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International Journal of Emerging Technology and Advanced Engineering

Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)

Management of Uncertainty In Supply Chain


Prof.D.P.Patil1, Prof.A.P.Shrotri2, Prof.A.R.Dandekar3
1,2,3
Associate Professor, PVPIT (BUDHGAON), Dist. Sangli(M.S.)
sdattatrayap_patil@yahoo.co.in
amod_shrotri@rediffmail.com
ashutoshdandekar@gmail.com

Abstract- In today’s competitive world management of 2) Protection against fluctuations in demand


supply chain is a crucial factor for becoming 3) Better use of men, material and machines
competitive and successful. The supply chain includes
every link to the transformation of customer needs in to 4) Protection against fluctuations in output
useful products and to cater them back to the 5) Customer Satisfaction
customers .So it is important that smooth operations of 6) Protection against fluctuations in demand
every link in the supply chain should be taken care of.
Uncertainty in the functioning of any of the links may 7) Better use of men, material and machines
lead to delays and bottlenecking and may hamper the 8) Protection against fluctuations in output
performance output of the supply chain. So it is The starting point of the management activity to
necessary to control the various factors which are understand the customer’s demands. It further extends to
responsible for supply chain. Proper planning and better asset utilization due to optimization and tries to
dealing with uncertainties will certainly lead to better eliminate the excess vendors, high inventories,
scheduling, up to the mark production levels, timely uncertainties and resulting longer lead time. Thus it is an
deliveries and ultimately greater customer satisfaction. attempt to reduce overall inefficiencies in the supply chain.
It considers any constrain that may affect the supply chain
Keywords-Customer’s satisfaction, Managing
and its smooth working,andremedial action plan is
uncertainties, supply chain management, uncertainties
incarporated.The data is further utilized for future
in supply chain, Supply chain planning tools.
forecasts.Italso rationalizes the vendors and reduces the
uncertainties in planning with vendors and yields better
I. CONCEPT OF SUPPLY CHAIN
scheduling. It reduces unnecessary vendoring and can have
A supply chain consists of all stages involved, directly economies-of-scale benefits.The main target of managing
or indirectly, in fulfilling the customer request. The supply the supply chain is to realize and neutralize the
chain not only includes the manufacturer or suppliers, but uncertainties in the supply chain.
also transporters, warehouses, retailers, and customers
themselves. Within each organization such a manufacturer, III. UNCERTAINTY IN SUPPLY CHAIN
the supply chain includes all functions involved in Uncertainties in supply, process and demand are
fulfilling a customer’s request. It includes every link in recognized to have a major impact on the manufacturing
catering the needs of customers right from transformation function. Uncertainty propagates throughout the network
up to installation. and leads to inefficient processing and non-value adding
activities. This uncertainty is expressed in questions such
II. MANAGEMENT OF SUPPLY CHAIN as: what will my customers order? how many products
OBJECTIVES should we have in stock? and will the supplier deliver the
1) Customer Satisfaction requested goods on time and according to the demanded
specifications?
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International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
Because of the specific product and process
The presence of uncertainty stimulates the decision characteristics in food supply chains, such as perish ability
maker to create safety buffers in time, capacity or of end products, variable harvest and production yields and
inventory to prevent a bad chain performance. These the huge impact of weather conditions on consumer
buffers will restrict operational performances and suspend demand, these chains are especially vulnerable to this type
competitive advantage. Those companies which cope best of uncertainty. The following table no.1 shows Impact of
with uncertainty are most likely to produce internationally customer needs on implied demand uncertainty.
competitive bottom-line performances. Table no 1[1]

