Supply Chain Management
PUSH, PULL, PUSH-PULL SYSTEM
BULLWHIP EFFECT, JIT, VM & 3PL
SCM objectives SCM outcomes
What? Objectives
Establish policies , objectives and Supply policies(service levels)
operating footprints. Strategic Network design
How much?
Demand forecast
Deploy resources to match supply Production ,procurement &logistic plan
with demand . Tactical Inventory target
When ? Where?
Schedule , monitor , control
and adjust production. Work center scheduling
Operational Order/inventory tracking
Do: Order cycle
Build and transport. Material movement.
Execution
2
Supply Chain: Upstream & Downstream
Upstream
supplier
supplier
supplier
manufacturer distributer retailer customer
supplier
supplier
supplier downstream
PUSH BASED SUPPLY CHAIN
•
With a push-based supply chain, products are pushed through the channel, from the
production side up to the retailer. The manufacturer sets production at a level in accord
with historical ordering patterns from retailers. It takes longer for a push-based supply
chain to respond to changes in demand, which can result in overstocking or bottlenecks
and delays, unacceptable service levels and product obsolescence.
Supplier Manufacturer Distribut0r Retailer Customer
Supply to production based inventory based stock based purchase what
Forecast on forecast on forecast on forecast is available
PULL BASED SUPPLY CHAIN
•
Procurement, production and distribution are demand driven so that they are
coordinated with actual customer orders, rather than forecast demand. In a pure pull
system, the firm does not hold any inventory and only responds to specific orders
enabled by fast information flow mechanisms (POS data) to the various supply chain
participants. It leads to reduction in system inventory level, enhanced ability to manage
resources and a reduction in system costs. It is difficult to implement if the lead times are
very long and it is difficult to take advantage of economies of scale in manufacturing and
transportation since systems are not planned ahead.
Supplier Manufacturer Distributer Retailer Customer
Supply to produce to Automatically Automatically Customer
Order order replenish replenish orders
warehouse stock
PUSH-PULL SUPPLY CHAIN
In a push-pull strategy, the initial stages of the supply chain are operated in a push based
manner while the remaining stages employ a pull based strategy. The interface between
the push based stages and pull based stages is known as the push-pull boundary.
Example: manufacturer builds to order: postponement or delayed differentiation
BULLWHIP EFFECT
The bullwhip effect is the uncertainty caused from distorted information flowing up and
down the supply chain. The bullwhip effect is caused by fluctuations in information
supplied to firms further up the supply chain. Distorted information causes firms to
forecast demand incorrectly. Thereby, many unnecessary costs are put upon each of the
firms along the supply chain.
BULLWHIP EFFECT
Who is affected? Nearly all industries are affected!
Firms that experience large variations in demand are at risk. Firms that depend on
suppliers upstream or distributors and retailers downstream may be at risk. Most firms
are affected by the bullwhip effect. The bullwhip effect used to be considered a normal
phenomenon. However, recently, many firms have been trying to focus on how to
improve communication along the supply chain.
Results of the bullwhip effect
Excess inventories Problems with quality Increased raw material costs Overtime
expenses Increased shipping costs Customers turning back sales orders Lengthened lead
time Lost sales The bullwhip effect can inflict many unnecessary costs on business firms.
Inventory costs from stored inventory, problems with quality caused from rapid
production, overtime expenses for increased employee labor, and increased units being
shipped create costs far and beyond normal levels of production.
BULLWHIP EFFECT
METHODS INTENDED TO REDUCE UNCERTAINTY, VARIABILITY, AND LEAD TIME:
Vendor Managed Inventory (VMI )Just In Time replenishment (JIT)Strategic partnership
Information sharing smooth the flow of products coordinate with retailers to spread
deliveries evenly reduce minimum batch sizes smaller and more frequent replenishments
3PL
Third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or
"third party" logistics services to companies for part, or sometimes all of their supply
chain management function. Third party logistics providers typically specialize in
integrated warehousing and transportation services that can be scaled and customized to
customer’s needs based on market conditions and the demands and delivery service
requirements for their products and materials.
3PL
ADVANTAGES OF 3PL Focus on core strengths
Provides technological flexibility Provides other flexibilities (regional warehousing,
lowering inventory levels)
LIMITATIONS OF 3PL Loss of control over the logistics function
More distance from clients Discontinuity of 3PL provider Differences in opinion or
perception of the service level of 3PL provider.
SCENARIO
• Background: An electronics manufacturer is preparing to launch a new
smartphone model. The initial phase involves building anticipation and
managing pre-orders based on marketing forecasts. Once the phone is
officially launched, production will be adjusted based on actual sales data
and demand.
• Challenge: The company needs a supply chain strategy that allows for
flexibility in production and inventory management, accommodating
both the forecast-driven pre-launch phase and the demand-driven post-
launch phase.
• Question: With the need to manage both forecasted and actual demand
at different stages of the product lifecycle, which supply chain
management system should the manufacturer adopt?
SCENARIO
• Background: A clothing retailer experiences significant fluctuations in
demand based on seasonal trends. To prepare for the upcoming summer
season, the retailer needs to stock up on swimwear, shorts, and T-shirts.
The company has historical sales data that accurately predicts the
increase in demand for these items during the summer months.
• Challenge: The retailer must ensure that sufficient stock is available
before the start of the season to meet the anticipated demand and
maximize sales during this peak period.
• Question: Considering the need to anticipate demand and have products
available in advance, which supply chain management system is most
appropriate?
SCENARIO
• Background: Imagine a furniture manufacturing company that specializes
in custom, made-to-order pieces for high-end clients. Each piece of
furniture is unique, designed according to specific customer
specifications regarding materials, size, and design. The manufacturing
process only begins once an order is placed, and there are no standard
furniture pieces kept in inventory.
• Challenge: The company needs to manage its supply chain in a way that
minimizes waste and inventory costs while ensuring customer
satisfaction through timely delivery of custom orders.
• Question: Given the need for customization and the absence of
predictable demand, which supply chain management system should the
company use?
Q/A
