Talk

27.09.2019 Jacques Ammon - Christian Popp 1

 Content
Consumer Sales Retailer’s Orders to Wholesale
Order Quantity

Order Quantity
Time Time
Wholesale’s Orders to Manufacturer Manufacturer’s Orders to Supplier
Order Quantity

Order Quantity
Time Time
Source: c.f. Lee, H., et al. (1997): The Bullwhip Effect, p. 94.

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Agenda

1. Warm-up
2. Logistics
3. Supply Chain Management
4. Bullwhip Effect
5. Beer Game
6. Guidiance

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Agenda

1. Warm-up
2. Logistics
3. Supply Chain Management
4. Bullwhip Effect
5. Beer Game
6. Guidiance

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 Christopher Gives a Good Explanation about
Logistics

Definition by Prof. Martin Christopher:

“Logistics is the process of strategically managing the procurement,

movement and storage of materials, parts and finished inventory (and the
related information flows) through the organisation and its marketing
channels in such a way that current and future profitability are maximised
through the cost-effective fulfillment of orders.”

Source: Christopher, M. (2011): Logistics and Supply Chain Management, p. 2.

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Logistics Is about Internal and External
Information and Goods Flow

Tasks Objects Aims

• procurement • materials • maximizing current
and future
• movement • parts
profitability
• storage • finished inventory
• cost-effective
• information fulfillment of orders

Logistics is about internal and external information and goods flow

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 Companies Describe the Logistics with High
Strategy Importance
Significance of logistics in industry and sales
high strategically
importance
5 37%

4 44%

3 13%

2 5%

1 1%
subordinary
importance
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

81% of the 251 asked companies describe the logistics with high strategy importance
Source: Weber, J. et al. (2012): Logistik-Controlling mit Kennzahlensystemen, p. 7

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 Competences in Logistics Generate Competitive
Advantages
3 4 1 No competitive advantage
cost and
service
high

service
leader
leader Cost reduction via efficient logistics
value advantage

2
Price leadership

1 2
3 Differentiation via logistics services
cost
low

commodity
leader
4 Differentiation and price
low high leadership
cost advantage

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Differentiation Can Be Reached by Several
Service Possibilities
delivery
durability delivery
flexibility reliability

increase of customer
demand on services
environ-
status mental
request friendly

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 Reducing the Logistics Costs by 10% Doubles the
Return On Sales
Thesis: Reducing the logistics costs by 10% doubles the return on sales
Assumptions: • average amount of logistics costs of total costs is 20%
• return on sales of trading company is 2%

starting situation reduced logistics costs by 10%

sales 1.020 € 1.020 €
total costs 1.000 € 980 €
logistics costs 200 € 180 €
profit 20 € 40 €
20€ 40€
𝑟𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑠𝑎𝑙𝑒𝑠 = ≈ 2% 𝑟𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑠𝑎𝑙𝑒𝑠 = ≈ 4%
1020€ 1020€

Source: Hofmann, E., Nothard, F. (2009): Logistics Due Diligence: Analyse – Bewertung – Anlässe – Checklisten, p.2

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Agenda

1. Warm-up
2. Logistics
3. Supply Chain Management
4. Bullwhip Effect
5. Beer Game
6. Guidiance

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 Aitken Gives a Good Explanation about
Supply Chain Management

Definition by Dr. James Aitken:

“A network of connected and interdependent

organizations mutually and cooperatively
working together to control, manage and
improve the flow of materials and information
from suppliers to end users.”

Source: Aitken, J. (1998): Supply Chain Integration within the Context of a Supplier Assocation

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 The Complete Network and also the Money Flow
Is Considered in the Supply Chain Management
Consideration of complete network from raw material supplier to customer

raw material
supplier customer
supplier supplier of retail
of parts
components manufacturer of wholesale
final product

material flow Consideration of money

information flow flow additional to material
money flow and information flow
Source: Aitken, J. (1998): Supply Chain Integration within the Context of a Supplier Assocation

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 The Main Aim of Supply Chain Management Is a
Fluent Delivery Flow

reduced
improved stockholding reduced
information costs cycle time
flow

fluent delivery flow

improved fast reaction
synergy increased on changes
effects customer
satisfaction

Source: Behr, T., Tyll, T. (2003): Online Lehrbuch Supply Chain Management, p.3

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Agenda

1. Warm-up
2. Logistics
3. Supply Chain Management
4. Bullwhip Effect
5. Beer Game
6. Guidiance

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 With Increasing Progress of the Supply Chain the
Fluctuations Increase

http://upload.wikimedia.org/wikipedia/commons/e/ef/Bulwhip_efect.jpg

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 There Are Many Possible Causes of the Bullwhip
Effect

• misuse of base-stock policies

• misperceptions of feedback and time delays behavioral causes
• panic ordering reactions after unmet demand

• forecast errors
• consolidation of demands
operational causes • quantity discount
• just-in-time (JIT) production

Source: http://en.wikipedia.org/wiki/Bullwhip_effect

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Agenda

1. Warm-up
2. Logistics
3. Supply Chain Management
4. Bullwhip Effect
5. Beer Game
6. Guidiance

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The Beer Distribution Game Simulates the
Bullwhip Effect

The original beer distribution game…

… is created by professors at MIT
… simulates the bullwhip effect
… demonstrates key principles of supply chain management

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Agenda

1. Warm-up
2. Logistics
3. Supply Chain Management
4. Bullwhip Effect
5. Beer Game
6. Guidiance

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 Keep Cool!

Beer Game Guidance

• Do not order your stock size

Better: Order in the beginning maximal half of your stock

• Avoid bigger fluctuations

Better: Order as consistently as possible

• Avoid to skip order

Better: Order often consistently less

• Do not take extreme orders as normal

Better: try to compensate slowly

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 A Good Information Flow Is Essential

Further Guidance

• usage of EDI (Electronic Data Interchange) …

… for information exchange
… for controlling stock level along the supply chain

• reducing the supply and order cycle

• reducing order fix costs

• usage of established concepts (e.g.) :

• CPFR (Collaborative Planning, Forecasting and Replenishment)
• VMI (Vendor Managed Inventory)

Source: http://webuser.hs-furtwangen.de/~heindl/int-09ss/BullwhipEffektInSupplyChain.pdf

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 Supplier Is Responsible for Stock Level of his Customer

Classic VMI (Vendor Managed Inventory) concept

1. Customer calculates his consumption • fast reaction on demand • huge investment

2. Transmit the data to the supplier fluctuations • insight in the intern
3. Supplier determines further deliveries • avoiding of out-of-stock structure
no explicit order assignment is required situations • difficult evaluation
higher service niveau
• lower stock level
• reduced return
• optimized transport

Source: http://de.wikipedia.org/wiki/Vendor_Managed_Inventory

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 Thank You for
Your Attention
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