Meaning of Uncertainty Impact of customer needs on implied demand


uncertainty
Definition of supply chain uncertainty is based on the
five requirements for effective system management by De Sr.no. Attribute Low implied High implied
Leeuw (2000). If one or more of these requirements is not uncertainty uncertainty
fulfilled, decision makers in the supply chain will 1 Product low high
experience uncertainty resulting in ineffectiveness: margin
2 Average 10% 40-100%
(1) The managing system should have an objective and forecast
error
corresponding performance indicators to manage the
3 Average 1-2% 10-40%
supply chain in the right direction. stock out
rate
(2) To estimate future system states one has to have 4 Average 0% 10-25%
information on the environment and current supply chain forced
state. season end
markdown
(3) There should be enough information processing The following table no 2 shows the Impact of customer
capacities to process information on the environment and needs on implied demand uncertainty.
supply chain state.
Table no 2[1]
(4) In order to direct the managed system in the right
direction one should be able to estimate the impact of Impact of customer needs on implied demand
alternative actions. This requires a model of the system, uncertainty
presenting the relationships between available redesign
variables and performance indicators. Sr Customer Needs Causes Implied
no demand
(5) There should be enough potential control actions. uncertainty to
1 Range of quantity required Increase because
increases a wider range of
IV. SOURCES OF UNCERTAINTY
the quality
These sources of supply chain uncertainty can be required implies
greater variances
categorized as:
in demand.
Inherent characteristics that cause more or less predictable 2 Lead time decreases Increase because
fluctuations. Uncertainty may take the form of high there is less time
variability in demand, process or supply, which in turn in which to react
creates problems in planning, scheduling and control. to order.
3 Variety of product required Increase because
increases demand per
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International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
product becomes through the entire supply chain to optimize the
more logistic network.
disaggregates.  Production planning:-This gives a smooth and
4 Number of channels through Increase because optimal flow of the resources by promoting
which product may be acquired the total customer
increases demand is now optimized production schedules to maximize the
disaggregated returns on the assets, minimize delays, improved
over more resource utilization and reduce the work in
channels. process inventory.
5 Rate of innovation increases Increase because  Availability planning:-This provides a global,
new products multilevel ,rule based strategic planning facility to
tend to have
match the supply chain with customer demands
more uncertainty
demand. and to upkeep the precise delivery commitment
(2) Characteristic features of the chain those results in for customer orders, and thereby fulfilling the
potential disturbances of system promise made to the customer.

Performance: All the above functions are now-a-days possible by an


intuitive and configurable graphical user interface to
 chain configuration (e.g. inflexible capacities) manage and optimize the supply chain.
 chain control structure (e.g. wrong decision rules
applied) VII. SOLUTIONS T O UNCERTAINTY
 chain information system (e.g. information delays)
 chain organization and governance structure (e.g. A) Managing Supply
misjudgment by a decision maker) A firm can vary supply of product by controlling a
(3) Exogenous phenomena that disturb the system, such as combination of the following factors
changes in markets, products, technology, competitors and
governmental regulations.  Managing Production Capacity When managing
capacity firms use a combination of the following
V. DEALING WITH UNCERTAINTY
approaches:
 Time flexibility from workforce
Uncertainties in supply, process and demand are
In this approach, a firm uses flexible work hours from
recognized to have a major impact on the optimistic
the workforce to better match the production with demand.
functioning of a company. This barrier in the efficient
In many instances, plants do not operate continually & are
working of the supply chain should be better t6aken care
left idle during portions of the day & week. Therefore,
of. This task is handled by the supply chain planning tools.
spare plant capacity exists in the form of hours when the
VI. SUPPLY CHAIN P LANNING T OOLS plant is not operational. For example, many plants do not
run three shifts, so existing workforce could work overtime
during peak periods to produce more to meet demand. The
 Demand planning: - It provides for advanced
overtime used is varied to match the variation in demand.
forecasting and demand planning tool to keep
This system would allow production from the plant to more
pace with volatile changes in demand and produce
closely match the demand from customers. Telemarketing
accurate forecasts.
centers and banks use part time workers extensively to
 Supply network planning:-It synchronizes the
match supply & demand better.
market demand dynamically with sourcing and
production activities and plan material flow

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International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
 Use of seasonal workforce B. Managing Inventory
In this approach, a firm uses a temporary workforce
during the peak season to increase capacity to match the  Using common components across multiple products
demand. The tourism industry often employs this approach, In this approach, a firm designs common components
in which a base of full time employees exists & the rest are across multiple products, each with a predictably variable
hired only for the peak season. Agriculture also uses this demand but with a relatively constant overall demand.
approach for both harvesting & processing. This approach Using common components across these products will
may be hard to sustain if the labor market is tight. result in the demand for the components being relatively
constant. Therefore a part of supply chain producing
 Use of subcontracting components can easily synchronize supply with demand &
In this approach, a firm subcontracts peak production a relatively low inventory of parts will have to be built up.
so that internal production remains level & can be done
cheaply. With the subcontractor handling the peaks, the  Build inventory of high demand or predictable demand
company is able to build a relatively inflexible but low cost products
facility where the production rates are kept relatively When most of the products a firm produces have the
constant. A key here is the availability of relatively flexible same peak demand season, the previous approach is no
subcontractor capacity. For example, most of power longer feasible. A firm must then decide which inventory
companies do not have the capacity to supply their to build during the off season. The answer is to build
customers with all the electricity demanded on the peak products with the more predictable demand during the off
days. They instead rely on being able to purchase that season because there is less to be learned about their
power from suppliers & subcontractors who have excess demand by waiting. As more is known about demand
electricity. This allows power companies to maintain a closer to selling season, production of more uncertain items
level supply and a lower cost. should take place.

