15 pages
Word Count
4700 words
University of Melbourne
Course Code
Supply Chain Management

Supply Chain summary

October 24, 2018
Supply Chain Management
Integration of the end (raw material) and front (customer) part of the chain
Integration of procurement, manufacturing, distribution, warehousing and transportation, in
order to secure Delivery In Full On Time, reducing system wide costs and improving service
Conicting Objectives in the Supply Chain
Lot Size – Inventory Trade-Of
Manufacturers (typically) want large lot sizes
Per unit set-up costs lower, processes easier to control
Large lot sizes = large inventories
Retailers / distributors want short delivery lead times and wide product variety
Large inventories can lead to short delivery lead times, but will not support wide product
variety at an acceptable cost
Information to Address Lot Size – Inventory Trade-O, Con.icts
Advanced manufacturing systems - Kanban and CONWIP
POS data for advance warnings
Inventory – Transportation Cost Trade-Of
Full truckloads provide lowest operating costs per unit
Demand is (typically) less than full truckloads
Full truckloads (generally) in.ate inventories
Information to Address Inventory – Transportation Cost Trade-O, Con.icts
Lead time reduction for batching
Information systems for combining shipments
Cross docking: allows the retailer to combine shipments from many diferent
manufacturers onto one truck destined for a particular location.
Advanced DSS
Lead Time – Transportation Cost Trade-Of
There is a trade-o, between holding items until enough accumulate to reduce
transportation costs and shipping them immediately to reduce lead time.
Total Lead Time = Order processing time + procurement time + manufacturing time +
transportation time
Transportation costs low if quantities large
Lead times shorter if quantities small
Information to Address Lead Time – Transportation Cost Trade-O, Con.icts
Information systems for combining shipments
Cross docking
Improved forecasting
Lower order / procurement / manufacturing lead times
Product Variety - Inventory Trade-Of
Increased product variety = increased transportation and warehousing costs
Also require higher inventory levels to maintain adequate service levels
Problem matching supply with demand
Information to Address Product Variety - Inventory Trade-O, Con.icts
Delayed di,erentiation
Generic products shipped as far as possible before customization
Risk is “pooled” and forecasts can become more accurate (at the generic level)
Cost – Customer Service Trade-Of
Reducing inventories, manufacturing and transportation costs (typically) reduces
customer service levels
Information to Address Cost – Customer Service Trade-O, Con.icts
All of the methods mentioned in the previous sections
Direct shipping from warehouses to customers
Retail outlets require information about warehouse inventories
Retailers place order direct on warehouse – real time access to availability, allocation of
stock etc.
Product Characteristics Functional
(Predictable Demand)
(Unpredictable Demand)
Product life Cycle More than 2 years 3 months to 1 year
Product Variety Low High
Contribution Margin 5% to 20% 20% to 60%
Forecast Error 10% 40% to 100%
Average Stock-out rate 1% to 2% 10% to 40%
Lead time required for
made-to-order products
6 months to a year 1 day to 2 weeks
Fisher’s Model
Functional matches EDciency – Push strategy
Innovative matches Responsiveness – Pull strategy
Lee’s Model
Demand Uncertainty
Low (Functional products) High (Innovative products)
EDciency supply chain
Responsiveness supply chain
Risk hedging supply chain
Power plants Agile supply chains
Information Technology: EDI (electronic data interchange), barcoding, RDFI
Integrated Management: Data Warehousing; ERP Systems
Financial Sophistication
Push Pull
Objective Minimize cost Maximize service level
Focus Resource usage - eDciency Responsiveness
Complexity High Low
Lead time Long Short
Inventory High Low
Demand Forecast Actual Demand
Uncertainty Low High
Clockspeed Slow Fast
ProIt Margins Low High
Variety Low High
Stock out rate Low High
Push-Pull boundary
By moving the push-pull boundary earlier, lead times and variability in the system are
decreased and service levels are improved due to increased ability to match supply and
demand. Also, inventory levels are decreased because there is liKle or no inventory in the pull
portion of the supply chain.
By moving the push-pull boundary later, costs can be reduced by taking advantage of
economies of scale. Furthermore, inventory levels may decrease due to risk pooling efects
and reduced safety stocks, if, for example, the push-pull boundary is moved later by delaying
product diferentiation.
Bene/on. Delayed di,erentiation in product design. The portion of the supply chain prior to
product di,erentiation is typically operated using a push-based strategy (demand aggregation:
beKer forecast, lower uncertainty, reduced inventory). The portion of the supply chain starting
from the time of di,erentiation is pull-based (high uncertainty, so di,erentiation occurs on
response to individual demand).
Dell. the push portion of the manufacturer's supply chain is that portion prior to assembly,
while the pull part of the supply chain starts with assembly and is performed based on actual
customer demand. The push–pull boundary is at the beginning of assembly.
GM: Manufacturer design
Sport Obermeyer. High and low risk products di,erentiation. Low-risk products, that is, those
for which uncertainty and price are low, are produced in advance using long-term forecasts and
focusing on cost minimization, a push-based strategy. But decisions on production quantities for
high-risk products are delayed until there is a clear market signal on customer demand for each
style, a pull strategy. However, lead times are long, so they use push strategy to place order to
fabrics in advantage. Therefore push-pull for high-risk products.
Value of Information
Information replaces inventory
Sharing information to achieve integration – reduce cost and enhance service.
Potential of Information
Helps reduce variability
Helps improve forecasts
Enables coordination of systems and strategies
Improves customer service
Facilitates lead time reductions
Enables Irms to react more quickly to changing market conditions.
Management of Information
Types of Information
SigniIcant design and complexity issues
Bullwhip efect
Customer demand has low variability; however, orders have increasing variability upper stream.
Retailer forecasts demand of customers. Warehouse forecasts demand of retailer. Manufacturer
forecasts Warehouse demand. Supplier forecasts Manufacturer demand. Each of them add a
safety stock and extra capacity, to meet demand variability.
What are the Implications?
Excessive inventory investment
Poor customer service
Lost revenues
Misguided capacity plans
Ine,ective transportation
Missed production schedules
Forecast errors: forecast of the forecast of the forecast… increases error range.
Batching orders: Full truck load - buyers hold orders until they achieve FTL, or buyers
order more than what they need to reduce transportation cost per unit. This gives wrong
signals to the supplier.
Price uctuations: promotions distort demand, increase variability in ordering paKerns.
This gives misleading information to suppliers about demand.

Subscribe Now

Sign up to view full document

View Document