Module:4

Coordination and
Technology in Supply Chain

Dr. JAYAKRISHNA KANDASAMY

Professor, School of Mechanical Engineering
VIT University
jayakrishna.k@vit.ac.in
9894968596

www.vit.ac.in
 Module:4 Coordination and Technology in Supply Chain

Module:4 Coordination and Technology in Supply Hours: 6 CO 3

Chain
Part I Analyze the impact of
Lack of coordination and Bullwhip Effect – Vendor Managed Inventory and information in achieving
Collaborative Planning, Forecasting and Replenishment coordination.

Part II
Role of IT in the supply chain – Macro processes - Customer Relationship Management
–Internal supply chain management – Supplier Relationship Management - Supply
chain IT in practice – Future of IT in supply chain.
Learning Objectives of this Module – Part I
• Describe supply chain coordination and the bullwhip effect, and their impact on supply chain performance.
• Identify obstacles to coordination in a supply chain.
• Discuss managerial levers that help improve coordination in a supply chain.
• Understand some practical approaches to improve coordination in a supply chain.

Prof. Jayakrishna Kandasamy - VIT Univeristy 2

 Coordination in a supply chain

• Bullwhip effect
• Obstacles to Coordination
• Managerial levers to achieve coordination
• Collaborative planning, forecasting & replenishment

3
 Supply Chain Coordination

• All stages of the chain take actions that are aligned and increase the total supply chain surplus.
• Each stage shares information and takes into account the effects of its actions on the other stages.
• Lack of coordination results when:
▪ Objectives of different stages conflict
▪ Information moving between stages is delayed or distorted.

4
 Bullwhip Effect

The bullwhip effect is the demand distortion that travels upstream in the supply chain. Upstream in the supply
chain consists of the retailer through to the distributor (wholesaler) and manufacturer. The distortion is created
by the variance of orders which may be larger than sales.

Supplier Manufacturer Distributor Retailer Customer

https://www.youtube.com/watch?v=2nlmkTYZG5s;
https://www.youtube.com/watch?v=4YqOqECbPH8
5
The effect on performance

Performance Measure Impact of the lack of coordination

Manufacturing cost Increases
Inventory cost Increases
Replenishment lead time Increases
Transportation cost Increases
Shipping and receiving cost Increases
Level of product availability Decreases
Profitability Decreases

https://www.cips.org/intelligence-hub/operations-management/bullwhip-effect

6
 Obstacles to coordination in a supply chain

• Incentive obstacles
• Information Processing Obstacles
• Operational Obstacles
• Pricing Obstacles
• Behavioral Obstacles

7
 Incentive Obstacles

• Local optimization within functions or stages of a supply chain.

• Sales force incentives
▪ Quantity sold to distribution/retailers (Sell-in)
▪ Quantity sold to final customers (Sell-through)

8
 Information Processing Obstacles

• Demand information is distorted as it moves between various stages of the supply chain ⇾increased variability
in orders.
▪ Forecasting based on orders and not customer demand
▪ Lack of information sharing

9
 Operational Obstacles

• When placing and filling orders leads to an increase in variability

▪ Ordering in large lots
▪ Large replenishment lead times
▪ Rationing and shortage gaming

10
Operational Obstacles

11
 Pricing Obstacles

• When pricing policies for a product lead to an increase in the variability of orders placed.
▪ Lot-Size based quantity decisions
▪ Price fluctuations

12
Pricing Obstacles

13
 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 action over time.
• A lack of trust among supply chain partners causes them to be opportunistic at the expense of overall supply
chain performance.

14
 Managerial Levers to Achieve Coordination

Aligning goals and incentives - So that every participant in supply chain activities works to maximize total supply
chain profits
▪ 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)

15
 Managerial Levers to Achieve Coordination

Improving Information Accuracy

• Sharing customer demand data
• Implementing collaborative forecasting and planning
• Designing single-stage control of replenishment
▪ Continuous replenishment programs (CRP)
▪ Vendor Managed Inventory (VMI)

Improving Operational Performance

• Reducing replenishment lead time
• Reducing lot sizes
• Rationing based on past sales and sharing information to limit gaming

16
 Managerial Levers to Achieve Coordination

Designing pricing strategies to stabilize order

• Encouraging retailers to order in smaller lots and reduce forward-buying
▪ Moving from lot-size-based to Volume-based quantity discounts
▪ Stabilizing pricing

