The document discusses the importance of supply chain coordination in enhancing performance and reducing inefficiencies such as the bullwhip effect, which leads to fluctuating orders and increased costs. Key obstacles to achieving coordination are identified, including information processing, operational, pricing, incentive, and behavioral challenges. Strategies for improved coordination, such as aligning incentives, enhancing information accuracy, and implementing collaborative practices like vendor-managed inventories and collaborative planning, are also explored.

1. Name: Chaitrali Gijare

2. Content
1. Introduction
2. Lack of supply chain coordination
3. Bullwhip effect
4. The effect Lack of Coordination on Performance
5. Managerial levels to achieve coordination
6. Continuous Replenishment and Vendor-Managed Inventories
7. Collaborative Planning, Forecasting, and Replenishment
8. Achieving Coordination in Practice

3. Introduction
• A supply chain is a system of organizations, people, activities,
information, and resources involved in moving a product or service
from supplier to customer.
• Supply Chain coordination aims at improving supply chain
performance by aligning the plans and the objectives of individual
enterprises. It usually focuses on inventory management and
ordering decisions

4. Lack of supply chain coordination
• Supply chain coordination improves if all stages of the chain take
actions that are aligned and increase total supply chain surplus.
Coordination requires each stage of the supply chain to share
information and take into account the impact its actions on other
stages.
• A lack of coordination occurs either because different stages of the
supply chain have local objectives that conflict or because
information moving between the stages is delayed and distorted.

5. Example: Ford motor company
The company has thousands of
suppliers, from goodyear to
motorola, and each of these
suppliers has many suppliers in
turn. Not only does each stage focus
on its own objective, but
information often distorted as it
moves across the supply chain
because complete information is not
shared between stages.
Go Further

6. Bullwhip effect
• One outcome of lack of coordination is bullwhip effect. Fluctuation
in orders increase as they move up the supply chain from retailers to
wholesalers to manufacturers to suppliers.
• Demand information is distorted as it travels within the supply
chain, so that different stages have different perspectives and
estimates of the chain demand.
More the supply chains less is the coordination

7. Example: Procter & Gamble (P&G)
P&G observed the bullwhip effect in the
supply chain for pampers diapers. The
company found that raw material orders
from P&G to its suppliers fluctuated
significantly over time. Farther down the
chain, when sales at retail stores were
studied, the fluctuation, though present,
were small. It is reasonable to assume
that the consumers of the diapers at the
last stage of the supply chain used them
at a steady rate. Although consumptions
of the end product was stable, orders for
the raw material were highly variable,
increasing costa, and making it difficult
to match the supply and demand.

8. Example: Hewlett- Packard (HP)
Plastic
Aluminum
Copper
Silicon
Intel chips
Sony CD-ROM
Microsoft
Software
Seagate Hard
drives
Hewlett-Packard
CompUSA
Best Buy
Cdw.com
Ann
Angela
David
Paula
Office deport
Raw material Parts supplier Manufacturer Resellers Consumers
Supplier network
Channel of distribution
The supply chain

9. Example: Hewlett- Packard (HP)
HP also found that the fluctuation in orders
increased significantly as they moved from
the resellers up the supply chain to the printer
division to the integrated circuit division.
Once again, although product demand showed
some variability, orders placed with the
integrated circuit division were much more
variable. This made it difficult for HP to fill
orders on time and increased the cost of doing
so.

10. The effect Lack of Coordination on Performance
• Manufacturing cost: lack of coordination increases manufacturing
cost.
• Inventory cost: the lack of coordination increases inventory cost.
• Replenishment lead time: Lack of coordination increases the
Replenishment lead time.
• Transportation cost: Lack of coordination increases the
transportation cost.

11. • Labor cost for shipping and receiving: The Lack of coordination
increases labor cost for shipping and receiving.
• Level of product availability: The Lack of coordination decreases
the Level of product availability and results in more stockouts in
supply chain.
• Relationships across the supply chain: lack of coordination has a
negative effect on performance at every stage and thus hurts the
relationships among different stages of the supply chain.
The effect Lack of Coordination on Performance
Cut labor cost

12. Obstacles to Coordination in a Supply Chain
• Information Processing Obstacles
• Operational Obstacles
• Pricing Obstacles
• Incentive Obstacles
• Behavioral Obstacles
Find your own way

13. Information Processing Obstacles
• A supply chain with poorly organized or managed information
channels leads to deterioration in information quality
Example: information on customer demand cannot reach members in
a supply chain in a timely manner, or information is not available to
some members who might need it.

