04/12/23 S.Chopra/Coordination 1

Supply Chain Coordination

The role of Information Technology

04/12/23 S.Chopra/Coordination 2

Learning Objectives

What is coordination?

Obstacles to coordination: The Bull-Whip Effect

Countermeasures to achieve coordination

The role of information technology in a supply chain

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Information Coordination: The Bullwhip Effect

Consumer Sales at Retailer

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Impact of the Bullwhip Effect

Performance Measure Impact on Performance

Manufacturing Cost

Inventories

Lead Time

Transport Cost

Shipping & Receiving Cost

Customer Service Level

Profitability

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Bull Whip Effect - Operational Obstacles (Batching)

Contributing factors– High Order Cost– Full TL economies– Random or correlated ordering

Counter Measures– EDI & Computer Assisted Ordering (CAO)– Discounted on Assorted Truckload, consolidated by 3rd party logistics– Regular delivery appointment– Volume and not lot size discounts

State of Practice– McKesson, Nabisco, ...– 3rd party logistics in Europe, emerging in the U.S.– P & G

04/12/23 S.Chopra/Coordination 6

Bull Whip Effect - Pricing Obstacles Contributing factors

– High-Low Pricing leading to forward buy– Delivery and Purchase not synchronized

Counter Measures– EDLP– Limited purchase quantities– Scan based promotions

State of Practice– P&G (resisted by some retailers)

– Scan based promotion

04/12/23 S.Chopra/Coordination 7

Bull Whip Effect - Incentive Obstacles Contributing factors

– Incentives based on sell-in leading to forward buy Counter Measures

– Focus sales force on increasing sell-thru– Incentives based on rolling horizon– Sales force do not compete with each other but with the competition

04/12/23 S.Chopra/Coordination 8

The Bullwhip Effect: Information Processing Obstacles

Contributing factors– No visibility of end demand– Multiple forecasts– Long lead-time

Counter Measures– Access sell-thru or POS data– Direct sales (natural on web)– Single control of replenishment– Leadtime reduction

State of Practice– Sell-thru data in contracts (e.g., HP, Apple, IBM)

– CFAR, CPFR, CRP, VMI (P&G and Walmart)

– Quick Response Mfg. Strategy

04/12/23 S.Chopra/Coordination 9

Bull Whip Effect - Operational Obstacles (Rationing Game)

Contributing factors– Proportional rationing scheme– Ignorance of supply conditions– Unrestricted orders & free return policy

Counter Measures– Allocation based on past sales.– Shared Capacity and Supply Information– Flexibility Limited over time, capacity reservation

State of Practice– Saturn, HP– Schedule Sharing (HP with TI and Motorola)– HP, Sun, Seagate

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Managerial Implications of the Bull Whip Effect - Behavioral Factors

Contributing factors– Lack of trust– Local reaction

Counter Measures– Building trust and partnership

State of Practice– Wal-Mart and P&G with CFAR

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Role of Information in Supply Chain Success

Information Global Scope

CoordinatedDecisions

Supply ChainSuccess

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Information Technology in a Supply Chain: Legacy Systems

Supplier CustomerRetailerDistributorManufacturer

Strategic

Planning

Operational

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Information Technology in a Supply Chain: ERP Systems

Supplier CustomerRetailerDistributorManufacturer

Strategic

Planning

OperationalERPPotential

ERPPotential

ERP

04/12/23 S.Chopra/Coordination 14

Information Technology in a Supply Chain: Analytical Applications

Supplier CustomerRetailerDistributorManufacturer

Strategic

Planning

Operational

SupplierApps

SCM

MES

Dem Plan

Transport execution &WMS

APS Transport & InventoryPlanning

CRM/SFA

04/12/23 S.Chopra/Coordination 15

Information Technology in a Supply Chain: Future Trends and Issues

Best of breed versus single integrator The role of application service providers (ASP) The role of the Internet and B2B exchanges

04/12/23 S.Chopra/Coordination 16

Summary of learning objectives

Coordination in the supply chain Bullwhip effect

– Obstacles and Countermeasures

The role of information technology in a supply chain Future issues in information technology