 Use of dual facilities – dedicated and flexible C) Managing demand


In this approach, a firm builds both dedicated &
To manage demand with the goal of maximizing profit,
flexible facilities. Dedicated facilities produce a relatively
companies must use pricing & production decisions. The
stable output of products over time in a very efficient
timing of the tools can have a tremendous impact on
manner. Flexible facilities produce a widely varying
demand. Therefore using pricing to shape demand can help
volume & variety of products but at higher unit costs.
synchronize the supply chain.
 Designing product flexibility into the production
D) Information Centralization
processes
In this approach, a firm has the market adaptive, flexible In many of the cases the company has many distribution
production system whose production rate can easily be centers from where the needs of the customers can be
varied. This system senses the fluctuation in the market catered. This can be better managed if the demand details
demand and the Production system is then changed to and inventory status updates are readily available online
match the demand. The production lines are designed such instanteniously.This can be easily achieved by centralizing
that changing the number of workers on a line can vary the the information. The benefit of information centralization
production rate. As long as variation of demand across derives from the fact that most orders are filled from the
different product lines is complementary the capacity on warehouse closest to the customer, keeping transportation
each line can be varied by moving the workforce from one costs low.
line to other. This requires multi skilled workforce.

306
International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
VIII. CONCLUSION

E) Specialization
From the above discussions it can be concluded that; A
Most supply chains provide a variety of products to the supply chain consists of all stages involved, directly or
customers. When inventory is carried at multiple locations; indirectly, in fulfilling the customer request. And the
a key decision for a supply chain manager is whether all prime objective of the managing system is to have a
products should be stocked at every location. Clearly, a strategy and corresponding performance indicators to
product that does not sell in a geographical region should manage the supply chain in the right direction. This can be
not be carried in inventory by the warehouse or retail store better done by firstly identifying the sources of uncertainty
located there. and then by synthesizing the available information and
seeking opportunities to tackle the causes to root out them.
F) Postponement strategy This roadmap will certainly lead to better scheduling, up to
the mark production levels, timely deliveries and ultimately
A postponement strategy aims at delaying some supply greater customer satisfaction.
chain activities until customer demand is revealed in order
to maintain both low systems wide cost and fast response. CASESTUDY

1. Purchasing postponement REFERENCE ORGANIZATION: WALL MART


STORES
Delay purchasing of some expensive and fragile materials
To manage the uncertainties in supply chain the
2. Manufacturing postponement famous store wall mart are using following strategies

Products in semi-finished forms and can be customized 1) They directly procure the product from
quickly in Production facilities. manufacturers. All intermediate links are
bypassed.
3. Logistics postponement
2) Every time conducting meetings with the vendors
Products in semi-finished forms and can be customized to understand their cost structure
quickly in Production facilities close to customers. 3) For transportation it has company owned 3500
trucks. The driver has to report their hours of
4. Time postponement service to the coordinator on daily basis. The
coordinator arranges the trips according to
Finished products are kept in central location and are available driving time.
distributed quickly to customers. 4) For better communication in store Wall mart is
using bar code systems Due to which the
5. Product development postponement
information like in stock, cost is quickly available.
G) Demand Forecasting
COMPARISON OF WAL-MART WITH
Forecast of future demand are essential to a supply chain COMPETITIORS
manager’s decision making and planning processes.
The Wal-Mart successfully managed the uncertainty
problems .the following table shows difference at various
stages in supply chain between Wal-Mart and the other
competitors.

307
International Journal of Emerging Technology and Advanced Engineering
Website: www.ijetae.com (ISSN 2250-2459, Volume 2, Issue 5, May 2012)
TABLE.3[3]

COMPARISON OF WAL-MART AND ITS COMPETITIORS

Sr. Stage in supply Wal-Mart Competitors


chain
1. Direct inventory 85% 55-65%
supply from
warehouse to retail
stores
2. Shipping cost 3% of total 5% of total
expenditure expenditure
3. Replenishments Maximum 2 Maximum 5
time days days

REFERENCES

[1]Sunil Chopra & Peter Meindl, Supply chain management, Publisher


Prentice Hall, Edition 2001

[2]Dr.Seth, Global management solutions demystified, Publisher Thomas


education publication, Edition 2006

[3]P.Mohanchandra,Wal-Mart supply chain management practice, Online


research paper2003

[4]Kumaraguru Mahadevan,Supply chain uncertainty An insight for


Australian CEOS and Managers, Online research paper

[5]Supply chain definition and activities, Web page


www.supplychainmanagement.com

[6]S.Shiva Ramu Twntieth century management tools& techniques;


Wheeler publishingEdition2001

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