Coordination in a supply chain

1. WELCOME
TO OUR
PRESENTATION

2. COORDINATION
IN A
SUPPLY CHAIN

3. Supply chain coordination

4. LACK OF SUPPLY CHAIN COORDINATION
Objectives of different stages conflict or
Information moving between stages is distorted

5. For Example
Lack of coordination in Ford Motor Company

6. BULLWHIP EFFECT
The bullwhip effect is a concept for
explaining inventory fluctuations or
inefficient asset allocation as a result of
demand changes as you move further up
the supply chain.
Bullwhip Effect on customer to manufacturers
customer

7. THE BULLWHIP EFFECT
Fluctuations in orders increase as they move up the supply chain from customer to
retailers to wholesalers to manufacturers to supplier.(shown figure1)
Distorts demand information within the supply chain, where different stages have
very different estimates of what demand looks like.
Results in a loss of supply chain coordination.

8. For Example
The Bullwhip Effect in Proctor & Gamble (Pampers)

9. The Effect on Performance
2.Inventory Cost
3.Replenishment lead time
4.Transportation Cost
1. Manufacturing cost
5.Labor Cost for Shipping & receiving
6.Level of product availability
7.Relationships across the supply chain

10. Manufacturing Cost
Inventory Cost
increases
Satisfy a stream of orders that is more variable
than customer demand .
Respond to the increased variability.
increases
Manufacturer has to carry a higher level of
inventory.

11. Replenishment Lead Time
Transportation Cost
increases
There are times when the available
capacity & inventory can’t supply the
orders comings in.
Transportation requirements fluctuate
significantly over time.increases

12. Labor Cost for Shipping and Receiving
Level of Product Availability
Relationships across the Supply Chain
increases
Labor requirements fluctuate with orders.
Decreases
Decreases
Large fluctuations in orders make it difficult for
manufacturer to supply all distributor & retailer
orders on time.
Has a negative effect on performance at every stage.

13. The Effect on Performance
Performance Measure Impact of the lack of Coordination
Manufacturing Cost Increases
Inventory Cost Increases
Replenishment lead time Increases
Transportation cost Increases
Shipping & receiving Cost Increases
Level of product availability Decreases
Profitability Decreases

14. OBSTACLES TO COORDINATION IN
A SUPPLY CHAIN
Factors that lead to either
local optimization by
different stages of the
supply chain or an increase
in information delay ,
distortion , and variability
within the supply chain is an
obstacles to coordination.

15. Five Major Obstacles in a Supply Chain
1.Incentive obstacles
2.Information processing obstacles
3.Operational obstacles
4.Pricing obstacles
5.Behavioral obstacles

16. Incentive obstacles
Incentive obstacles occur in
situation when incentives
offered to different stages or
participants in a supply chain
lead to actions that increase
variability and reduce total
supply chain profits

17. Information Processing Obstacles
Information processing obstacles
occur when demand information
is distorted as it moves between
different stages of the supply
chain, leading to increased
variability in orders within the
supply chain.

18. OPERATIONAL OBSTACLES
Actions taken in the
course of placing and
filling
orders lead to an
increase in variability.
• Ordering in Large Lots
• Large Replenishment Lead Times
• Rationing and Shortage Gaming

19. PRICING OBSTACLES
Situations in which
the pricing policies
for a product lead
to an increase in
variability of orders
placed.
Lot Size-Based Quantity
Discounts Price Fluctuations

20. BEHAVIORAL OBSTACLES

21. Managerial Level to
Achieve Collaboration
Aligning goals and incentives
Designing pricing strategies to stabilize orders
Improving information visibility and accuracy
Improving operational performance
Building strategic partnership and trust

22. Aligning goals and incentives
Coordination is coming up with
mechanisms that allow the
creation of a win-win scenario in
which the supply chain grows
along with the profits for supply
chain stages.
A decision is aligned with the
firm’s overall objective and should
be evaluated based on their effect
on profitability and not total cost
to focus on supply chain surplus.
Aligning Goals Across the supply chain
Aligning Incentives Across the Function

