Supply Chain Integration PPT Slides PDF

Principles of Supply Chain Management (5e)...

Principles of Supply Chain Management (5e) LO4 SUPPLY CHAIN PROCESS INTEGRATION Prepared by Cynthia Wisner, MBA © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) LEARNING OBJECTIVES Upon successful completion of this learning objective, students will be able to:  Discuss the overall importance of process integration in SCM  Describe the advantages of, and obstacles to process integration  Understand the important issues of internal and external process integration  Understand the role played by information systems in creating information visibility along the supply chain  Describe the various processes requiring integration along the supply chain  Understand the various causes of the bullwhip effect and how they impact process integration  Discuss examples of supply chain integration of international companies © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Supply Chain Integration Supply chain integration is connecting and coordinating all stakeholders involved in the flow of goods and services, from raw materials to material suppliers to end customers.  The goal is to create a seamless, efficient, and transparent supply chain that optimizes processes, reduces costs, and improves customer satisfaction.  Firms must integrate processes to create services and products to end-customers.  Process integration means sharing information and coordinating resources to jointly manage a process or set of processes © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. What is Supply Chain Integration ?  Principles of Supply Chain Management (5e) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 6  Principles of Supply Chain Management (5e) Benefits / Advantages of Process Integration Enhanced supply chain visibility Enables real-time tracking and monitoring of inventory, orders, and shipments across the entire network. Allows for early detection and resolution of issues and disruptions, minimizing their impact on the business. Quicker Decisions Real-time data sharing with Supply chain partners With access to up-to-date data, companies can make informed decisions and respond quickly to changes in demand or supply. © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 7  Principles of Supply Chain Management (5e) Optimized Inventory Management  Better alignment of supply and demand  Real-time visibility into inventory levels, improve inventory turns  Reduce inventory holding costs, minimize stockouts Facilitates Collaborative Planning with Supply Chain Partners  Better communication, planning and coordination among supply chain partners.  Real-time data on customer demand and adjust production and delivery schedules  Can implement collaborative programs, Eg: Vendor-managed inventory (VMI) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 8  Principles of Supply Chain Management (5e) Stronger Supplier Relationship Management  Engage in joint problem-solving and continuous improvement initiatives to maximize efficiency.  Sharing of performance data and metrics, enabling joint target setting and progress tracking. Boosts Efficiency  Optimizing workflows and business processes  Increased operational efficiency by eliminating redundant processes and waste.  Enable the digitization of paper-based processes.  Reduces errors, speeds up cycle times, and frees up resources for higher-value activities. © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 9  Principles of Supply Chain Management (5e) Increases overall Business Competitiveness (Resilience & Agility)  Recognize new trends, understand market needs, and swiftly adapt to changes, enhancing their competitiveness.  Stay up to date in evolving technological landscape Improvements in Sales and Operations (S&OP)  Aligning sales, marketing, production, and finance plans to ensure that supply meets demand.  Integrated systems provide a single source of truth for S&OP, enabling cross-functional collaboration and decision-making. © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 10  Principles of Supply Chain Management (5e) Lean Supply Chain Practices Support  Lean supply chain practices, such as just-in-time (JIT) delivery and continuous improvement, are easier to implement in an integrated supply chain.  Facilitate the sharing of best practices and improvement ideas Faster time-to-market  Collaborating closely with suppliers during the design and development phases  Facilitate the sharing of product specifications, test results, and production plans, reducing the risk of delays and quality issues. © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 11  Principles of Supply Chain Management (5e) Enhances Customer Satisfaction & Provides Marketing Insights  Facilitates deeper involvement of customers provides valuable insights, enabling improvements in product quality and customer satisfaction. © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 12  Major Obstacles in Process Integration  Principles of Supply Chain Management (5e) The Silo Mentality  “I win, you lose”  Using the cheapest suppliers.  Ignoring customers.  