component to their offering: Wal-Mart. fast-moving products stocked in stores and available online  Low-volume. Kmart. Advantageous over pure Internet companies  They already have the distribution and warehousing infrastructure in place  Established brand name  Easy returns and reverse logistics  Different strategies for different products  High-volume.

Impact of internet on fulfillment Traditional fulfillment Supply chain strategy Shipment Reverse logistics Delivery destination Lead times Push Bulk Small part of business Small number of stores Relatively long E-fulfillment Push-pull Parcel Important and highly complex Large number of geographically dispersed customers Relatively short .

mA < mB  If SA is stochastically larger than SB. in the sense of increasing convex ordering. Two Kanban systems A and B.Spearman  Analyzes service level in pull systems  Kanban system versus a base stock policy  Kanban would not place an order for more parts if a demand had arrived when there was no stock in the outbound stock point  Kanban has a constant WIP  Stochastic ordering and Kanban systems. then system A has worse service than system B  Two normal distributions with same mean. sA < sB  More Kanban (WIP) leads to higher service in Kanban systems .  If SA is stochastically larger than SB. A has service times SA and B has service times SB. then system A has worse service than system B  Two normal distributions with same variance.

continued  The study argues that the superiority of Kanban systems is not the fact that material is pulled everywhere. changing product mix.Spearman . but the fact that the WIP is constant  Develops a system called a constant WIP system. . or CONWIP  Pulling only at the first station  Pushing on the rest of the chain using CONWIP backlog  Can utilize common setups  Consumption of item A may lead to start of the production for item B  CONWIP system outperforms Kanban system  Better service  May be more appropriate for large setup times.

Cycle stock and safety stock. Ship to customer within T with probability PO  Items that are MTS. poorer service for MTO items  Decisions for items are not independent of each other. No inventory cost. Follows an (r. but  Leads to more setups. Service level (type I) of PS  Making an item MTO reduces the inventory for that item.Rajagopalan  Develops a model to decide whether an item should be MTO or MTS  Items that are MTO. Trade-offs  Decreasing the lot size for MTS similar effects . Only setup time. thus higher capacity utilization and larger lead times  Leads to more variability in lead times  Thus larger safety and cycle stocks for MTS items. q) policy. Orders of a same item within a bucket still shares the setup.

continued  Insights      MTO systems may be less costly but not always feasible Medium demand items are attracted to MTS Higher holding costs -> MTO Higher setup costs -> MTS Larger processing times with high demands -> MTO  Impact of priority queues (MTO orders are prioritized)  Leads to more MTO items  However leads to more cycle stocks and safety stocks for MTS items .Rajagopalan .

7 0.1 0 0 20 40 60 80 m=30 s=5 m=20 s=5 .8 0.2 0.3 0.9 0.Stochastic ordering 1 0.5 0.6 0.4 0.

Increasing convex stochastic ordering 1 0.2 0.8 0.4 0.7 0.9 0.3 0.6 0.1 0 0 20 40 60 80 m=20 s=8 m=20 s=5 .5 0.

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