14. Operational Obstacles
• Certain practices such as placing and filing orders may have adverse
effects on coordination.
Example: orders of larger sizes, larger replenishment lead times,
rationing and shortages can all mean orders are unable to reflect true
customer demand.

15. Pricing Obstacles
• Certain pricing practices and factors that affect pricing are also ways
to detach orders from actual demand.
• Lot size-based discounts
• Price fluctuations (e.g., due to promotions) resulting in “forward
buying”
Example: a company may overbuy if its supplier offers a discount on a
larger lot of orders, or if its demand is exceptionally large, but
members in the upstream supply chain can't rely on these sales
figures to forecast future demand.

16. Incentives Obstacles
• When incentives offered to different stages or participants in a
supply chain lead to actions that increase variability and reduce total
supply chain profits – misalignment of total supply chain objectives
and individual objectives
• Local optimization within functions or stages of a supply chain
• Sales force incentives
Work and earn

17. Incentive Obstacles
• Example: Mangers at retail store like Kmart make all their
purchasing and inventory decisions to maximize kmart profiles, not
total supply chain profits.

18. Incentive Obstacles
• Example: Barilla offered its sales force incentives based on the
quantity based in the quantity sold to distributer during four- to six-
week promotion period.to maximize their bonus the sales force
urged distributors to buy more pasta toward the end of the
evaluation period. The sales force offered discounts. This increased
variability in the ordered pattern, with a jump in orders.

19. Behavioral Obstacles
• It is highly likely that members in the supply chain respond to local
situations and neglect root causes. They may blame each other for
fluctuations in local demand, resulting in loss of trust or even
turning themselves into mutual enemies.
I win you lose

20. Managerial levels to achieve coordination
1. Aligning goals and incentives
2. Improving information accuracy
3. Improving operational performance
4. Designing pricing strategies to stabilize orders
5. Building strategic partnerships and trust

21. Aligning Goals and Incentives
• Align incentives so that each participant has an incentive to do the
things that will maximize total supply chain profits
• Align incentives across functions
• Pricing for coordination
• Alter sales force incentives from sell-in (to the retailer) to sell-
through (by the retailer)

22. Example
• When Walmart pays HP for each printer sold and gives HP the
power to make replenishment decisions while limiting the amount of
printer inventory that can be held at a store. This setup improves
coordination because both parties gain if the supply of printers at a
store matches found.

23. Improving Information Accuracy
1. Sharing point of sale data
2. Collaborative forecasting and planning
3. Single stage control of replenishment
Continuous replenishment programs
Vendor managed inventory (VMI)
Team work. Better forecasting

24. Improving Operational Performance
1. Reducing replenishment lead time
• Reduces uncertainty in demand
2. Reducing lot sizes
• Computer-assisted ordering, B2B exchanges
• Shipping in sizes by combining shipments
• Technology and other methods to simplify receiving
• Changing customer ordering behavior
• Less-than-truckload
3. Rationing based on past sales and sharing information to limit
gaming
• “Turn-and-earn”
• Information sharing

25. Example
In japan, Toyota uses a single truck from a supplier to supply multiple
assembly plants, which enables managers to reduce the lot size received
from any one plant. In US, Toyota uses the approach to reduce the lot
sizes it receives from any one supplier.

26. Designing Pricing Strategies to Stabilize Orders
1. Encouraging retailers to order in smaller lots and reduce forward
buying
2. Stabilizing pricing
• Eliminate promotions (everyday low pricing: EDLP)
3. Building strategic partnerships and trust – easier to implement these
approaches if there is trust

27. Firms who implemented EDLP

28. Building Strategic Partnerships and Trust in a
Supply Chain
1. Designing a Relationship with Cooperation and Trust
2. Managing Supply Chain Relationships for Cooperation and Trust
3. Trust-based relationship
• Dependability
• Leap of faith
4. Cooperation and trust work because:
• Alignment of incentives and goals
• Actions to achieve coordination are easier to implement
• Greater information sharing results

