The nature of the supply chain
Understand what a supply chain is
Gain an appreciation of the behaviour of supply chains Understand some of the issues with highly dispersed supply chains
Supply Chain Management concerns…
The relationships and flows between different operations Links between value-adding upstream and downstream
processes All issues concerning product / service delivery from raw materials to end user Purchasing / Procurement
Physical Distribution / logistics
Materials management and inventory control Customer fulfilment - meeting the needs of the end customer
The next time you need milk…
Think: All you’ve had to do is go to the local shop. The milk is there to buy every time. But somebody must have delivered that milk to the shop: Starting from the beginning, someone must have raised a cow, got it pregnant, looked after the calf and milked the cow. Then, someone would have transported the milk to a dairy, pasteurised it, bottled it and distributed it to your local shop. Essentially, an lot of work must have taken place, across a network of firms – the supply chain, to deliver you a reliable supply of milk.
2nd tier Suppliers 1st tier Suppliers
1st tier Customers 2nd tier Customers
Distribution Customer Fulfilment
Supply chain management is concerned with the flow of information as well as the flow of products and services
Supply Chain Performance Benefits
Benefits of looking at the whole supply chain:
• Puts the operation into its competitive context • Helps to identify the key players • Shifts emphasis to the long term • Sensitizes the operation to macro changes
Advantages of taking a whole supply chain perspective
H ow much of the network should the operation seek to own?
Location of the operation
Where should the operation be located?
Helps in making the 3 key supply network design decisions.
Balance of capacity
How should capacity be managed in the long-term?
The Bullwhip Effect
In late 2008, a number of major car manufacturers in the UK were
left with thousands of unsold cars, due to a downturn in customer demand. This is an example of a phenomenon known as the Bullwhip Effect.
Bullwhip Effect Example (P & G)
Lee et al., 1997, Sloan Management Review
The Bullwhip Effect – An Example
Prodn. Stock Prodn. Stock
Prodn. Stock Prodn. Stock 100 80
100 100 100 90 90 95
1 2 3 4 5 6
100 100 100 60 60 120
100 100 100 80 80 100
100 100 100 100 95 95 95 95 95 95 95 95 95
100 95 95 95 95 95
60 100 95 3
90 95 95 2
95 95 95 1
95 95 95
90 95 95 95
95 95 95 95
95 95 95 95
ALL OPERATIONS HOLD ONE PERIOD’S STOCK
What does the bullwhip effect illustrate?
That stakeholders along the supply chain Have different and frequently conflicting objectives. Often operate independently. That the supply network can oscillate in very large swings
as each organization in the supply chain seeks to solve the problem from its own perspective.
Consequences of the Bullwhip Effect
Stockouts and backlogs = lost
High carrying costs Stockout costs Distributors need to expedite orders
Erratic production & delivery
schedules disrupt and subvert control processes, causing diverse quality problems which may prove costly to rectify.
(at higher shipping costs)
Manufacturers need to adjust jobs (at
Irregular, unpredictable production
higher setups and changeover expenses, higher labor expenses for overtime, perhaps even higher materials expenses for scarce components.)
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