Designing Responsive Supply Chains Business Essay Example

adopting delay tactics for innovative products. One method involves delaying the final packaging until the product is consumed. Another approach is assembly postponement, where standardized sub-components are prepared and the product is assembled only when ordered. Dell Computers follows a strategy of eliminating distributors and retailers to reduce delivery lead time.

In the case of fabrication delay, the final phase of fabrication is postponed until the point of ingestion. Other strategies used to create an efficient supply chain include modifications in product design. Developing standardization and utilizing modular design provide several examples of these.

Efficient Versus Responsive Supply Chains

Although advanced technologies such as EDI, the Internet, computer-assisted design, flexible manufacturing, and automated warehousing have been implemented in all stages of the supply chain, the performance of many supply chains has been unsatisfactory. The nature of demand for the company's products or services is a key factor in determining the best choice of supply-chain design. Efficient supply chains are most effective in environments where demand is highly predictable, such as demand for staple items purchased at grocery stores or demand for a package delivery service.

The supply chain's main focus is on the efficient flow of markets that businesses serve. The products or services that these businesses offer have long lifecycles, with infrequent new releases and a limited variety. These businesses primarily produce for markets where price is a crucial factor in securing orders. As a result, profit margins are low, and efficiency is prioritized. Therefore, the businesses' main competitive goals are low-cost operations, consistent quality, and timely delivery. On the other hand, responsive supply chains excel when businesses offer a wide range of products or services,

and demand is uncertain and high-stakes. These businesses may not know what products or services they need to provide until customers place orders. Additionally, demand for these businesses may be temporary, such as in the case of fashion goods.

The focus of antiphonal supply chains is minimizing lead time in order to avoid holding expensive inventories that will ultimately need to be sold at high discounts. This is the operating environment for mass customizers or companies that use the assemble-to-order operation strategy. These companies often need to introduce new products or services to stay competitive. However, because their products or services are innovative, they enjoy high profit margins. Typical competitive priorities include speed of development, fast delivery times, customization, volume flexibility, and high-performance design quality. It is important to keep in mind that the product life cycle plays a significant role in differentiating a new product with low demand from the same product becoming a stable product with reasonably good demand.

In the beginning, a fast response system is preferred, but later an efficient system needs to be used. Figure 30.7 illustrates the recommended efficient frontier zone by Chopra et Al. Figure 30.6 presents a block diagram of a supply chain with a supplier manufacturer, distributor, retailer, and customer. It has been noticed that the demand for goods continues to rise as we move up the supply chain from the retailer to distributor to manufacturer.

The Bullwhip effect refers to the increase in magnitude and fluctuation in demand as we move up the supply chain. This effect gets its name from the action of a whip, where each section further down the whip moves faster than the one

above it. The Bullwhip effect has a negative impact on the performance of the supply chain. This is because work-in-process inventory increases backwards along the supply chain, leading to unnecessary blockage of money and increased levels of inventory. There are various causes for the Bullwhip effect, and one logical reason can be speculated.

What happens is that a slight increase in retail merchants' orders, in order to maintain safety stock, leads to the distributor increasing his orders to the maker. This is done to also maintain safety stock, in case there is an increasing demand trend. As a result, the maker experiences a surge in demand and increases his procurement of materials from the supplier. Additionally, there is an increase in machines and labor. However, this increased production leads to an oversupply of goods. The retail merchant rejects the excess flow, leading the distributor to reduce his inflated increase in demand. With this decrease in demand, the maker has no choice but to sell the goods at a lower price through the distributor. In addition to this explanation, researchers such as Forrester, Lee, and Padmanabhan have examined the bullwhip effect.

The writers now provide their interpretation of the Lee-Padmanabhan theoretical model. There are four main reasons for the bullwhip effect:

Demand Forecast Updating:

One commonly used prediction method is exponential smoothing. In this technique, the forecast for the upcoming weeks is calculated by adding a correction factor to the previous forecast. Ft = Ft-1 + ??›‚ (Dt-1 - Ft-1).

Although the process of including the error (vitamin E) appears to be logical, the drawback of exponential smoothing lies in selecting a reasonable value for alpha. The value of ??›‚ ranges

from 0 to 1. If a manager chooses a value of ??›‚ that is too high, such as .6, they may overestimate the forecast and send an inflated figure of their prediction up the supply chain. This could disrupt the supply plans of the upstream member.