Assigning few resources to new product & service design Firm must strive to align Supply Chain goals & Incentives of the firm Performance reviews of managers must include their ability to integrate processes internally & externally © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Lack of Supply Chain Visibility  Visibility into inventory allows firms to perform their job better  Lead times updating data causes higher inventory cost and longer response times  Becoming easier with use of cloud-based communication platforms  RFID technology promises to add real-time information visibility to supply chains © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Lack of Trust Successful process integration requires trust and trust is earned over time Strategies to Build Collaboration & trust  Start small – small scale  Look inward – establish trust internally first  Gather ‘round & meet face-to-face  Go for the win-win – optimize business for all members  Do not give away the store: Some information should remain proprietary  Just do it: Simple start - sharing information © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Lack of Knowledge  Firms spend significant time influencing & increasing capabilities of themselves & their partners  Training of supply chain partner employees known as collaborative education, and can result in more successful supply chains © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Disadvantages of Process Integration Higher Implementation Costs  Substantial investments in technology, infrastructure, and change management.  Companies must allocate resources to upgrade their systems  Establish secure data exchange protocols  Training for employees  Increased Dependency on Supply Chain Partners  Heightened level of dependency on partners.  When critical functions shared across the network, companies become more vulnerable to disruptions caused by partner failures or missteps. © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 18  Principles of Supply Chain Management (5e) Loss of Control and Transparency  Involves relinquishing some degree of control over certain processes and decisions.  Rely heavily on partners for critical data and insights, may lose visibility into key metrics and performance indicators.  Challenging to identify problems, track progress, and make informed decisions. Inter-operability and Compatibility Issues  Unique technologies, data formats, and operating procedures  Achieving true interoperability often requires extensive customization and workarounds, which can be time-consuming and costly.  Companies may need to invest in middleware solutions, API development, and data mapping to enable smooth data exchange and process coordination. © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 19  Principles of Supply Chain Management (5e) Cybersecurity and Data Privacy Risks  More vulnerable to cyber threats, Integrating systems and sharing data across partners increases the potential attack surface for malicious actors.  A breach at any point in the network can compromise sensitive information, disrupt operations, and damage reputations Compliance and Regulatory Hurdles  Supply chain integration often spans multiple regions and industries  Ensuring that all partners adhere to the necessary standards and certifications can be a time-consuming and resource-intensive process. Eg: Highly regulated sectors such as healthcare, food and beverage, or aerospace. © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 20 Steps in Supply Chain Integration  Principles of Supply Chain Management (5e) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Step 1. Identify Critical SC Trading Management (5e) Partners Use trusted suppliers that provide a large share of the firm’s critical products and services Identifying primary trading partners allows the firm to concentrate on managing links with these companies Firms should map the network of primary trading partners Includes 1st tier, 2nd tier & 3rd tier suppliers and customers ( (Typically 1st tier is covered among most companies) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Tier 1, 2, 3 Suppliers and Customers © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 24  Principles of Supply Chain Management (5e) Step 2. Review/ Establish Corporate, Marketing, Manufacturing, Sourcing & Supply Chain Strategies Common Supply Chain Strategies Cut inventory costs Integrate processes with technology Use an inventory management software Manage inventory risk Flexibility, Resilience & Agility Green Initiatives Sustainability Outsourcing © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Step 3. Align SC Strategies and Key Process Objectives Key processes and methods used to align vary based on Organizational structure, Financial Position of company, Economic conditions in marketplace, Corporate strategy & Silos if that may exist Functional silos (departments whose only concern is about itself), may affect integration © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) 8 Key Supply Chain Business Processes  Customer Relationship Management  Customer Service Management  Demand Management  Order Fulfillment  Manufacturing Flow Management  Supplier Relationship Management  Product Development & Commercialization  Returns Management © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Customer Relationship Management  Tailoring product and service agreements to meet customer needs  Measuring customer profitability and firm’s impact on customers  Monitor impact of customer relationship management (CRM) efforts © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Customer Service Management  Providing information to customers such as product availability, shipping dates and order status  Administering product and service agreements  Monitoring and reporting customer service performance © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 30  Principles of Supply Chain Management (5e) Demand Management  Balancing customer demand with the firm’s output capacity  Forecasting demand and coordinating with production, purchasing and distribution  Increase the accuracy of forecasts © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 31  Principles of Supply Chain Management (5e) Order Fulfillment  System used for entering, processing, communicating, picking, delivering and