Chapter 6: Supply ChainIntegration6-1
6-1 Chapter 6: Supply Chain Integration
6.1IntroductionEffectiveSCM impliesEfficientintegration ofsuppliers,manufacturers,warehousesand storesCoordinate activitiesacrossthe supplychainImprove performance:reduce cost,increase servicelevel.reducethebullwhipeffect.betterutilizeresources,andeffectivelyrespondto changes inthemarketplace.Challenges canbemetbyintegratingthe front-end,customer demandto the back-end,production and manufacturing portion of thesupplychainVarious supply chain integration strategies:Push,pull,push-pullstrategyMatching products and industrieswithsupply chainstrategiesDemand-driven supply chain strategiesThe impact of the Internet on supply chain integration6-2
6-2 6.1 Introduction ⚫ Effective SCM implies: ⚫ Efficient integration of suppliers, manufacturers, warehouses, and stores. ⚫ Coordinate activities across the supply chain ⚫ Improve performance: reduce cost, increase service level, reduce the bullwhip effect, better utilize resources, and effectively respond to changes in the market place. ⚫ Challenges can be met by integrating: ⚫ the front-end, customer demand, ⚫ to the back-end, production and manufacturing portion of the supply chain. ⚫ Various supply chain integration strategies: ⚫ Push, pull, push–pull strategy. ⚫ Matching products and industries with supply chain strategies. ⚫ Demand-driven supply chain strategies. ⚫ The impact of the Internet on supply chain integration
6.2 Push, Pull, Push-PullSystemsPushand Pull traditional categoriesofmanufacturingoperationsMore recenthybrid strategy of combiningthetwo,Push-Pullsystems6-3
6-3 6.2 Push, Pull, Push-Pull Systems ⚫ Push and Pull traditional categories of manufacturing operations ⚫ More recent hybrid strategy of combining the two, Push-Pull systems
Push-BasedSupplyChainsProductionand distribution decisions based onlong-termforecastsManufacturer demand forecastsbased onorders receivedfrom the retailer's warehousesLonger reaction time to changing marketplaceInability to meet changing demand patternsObsolescence ofsupply chaininventoryasdemandforcertainproductsdisappears.Variability of orders received muchlarger than thevariability in customer demand due to the bullwhipeffect.Excessive inventories due to theneed for large safetystocksLargerand more variable production batchesUnacceptableservicelevelsProductobsolescence6-4
6-4 Push-Based Supply Chains ⚫ Production and distribution decisions based on long-term forecasts. ⚫ Manufacturer demand forecasts based on orders received from the retailer’s warehouses. ⚫ Longer reaction time to changing marketplace: ⚫ Inability to meet changing demand patterns. ⚫ Obsolescence of supply chain inventory as demand for certain products disappears. ⚫ Variability of orders received much larger than the variability in customer demand due to the bullwhip effect. ⚫ Excessive inventories due to the need for large safety stocks ⚫ Larger and more variable production batches ⚫ Unacceptable service levels ⚫ Product obsolescence
BullwhipEffectinPush-BasedSupply ChainsLeads to inefficient resource utilizationPlanning and managing are much more difficult.Not clear how a manufacturer should determineproduction capacity? Transportation capacity?Peakdemand?Averagedemand?Results:HighertransportationcostsHigher inventory levels and/or highermanufacturingcostsmore emergency production changeovers6-5
6-5 Bullwhip Effect in Push-Based Supply Chains ⚫ Leads to inefficient resource utilization ⚫ Planning and managing are much more difficult. ⚫ Not clear how a manufacturer should determine production capacity? Transportation capacity? ⚫ Peak demand? ⚫ Average demand? ⚫ Results: ⚫ Higher transportation costs ⚫ Higher inventory levels and/or higher manufacturing costs ⚫ more emergency production changeovers