Building strategic partnerships and trust

17
 Continuous Replenishment and Vendor Managed Inventories

• A single point of replenishment

• CRP – Wholesaler or manufacturer replenishes based on POS data
• VMI – Manufacturer or supplier is responsible for all decisions regarding inventory
• Substitutes

18
 Collaborative Planning, Forecasting, & Replenishment (CPFR)

• Sellers and buyers in a supply chain may collaborate along any or all of the following
▪ Strategy and planning
▪ Demand and supply management
▪ Execution
▪ Analysis

19
 Common CPFR Scenarios

CPFR Scenarios Where Applied in Supply Chain? Industries where Applied !

Retail event collaboration Highly promoted channels or categories All industries other than those that
practice EDLP
DC replenishment collaboration Retail DC or distributor DC Drugstores, Hardware, Grocery
Store replenishment collaboration Direct store delivery or retail DC-to-Store Mass merchants, club stores
delivery
Collaborative assortment planning Apparel and seasonal goods Department stores, Specialty retails

20
Collaborative Organization Structure

Customer 1 Team
• Demand Planning
• Sales
• Customer
Services/Logistics
Category Team
• Merchandise
planning
• Buying
• Replenishment
Customer 2 Team
• Demand Planning
• Sales
• Customer
Services/Logistics

Manufacturer Organization Retailer Organization 21

 Achieving Coordination in Practice

• Quantify the bullwhip effect

• Get top management commitment for coordination
• Devote resources to coordination
• Focus on Communication with other stages
• Try to achieve coordination in the entire supply chain network
• Use technology to improve connectivity in the supply chain
• Share the benefits of coordination equitably

22
 Discussion Questions

1. What characterizes supply chains that could be affected significantly by the bullwhip effect? How can the bullwhip
effect be reduced?
2. What is the impact of lack of coordination on the performance of a supply chain?
3. In what way can improper incentives lead to a lack of coordination in a supply chain? What countermeasures can be
used to offset this effect?
4. What problems result if each stage of a supply chain views its demand as the orders placed by the downstream
stage? How should firms within a supply chain communicate to facilitate coordination?
5. What factors lead to a batching of orders within a supply chain? How does this affect coordination? What actions
can minimize large batches and improve coordination?
6. What measures can a company employ to raise operational performance when information is distorted within the
supply chain?
7. Compare continuous replenishment programs (CRPs) and vendor managed inventory (VMI).
8. What are the different CPFR scenarios and how do they benefit supply chain partners?
© VIT University 2023 23
 References

• Cederlund, Jerold P., Rajiv Kohli, Susan A. Sherer, and Yuiling Yao. “How Motorola put CPFR into Action.” Supply Chain Management
Review (October 2007): 28–35.
• Chen, Frank, ZviDrezner, Jennifer K. Ryan, and David Simchi- Levi.“Quantifying the Bullwhip Effect in a Simple Supply Chain: The
Impact of Forecasting, Lead Times, and Information.” Management Science (2000): 46, 436–443.
• Disney, S. M., and D. R. Towill. “The Effect of Vendor Managed Inventory (VMI) Dynamics on the Bullwhip Effect in Supply Chains.”
International Journal of Production Economics (2003): 85, 199–215.
• Fawcett, Stanley E., Amydee M. Fawcett, Sebastian Brockhaus, and A. Michael Knemeyer. “The Collaboration Journey: Are We There
Yet?” Supply Chain Management Review (November 2016): 20–27.
• Hammond, Janice H. 1994. Barilla Spa (A–D). Harvard Business School Case 9–694–046.
• Kumar, Nirmalya. “The Power of Trust in Manufacturer–Retailer Relationships.”Harvard Business Review (November–December 1996):
92–106.
• Seifert, Dirk. Collaborative Planning, Forecasting, and Replenishment: How to Create a Supply Chain Advantage. New York:
AMACOM, 2003.
• Voluntary Interindustry Commerce Standards. Collaborative Planning, Forecasting, and Replenishment, Version 2.0, 2002.

© VIT University 2023 24

 Module:4 Coordination and Technology in Supply Chain

Module:4 Coordination and Technology in Supply Hours: 6 CO 3

Chain
Part I Analyze the impact of
Lack of coordination and Bullwhip Effect – Vendor Managed Inventory and information in achieving
Collaborative Planning, Forecasting and Replenishment coordination.

