Supply Chain Management

Topics: Supply chain management, Supply chain, Inventory Pages: 5 (797 words) Published: June 4, 2013
MD021 - Operations Management Supply Chain Management Outline • • • •

Supply Chain Definition Bullwhip Effect Develop Supply Chain Efficient vs. Responsive Supply Chain


Supply Chain Management Definitions

Supply Chain The interconnected set of linkages between suppliers of materials and services that spans the transformation of raw materials into products and services and delivers them to a firm’s customers.

Supply Chain Management Synchronizing a firm’s functions and those of its suppliers to match the flow of materials, services, and information with customer demand.


A Typical Supply Chain

Raw material






3rd Party Logistics

Three flows in the supply chain: Physical goods, money, and information. There are more challenges to manage a supply chain than to manage a single firm because of conflict of interests.


Bullwhip Effect in Supply Chains

Case study: Pampers diapers by Proctor & Gambles (P&G)
1. P&G manufactures disposable diapers under brand name Pampers. 2. P&G receives orders from distributors, wholesalers and retailers.

Questions: 1. What does demand for diapers look like from month to month? 2. What monthly demand pattern for Pampers did P&G observe in early 1990s? 3. What was the major challenge to P&G with such demand pattern?


P&G faced orders for Pampers diapers with big variation
Orders Received by P&G
9 8 7 Orders (in million) 6 5 4 3 2 1 0 1 2 3 4 5 6 Month 7 8 9 10 11 12


Retailers saw demand for Pampers diapers with small variation Demand Observed by Retailers
9 8 7 Orders (in million) 6 5 4 3 2 1 0 1 2 3 4 5 6 Month 7 8 9 10 11 12


The bullwhip effect is characterized by fluctuations in inventory and order levels that tend to increase as one moves back up the channel from the final customer. Demand


Retailer Wholesaler Distributor Manufacturer

Demand variations are amplified when moving up the supply chain!


Causes of Bullwhip Effect

1. Demand forecast updating 2. Long lead time/Order batching 3. Price fluctuations 4. Rationing and shortage gaming 5. Lack of visibility/communication throughout the supply chain


Bullwhip Effect Can Be Alleviated
Reducing the number of stages in the supply chain

Communicating consumer demand directly up the supply chain

Reducing ordering and shipping delays

Reducing demand destabilizing practices

Counter “gaming” during shortages


Developing the Supply Chain Make vs. Buy Pros Increased control over price, quality, etc. Economies of combined operations Proprietary products protected Cons Capital costs Capability limits Time limits Opportunity costs Reduced flexibility to change partners Reduced volume flexibility Unfavorable allocation of product Lack of control over price, quality, etc. Lock-in from specialized contracts and assets Transaction (coordination) costs



Low capital costs Specialization Competition Increased flexibility


Developing the Supply Chain Supplier Relations Competitive Orientation The view that negotiations between buyer and seller is a zero-sum game. Often used when a firm represents a significant share of the supplier’s sales or many substitutes are available. Example: WalMart Cooperative Orientation The view that the buyer and seller are partners. Includes sole sourcing. Often used with strategically important and/or high value-added components. Example: McDonald’s or Toyota Mixed strategy Seeks to combine the advantages of the competitive orientation (e.g. low prices) with the cooperative orientation (e.g. few suppliers). Example: Dell Computer


Strategic Management of the Supply Chain
Efficient Supply Chains: The purpose of efficient supply chains is to coordinate the flow of materials and services so as to minimize inventories and maximize the efficiency of the manufacturers and service providers in the chain....
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