Supply chain for initial understanding of suject

Supply chain for initial understanding of suject

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  Chapter Four SUPPLY CHAINCOORDINATION AND USE OF TECHNOLOGY
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  4.1.The Bullwhip Effect •One of the most common dynamics in supply chains is a phenomena that has been called “the bullwhip effect.” • The bullwhip effect is a phenomenon in supply chain management that occurs when a small increase in demand at the retail level is gradually amplified by each party in the supply chain. • It happens when small changes in product demand by the consumer at the front of the supply chain translate into wider and wider change in demand experienced by companies further back in the upstream supply chain.
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  What causes thebullwhip effect in a supply chain? • The bullwhip effect can disrupt the harmony in a supply chain, leading to inefficiencies and excess costs. Identifying the causes behind this phenomenon is crucial for businesses seeking a smoother, more responsive supply chain. 1. Demand forecasting errors • One of the primary triggers of the bullwhip effect is inaccurate demand forecasting. When retailers miscalculate customer needs, the resulting distorted information can lead to over-ordering or under-ordering.
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  Cont’d. 2. Order batching •Order batching occurs when businesses consolidate multiple orders into larger, less frequent shipments. While this might seem cost- effective, it can contribute to the bullwhip effect. 3. Price fluctuations • Frequent changes in product prices can intensify the bullwhip effect. When customers anticipate price change, they may stock up on goods, leading to irregular ordering patterns.
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  Cause of bullwhipcont’d… 4. Information delays • Communication gaps and delays in sharing real-time information among supply chain partners can amplify the bullwhip effect. • When participants are not promptly informed of changes in demand or inventory levels, they may make decisions based on outdated data. 5. Inventory management practices Inconsistent inventory management practices can intensify the bullwhip effect. Retailers, aiming to prevent stock outs, may over- order to maintain safety stock levels.
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  Impact of thebullwhip effect on supply chain management 1. Inventory levels • The bullwhip effect often results in unpredictable inventory levels as orders fluctuate between excess and shortage. Retailers, reacting to perceived fluctuations in demand, may overstock or understock their shelves. 2. Production planning • Manufacturers, receiving irregular and exaggerated orders, face challenges in production planning. The need to accommodate sudden ;increase or drops in demand can lead to inefficient use of resources, increased setup costs, and potential disruptions in the production process.
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  Impact of bullwhipcont’d… 3. Operational costs • The bullwhip effect is not merely a unpredictability; it's a financial wave that affects operational costs throughout the supply chain. Fluctuating demand patterns can result in higher transportation costs due to frequent shipments or increased holding costs for excess inventory. 4. Inefficiencies • The bullwhip effect introduces inefficiencies as each participant in the supply chain reacts to distorted information. These inefficiencies manifest in the form of excess production, unnecessary inventory, and increased lead times. • The cumulative impact diminishes the overall responsiveness and agility of the supply chain, hindering its ability to adapt quickly to market changes.
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  How to mitigatethe bullwhip effect 1. Improve communication • Open and transparent communication is the cornerstone of mitigating the bullwhip effect. Establishing clear channels of communication among all supply chain partners helps ensure that everyone has access to real-time information. 2. Adopt demand-driven strategies • Shifting from traditional forecasting methods to demand-driven strategies can significantly reduce the bullwhip effect. • Instead of relying only on historical data, businesses can use real- time demand signals to make more informed decisions.
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  4.2.Coordination in theSupply Chain • supply chain coordination • Supply chain coordination involves aligning and harmonizing all stakeholders in a supply chain to improve efficiency, reduce costs, and enhance customer satisfaction. • Key components include information sharing, joint decision- making, and collaborative planning across manufacturers, suppliers, and retailers. Effective coordination minimizes disruptions and ensures a smooth flow of goods and information from origin to consumer.
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  4.4. Collaborative planning,forecasting, and replenishment (CPFR) • CPFR is the method of coordinating various supply chain activities between multiple parties (i.e., manufacturer, retailer, etc.) to meet customer demand while minimizing costs. • It was developed by The Voluntary Inter-industry Commerce Solutions (VICS) Association, which created a framework and set of guidelines for conducting CPFR in supply chains. • It requires strategic supply chain planning and smooth communication to facilitate accurate forecasting and replenishment as well as efficient supply chain execution.
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  The Four Phasesof CPFR in Supply Chain Collaboration
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  Cont’d. • Strategy andPlanning: This phase involves laying out the strategy for collaborative relationships between supply chain partners. • The idea is that all organizations involved in partnership share an agreed scope of collaboration, common business goals. Roles, responsibilities and procedures are also set out in the strategy and planning phase. • Demand and Supply Management: This is the element which focuses on sales and order forecasting and the planning of orders.
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  Cont’d. • Execution: Thisis the phase concerned with the processes of producing, stocking, dispatching, and delivery of materials to end-customers. • Analysis and Monitoring: After execution, all parties review the outcomes, looking at performance metrics to see what worked well and where improvements are needed.
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  The Benefits ofCPFR • Improved accuracy of sales and order forecasts • Reductions in inventory levels • Closer relationships among the supply chain partners • Reduced supply chain uncertainty • Realization of supply chain cost reductions • More effective mitigation of supply chain risks
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  4.4. Information Systemsthat support the Supply Chain • Information system, is an integrated set of components for collecting, storing, and processing data and for providing information, knowledge, and digital products. • Business firms and other organizations highly rely on information systems to carry out and manage their operations, interact with their customers and suppliers, and compete in the marketplace.
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  Cont’d. Information technology supportsinternal operations and also collaboration between companies in a supply chain. SCM IS are information systems (IS) used to coordinate information between internal and external customers, suppliers, distributors, and other partners in a supply chain.
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  Warehouse management system(WMS) •A WMS is software that helps companies manage and control daily warehouse operations, from the moment goods and materials enter a distribution or fulfillment center until the moment they leave. Transportation Management System • A transportation management system is a software that helps companies manage logistics associated with the movement of physical of goods – by land, air, sea, or a combination of transportation modes.
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  Cont’d. TMS is partof the larger supply chain management system, that helps companies to ensure timely delivery of goods by • Adjusting loads and delivery routes, • Tracking freight across local and global routes, and • Automating previously time-consuming tasks, such as trade compliance documentation and freight billing.