SDM 5001 SYSTEMS ARCHITECTURE

LECTURE 5
ARCHITECTING SINGLE SYSTEM: SUPPLY CHAIN

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 SDM 5001 SYSTEMS ARCHITECTURE

LECTURE 5.1
SYSTEMS ARCHITECTURE OF A SERVICE FIRM
PIZZA DELIVERY SERVICE

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 A Service Systems Architecture
Intent / Goal: To serve pizza to consumers in their home
Requirements: To receive orders in Pizza kitchen
To deliver pizza to consumer home
Viewpoint: Pizza company

Concept of Operations: order

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 Process Flow Chart

Customer

place orders
Process + Operands Behaviour Functions
Office Customer + Order Phone In Order Place Order
Store + Order Process Order Confirm Order
process orders

makes payments
Chef + Ingredients Bake Pizza Cook Pizza
Kitchen Motor Cyclist + Pizza Travel Deliver Pizza

bakes pizzas
Delivery Point + Money COD (cash on delivery) Payment

Motor Cyclist

delivers pizzas makes payments

Delivery Point

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 DSM Process/Logical Architecture
Process Flow Chart Orders Process Bake Deliver Pay

Customer Orders X X2.1

Process X
place orders
Bake X
Store Deliver X2.2 X2.3 X1.1
Pay X2.4 X1.2
process orders

makes payments
X and X1.1 (Dependent Elements)
Kitchen
o Orders Process Bakes Delivers
bakes pizzas
X1 (Coupled Elements)
Motor Cyclist o X1.1 Motor Cyclist Delivery and Receive Payment
o X1.2 Payment made to Motor Cyclist for Delivery
delivers pizzas makes payments
X2 (Interdependent Elements)
o X2.1 Customer Made Payment
Delivery Point
o X2.2 Motor Cyclist Deliver to Customer
o X2.3 Motor Cyclist Update Pizza Hut with Delivery
o X2.4 Payment Recorded in Pizza Hut
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 DSM Functional Architecture
Functional Architecture
Physical Components
Place Orders
Functions Phone Store Kitchen Motor Cyclist Bank
Place Orders X
Record Orders Record Orders X
Bake Pizza X
Delivery X
Bake Pizza
Payment X1 X1 X

Delivery Payment Functions requires

o Store (to receive payment),
o Motorcyclist (to collect payment), and
Payment o Bank (to make payment)

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Functional Architecture Physical Architecture

Place Orders Phone/Internet

Record Orders Store

Bake Pizza Kitchen

Delivery Motor Cyclist

Payment Bank

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 DSM Physical Architecture
Physical Architecture
Physical Components
Phone/Internet
Physical
Phone Store Kitchen Motor Cyclist Bank
Components

Store Phone X
Store X
Kitchen X
Kitchen
Motor Cyclist X X
Bank X X
Motor Cyclist

Pizza Store Module

Bank

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 Systems Architecture of Service
Communication
Systems
Payment Systems

Food Ordering
Systems

Transport Systems Kitchen

Interfaces

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SDM 5001 SYSTEMS ARCHITECTURE

LECTURE 5.3
MANAGING SUPPLY CHAIN BULLWHIP

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 Measurements of Bullwhip Impact

Variance Orders
Bullwhip Effect =
Variance of Demand
Bullwhip = 1 no variance amplification
Bullwhip > 1 bullwhip present in amplification
Bullwhip < 1 bullwhip dampening or smoothing

Variance of Net Inventory

Net Inventory Amplification =
Variance of Demand
Higher Net Inventory Amplification More Safety Inventory Buffer
Lower Net Inventory Amplification Less Safety Inventory Buffer
(Net Inventory are either Inventory or Backlog)

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 Typical Supply Chain Structures
1 Traditional supply chain
– each member sends an order to its supplier which delivers what is required. each member receives
information about demand from the immediate downstream level and transmits it as orders to the
immediate upstream level

2 Reduced supply chain

– one member or more of the traditional supply chain is/are eliminated. Do not use retailers, such as
direct sales of articles to end consumers on the Internet (Amazon)

3 e-shopping supply chain (traditional single-level supply chain)

– Factory receives the products or services demand directly from the end customer (Dell Computers)

4 EPOS system
– whole supply chain has access to data about current sales to the end consumer for demand forecasts
Each member knows the real products demand that the end customer requests in each period.