documenting customer orders  Location of warehouses and distribution centers  Modes of inbound/outbound transportation used © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 32  Principles of Supply Chain Management (5e) Manufacturing Flow Management  Need Adequate material requirements planning (MRP) system  Enable the right mix of flexibility in production and velocity in production to satisfy demand  Correlate with demand management and customer relationship management processes © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 33  Principles of Supply Chain Management (5e) Supplier Relationship Management / Procurement  Screening and selecting suppliers  Developing close working relationships with key suppliers  Negotiating product and service agreements  Managing supplier relationships  Monitoring supplier performance and improvement © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 34  Principles of Supply Chain Management (5e) Product Development and Commercialization  Selecting new product ideas  Managing Time to Market - Developing new products and getting them to market quickly and effectively  Assessing the success of each new product  Developing customer feedback mechanisms © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 35  Principles of Supply Chain Management (5e) Returns Management  Managing used product disposal and product recalls  Writing operating and repair instructions  Troubleshooting instructions and warranty repairs  Environmental compliance with substance disposal and recycling  Collecting returns data  Minimizing future returns © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 36  Principles of Supply Chain Management (5e) Internal Vs External SC © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Step 4. Develop Internal Performance Measures for Key Processes Processes should support overall supply chain strategy Performance measures should be designed for each key processes and functional activities Firm can track progress toward meeting each objectives Examples: Process Efficiency – Resources Consumed, Throughput CRM - Average Delivery Cost, Lead time, SRM – Service level Production – Output Volume, Defects Rate Sustainability - Carbon footprint, Energy Consumption..etc © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Step 5. Assess & Improve Internal Integration of SC Processes Coordination and collaboration internally Transition from functional silos to teamwork and cooperation across business functions Formation of cross-functional teams, Management support & resources ERP systems that link business processes and facilitate communication Develop an understanding of the Internal Supply Chain © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Step 6. Develop Supply Chain Measures (KPIs) for All Key Processes (Internal & External) Monitor links with trading partners in Key SCM processes External performance measures should align with internal performance measures Design measures should be consistent with overall supply chain strategies © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of LO Supply 2-2 Chain Management (5e) Common KPIs in Supply Chain  Perfect order rate  Days Sales Outstanding  Inventory turnover  Freight cost  Fill rate  Inventory days of supply  Customer order cycle time  Lost sales ratio  Cash-to-cash cycle time  Rate of return  Inventory accuracy  Inventory velocity  Supply chain costs  Backorder  Lead time  Damage rate © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Step 7. Assess & Improve External Management (5e) Process Integration & Performance Build, maintain & strengthen relationships Use Knowledge Management Solutions & ERP, to share information such as forecast information, new products, & expansion plans (Document 360, Guru, Notion, HP DMS). Monitor performance metrics to identify lack of process integration and supply chain weaknesses © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Step 8. Extend Process Integration to 2nd Tier Supply Chain Partners Integrate process to 2nd-tier partners & beyond Some latest ERPs that can integrate 3rd Tier, using technology such as Blockchain Radio-frequency Identification (RFID) - relays product’s location as it moves through the supply chain (Active/ passive) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Why Blockchain ?? Decentralized Ledger Immutable Ledger Data Integrity & Data Transparency Consensus - Proof of Work (PoW), Nodes Better Traceability in Supply Chain Smart Contracts Automation of Supply Chain Processes Data Synchronization & Connectivity with most ERPs Cyber Security - Resistance to Cyber attacks and Frauds © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 44  Principles of Supply Chain Management (5e) Blockchain - Applications SAP Leonardo: SAP, a leading provider of ERP software, offers SAP Leonardo, which integrates blockchain technology into its ERP platform. Oracle Blockchain Applications: Oracle, another major ERP vendor, provides blockchain applications and services that integrate with its ERP solutions. Microsoft Dynamics 365 Blockchain: Microsoft Dynamics 365, a suite of ERP and CRM applications, includes blockchain capabilities through its Azure Blockchain Service. IBM Food Trust: While not a traditional ERP system, IBM Food Trust is a blockchain-based platform that provides end-to-end traceability and transparency for the food supply chain © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 45  Principles of Supply Chain Management (5e) Step 9. Re-evaluate the Integration Model Annually Revisit the integration model annually for changes within supply chains Assess the impact of changes on integration efforts © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Information