In a supply chain, every company typically engages in merchandise prediction for production scheduling. When a downstream operation places an order, the upstream manager interprets that information as a signal for future merchandise demand. Based on this signal, the upstream manager adjusts their demand forecasts and subsequently places orders with their own suppliers. Some authorities argue that demand signal processing significantly contributes to the bullwhip effect. For instance, if you are a manager responsible for determining how much to order from a supplier, you might use a simple method like exponential smoothing. The order you send to the supplier represents the quantity needed to replenish stocks in anticipation of future demands, as well as necessary safety stocks. When lead times are long, it is common to maintain weeks' worth of safety stocks. Consequently, the variation in order quantities over time can be much greater than that observed in the demand data.

MRP Based Order Placement:

The concept of Material Requirements Planning (MRP) involves placing orders with suppliers in specific batches and with defined lead times. MRP breaks down continuous demand into larger, manageable chunks. These systems are typically run on a monthly basis, resulting in monthly supply notifications. However, companies that deal with sluggish inventory may opt for a regular cyclic ordering schedule. One common challenge for companies that prefer frequent ordering is the economics of transportation. There are significant cost differences

between full truckload (FTL) and less-than-truckload (LTL) rates, incentivizing companies to maximize the truckload capacity when ordering from suppliers.

For the majority of goods, a month's supply or more can be obtained through a full truckload shipment. When a company deals with occasional erratic orders from its customers, it experiences the bullwhip effect.

Low prices offered by manufacturers:

Manufacturers and distributors occasionally offer special promotions such as price reductions, quantity discounts, coupons, and discounts. All of these promotions lead to fluctuations in prices.

Additionally, manufacturers provide trade deals, such as special discounts and delayed payment terms, to distributors and wholesalers. However, these promotions can be expensive for the supply chain. When a product's price is reduced through direct discounts or promotional strategies, customers tend to buy in larger quantities than necessary. Consequently, once the product's price returns to normal, customers stop purchasing until they have depleted their inventory.

As a result, the client's purchasing pattern does not reflect its typical consumption pattern, and the variation in purchasing quantities is much greater than the variation in consumption rates that normally occur, leading to the bullwhip effect.

Restriction of supply during production shortage

When demand exceeds supply, a manufacturer often reduces the quantity of its product supplied to the client. In this situation, the industry allocates the quantity in proportion to the amount ordered. Knowing that the manufacturer will decrease the supply when the product is in short supply, clients overstate their actual demands when placing orders.

Later on, when demand decreases, orders suddenly disappear and cancellations of orders occur, resulting in inventory fluctuation.

How to Counteract the Bullwhip Effect

Avoid Demand Forecast Updates

Normally, each member of a supply chain conducts some kind of prediction in connection

with its planning. Bullwhip effects occur when supply chain members process the demand input from their immediate downstream member in production. The demand input from the immediate downstream member is the result of input from their own downstream member. One solution to the repetitive processing of consumption data in a supply chain is to make demand data available at a downstream site for the upstream site. Therefore, both sites can update their forecasts with the same raw data, although the data is not as comprehensive as point-of-sale (POS) information from resellers which is the most reliable. Another solution is the direct selling program, which eliminates both the distributor and the retailer from the system, who are the main causes of the bullwhip effect.

Dell Computers directly sells its merchandise to consumers without using the distribution channel. Implementing a just-in-time (JIT) replenishment system is an effective way to eliminate the bullwhip effect caused by long supply lead times.

Introduce a JIT type system:

To reduce the bullwhip effect caused by order batching, companies should adopt strategies similar to those used by Japanese companies, such as smaller order batches or more frequent resupply. The high cost of transit is one reason why large order batches are often used.

The difference in costs between full truckloads and less-than-truckloads is significant, leading some manufacturers to use a technique called trim collection. This involves distributors ordering mixtures of different merchandise from the same manufacturer, resulting in a truckload containing various products instead of a full load of just one item. As a result, the frequency of orders for each merchandise is much higher in this case study.