Part II
Role of IT in the supply chain – Macro processes - Customer Relationship
Management –Internal supply chain management – Supplier Relationship
Management - Supply chain IT in practice – Future of IT in supply chain.
Learning Objectives of this Module – Part II
• Describe supply chain coordination and the bullwhip effect, and their impact on supply chain performance.
• Identify obstacles to coordination in a supply chain.
• Discuss managerial levers that help improve coordination in a supply chain.
• Understand some practical approaches to improve coordination in a supply chain.

Prof. Jayakrishna Kandasamy - VIT Univeristy 25

Challenges in Supply Chain
Increased Lead Times

1 Raw Material Shortages

Suppliers struggling to meet demand

2 Transportation Bottlenecks
Port congestion and limited trucking capacity

3 Customs Clearance Delays

Increased inspections and complex new regulations
Challenges in Supply Chain

Labor Shortages

Skilled Workforce Operational Disruptions Increased Overtime

Disruptions
Struggling to meet demand
Lack of drivers and warehouse Putting a strain on existing staff
warehouse staff
Role of IT in the Supply Chain

1 Understanding Macro Processes

IT systems enable an in-depth understanding of the macro processes that govern supply chain
supply chain operations, allowing for informed strategic decision-making.

2 Importance of Information Flow

Efficient information flow facilitated by IT is foundational for effective supply chain management,
ensuring timely and accurate communication throughout the chain.

3 Real-Time Tracking
IT empowers real-time tracking and monitoring of inventory and logistics, offering unparalleled
unparalleled visibility and control over the supply chain.

4 Process Optimization
Through IT systems, supply chain processes can be optimized for maximum efficiency and
efficiency and responsiveness to dynamic market demands.
Understanding Macro Processes
1 Supply Chain Macro Processes
Overview and integration of macro processes within a supply chain network.
network.

2 Integration of IT in Global Networks

Exemplifying the impact of IT systems in global supply chain networks.
Planning & Forecasting
1 Data Analysis
Use historical data to forecast future demand.

2 Collaborative Planning
Input from various teams for accurate projections.

3 Scenario Modeling
Plan for potential disruptions and uncertainties.
Procurement & Sourcing
Supplier Selection Supplier Negotiation Sourcing Strategy

Identify reliable partners for Reach favorable terms to Diversify suppliers for risk
sourcing materials. maintain cost efficiency. mitigation.

Evaluate cost, quality, and Establish mutually beneficial Seek sustainable and ethical
delivery capabilities. partnerships. sourcing practices.
Inventory Management
1 Stock Optimization 2 Real-time Monitoring
Prevent overstocking and stockouts. Track inventory levels for timely
reordering.

3 Order Fulfillment
Efficient processing to meet demand promptly.
Logistics & Distribution
Transportation Warehouse Operations
Optimize shipping routes for cost savings. Efficient loading and unloading of goods.
savings.

Implement automated systems for

accuracy.

Delivery Management
Track shipments and ensure timely delivery.
Quality Control

Inspection Testing & Sampling Continuous

Improvement
Thorough examination of Random and systematic tests
received goods. for compliance. Implement feedback for quality
quality enhancements.
Customer Relationship Management (CRM)
(CRM)
Significance of CRM in SCM Coca-Cola's CRM Systems
• Enhancing Customer Satisfaction Showcasing Coca-Cola's use of CRM systems for
• Demand Forecasting
for demand forecasting and customer.
• Personalized Marketing
• Feedback and Improvement
Customer Relationship Management
Management (CRM)
Enhancing Customer Satisfaction
CRM, enabled by IT, plays a pivotal role in enhancing customer satisfaction through
personalized and efficient services.

IT-Enabled Services
IT tools are instrumental in providing tailored and responsive customer service,
service, thereby strengthening customer relationships.

