Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods

from point of origin to point of consumption (supply chain). In essence, Supply Chain Management integrates supply and demand management within and across companies.

Demand Information flow Large number of touch-points Lead time Shelf-life Oil prices Real-estate Manpower Competition Working capital

The objective of supply chain management is to provide a high velocity flow of high quality, relevant information that will enable suppliers to provide an uninterrupted and precisely timed flow of materials to customers. Stock outs can cause havoc up and down the supply chain.

luctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to suppliers. It distorts demand information within the supply chain, with each stage having a different estimate of what demands looks like. These supply chain distortions is called THE BULL EFFECT.

Order batching Shortage gaming Free return policies Demand forecast inaccuracies

Larger orders result in more variance. Order batching occurs in an effort to reduce ordering costs, to take advantage of transportation economics such as full truck load economies, and to benefit from sales incentives. Periodic Ordering

Weekly, Fortnightly, Monthly etc. Creates spikes in order sizes, disrupting suppliers demand forecasts Benefits from transportation & distribution side

Push Ordering

Orders are pushed by sales personnel Done usually at monthly/quarterly sales review and demand estimates from sales team This results in uneven spread of customer orders resulting in the bullwhip effect

When demand exceeds supply, manufacture ration supplies to distributors. customers order more than they need during a period of short supply, hoping that the partial shipments they receive will be sufficient. This results in distributors ordering more than they need, to fulfill the demand. When the market cools down, orders start getting cancelled, excess inventory piles up, leading to the bullwhip effect. Real demand is never known in such market conditions. Most commonly effected is the IT hardware & telecom industry

Forward buys; discount sales; offer merchandise; coupons; rebates; end of season sales. Customers buy in bulk. But the buying pattern never matches the consumption pattern. This results in overstocking at the far ends of the supply chain and also results in idle capacity

Everybody in the chain adds a certain percentage to the demand estimates. The result is no visibility of true customer demand. Forecasting is based on order history from companys immediate customer Often, forecasts are made at whims & fancies of managers Upstream manager updates his/her demand forecasts based on customer demand variations, longer lead times, price fluctuations etc. Techniques like exponential smoothing creates bigger swings at the suppliers end

Overreaction to backlogs. Neglecting to order in an attempt to reduce inventory. No communication up and down the supply chain. No coordination up and down the supply chain. Delay times for information and material flow

Higher costs.

Lower revenues.

Stockouts and backlogs mean lost sales, as customers take their business elsewhere.

High carrying cost Stockout cost Distributors need to expedite orders (at higher shipping expenses) Manufactures need to adjust jobs (at higher setups and changeover expenses, higher labor expenses for overtime, perhaps even higher materials expenses for scarce components.) All entities in the supply chain must also invest heavily in outsized facilities (plants, warehouses) to handle peaks in demand, resulting in alternating under or overutilization.

Worse quality.

Poorer service.

Quirky, unplanned changes in production and delivery schedules disrupt and subvert control processes, begetting diverse quality problems that prove costly to rectify.

Irregular, unpredictable production and delivery schedules also lengthen lead time, causing delay and customer dissatisfaction

Minimize the cycle time in receiving projected and actual demand information. Establish the monitoring of actual demand for product to as near a real time basis as possible. Understand product demand patterns at each stage of the supply chain. Increase the frequency and quality of collaboration through shared demand information.

Minimize or eliminate information queues that create information flow delays. Eliminate inventory replenishment methods that launch demand lumps into the supply chain. Eliminate incentives for customers that directly cause demand accumulation and order staging prior to a replenishment request, such as volume transportation discounts.

Minimize incentivized promotions that will cause customers to delay orders and thereby interrupt smoother ordering patterns. Offer your products at consistently good prices to minimize buying surges brought on by temporary promotional discounts. Identify, and preferably, eliminate the cause of customer order reductions or cancellations.

Popularized in the late 1980s by Wal-Mart and Procter & Gamble, VMI became one of the key programs in the grocery industrys pursuit of efficient consumer response and the garment industrys quick response. Successful VMI initiatives have been trumpeted by other companies in the United States, including Campbell Soup and Johnson & Johnson, and by European firms like Barilla (the pasta manufacturer).

The supplierusually the manufacturer but sometimes a reseller or distributormakes the main inventory replenishment decisions for the consuming organization.

The supplier monitors the buyers inventory levels (physically or via electronic messaging) and makes periodic resupply decisions regarding order quantities, shipping, and timing. Transactions customarily initiated by the buyer (like purchase orders) are initiated by the supplier instead. The purchase order acknowledgment from the supplier may be the first indication that a transaction is taking place; an advance shipping notice informs the buyer of materials in transit.
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