Stabilize Prices

One way to control the bullwhip effect

caused by price changes is for manufacturers to implement a uniform wholesale pricing policy. This can reduce incentives for retail forward purchasing. The grocery industry has shifted towards everyday low prices (EDLP) or value pricing strategies.

Activity-based costing (ABC) provides a detailed breakdown of the costs associated with inventory, storage, special handling, premium transit, and other factors that were previously hidden. This allows companies to uncover the false advantage of promotions. ABC is therefore beneficial for implementing the Every Day Low Prices (EDLP) strategy.

Eliminating the need for reducing supply during shortage periods:

In situations where a provider faces a shortage, instead of allocating products based on orders, they can allocate in proportion to past sales records. This prevents customers from unnecessarily inflating their demand. Sharing capacity and inventory information helps reduce customer anxiety and, as a result, prevents false ordering.

Some industries collaborate with clients to place orders ahead of the sales season in order to improve their production capacity and scheduling based on better knowledge of product demand.

Various Initiatives in Supply Chain Management for Performance Improvement

Vendor Managed Inventory (VMI)

Vendor Managed Inventory (VMI) is a system designed to streamline operations at retail stores. It involves a continuous replenishment program that relies on information exchange between the retailer and the supplier, allowing the supplier to manage and restock inventory at the store or warehouse level. In this program, the retailer provides the supplier with the necessary information to maintain just enough inventory to meet customer demand. This enables the supplier to better anticipate and fulfill the amount of product it needs to produce or supply.

The manufacturer has access to the supplier's inventory data and is responsible for generating

purchase orders. VMI was initially implemented in the grocery industry, specifically between companies like Procter & Gamble (supplier) and Wal-Mart (distributor). However, other industries can also benefit from VMI, such as experiencing smoother demand, increased sales, lower inventory levels, and reduced costs associated with lost sales.

VMI Business Model

In the fulfillment process using VMI, the vendor/supplier typically performs the activities of forecasting and generating purchase orders, while the retailer takes note of these orders. Electronic data interchange (EDI) plays a crucial role in facilitating data communication within the VMI process.

The retailer sends sales and inventory data to the supplier through EDI or other B2B collaboration systems. The supplier uses this information to create purchase orders according to stock levels and fill rates. With the VMI process, the retailer no longer needs to predict and place orders as the supplier generates them. The supplier is responsible for creating and maintaining the stock plan for the retailer. Before shipping the goods to the retailer's store/warehouse, the supplier sends shipment notices.

Shortly after, the bill is sent from the seller to the retail merchant. Once they receive the merchandise, the retail merchant matches the bill and collects payment through their payment system. From the information above, we can conclude that VMI is a reverse replenishment model in which the supplier creates and fulfills demand. It is a systematic approach to transferring ownership of inventory to sellers while ensuring smooth material flow as needed. In VMI, the seller monitors the number of products shipped to distributors and retail stores.

Tracking allows the seller to determine if the distributor requires more supplies. Supplies are automatically restocked when they run low, and goods are

only sent when needed. This helps reduce inventory at the retail store's distribution center. Suppliers and buyers establish payment terms, refill frequency, and other terms through written contracts. VMI is made possible by information technology, which often includes a direct payment system. The most common technology used in VMI is electronic data interchange (EDI), a system traditionally conducted over a private network. Typically, the manufacturer uses EDI files provided by the distributor to compile an anticipated order. Once an electronic acknowledgement is received, the manufacturer then ships the order.

When the merchandise has been received, payment is made with an electronic fund transportation from the distributor's back. The Vendor Managed Inventory (VMI) concept provides improved visibility across the supply chain, helping manufacturers, suppliers, and retailers reduce inventory and improve production planning, inventory turnover, and stock availability. This information is available at a more detailed level and allows the manufacturer to be customer-specific in its planning.

Just In Time (JIT) -2

VMI results in outsourcing of the inventory planning activity to the supplier. On the other hand, JIT-2 takes it a step further where the supplier manages the complete production plans. Lance Dixon, the father of JIT-2, describes it as "This is the ultimate partnership plan for compatible client and provider because it is the next logical step in applying the management cycle to the value chain through time management within the supply chain. It represents the use of alliance and mobilization strategies with suppliers using in-plant vendor representatives to achieve breakthrough changes."

