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Questions on supply chain management
Questions on supply chain management
Designing and Managing the Supply Chain 3rd pdf
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The objective of supply chain management is to provide a high velocity flow of high quality, relevant information that will enable suppliers to provide an uninterrupted and precisely timed flow of materials to customers. However, unplanned demand oscillations, including those caused by stockouts, in the supply chain execution process create distortions which can wreck havoc up and down the supply chain. There are numerous causes, often in combination, that will cause these supply chain distortions to start what has become known as the Bullwhip Effect. While the devil is usually buried in the details, as is the case here, the most common general drivers of these demand distortions are: • Customers • Promotions • Sales • Manufacturing • Policies • Processes • Systems • Suppliers This unplanned for demand results in a disturbance or “lump of demand”, which may be a minor blip for any one customer, oscillates back through the supply chain often resulting in huge and costly disturbances at the supplier end of the chain. Often, these demand oscillations will launch a “mad scramble” in manufacturing with the need to acquire and expedite more raw materials and reschedule production. The “Bullwhip Effect” has in the past been accepted as normal, and in fact, thought to be an inevitable part of the order-to-delivery cycle. Yet, the negative effect on business performance is often found in excess inventories, quality problems, higher raw material costs, overtime expenses and shipping costs. In the worst-case scenario, customer service goes down, lead times lengthen, sales are lost, costs go up and capacity is adjusted. An important element to operating a smooth flowing supply chain is to mitigate and preferably eliminate the “Bullwhip Effect”. Lee et al. (1997) discussed four possible causes of the bullwhip effect: demand forecast updating, order batching, price fluctuation, and rationing and shortage gaming. Demand forecast updating suggests that demand amplification occurs due to the safety stock and long lead time. As orders are forecasted and transmitted along the supply chain, the safety stocks are built up, and thus the bullwhip effect occurs. Material requirements planning or economics of transportation require companies to order goods at certain times. This periodic batching causes surges in demand at a particular time period, followed by the periods of time with no or little orders, and other time periods with huge demands. Price fluctuation, which usually results from price discount or promotion, also distorts buying pattern and creates bigger variability of demand and demand lumpiness. Finally, when demand significantly exceeds supply, manufacturers often ration products to their customers based on what they order. Recognizing this rationing policy, the customers place orders larger and more frequently than what they really need with a hope of getting more products.
first quarter of FY2012, prolonged, shortages in supplies due to capacity issues or other factors affecting the manufacturing process alter the price of these products. When there is a shortage in supplies the company may not be able to source required components in adequate quantities in a timely manner (Cisco Systems, Inc. SWOT Analysis, 2013).The company may be obligated to purchase components at higher than normal prices in the current market because of purchase commitments. When this happens its gross margin is affected. Supply chain issues also lead to delay in order fulfillment, affecting the revenues and margins of the company (Cisco Systems Inc. SWOT Analysis, 2013)
We the consumer would rather pay less for any product that is needed or want. Ultimately we are the reason for high prices as well as low prices. Prices of products do not always stay the same and more popular products have higher prices than less popular products. These fluctuations, high prices and low prices are from the idea of supply and demand. Supply and demand defines the effect that the availability of a particular product and the desire or demand for that product has on price. Generally, if there is a low supply and a high demand, the price will be high (Investopedia). To understand the idea of supply and demand, the understanding of supply and the understanding of demand must be defined. The Law of Supply states that at higher prices, producers are willing to offer more products for sale than at lower prices, also that the supply increases as prices increase and decreases as prices decrease (Curriculum Link). The Law of Demand states people will buy more of a product at a lower price than at a higher price, if nothing changes, at a lower price, more people can afford to buy more goods and more of an item more frequently, than they can at a higher price and that at lower prices, people tend to buy some goods as a substitute for others more expensive (Curriculum Link). In todays economics these ideas are seen frequently in everyday life. The laws of supply and demand are seen in many ways in the company Apple Inc. Each year Apple Inc unveils a long awaited mobile operating system and IPhone. We can also see many aspects of the law of supply and demand in Nike Inc’s Jordan Brand. Jordan Brand has released a number of...
Each week, each component in the supply chain tries to meet the demand of the downstream component. Any orders which cannot be met are recorded as backorders, and met as soon as possible. No orders will be ignored, and all orders must eventually be met. At each period, each component in the supply chain is charged a $1.00 shortage cost per backordered item. Also, at each period, each component owns the inventory at that facility. In addition, the wholesaler owns inventory in transit to the retailer, and the distributor owns inventory in transit to the wholesaler, and the factory owns both items being manufactured and items in transit to the distributor. Each location .is charged $.50 inventory holding cost per inventory item that it owns. Also, each supply chain member orders some amount from its upstream supplier. It takes one week for this order to arrive at the supplier. Once the order arrives, the supplier attempts to fill it with available inventory, and there is an additional two week transportation delay before the material being shipped by the supplier arrives at the customer who placed the order.