CRM Software
Salesforce, ServiceNow
Internal Supply Chain Management
Streamlining Processes Warehouse Management Systems (WMS)
(WMS)
IT systems streamline internal processes, ensuring
Utilization of WMS enhances operational efficiency,
ensuring operational agility and responsiveness to
efficiency, ensuring accurate storage, retrieval, and
responsiveness to changing market dynamics.
and movement of goods within warehouses.
Inventory Management

Efficient inventory management and control are

are facilitated by advanced IT systems, minimizing
minimizing wastage and optimizing stock levels.
levels.
Supplier Relationship Management (SRM)
(SRM)
1 Effective Supplier
Relationships
IT solutions facilitate the
effective management of
supplier relationships,
fostering collaboration and
mutual growth.
2 Performance 3 Collaborative
Monitoring
IT systems enable
meticulous monitoring and
and evaluation of supplier
supplier performance,
ensuring adherence to
quality and timelines.
Platforms
Integration of IT platforms
platforms supports
seamless communication
communication and
coordination with
suppliers, strengthening
strengthening the supply
supply chain ecosystem.
ecosystem.
Supply Chain IT in Practice
Case Studies Successful implementation of IT in supply chain
chain management

Examples Companies leveraging IT for supply chain

optimization

Benefits Quick Market Time, Real-time monitoring, Save

Save Costs
Case Study 1
Role of IT in Health Care Supply Chain
 Manufacturer of drugs to treat
COVID-19, Influenza, HIV, Hepatitis

Demand Segmentation
Demand Segmentation How? Using Supply Chain Analytics

The purpose of the segmentation process is to make healthcare drugs simpler and more efficient across the network by grouping products into
categories with similar characteristics.

The dimensions of the segmentation model are impact and demand variability.

WHY SEGMENTATION IS IMPORTANT

✓ To have standardized and simple planning

principles for each product segment
✓ To support sales forecasting by focusing attention
where it matters the most
✓ To have simple segment specific replenishment
policies
✓ To have simple segment specific inventory policies
 Explanation of segments Products

Bull Horse
60t 60t
50t 50t
Bulls are large and erratic. Horses are large but steady.
Demand for bull items is 40t 40t Demand for horse items is
characterized by high volume characterized by high volume
and high variance. 30t 30t and low variance.

20t 20t
10t 10t
0t Example: 14208-16
0t Example: 6399-823-109

Rabbits are small but energetic. Donkeys are smaller than

Demand for rabbit items is 12t 12t horses and very slow. Demand
characterized by low volume for donkey items is
and high variance. 10t 10t characterized by low volume
and low variance.
8t 8t
6t 6t
4t 4t
2t 2t
0t Example: 100-99093004-15
0t Example: 100-99030000-02

Rabbit Donkey

Graphs are based on actual historical sales data from Aug. 2020 – Sep. 2021 Demand in volume (units)
Segmentation concept; grouping uses share of sales volume and variance to
determine which animal the products are
Product Segmentation
GN Audio product segmentation
High
Bull Horse Chameleon Eggs Not released
High volume, Unpredictable High volume, Predictable (Manual segment) (NPIs)
Used for manually controlling Ramp
policies for products not fitting
into the other segments.
NPI
Demand (Units)

80%
Rabbit Donkey Turtles EOL
Scheduled
Low volume, Unpredictable Low volume, Predictable
(End of manufacturing)
To be
discontinued

EOL Open

EOL
Warranty
Low
0,6
High Low

C(v)
Service levels, planning principles and safety stock decisions must all be aligned with
the segmentation

1 2 3 4

Segmentation Service level agreement Planning principles per Safety stock

A product segmentation enables
differentiated planning based on
the demand pattern of the
products.
The service level agreement
determines an appropriate
balance between service level
and inventory.
Operations
segment
Based on the segmentation
model, strategic criteria, lead
times and SLAs, it is decided
whether and where to keep stock.
The level of stock to be held in
excess of expected demand due
to demand and/or supply
variability is determined.

Decisions regarding whether to

Make To Stock or Make To
Order are also part of this
discussion.
SLA

Sales/ Finance
Marketing

Alignment on the service to

Alignment on how to treat the Alignment on where to kit-to- Alignment on how much safety we
customers and between internal
different products forecast and where to kit-to-order need
sites
Case Study 2
Role of IT in Food Supply Chain
Vision Food Inc.
• Multiple Products:
• Jam
• Jelly
• Spreads …

• Production Equipment:
• 5 Industrial Blenders
• 10 Industrial Ovens
• Sensor Enabled Process Manufacturing Lines

Picture Source: http://www.preserveshop.co.uk/ • Formula & Recipes:

• In-house Secret Ingredients
• Sourced Items: Fruits, Nuts, Sugar …
Production Supervisor
Vision Food Inc.

