Supply Chain Coordination PDF

Detailed Summary of Chapter 10: Coordination in a Supply Chain 10.1 Lack of Supply Chain Coordination and the Bullwhip Effect Supply chain coordination improves when all stages of the supply chain take actions that are aligned to increase total supply chain surplus. Lack of coordination occurs due...

Detailed Summary of Chapter 10: Coordination in a Supply Chain 10.1 Lack of Supply Chain Coordination and the Bullwhip Effect Supply chain coordination improves when all stages of the supply chain take actions that are aligned to increase total supply chain surplus. Lack of coordination occurs due to conflicting objectives among different stages or delayed and distorted information. This often results in the bullwhip effect, where fluctuations in orders increase as they move up the supply chain from retailers to suppliers. Example: - Procter & Gamble (P&G): Observed the bullwhip effect in the supply chain for Pampers diapers. While consumer demand was steady, raw material orders fluctuated significantly, increasing costs and complicating supply-demand matching. 10.2 The Effect on Performance of Lack of Coordination Lack of coordination in a supply chain increases variability and costs while reducing overall supply chain surplus. Key impacts include: - Manufacturing Costs: Increase due to the need for excess capacity or inventory. - Inventory Costs: Higher due to the need to buffer against variability. - Replenishment Lead Time: Increases due to inefficiencies. - Transportation Costs: Increase due to variable shipping quantities. - Product Availability: Decreases due to mismatched supply and demand. - Profitability: Decreases across the supply chain. Example: - P&G: The lack of coordination resulted in increased manufacturing and inventory costs. 10.3 Obstacles to Coordination in a Supply Chain Obstacles to coordination include: 1. Incentive Obstacles: Misaligned incentives lead to actions that increase variability. Example: Sales force incentives based on sell-in rather than sell-through can cause order variability. 2. Information-Processing Obstacles: Distorted demand information as it moves up the supply chain. Example: Retail orders based on promotions can mislead manufacturers about actual demand. 3. Operational Obstacles: Large order batches and infrequent orders increase variability. 4. Pricing Obstacles: Pricing strategies like promotions can lead to forward buying and order variability. 5. Behavioral Obstacles: Lack of trust and communication among supply chain partners. 10.4 Managerial Levers to Achieve Coordination Managers can use various levers to improve coordination: 1. Aligning Goals and Incentives: Ensure all participants aim to maximize total supply chain profits. Example: Walmart and HP coordinate through shared goals for printer inventory management. 2. Improving Information Visibility and Accuracy: Share demand data across the supply chain to reduce information distortion. Example: Walmart shares point-of-sale data with suppliers to improve forecasting. 3. Improving Operational Performance: Reduce lot sizes and lead times. 4. Designing Pricing Strategies to Stabilize Orders: Use volume-based discounts and everyday low pricing (EDLP) to reduce order variability. 5. Building Strategic Partnerships and Trust: Foster trust and collaboration to enhance information sharing and reduce duplicated efforts. Example: Walmart and P&G built a strategic partnership to better coordinate actions. 10.5 Continuous Replenishment and Vendor-Managed Inventories Continuous replenishment programs (CRPs) and vendor-managed inventories (VMIs) involve suppliers managing inventory levels based on actual sales data, reducing variability and improving coordination. Example: - Walmart: Uses CRP and VMI systems to manage inventory levels efficiently and reduce variability. 10.6 Collaborative Planning, Forecasting, and Replenishment (CPFR) CPFR involves joint planning and forecasting among supply chain partners to ensure all stages operate with a common forecast and replenishment strategy. It requires changes in organizational structure and technology implementation for scalability. Example: - CPFR Implementation: Effective collaboration requires cross-functional teams and integrated technology solutions to share forecasts and historical data. 10.7 Achieving Coordination in Practice To achieve coordination in practice, companies should: 1. Quantify the Bullwhip Effect: Measure the variability in orders and its impact on the supply chain. 2. Secure Top Management Commitment: Coordination efforts need support from top management. 3. Devote Resources to Coordination: Establish teams responsible for coordination efforts. 4. Enhance Communication: Regularly communicate with all stages of the supply chain to facilitate information sharing and coordination. Example: - Walmart and P&G: Set up collaborative teams for forecasting and replenishment, supported by top management commitment. 10.8 Summary of Learning Objectives 1. Describe Supply Chain Coordination and the Bullwhip Effect: Understand their impact on supply chain performance. 2. Identify Obstacles to Coordination: Recognize and address misaligned incentives, information-processing issues, operational inefficiencies, and behavioral challenges. 3. Discuss Managerial Levers: Implement strategies to align goals, improve information accuracy, enhance operational performance, and build trust. 4. Understand CPFR: Utilize collaborative planning, forecasting, and replenishment to improve coordination. Conclusion Chapter 10 emphasizes the importance of coordination in supply chains to improve responsiveness and reduce costs. By addressing obstacles and using managerial levers, companies can achieve better coordination, ultimately enhancing overall supply chain performance.