Transcript Supply chain integration
SUPPLY CHAIN INTEGRATION
Designing & Managing The Supply Chain Chapter 5 Zhang Xiaohui
Case: Modern Book Distribution
• • Seven regional warehouses, services major bookstore chains and smaller independent booksellers Bookselling industry change superstores: require MDB ship directly to stores online booksellers: establish their own DC Opportunities and challenges for MDB
Contents
Introduction Push, pull, push-pull systems Demand-driven strategies Impact of the Internet on supply chain strategies Distribution strategies Central versus Decentralized Control Central versus local facilities Summary
Introduction
• • • • •
Supply chain integration
coordinate activities across the supply chain, including coordinating production, transportation, inventory decisions and more generally, integrating the front-end of the supply chain – customer demand, to the back-end of the supply chain – the production and manufacturing portion.
Purpose reduce cost increase service level reduce the bullwhip effect better utilize resources effectively respond to changes in the market place
Push, pull, push-pull systems
Push-based supply chain
• • • • • production and distribution decisions are based on long-term forecasts.
React slow and large variability lead to: Inability to meet changing demand patterns Excessive inventories Larger and more variable production batches Unacceptable service levels Product obsolescence
Push, pull, push-pull systems.
cont • • • • •
Pull-based supply chain
production and distribution are demand driven.
Effect: decrease lead times decrease inventory of retailers decrease variability in the system decrease inventory of manufacturer Lead times too long, difficult to implement pull-based systems Difficult to take advantage of economies of scale in manufacturing and transportation
Push, pull, push-pull systems.
cont
Push-pull supply chain
some stages operated in a push-based manner, the remaining stages employ a pull-based strategy. (PC, delayed differentiation) The interface: push-pull boundary Push-pull boundary Raw materials Push strategy Pull strategy Supply chain time line End customer
Push, pull, push-pull systems. cont
Aggregate forecasts
PC manufacturer
components: push-based assembly: pull-based
Postpone/delay differentiation
produce a generic or family product: push-based specific end-products: pull-based
Push, pull, push-pull systems.
cont Identifying the appropriate supply chain strategy pull Demand uncertainty H Ⅰ computer push L Ⅳ Books & CDs L pull Ⅱ furniture Ⅲ grocery H push Economies of scale
Push, pull, push-pull systems.
cont • • • • • • • • Box Ⅱ high demand uncertainty: pull important economies of scale: push furniture industry: production-pull; delivery-push Box Ⅳ low demand uncertainty: push low economies of scale: pull books & CDs: push-pull strategy Demand uncertainty pull H Box Ⅱ automobile: push-based strategy failure of GM’s push-pull strategy push L L pull Ⅰ Ⅳ Ⅱ Ⅲ Economies of scale H push
Push, pull, push-pull systems.
cont Implementing a push-pull strategy in the supply chain:
Portion
Portion of SCM Objective Complexity Focus Lead time Processes Buffer inventory
Push
Relatively small uncertainty Minimize cost High Resource allocation Long Supply chain planning output
Pull
High uncertainty Maximize service level Low Responsiveness Short Order fulfillment input
Demand-driven strategies
Demand forecast use historical demand to develop long-term estimates of expected demand Demand shaping determines the impact of various marketing plans (promotion, rebates) Accuracy – forecast error: standard deviation
Demand-driven strategies .
cont
• • • • • • • • Increase forecast accuracy push-pull boundary market analysis, demographic and economic trends optimal assortment incorporate collaborative planning and forecasting processes Supply and demand management allocate marketing budgets and associate resources impact of deviations from forecast demand impact of changes in supply chain lead times impact of competitors’ promotional activities
Impact of the Internet on supply chain strategies
B2B increase from $43 billion in 1998 to $1.3 trillion in 2003 Living.com
Furniture.com
Peapod Amazon.com
Dell computers Cisco
Impact of the Internet .
cont
E-business a collection of business models and processes motivated by Internet technology and focusing on improvement of extended enterprise performance E-commerce the ability to perform major commerce transactions electronically E-commerce is only part of e-bussiness Internet technology is the force behind the business change The focus in e-business is on the extended enterprise (B2B, B2C)
Impact of the Internet .
cont
• • • • • • • • • Grocery industry Peapod change from a pure pull strategy to a push-pull strategy most on-line grocers have failed low level of demand uncertainty, high economies of scale a push-based strategy is more appropriate Book industry (Amazon.com) a pure pull system in the first few years(Ingram Book Group) a push-pull system (several warehouses) Retail industry (Wal-Mart, Kmart, Target) distribution and warehousing infrastructure in place high-volume, fast-moving products: push strategy low-volume, slow-moving products: push-pull strategy
Impact of the Internet .
cont
Transportation and Fulfillment Supply chain strategy Shipment Reverse logistics Delivery destination
Traditional
Push Bulk Small part of the business Small number of stores Lead times Relatively long
E-fulfillment
Push-pull Parcel Important and highly complex Large number of geographically dispersed customers Relatively short
Distribution strategies
Direct shipment directly from the supplier to the retail stores without going through DCs Warehousing (classical strategy) warehouses keep stock and provide items to customers Cross-docking distribute continuously from the suppliers through warehouses to customers (keep items no more than 10 to 15 hours)
Direct shipment
Advantages retailer avoids the expenses of operating a distribution center lead times are reduced Disadvantages risk-pooling effects are negated transportation costs increase Common when: Fully loaded trucks Lead time is critical (grocery industry)
Cross-docking
Warehouses function as inventory coordination points Store often less than 12 hours • • • • Difficult to manage: advanced information systems fast and responsive transportation system forecasts are critical, sharing of information effective only for large distribution systems Wal-Mart
Distribution strategies .
cont
• • • • Factors influence distribution strategies: customer demand and demand variability service level transportation costs inventory costs Comparison
Strategy Attribute
Risk pooling Transportation costs Holding costs Allocation
Direct shipment
No warehouse costs
Cross-docking
Reduced inbound costs No holding costs Delayed
Inventory at warehouses
Take advantage Reduced inbound costs Delayed
Distribution strategies .
cont
• • • Transshipment shipment of items between different facilities at the same level in the SCM to meet some immediate need Retailer level ship the items either to the store where the customer originally tried to purchase or to the customer’s home Conditions appropriate information systems reasonable shipment costs same owner Take advantage of risk-pooling one can view inventory in different retail outlets
Centralized versus decentralized control
Decentralized control Centralized control
Lead to
Local optimization Global optimization
Information access
Only its own information Sharing information
Central versus local facilities
Local central
Safety stock
High
Overhead
High
Economies of scale
Unrealized
Lead time
Short
Service
Better Low Low Realized Long
Transportation costs
Inbound Outbound Inbound Outbound
Summary
Push-pull strategies Demand-driven strategies Internet revolutionize SCM Distribution strategy