ROLE: Efficiently manage daily production

MEASURED BY: Production Rate, Quality, Yield

GOAL: Meet production schedule, high quality &
yield at lower cost

48
Mobile Prediction Alert …

Quality Prediction Alerts are received

on the mobile with brief detail

Quality Prediction Alert

49
Production Supervisor
 Production Supervisor

From the Apps for Mfg Factory Status Clicks

on the current production related
prediction alerts.

Copyright © 2017, Oracle and/or its affiliates. All rights reserved. | 51

 Likelihood of the Prediction is High.
Prediction is about Jam Consistency.

260006
Strawberry Jam, SJM-1001-D

Consistency
SJM-1001

Sugar Lot Supplier AAA Supply Inc.

Sugar Actual Quantity 11.6 (Pounds)

Factors that are strongly influencing

this prediction. Oven Temperature 175 (F)

Copyright © 2017, Oracle and/or its affiliates. All rights reserved. | 52

 Take quick action on the go …

John looks like the Jam

Take quick action to put the work
order on hold, add notes to
complete the unscheduled inspection
Product
and ensure the work order does not
get rejected after spending more time
processing.
consistency is not going to be
ok. We need to adjust the
temperature of the oven and
add some sugar to recover
the batch early.
Strawberry Jam

Add new quick note at

Put Work Order On Hold
Work Order level

53
Future of IT in Supply Chain
IoT Impact
Explore the influence of IoT on
on supply chain visibility and
management, ushering in
enhanced tracking and control
control capabilities.
AI Advancements
Significant advancements in AI
AI and machine learning for
predictive analytics in the supply
supply chain domain.
Blockchain Technology
Embrace the potential of
blockchain for secure and
transparent supply chain
transactions, ensuring integrity
integrity and trust.
Real-time Tracking and
Monitoring

1 Benefits of Real-time Visibility 2 UPS Package Tracking System

Taking quick decisions by monitoring in supply Utilizing UPS's advanced tracking system for
chain operations. for real-time package visibility.
Summary
Tangible ways how IT helps supply chain

Real Time Reduce manual Corrective to Improved

Monitoring and administrative predictive operational
Visibility activities maintenance efficiency

56
 Discussion Questions

1. Which processes within each macro process are best suited to being enabled by IT? Which processes are least
suited?
2. What are some advantages of the software as a service (SaaS) model? Why has it been successful in the CRM space?
3. Why is supply chain management software dominated by the ERP players, such as SAP and Oracle?
4. Identify a few examples of the availability of real-time information being used to improve supply chain
performance.
5. Discuss why the high-tech industry has been the leader in adopting supply chain IT systems.

© VIT University 2023 57

 References
• Chopra, Sunil, and Peter Meindl. “What Will Drive the Enterprise Software Shakeout?” Supply Chain Management Review (January–
February 2003): 50–56.
• Chopra, Sunil, and ManMohan Sodhi. “Managing Supply Chain Risk.” Sloan Management Review (Fall 2004): 53–61.
• Davenport, Thomas H., and Jeanne G. Harris. Competing on Analytics. Boston: Harvard Business School Press, 2007.
• Drayer, Ralph, and Robert Wright. “Getting the Most from Your ERP System.” Supply Chain Management Review (May–June 2002): 44–
52.
• Fawcett, Stanley E., Paul Osterhaus, Gregory M. Magnan, and Amydee M. Fawcett. “Mastering the Slippery Slope of Technology.”
Supply Chain Management Review (October 2008): 16–25.
• Hofman, Debra. “Supply Chain Management: Turning Data into Action.” Supply Chain Management Review (November 2007): 20–26.
• Meyer, Michelle M. “Why IBM Is Linking Logistics and Information.” Supply Chain Management Review (September– October 2001):
56–62.
• O’Dwyer, Jerry, and Ryan Renner. “The Promise of Advanced Supply Chain Analytics.” Supply Chain Management Review (January
2011): 32–37.
• Rutner, Stephen M., Brian J. Gibson, Kate L. Vitasek, and Craig M. Gustin. “Is Technology Filling the Information Gap?” Supply Chain
• Management Review (March–April 2001): 58–64.

© VIT University 2023 58