It refers to increasing swings in inventory as response to swifts in customer demand as you move further up the supply
*The causes of changes in supply and demand are people's behavior to cost and benefits. This means that when people realize that the costs of an activity have raised or the benefits of an activity reduced, people execute the activity less because the common fact...
Other proactive demand management practices adopted by companies to reduce their dependency on the forecast include demand-shaping initiatives that focus on a “sell what we have” approach. By changing order fulfillment lead times, initiating promotional campaigns, and adjusting pricing and feature/option availability, companies are able to shift demand to meet commitments and manage their sales plan by shaping demand to sell what they have.
...than their current supplier. By decreasing their lead times, they would not have to buy materials for orders as far into the future as they do right now. While improving their forecasting process is extremely important, shortening lead times would lessen the extent of excess inventory. For instance, imagine that every month your forecasting is incorrect by two ambulances. With a lead time of six months for aluminum, you would order 12 ambulances worth of extra aluminum that would sit in excess inventory for that period of time. However, if you can shorten that lead time to four months, you only have 8 ambulances worth of surplus aluminum. This example does not take into account an improvement in forecasting. If both forecasting and the materials supply chain could be controlled better, Wheeled Coach has the potential to lower its spare inventory significantly.
Just like anything in life, there are going to be certain peaks and valleys to worry about. There is one concept however that tries to make sense of this madness. According to finance.zack.com It is called risk pooling. Risk pooling is mainly used in the insurance industry to try and lower risk for things like earthquakes, fires and hurricanes. This technique will diversify risk between several companies through pooling agreements. In the world of supply chain, this theory suggests that when demand is lower in a certain area, there is probably a different area that is experiencing high demand. Because of this, you don’t have to keep as much safety stock. If high demand and low demand with cancel each other out, than less inventory will be
Sethi, S, Yan, H, & Zhang, H. (2005) Inventory And Supply Chain Management With Forecast Updates New York, NY : Springer.
Cost increases are most often out of the control of the affected firm. These increases are often caused by external factors relating economies and currency exchange changes. This is particularly true concerning fuel. Supplier relationships and negotiations that sour are often caused due to the rush and stress of acquiring materials; this results in rush decisions and brash attitudes that negatively affect the relationship. Pressure from senior management can also put undue rush on negotiations resulting in a less than favourable outcome.
Inventory management is a method through which a business handles tangible resources and materials to ensure availability of resources for use. It is a collection of interdisciplinary processes including a full circle of the demand forecasting, supply chain management, inventory control and reverse logistics. Inventory management is the optimization of inventories of manufactured goods, work in progress, and raw materials. According to Doucette (2001) inventory management can be challenging at times; however, the need for effective inventory management is largely seen more as a necessity than a mere trend when customer satisfaction and service have become a prime reason for a business to stand apart from its competition. For example, Wal-Mart’s inventory management is one of the biggest contributors to the success of the company; effective and efficient inventory management is of critical importance.
Another lesson of the game materialized gradually at first, but steadily became more and more evident with each round of play. This lesson was the demonstration of the overwhelming ineffectiveness and utter futility of approaching logistics from the position of total ignorance. With no forecast or sales history to serve as a guide or predictive tool, the participating supply elements simply had nothing to base their projected order quantities upon other than pure conjecture. Operating in a vacuum relative to the other players of the supply chain was nothing less than counterproductive. Closely related was the development of a subdued, but underlying, sense of hostility within the supply chain as orders were placed that didn’t correspond with anticipated amounts. When this type of communication breakdown exists in the real world, an irritation between supply elements invariably manifests itself. Additionally, the resulting waste of time, material, storing of inventory and other resources expenses further fuel the fires of frustration and discord between supply elements.
When a suppliers' costs changes for a given output, the supply curve shifts in the same direction. For example, assume that someone invents a better way of growing corn so that the cost of corn that can be grown for a given quantity will decrease. Basically producers will be willing to supply more corn at every price and this shifts the supply curve outward, an increase in supply. This increase in supply...
Demand management is the supply chain management process that balances the guests' wants and needs with the capacity of the supply chain. Management can match supply with demand and have few disruptions if the appropriate process is already in place. The process is not limited to forecasting, but also includes matching supply and demand and increasing flexibility. An effective demand management system uses any available data to reduce uncertainty and provide efficient flow throughout the supply chain. Marketing requirements and production plans should be coordinated on a corporate level, so that multiple vendors are not delivering the same products for different prices to each hotel location. Instead, cost savings can be found in consolidation of orders.
Coyle, J., Langley, C., Gibson, B., Novack, R. and Bardi, E. (2008).Supply Chain Management: A Logistics Perspective. 8th ed. Cengage Learning, p.366.