29. Continuous Replenishment and Vendor-Managed
Inventories
• In Continuous Replenishment programs CRPs, the wholesaler or
manufacturer replenishes a retailer regularly based on POS data.
• It ay be managed by the supplier, distributor or a third party.
• CRPs driven by actual withdrawal of inventory from retail
warehouses rather than POS data at the store level.
POS data

30. POS Data

31. • Tying CRP systems to warehouse withdrawals is easier to
implement, and retailers are often more comfortable sharing data at
this level.
• Vendor-Managed Inventories(VMI), VMI systems are part of the
ECR (Efficient Consumer Response) initiative to provide the end
customer with the greatest value, best service and maximum variety
of products. To this end, total supply and demand synchronization is
needed throughout the supply chain by means of data interchanges
among the parties involved in providing the customer service
(Vendor/Supplier, Distributor, and Logistics Operator).
• The information exchanged is subjected to mathematical analyses of
varying complexity, allowing accurate demand forecasts to help
process orders and ensure delivery of the right amount of product at
the right time
Continuous Replenishment and Vendor-Managed
Inventories

32. • VMI requires the retailer to share demand information with the
manufacturer to allow it to make inventory replenishment decisions.
This helps improve manufacturer forecasts and better match
manufacturer production with customer demand. VMI can allow a
manufacturer to increase profit- as well as profits for the entire
supply chain- if both retailer and manufacturer margins are
considered when making inventory decisions.
Continuous Replenishment and Vendor-Managed
Inventories

33. Vendor-Managed Inventories

34. VMI has implemented with significant success by kmart, fred meyer,
Frito-lay, Campbell soup and P&G

35. Collaborative Planning, Forecasting, and
Replenishment
CPFR is “ business practice that combines the intelligence of multiple
partners in the planning and fulfillment of customer demand.”
Sellers and buyers in a supply chain may collaborate along any or all of
the following four supply chain activities:
• Execution
• Strategy and planning
• Demand and supply management
• Analysis

36. Example
A successful CPFR implementation has involved Henkel, a German
detergent manufacture, and Eroski, a Spanish food retailer.

37. Another successful implementation involved is Johnson & Johnson and
Superdrug
Example

38. CPFR: Indian Examples
Raheja Group’s HyperCITY

39. CPFR: Indian Examples
Raheja Group’s HyperCITY
HyperCITY has been among the pioneers in adopting CPFR practices
in India and synchronized the operations in more than 50 of its stores to
improve information flow and coordination through the distribution
channel.

40. CPFR: Indian Examples
SHOPPERS STOP

41. CPFR: Indian Examples
According to Arun O. Gupta, chief technology officer SHOPPERS
STOP, this steps has resulted in the following benefits:
• Increase of 25-30 percent in food sales
• Decrease in 2 percent in stock levels
• Increase revenue
• Lower inventory-holding cost, positively impacting company
profitability
• Higher availability of product
• Improved brand loyalty
• Elimination of expired stocks
• Reduction in write-offs
• Longer shelf life for consumption
• Assured customer retention with improved shopping experience

42. CPFR: Indian Examples
Godrej Group’s Godrej Consumer Products Limited

43. CPFR: Indian Examples
Godrej Group’s Godrej Consumer Products Limited
• Through an innovative adaption of the CPFR philosophy to Indian
conditions and naming it as CPFar, it has implemented its IT
initiative “Sampark” to obtain distributor-level inventory details on
daily basis and arrange regular replenishment. This ensures
increased customer service levels while reducing both the inventory
levels and the working capital requirement at the distributor end. At
the same time, it enables improved forecasting and production
planning at the manufacturing levels.
• The company has extended the collaborative arrangements through
backward integration with the suppliers under its project “Sahyog”.

44. Achieving Coordination in Practice
• Quantify the bullwhip effect
• Get top management commitment for coordination
• Devote resources to coordination
• Focus on communication with other stages
• Try to achieve coordination in entire supply chain network
• Use technology to improve connectivity in the supply chain
• Share the benefits of coordination equitably

45. References
• Sunil Chopra, Peter Meindl and Dharam Vir Kalra. Supply chain
management. Strategy, planning and operation. Pp: 284-304
• Wikipedia