23. Aligning goals and incentives
A manufacture can use lot-size
based quality discounts to achieve
coordination for commodity
products. It can use buy-back,
revenue sharing that maximize
supply chain profits.
Managers should link incentives
for the sales force to sell the units
to the end customer and not to
the retailer.
Pricing For Coordination
Altering Sales Force Incentives from Sell-In
to Sell-Through

24. Improving Information Visibility and
Accuracy
Sharing Customer Demand Data
Implementing Collaborative Forecasting and
Planning
Designing Single-Stage Control of Replenishment
If retailers share POS data, all supply chain stages can forecast
demand based on customer demand that reduces Bullwhip
effect.
Onec point-of-sale data are shared and different stages must
forecast and plan jointly to achieve coordination.
A single stage controls replenishment decisions can diminish
information distortion.

25. Improving Operational Performance
Reducing replenishment lead time

26. Reducing lot sizes

27. Rationing based on past sales and sharing
information to limit gaming
“Turn-and-earn”
Information sharing

28. Designing Pricing Strategies
to Stabilize Orders
• Encouraging retailers to order in smaller lots and reduce
forward buying
• Moving from lot size-based to volume-based quantity
discounts
• Stabilizing pricing
• Building strategic partnerships and trust

29. Background
Designing a Relationship
with Cooperation and
Trust
Managing Supply Chain
Relationships for Cooperation
and Trust

30. Building Trust into a
Supply Chain Relationship
Deterrence-based view
Process-based view
Neither view holds exclusively in all situations

31. Designing a Relationship
with Cooperation and Trust
Assessing the value of the relationship and its contributions
Identifying operational roles and decision rights for each party
Creating effective contracts
Designing effective conflict resolution mechanisms

32. Continuous Replenishment and
Vendor-Managed Inventories
Replenishment decision made
by a single entity visibility and
a common forecast that drives
order across the supply chain.

33. Two Common Industry Practices
That a Single Point
Continuous Replenishment Programs(CRP)
Vendor-Managed Inventory(VMI)

34. Continuous Replenishment
Programs(CRP)
Manufacturer Retailer
CRP may be managed
by the supplier ,
distributor or a third
party.

35. Vendor-Managed Inventory(VMI)
Retailer Manufacturer
In many instances of
VMI, the inventory is
owned by the supplier
until it is sold by the
retailer.

36. COLLABORATIVE PLANNING,
FORECASTING, AND REPLENISHMENT
“A business practice that
combines the intelligence
of multiple partners in the
planning and fulfillment of
customer demand.”

37. Sellers and buyers in a supply chain may collaborate along
any or all of the following four supply chain activities
2. Demand and supply management
1. Strategy and planning
3. Execution
4. Analysis

38. Four Common CPFR Scenarios
4. Collaborative assortment planning
1. Retail event collaboration
2. DC replenishment collaboration
3. Store replenishment collaboration

39. Store Replenishment
Collaboration
Trading partners
collaborate on store
level point of sales
forecasts

40. Collaborative Assortment
Planning

41. Organizational and Technology
Requirements for Successful CPFR
Requires changes in the organizational structure and to be scalable.
Requires the implementation of appropriate technology.
Requires manufacturers to set up cross functional, customer specific
teams.

42. Risks and Hurdles for a CPFR
Implementation
Large scale sharing of information.
Changes its scale or technology.
Inability to foster a collaborative culture
across the partner’s organizations.
Partners attempt store level collaboration.
Demand information shared with partners.

43. ACHIEVING COORDINATION IN
PRACTICE
1. Quantify the bullwhip effect
2. Get top management commitment for coordination
3. Devote resources to coordination
4. Focus on communication with other stages
5. Try to achieve coordination in the entire supply chain network
6. Use technology to improve connectivity in the supply chain
7. Share the benefits of coordination equitably

44. SUMMARY OF LEARNING OBJECTIVES
2. Identify obstacles to coordination in a supply chain
4. Understand the different forms of CPFR that are possible in a supply chain
1. Supply chain coordination and the bullwhip effect and their impact on supply
chain performance
3. Managerial levers that help achieve coordination in a supply chain

45. THANK
YOU