You are on page 1of 26

Group Members-


The integration activities taking place among a network of facilities that procure raw materials , transform them into intermediate goods and then final product and deliver product to customer through distribution channels.

Supply Chain Stages

Role of Information in Supply Chain

Inventory levels: Orders:

Delivery status:

The Bullwhip Effect

The tendency of the variability of orders rates to increase as they pass through the levels of a supply chain towards producers and raw material suppliers.

Effect of Order Variability

Factors Contributing to Increase in Variability in the Supply Chain

Demand Forecasting Batch Ordering Lead Time

Price Fluctuation

Inflated Orders

Impact of Information on Bullwhip Effect

Types of Information:
1. Centralized Demand Information Provide

each stage of supply chain with complete information on the actual customer demand.

Creates more accurate forecasts rather than orders received from the previous stage.

Types of Information:
2. Decentralized Demand Information Retailer

does not make its forecast information available to the remainder of the supply chain.

Other stages have to use the order information.

Methods for Coping with the Bullwhip Effect

1. Reducing Uncertainty:

2. Reducing Variability:

3. Lead Time Reduction:

4. Strategic Partnership:

Information Sharing And Incentives

1. Centralizing information will reduce variability 2. Upstream stages would benefit more 3. Unfortunately, information sharing is a problem in many industries 4. Inflated forecasts are a reality 5. Forecast information is inaccurate and distorted Forecasts inflated such that suppliers build capacity. Suppliers may ignore the forecasts totally.

Contractual Incentives to Get True Forecasts from Buyers

Capacity Reservation Contract:
Buyer pays to reserve a certain level of capacity at the

A menu of prices for different capacity reservations

provided by supplier
Buyer signals true forecast by reserving a specific capacity


Advance Purchase Contract:
Supplier charges special price before building capacity When demand is realized, price charged is different Buyers commitment to paying the special price reveals

the buyers true forecast

Effective Forecast
Three Golden Rule for Forecast are:
The forecast is always wrong.

The longer the forecast horizon, the worse the forecast.

Aggregate forecasts are more accurate.

Categories of Forecast

Judgmental Methods: involve the collection of experts opinions.

Market Research Methods: involve qualitative studies of consumer behavior. Time-Series Methods: mathematical methods. Causal Methods: forecasts are generated based on a variety of system variables.

Selection of Effective Forecast Technique

What is the purpose of the forecast? How is it to be used?
What are the dynamics of the system for which the

forecast will be made?

How important is the past in estimating the future?

Information for the Coordination of Systems Selection of Effective Forecast Technique

1. Many interconnected systems:
Manufacturing, storage, transportation, and retail

systems. The outputs from one system within the supply chain are the inputs to the next system. Trying to find the best set of trade-offs for any one stage isnt sufficient. Need to consider the entire system and coordinate decisions.


2. Systems are not coordinated: Each facility in the supply chain does what is best for that facility The result is local optimization.

Global Optimization
1. Issues:
Who will optimize? How will the savings obtained through the coordinated

strategy be split between the different supply chain facilities?

2. Methods to address issues:
Supply contracts Strategic partnerships

Locating Desired Products

It means meeting the customers demand from available retailer inventory.
1. Inventory Pooling:

Dealers have to order before demand is realized Centralized distribution system preferred mostly

2. Distributor Integration: Distributors are an important partner in the supply chain Distributors have a wealth of information about customers needs and wants Successful manufacturers can use this information when developing new products and product lines Distributors are integrated so that expertise and inventory located at one distributor is available to others.

Lead-Time Reduction
It is define as the time between placing an order and the receipt of goods ordered. Supply chain design that reduce lead-time: 1. Push-based supply chain - Production and distribution decision are based on long term

2. Pull-based supply chain - Production and distribution are demand driven so that they
are coordinated with true customer demand rather than forecast demand - Only respond to specific order

Importance of lead-time reduction

1. The ability to quickly fill customer orders.
2. Reduction in the Bullwhip effect. 3. More accurate forecast due to decreased forecast

4. Reduction in finished goods inventory levels.

Benefits of Information
Helps reduce variability in the supply chain.
Helps suppliers make better forecasts, accounting for

promotions and market changes. Enables the coordination of manufacturing and distribution systems and strategies. Enables retailers to better serve their customers by offering tools for locating desired items. Enables retailers to react and adapt to supply problems more rapidly. Enables lead time reductions.

Decreasing Marginal Value of Information

1. Exchanging detailed and frequent information is costly.
2. Performance benefit can be achieved only if small

amount of information is exchanged between supply chain participants.