Salam & Good Day

Dear Students!

The key to success is to

start before you’re ready
– Marie Forleo
CHAPTER 4
From Prof Dr Veera
Edited for Kedah Branch by AHMR
 TABLE OF CONTENT
4.1 The Extended Enterprise and
the Virtual Supply Chain
4.2 The Role of Information in
the Virtual Supply Chain
4.3 Laying the Foundations for
Synchronisation
4.4 ‘Quick Response’ Logistics
4.5 Production Strategies for
Quick Response
4.6 Logistics Systems Dynamics
 • Upon completion of this chapter,
you should be able to:
1. Apply information to extend
the enterprise and the
virtual supply chain
2. Lists the role of information
in the virtual supply chain
3. Describe the foundations for
synchronisations
4. Design the flow of ‘quick
Learning response’ logistics
5. Describe the production
Objectives strategies for quick response
6. Know the structure of
logistics systems dynamics
 Introduction
❖ The way in which entities in a supply
chain become connected is
through shared information.
❖ The information to be shared
between supply chain partners
includes demand data and forecasts,
production schedules, new product
launch details and bill of material
changes.
❖ To enable this degree of visibility and
transparency, synchronisation
requires a high level of process
alignment, which itself demands a
higher level of collaborative working.
4.1 The Extended Enterprise
and the Virtual Supply Chain
Even more importantly it is information shared
between partners in the supply chain that makes
possible the responsive flow of product from one
end of the pipeline to another.
https://www.tradegecko.com/supply-chain-management/the-modern-supply-chain/responsive-supply-chain

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4.2 The Role of Information in
the Virtual Supply Chain
• Leading organisations have long recognised that the
key to success in supply chain management is the
information system.
• Information that enables supply and demand to be
matched in multiple markets, often with tailored
products, in ever-shorter time-frames.
Example: Airbus
• The way that Airbus now designs and assembles its
advanced aeroplanes, would not be possible without the use
of global information networks that link one end of the value
chain to the other.
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4.2 The Role of … (cont.)
Example: Extranets
• Organisations with quite different internal information
systems can now access data from customers on sales or
product usage and can use that information to manage
replenishment and to alert their suppliers of forthcoming
requirements.
• One of Britain’s major retailers, Tesco, is using an extranet
to link with its suppliers to share point-of-sale data. At the
same time, the company is successfully running a home
shopping and delivery system for consumers over the
Internet.
• Within the business, intranets are in place that enable
information to be shared between stores and to facilitate
communication across the business.
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Figure 4.1: Internet applications and the supply chain

Source: A.T. Kearney

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 4.2 The Role of … (cont.)

• The IT solutions now

exist to enable supply
chain partners to share
information easily and
at relatively low cost.
4.3 Laying the Foundations
for Synchronisation
• Under the synchronisation philosophy the
requirement is for small shipments to be made
more frequently and to meet the precise time
requirements of the customer.
• There may have to be trade-offs, but the goal must
be to improve total supply chain cost effectiveness.
• In a synchronous supply chain, the management of
in-bound materials flow becomes a crucial issue.
• The search for consolidation opportunities must be
a priority.
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4.3 Laying the … (cont.)

Example
• Rather than one supplier making a series of
deliveries in small quantities to a customer, the
orders from several suppliers are combined into a
single delivery.

• Emergence of synchronous supply chains as a

management philosophy has coincided with the
growth of third-party distribution and logistics
companies specialising in providing an in-bound
consolidation service.
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 4.3 Laying the … (cont.)
• These logistics service companies can
manage the pick-up of materials and
components from suppliers on a ‘milk
round’ basis, using a central ‘hub’ or
transhipment centre for re-sorting and
consolidating for in-bound delivery.
• They may also perform certain value-
adding activities such as quality control,
kitting, sequencing or final finishing.
• The idea of ‘stockless distribution centers
or ‘cross-docking’ enables a more frequent
and efficient replenishment of product
from manufacture to individual stores.
• Often facilitated by a logistics service
provider. 13
4.4 ‘Quick Response’ Logistics
• The basic idea behind quick response (QR) is
that in order to gain the advantages of time-
based competition it is necessary to develop
systems that are responsive and fast.
• Hence QR is to provide ‘the right product in
the right place at the right time’.

14
Figure 4.2: Acting on This Information a Consolidate Pick-Up
and Store Delivery Sequence is Activated

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 4.4 ‘Quick
response’ …
(cont.)

• In QR systems, by
speeding up
processing time in
the system, cumulative
lead times are reduced.

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Figure 4.3: Quick Response System Can Trigger a ‘Virtuous
Circle’ in Logistics

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 4.4 ‘Quick Response’
… (cont.)
Example: Retail fashion store ‘The Limited’
• Another case from the US is provided by the chain of retail
fashion stores, The Limited.
• Each of the several thousand stores in the chain tracks consumer
preferences daily using their point-of-sale data.
• Based upon this, orders are sent by satellite links to the suppliers
around the world.
• Using Hong Kong as a consolidation centre, goods are flown back
to The Limited’s distribution centre in Columbus, Ohio.
• At the distribution centre the goods are price-marked and re-
sorted for immediate onward shipment by truck and plane to the
retail stores.
• The whole cycle from reorder to in-store display can be achieved
in six weeks.
• Conventional systems takes around six months.

