Transcript Bounded Rationality

Welcome –MIS 05G11389
Supply Chain Management
Systems
Jonathan D. Wareham
[email protected]
Agenda
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When firms cooperate, compete and
exchange
problems with traditional supply chain
management (SCM)
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problems this creates for
manufacturers
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problems this creates for their
suppliers
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problems this creates for consumers
Supply Chain Management Software
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Who id doing it
What is working, what is not…
Quiz
? days a box of cereal spends in the supply
chain?
Distorted information causes total
inventory in the pharmaceutical supply
chain to exceed ? days. $? in savings to be
realized.
$ ? wasted because of poor coordination in
the food industry supply chain
$ ? Boeing write-off in 1997 due to supply
chain inefficiencies
Quiz
A box of cereal spends 104 days in the
supply chain
Distorted information causes total
inventory in the pharmaceutical supply
chain to exceed 100 days. $11 billion in
savings to be realized
Poor coordination wasting $ 30 billion
annually in the food industry
$ 2.6 billion Boeing write-off in 1997 due
to supply chain inefficiencies
Defining SCM
SCM is the coordination of material,
information and financial flows
between and among enterprises
participating in the demand fulfillment
process for a product or service.
Spans multiple organizations and
industries
Coordination and integration of flows
essential for the modern enterprise
Gates: Business @ The Speed of Thoug
A digital nervous system is the corporate,
digital equivalent of the human nervous
system, providing a well-integrated flow of
information to the right part of the
organization at the right time. A digital
nervous system consists of the digital
processes that enable a company to
perceive and react to its environment, to
sense competitor challenges and
customer needs, and to organize timely
responses.
Gates: Business @ The Speed of Thoug
A digital nervous system requires a
combination of hardware and software; it's
distinguished from a mere network of
computers by the accuracy, immediacy, and
richness of the information it brings to
knowledge workers and the insight and
collaboration made possible by the
information.
Scott McNealy on Gates’ View
He is right - I would be very nervous if my
systems were based on their platforms and
products!
RFID Tags
RFID the Supply Chain
Tag
Antenna
- Transmits
- Coiled
identification antenna of
data to a
reader
reader
creates
magnetic
field with
coiled
antenna
of tag
Reader
- Transmit
data to
middleware
- Associates
tag info with
product info
Middleware Supply chain
execution
- Backend SCE
- Process
or ERP
information
from reader systems
receives
- Filters data
Information
- Sends data
to backend
servers
Where can RFID add value?
 From Manufacturing
 Through Distribution
 Transportation
 Into a Store’s Back Room
Inventory
 On the Shelf
 At the Cash
Register
 Out the Door
as an anti-theft
device
RFID Video
Product Recall
 Remember Ford and Firestone?
 TREAD Act
 RFID pilots underway to track tires
from manufacturer to
vehicle
Medicine
Counterfeits
SCM Software –Who?
What does SCM software do?
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Factory Scheduling
Bar Code Warehouse Management
Transportation Routing and Scheduling
Inter Organizational Systems
Collaborative Planning & Optimization
Multi – echelon optimization
E-Procurement & Marketplaces
Supplier Contract Management
RFID Management Systems
 Beer Game video
Traditional supply chain obsolescence
Direction of flow of demand
Direction of flow of product
Point of differentiation
Distribution costs
Market mediation costs
Raw Material
vendor
Tier-II
Suppliers
Tier-I
Suppliers
Manufacturers
Distribution
Centers
Retailers
Customer
Zones
The Bullwhip Effect
Upstream amplification of demand variation
Progression of a brushfire to an inferno!
Customer
Retailer
Distributor
Factory
Tier 1 supplier
Equipment
Machine Tools at Bullwhip Tip
50%
-100%
Data from United States, 1961-1991 (GDP, vehicle production, and machine tool orders
% change GDP
% change vehicle production index
% change net new orders machine tool industry
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
-50%
1963
0%
1961
% Change, year to year
100%
80
70
60
50
40
30
20
10
0
Week
21
19
17
15
13
11
9
7
5
Factory
Distributor
Wholesaler
Retailer
Customer
3
1
Order
The Diaper Supply Chain!
Ripples to tidal waves
Stockpiles and stockouts
Insufficient or excessive capacities
Higher costs
What is the Problem?
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The “bullwhip effect” - four key causes
 Demand signal processing
 Currently only order information is shared (not actual sales)
 Need to instead share POS retail data (sell-through data)
 Order batching (retailers only order periodically)
 Infrequent access to demand information
 Order rationing
 retailers order popular items excessively
 Hoarding of scare products (inflate demand order of scarce
product to ensure that you have it on-hand)
 Special Promotions
 Alter the normal pattern of product demand from customer;
so that it’s impossible to understand the “true” demand
Interorganizational Systems: CRP
BIG RETAILER
< 3% stock outs
Warehouse 1
< 14days inventory
P&G
Warehouse 2
Before CRP
Budget
BIG RETAILER
Actual
Warehouse 1
P&G
Warehouse 2
•Volume discounts
•New product promos
•Here and now discounts
•Trade marketing
•Bonuses….
Interorganizational Systems
 Integration of supply chain across
companies
 Degrees of integration: information,
process, property rights
 Increased efficiencies through
1. optimal production/logistics planning
2. lower inventories
3. increased flexibility
4. customer satisfaction
 Oh brave new world, this is
wonderful…But…
But….
 Look out for proprietary systems with
high specificity Lock-in
 Sharing processes is optimal from
logistics viewpoint, but remember
‘knowledge of time and place’
 Additional information acquired by
one party can reduce bargaining
power of other. Competitive industries
like retailing, grocery and electronics
has demonstrated many examples of
this….
Solutions to Improve Sales Forecasting
 Vendor Managed Inventory
 Collaborative Forecasting and
Replenishment
 Quantity-Flexible contracts
 (as contrasted with rigid
contracts)
 Buyer allowed to make limited changes to
forecast information, which is then shared
with suppliers. Supplier only ships
enough for the “newest” forecast. Why is
this helpful?
Types of Shared Information
Inventory information
Transition to echelon-based inventory systems
Upstream companies can determine when and
what to produce
Downstream companies can improve service
levels with less inventory
The Apple-Fritz Supplier Hub
Fritz manages entire inbound logistics for Apple
Consolidates freight, clears customs, manages the
hub, manages local transportation to Apple
FLEX system
Types of Shared Information
Sales Data
Variance of orders greater than that of
sales
The “bullwhip effect” - four key causes
Demand signal processing
 Move to sharing sell-through data and POS
retail data
Order batching
 Infrequent access to demand information
Order rationing
 Hoarding of scare products
Promotions
Types of Information Sharing
Production/Delivery Schedule
Improves due-date estimation
Expand planning horizons
Other Information Sharing
Performance metrics
Capacity information
Models of Information Sharing
Information Transfer Model
Transfer information to the other who maintains
the database for decision-making
XML, Web Services, EDI, FAX
EDI Limitations
Multiple industry-specific standards
Rigid design for transaction processing
Rigid text formats
Batch-oriented
Installation costs
Challenges
Aligning incentives of different partners
Channel Management Example
Trust and cooperation
Confidentiality of shared information
Anti-trust implications, such as possible price
fixing behavior
Timeliness and accuracy of information
Processes, not technology..
Technological constraints