5 VMI-type supply chain

– agreement between distributor and retailer (or between the manufacturer and the distributor)
Distributor knows not only the end consumer’s sales (receives information about them), but also the
retailer’s inventory and it manages this level
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Ref: S.M. Disney, M.M. Naim, A. Potter (2004) Assessing the impact of e-business on supply chain dynamics. Int. J. Prod. Econ. 89, 109–118 © LGChan
BULLWHIP MANAGEMENT STRATEGIES

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 Four Main Causes of Bullwhip Effect
Forrester Effect (Forrester 1961) or Demand Amplification
– processing demand signal leads to adjusting demand forecasts and,
as a result, parameters are adjusted to the inventory replacement rule (econometric forecasting)

Burbidge Effect (Burbidge 1991) or Lot Sizing

– managing orders downstream the supply chain (or in the manufacturing process) into
lots to gain economies of scale in lot size changing activities (machine configurations, or managing and
receiving an order)

Houlihan Effect (Houlihan 1987) or Rationing and Scarcity of finished goods (rationing and gaming)
– when scarcity, or unserved orders, occur in traditional supply chains
(encouraged by suppliers to stimulate demand), customers increase their orders

Promotion Effect or Prices variations

– offering products at lower prices to stimulate demand.
The presumption of elastic demand temporarily increases demand ratios when customers make good
use of this chance to buy in anticipation or increase their stocks
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Ref: H.L. Lee, P. Padmanabhan, S. Whang (1997) The bullwhip effect in supply chains. Sloan Management Review. Vol 38, pp 93–102
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 4+1 Principles in Supply Chain Manufacturing Strategy
Control system principle
Need to select the most suitable control system to accomplish the user objectives

Time-compressing principle
Activity should be carried out in the minimum time required to accomplish task objectives
Necessary to eliminate added time without value, or the system’s idle time, and to deliver what
is required on time

Information transparency principle

Market information should be made available to all participants at the shortest possible time

Levels elimination principle

There should be the minimum number of appropriate levels for the accomplishment of the
supply chain’s goals, and there should be minimum stocks in the right place and at the right time

Synchronization principle
All events are synchronized so that that orders and deliveries are visible at all the discrete
time points

(Ref: D.R. Towill, Forridge (1997) Principles of good practice in material flow. Production Planning Control. Vol 7, pp 622–632) 6
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 Bullwhip Effect Control Strategy 1

Coordinating Mechanisms
o shared information

o supply chain alignment

o operational efficiencies

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Ref: H.L. Lee, P. Padmanabhan, S. Whang (1997) Information distortion in a supply chain: the Bullwhip Effect. Management Science. Vol 43, pp 543–558
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 Bullwhip Effect Control Strategy 1
1 Avoiding many demand forecast updates
Methods to achieve this:
o Demand data are available at all the supply chain levels (EDI, Internet, etc.), and
this would be an EPOS-type (Electronic Point of Sales) supply chain structure.
o Demand and inventories data are available at all the supply chain levels:
Example: VMI-type (Vendor Managed Inventory) supply chain structure
o Direct sales will be made to the end consumer and this will be an e-shopping type
supply chain structure

2 No Lot Sizing
JIT (Just In Time) replenishment is an effective way to mitigate the effect by using
smaller lot sizes or a more frequent replenishment system.
The reason for large lot sizes may be due to costs relating to the order and to transport
Recommend to use of external logistics operators

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Ref: H.L. Lee, P. Padmanabhan, S. Whang (1997) Information distortion in a supply chain: the Bullwhip Effect. Management Science. Vol 43, pp 543–558
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 Bullwhip Effect Control Strategy 2
3 Stable prices
o Reduce the frequency and level of discounts in prices.
o EDLP (Everyday Low Price) strategies
o CRP (Continuous Replenishment Program) strategies
o ABC (Activity Based Costing) systems

4 Eliminate rationing products situations

o Share information about capacities and inventories
o Work with customers to advance the production of seasonal sales.

5 Other Strategies
o Include information systems.
o Define new organizational relationships (multiple suppliers, trusted relationships)
o Implement new measures and incentives systems

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Ref: H.L. Lee, P. Padmanabhan, S. Whang (1997) Information distortion in a supply chain: the Bullwhip Effect. Management Science. Vol 43, pp 543–558
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Period Batch Control Supply Chain Manufacturing
Rule 1. Only manufacture those products that can be quickly dispatched and
invoiced to customers

Rule 2. Only manufacture those components in one period that are needed in
the next period

Rule 3. Minimize the materials processing time

Rule 4. Use the shortest planning period that can be efficiently managed

Rule 5. Only accept deliveries from suppliers in small batches and when
required for processing or assembly

References
J.L. Burbidge (1961) The new approach to production. Production Engineer. Vol 40, pp 769–784 10
J.L. Burbidge (1983) Five golden rules to avoid bankruptcy. Production Engineer. Vol 62, pp 13–14 © LGChan
END OF LESSON
MANAGING SUPPLY CHAIN BULLWHIP

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