4-Stage Supply ChainExternalDemandFIGURE5-5RetailerThesupplychainOrderleadtimeDelivery lead timeWholesalerOrderleadtimeDelivery lead timeDistributorOrderleadtimeDelivery lead timeFactoryProduction lead time5-6
5-6 4-Stage Supply Chain FIGURE 5-5: The supply chain
EffectofOrderVariabilityOrdervariabilityinthesupplychain807060Factory50Distributor40WholesalerRetailer30Customer2010拉917192111113154WeekFIGURE5-6:The increase invariability in the supply chain5-7
5-7 Effect of Order Variability FIGURE 5-6: The increase in variability in the supply chain
Factors that Contribute to theVariability-Demand ForecastingPeriodicreviewpolicyCharacterized by a single parameter,thebase-stocklevel.Base-stock level =Average demand during lead time and review period +a multiple of the standard deviation of demand duringleadtimeandreviewperiod(safetystock)Estimation of average demand and demand variabilitydoneusing standardforecast smoothing techniquesEstimates get modifiedasmore data becomesavailableSafety stock and base-stock level depends ontheseestimatesOrder quantities are changed accordingly increasingvariability5-8
5-8 Factors that Contribute to the Variability - Demand Forecasting ⚫ Periodic review policy ⚫ Characterized by a single parameter, the base-stock level. ⚫ Base-stock level = Average demand during lead time and review period + a multiple of the standard deviation of demand during lead time and review period (safety stock) ⚫ Estimation of average demand and demand variability done using standard forecast smoothing techniques. ⚫ Estimates get modified as more data becomes available ⚫ Safety stock and base-stock level depends on these estimates ⚫ Order quantities are changed accordingly increasing variability
Factors that Contribute to theVariability - Lead TimeIncrease in variability magnified with increasingleadtime.Safetystock andbase-stock levels havealeadtimecomponentintheirestimationsWith longer lead times:a small change in the estimate of demand variabilityimpliesa significant change in safety stock and base-stocklevel,whichimpliessignificant changes in order quantitiesleadstoanincreaseinvariability5-9
5-9 ⚫ Increase in variability magnified with increasing lead time. ⚫ Safety stock and base-stock levels have a lead time component in their estimations. ⚫ With longer lead times: ⚫ a small change in the estimate of demand variability implies ⚫ a significant change in safety stock and base-stock level, which implies ⚫ significant changes in order quantities ⚫ leads to an increase in variability Factors that Contribute to the Variability – Lead Time
Factors that Contribute to theVariability - Batch OrderingRetailer uses batch ordering,as witha(Q,R)ora min-max policyWholesaler observes a large order,followed byseveral periods of no orders, followed byanotherlarge order,and so onWholesaler sees a distorted and highly variablepatternofordersSuchpattern is also a result of:Transportation discounts with large ordersPeriodic sales quotas/incentives5-10
5-10 Factors that Contribute to the Variability – Batch Ordering ⚫ Retailer uses batch ordering, as with a (Q,R) or a min-max policy ⚫ Wholesaler observes a large order, followed by several periods of no orders, followed by another large order, and so on. ⚫ Wholesaler sees a distorted and highly variable pattern of orders. ⚫ Such pattern is also a result of: ⚫ Transportation discounts with large orders ⚫ Periodic sales quotas/incentives