Systems Combination of technology, people, and processes that collects, processes, stores, and disseminates information. It supports decision-making, coordination, control, analysis, and visualization within an organization. Information systems are crucial for managing data and turning it into actionable insights, helping businesses and individuals make informed decisions. (it is Software, Hardware, Processes & People) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 47  Principles of Supply Chain Management (5e) Role of Information Systems in SC Integration  Real-time Data collection IoT Machine Learning Telematics  Improved collaboration KMS, DMS, MIS Reports, ERP to ERP  Automation of Processes  Business Analytics  Process control (KPIs & variations)  Integration of Advanced applications (Bridging, Compatibility) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 48  Principles of Supply Chain Management (5e) Classic Integration Examples DHL https://youtu.be/JrUAp1M8xJQ?si=I6lVl1o8rN-0nM9K TOYOTA https://youtu.be/qskssNtJPsQ © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 49 The Bullwhip Effect  Principles of Supply Chain Management (5e) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Examples of Bullwhip Effect  Procter & Gamble (Pampers Case, 1990s) - $100 million above loss due to excess inventory  HP (Hewlett-Packard) (1990s) - $300 million in lost revenue and excess inventory.  Cisco Systems (2001) - Total Loss: Over $2.25 billion in excess inventory.  Nike (2021) - Total Loss: Approximately $120 million in lost sales, demand forecasting errors led to stockouts and overproduction. © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 53  Principles of Supply Chain Management (5e) Activities Causing Bullwhip Effect  Demand Forecast Methods (Mismatch)  Lead times, Safety stocks, and Review periods change  Order Batching  Reorder point, Wrong critical stock levels defined  Full Truck Loads  Replenishment Quantity / batch orders  Sales Quotas and year-end targets not accurate  Price Fluctuations  Quantity Discounts, Promotions from Supplier, Forward Buying  Rationing and Shortage Gaming  Inflation of Orders to meet shortage © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Bullwhip Effect - Issues  Greater overall levels of Safety stock  Complications in Inventory Planning and Control  Affects procurement plans  Higher total supply chain costs  Possible disruptions & delays in Supply Chain  Lower levels of Customer service  Financial Issues © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Bullwhip Effect https://www.youtube.com/watch?v=2nlmk TYZG5s © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Avoiding Bullwhip Effect - Demand Forecast Updating  Make actual demand data available to suppliers  Use the same forecasting techniques across  Vendor-Managed Inventory (VMI)  Reduce the length of the supply chain (Lesser partners) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Avoiding Bullwhip Effect - Order Management (5e) Batching Use smaller order sizes Use a freight forwarder to consolidate small shipments Use automated order systems to order more frequently © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Avoiding Bullwhip Effect - Price Fluctuations Eliminate price discounting Many retailers have adopted everyday low prices (EDLP) same applicable for supply management © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) Avoiding Stockpiling Increase in safety stocks also known as stockpiling and forward buying (stopgap alternative) Solutions: Optimizing Inventory Inventory Management Systems (MRP, ERP, WMS..) Monitoring Min-Max Inventory Levels JIT – Just in Time © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Principles of Supply Chain Management (5e) JIT – Just in Time © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 61  Principles of Supply Chain Management (5e) Principles of JIT Pull System Continuous Flow Manufacturing Small batch production /Small Lot Sizes Reduce re-order quantity/ batch orders  Decrease Inventory levels Kanban System Supplier Collaboration/ Alliances Employee Involvement Kaizen (Continuous Improvement) © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 62  Principles of Supply Chain Management (5e) Benefits Vs Drawbacks of JIT Minimal amounts of inventory Cannot cope cyclic / sudden demand obsolescence / Wastage Heavy reliance on supplier efficiency Lower inventory carrying costs Dependency on forecast accuracy Improved Cashflow Lost sales and stockouts compared Create flexibility to JIC (Just in Case) JIT stops over production Higher purchase costs / landed costs © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 63  Principles of Supply Chain Management (5e) JIC (Just in Case) – Buffer Stock Driven Strategy used by organizations to hold additional inventory beyond what is required based on demand forecasts.  Acts as a buffer to mitigate the risk of stockouts  Ensure that there are sufficient materials or products available to meet unexpected increases in demand or supply chain disruptions.  Typically used by companies with seasonal / cyclic demands © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 64  Principles of Supply Chain Management (5e) Benefits Vs Drawbacks of JIC Ensuring customer satisfaction Increased inventory holding costs and retention Risk of inventory obsolescence and Mitigating supply chain spoilage disruptions Reduced cash flow due to higher Meeting unexpected demand inventory levels increases Difficulty to track and predict Handling seasonal demand demand accurately © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 65  Principles of Supply Chain Management (5e) END OF LO4 Questions & Answers © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.