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https://en.wikipedia.org/wiki/The_Limited
Break time
4.5 Production Strategies
for Quick Response
➢ The organisation could respond to any request that was
technologically feasible in any quantity.
➢ The new focus on flexible manufacturing systems
(FMS) has highlighted the possibility.
➢ The key to flexibility in manufacturing is not just new
technology.
Example: Robotics
• Although this can contribute dramatically to its
achievement.

➢ The main barrier to flexibility is the time taken to change.

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https://www.youtube.com/watch?v=cC3GNbEaz1o
 4.5 Production Strategies
… (cont.)
• ‘Single minute exchange of die’, or
SMED, is the goal in many Japanese
plants.
• In other words, continuous attention
by management and the workforce is
focused upon the ways in which set-
up times can be reduced.
https://opexsociety.org/bookstore/revolution-manufacturing-smed-
system-single-minute-exchange-die-system/

https://www.youtube.com/watch?v=b1f51TOXWik

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4.5 Production
Strategies
… (cont.)
Example: Benetton
• A classic example is provided by Benetton, the Italian fashion
goods manufacturer and distributor, which has created a
worldwide business based upon responsiveness to fashion
changes – with a particular emphasis upon colour.
• By developing an innovative process whereby entire knitted
garments can be dyed in small batches, they reduced the need
to carry inventory of multiple colours, and because of the small
batch sizes for dying they greatly enhanced their flexibility.
• Benetton’s speed of response is also assisted by the investment
that they have made in high-speed distribution systems, which
are themselves aided by rapid feedback of sales information
from the marketplace.

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4.5 Production
Strategies … (cont.)
➢ Many companies are now seeking to construct supply
chains to enable them to support a marketing strategy
of mass customisation.
Example: Dell and Hewlett Packard strategy
• Often this can be achieved by postponing the final
configuration or assembly of the product until the actual
customer requirement is known – a strategy pursued by
Dell and Hewlett Packard.

➢ In other cases, high technology in the form of

computer-aided design / computer-aided
manufacturing (CAD/CAM) can provide the means for
this mass customisation.
4.6 Logistics Systems
Dynamics
• Logistics systems are prone to what has been called
the ‘Bullwhip’ or ‘Forrester Effect’, after Jay
Forrester, who developed a set of techniques known
as Industrial Dynamics.
• Forrester defined industrial dynamics as:
The study of the information feedback characteristics of industrial
activity shows how organizational structure, amplification
(in policies) and time delays (in decisions and returns)
interact to influence the success of the enterprise. It treats
the interactions between the flows of information, money, orders,
materials, personnel, and capital equipment in a company, an
industry or a national economy. – (Forrester, 1961)
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https://www.youtube.com/watch?v=iALiS4FBB6E
 What becomes apparent from this
modelling of complex systems is that
4.6 Logistics small disturbances in one part of the
Systems system can very quickly become
… (cont.) magnified as the effect spreads through
the pipeline.

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4.6 Logistics Systems
… (cont.)
Example
• Such as, many consumer product companies that are
heavy spenders on trade promotions (e.g., special
discounts, incentives, etc.) do not realise what the true
costs of such activities are.
• In the first instance there is the loss of profit through the
discount itself, and then there is the hidden cost of the
disturbance to the logistics system.
• So, if sales during the promotional period are, say, 1,100
cases but without the promotion they would have been
1,000, then whilst the incremental revenue comes only
from the additional 100 cases, the discount applies to all
1,100.

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 4.6 Logistics Systems
… (cont.)
• The second impact of
promotional activity on profit is
the potential it provides for
triggering the ‘acceleration effect’
and hence creating a Forrester-
type surge throughout the
logistics pipeline.
Example
• The presence of a warehouse or a stock holding
intermediary in the distribution channel can cause a
substantial distortion in demand at the factory.

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The Bullwhip Effect

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4.6 Logistics Systems
… (cont.)
Example
• Imagine a retailer with an inventory management reordering
strategy based on starting each week with the equivalent of
three weeks’ demand in stock.
• So, if weekly demand were 100 units for a particular item the
target starting inventory would be 300 (i.e., 100 × 3).
• Now let us assume that as a result of a promotion, demand
increases by 10 per cent to 110.
• This means that the system would place an order to bring the
next week’s starting inventory up to 330 (i.e., 110 × 3).
• So, the reorder quantity would have to be 140 (i.e., the 110
units sold to consumers plus the extra 30 required to meet
the new starting level).
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4.6 Logistics Systems …
(cont.)
➢ In the United States it was estimated that the time from
the end of the production line to purchase, by the
consumer in a retail store was 84 days for a typical dry
grocery product (see Figures 4.4 and 4.5).
➢ One of the benefits of a quick response system is that
by linking the retail check-out desk to the point of
production through electronic data transfer, the surge
effect can be dramatically reduced.
➢ This fact alone could more than justify the initial
investment in linked buyer/supplier logistics
information systems.
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Figure 4.4: Grocery Industry Delivery System Order Cycle

Source: Grocery Manufacturers Association of America

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Figure 4.5: Grocery Industry Product Flow

Source: Grocery Manufacturers Association of America

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 Why is it necessary for supply
Share of chain & logistics to be quick in
Thoughts response, in today’s time-based
competition?
End of
Chapter 4
Thank You!