Supply chain Management and Smart Logistic

Class 4/4
Module 4: Managing Variability and Mitigation
I. Overview:
• Supply chain demand and variability
• Bullwhip effect and its causes
• Supply chain performance consequences of the bullwhip effect
• Obstacles to coordination in a supply chain
• Managerial levers to achieve coordination

1. Supply Chain Demand and Variability

- In long run : inflow = outflow but the volatility of the inflow vs outflow can differ substantially.

Supply chain coordination: refers to the management and synchronization of activities across
different entities in a supply chain to achieve the best overall performance. Make suring that all work
together in a cohesive(gắn kết) and synchronized manner increase total profits (efficiency, reduce
costs, and improve customer satisfaction.)
+ Coordination strategies: aligning ( điều chỉnh) the plans and objectives ,information sharing, joint
decision-making, and the use of technology to optimize the flow of goods and information.

2. Bullwhip Effect?
Definition:
+ The phenomenon where small fluctuations( biến động) in consumer demand can result in amplified
(khuếch đại) variations upstream (ngược dòng) in the supply chain.
+ in which fluctuations in order increase as they move up the supply chain from retailers to
wholesalers to manufactuers to suppliers.

+ Variability is measured with the coefficient of variation.

Causes:
1. Order synchronization : refers to coordinating the activities and states of multiple processes or
threads, and the lack of synchronization in ordering. không đồng nhất được các đơn đặt hàng
đến từ các nhà bán lẻ và bán buôn.
Ex: MRP ( Material Requirements Planning), DDMRP (Demand-driven MRP) _
 2. Order batching : involves grouping multiple orders together to create a larger, more efficient
order for the supplier, which can result in increased variance in demand, leading to
misalignment(sai lệch) and inefficiencies in the supply chain.

3. Trade promotions and forward buying:

Khuyến mãi thương mại: The supplier gives the retailer a temporary discount. Special discounts
and cost changes.
Mua trước: The retailer purchases enough to satisfy demand until the next trade promotion.
• Với khuyến mãi thương mại, nhiều nhà bán lẻ mua hàng đồng thời - simultaneously ( đồng bộ
hóa đơn hàng-order synchronization ). Tạo ra một khoản lợi nhuận khổng lồ-an enormous
bullwhip vì họ đặt hàng với số lượng lớn-large quantities (đặt hàng theo đợt-order batching).
Ex: demand-pull (lower sawtooth), forward buying (upper sawtooth).
*Sawtooth effect: describe the pattern of fluctuations in inventory levels over time. The shape of
this pattern resembles the teeth of a saw. Răng cưa.

4. Reactive and over-reactive ordering: occur when parties in a supply chain overreact to
demand shortages, continuously raising their orders and creating additional buffer stock, or
make unnecessary adjustments to their orders based on perceived changes in demand.

5. Shortage gaming: takes place when customers order more than they need during periods of
short supply.
Ex: Phantom order ( đơn đặt hàng ảo): Retailers order more than they need and cancelled a
portion of the order later.
• The bullwhip effect reduces the profitability of a supply chain by making it more expensive
to provide a given level of product available. *

3. Supply Chain Performance Consequences of Bullwhip Effect:

-> increases variability and hurts supply chain surplus(thặng dư)
• Inefficient production or excessive inventory
• Low utilization of the distribution channel
• Necessity to have capacity(năng lưucj, công suất) far exceeding > the average demand
• High transportation costs
• Poor customer service due to stockouts
->Impact on various costs:
• Manufacturing cost
• Inventory cost
• Replenishment lead time
• Transportation cost
• Labor cost for shipping and receiving
• Level of product availability
• Relationships across the supply chain

4. Obstacles to Coordination in a Supply Chain

 1. Incentive obstacles: “Opportunism”
Occur when incentives offered to different stages or participants in a supply chain;
-> increase variability + reduce total profits.
Ex: + Local optimization within functions or stages of a supply chain
+ (Improperly structured) salesforce incentives

2. Information processing obstacles: demand information is distorted ( bị bóp méo) as it moves

between different stages of the supply chain; -> increased variability in orders
Ex: +Forecasting based on orders (“sell-in”) O, not customer demand (“sell-through”) X
+Lack of information sharing

3. Operational obstacles: when actions in the course of placing and filling orders.
+ Ordering in large lots,
+ Rationing and shortage gaming ( phân bổ và thiếu hụt)
+ Large replenishmentlead times ( thời gian thực hiện bổ sung lớn)

4. Pricing obstacles:
+ Lot-size based quantity decisions:
+ Price fluctuations
5. Behavioral obstacles
+ Each stage of the supply chain views its actions locally and is unable to see the impact of its
actions on other stages;
+ Different stages of the supply chain react to the current local situation rather than trying to
identify the root causes;
+ Different stages of the supply chain blame one another for the fluctuations;
+ No stage of the supply chain learns from its actions over time;
+ A lack of trust among supply chain partners causes them to be opportunistic at the expense of
overall supply chain performance.

5. Managerial Levers to Achieve Coordination(đòn bẩy quản lý để đạt được sự phối hợp)
1. Aligning goals and incentives(điều chỉnh mục tiêu và ưu đãi) -> maximize total Supply chain
profit:
+ Align goals across the supply chain
+ Align incentives across functions
+ Pricing for coordination
+ Alter sales force incentives from sell-in (to the retailer) to sell-through (by the retailer)
2. Improving information Visibility(hiển thị) & Accuracy(độ chính xác):
+ Sharing point-of-sale(POS) data -> reduce bullwhip effect
+ Implementing collaborative forecasting and planning
+ Designing single-stage control of replenishment
EX: Continuous replenishment programs (CRP), Vendor managed inventory (VMI)( hàng tồn kho
do nhà cung cấp quản lý)
3. Improving operational performance to Synchronize Supply and Demand.
+ Including production, inventory management, transportation, and order fulfillment
• Reducing replenishment lead time (e.g., online order, EDI, cross-docking, etc.)
• Reducing lot sizes (e.g., P&G’s TL requirement)
• Rationing based on past sales and sharing information to limit gaming
4. Designing pricing strategies to stabilize orders to Stabilize Orders
+ Encouraging retailers to order in smaller lots and reduce forward-buying
• Moving from lot size-based to volume-based quantity discounts
• Stabilizing pricing (e.g., “everyday low price”)
5. Building strategic partnerships and trust:
• Sharing accurate information
• Lower transaction costs between stages
->the benefit being share equally