JIT system is built on the coordination between the buyer's needs and the seller's production capabilities. It does not lead to any significant breakthroughs or organizational transformations.

However, it does improve materials control across organizations. JIT-2 can be seen as a crucial driver for the macro logistics management model.

In essence, the JIT system guarantees a continuous supply of incoming materials based on demand, while JIT-2 ensures uninterrupted production from manufacturing lines. JIT-2 eliminates the need for separate sales forecasting activities from the supplier organization and purchasing planning activities from the buyer organization. Instead, both activities are performed simultaneously in the JIT-2 environment. This leads to more integrated and practical plans to achieve goals.

In most cases, it automatically and naturally creates the necessary coordination between two organizations without the need for follow-up. The concept of JIT-2 is built on a mutual trust relationship where the provider representative is authorized to use the company's purchase orders to place orders, effectively replacing the buyer and the provider's sales representative. In practice, the provider representative is employed full-time at the plant. They are able to attend any product design meeting for their product and have complete access to all relevant facilities, personnel, and data.

The time-consuming paperwork and administrative tasks are eliminated through JIT-2, which allows staff to focus on other skills like negotiating and sourcing. This improves the purchasing order arrangement and communication, saves time, and reduces material costs. These benefits are valuable for both the client and the provider, as JIT-2 serves as a solid basis for efficient EDI, paperwork, and administrative savings.

Material costs are continually reduced. Supplier forces work onsite and perform various planning and purchasing tasks as well. The daily interaction with the supplier leads to better understanding and fewer unexpected schedule changes. As a result, inventory is decreased because the supplier plans

directly from the clients MRP system in real time. The majority of remaining time is spent working with design technology staff, maximizing the potential for concurrent engineering and cost reduction. JIT-2 eliminates the problematic practice of "backdoor selling".

The companies that directly sell design technology products have been chosen jointly by purchasing and technology management. JIT-2 provides significant expertise and on-site support, influencing purchasing decisions for technology planning. Within the purchasing organization, supplier in-plant forces can be seen as additional staff to handle the workload of projects. Supplier in-plant representatives are given the combined authority of the materials planner, purchaser, and provider, resulting in a highly effective and empowered support function. Another benefit of JIT-2 for the provider is that they usually receive an "evergreen contract," which means there are no end dates and no need for rebidding.

Coupled with the electronic data interchange (EDI) links and information engineering exchanges, which are a part of the overall logistics package, the JIT-2 construct can provide a significant strategic advantage.

Multi-Tier Supplier Partnership

We have seen how the integration between provider and purchaser has evolved over time. Traditionally, the relationship between the buyer and provider was based on meeting fixed terms of purchase orders, specifically during the days of scientific inventory management. The trade involved a chain of independent companies, each adding separate value to items purchased from others. This was typically done through contracts.

Arm's length treaties were essential in market economics as buyers would purchase goods based on their monetary value and public presentation in the open market. If a better deal was available elsewhere, buyers would switch suppliers. However, these agreements hindered economic growth.

In fact, supply houses view

poor relationships with their clients as one of the most significant obstacles to their increased competitiveness. For example, both the US and European firms face higher costs compared to their Japanese competitors. The main challenge in reducing these costs was the lack of planning and not sharing data on product performance. Business relationships were solely based on short-term considerations.

Companies gradually transitioned to long-term and comprehensive contracts, such as VMI, ego enfranchisements, and eventually JIIT-type scenario.

However, these techniques no longer benefit both parties. Instead, companies are now leaning towards greater integration with their suppliers.

The demands placed on individual companies have become too significant to be met by working in isolation.

In order for a company to deliver maximum value to its clients, it must also obtain maximum value from its suppliers.

Furthermore, a company working independently cannot showcase its products as effectively as it can with the help of its suppliers.

• The drivers of partnership are summarized into the following points.
• Fierce competition worldwide is providing better quality, lower prices, and shorter response time for the same product or service.
• Smart and conscious consumers desire more value, reliability, after-sales service, and smaller quantities.
• Limitations of isolated efforts in creative product differentiation, cost-cutting methods, and productivity improvement areas.

KM Model Of Supplier Partnership

The model suggests step-by-step implementation of various elements in partnerships. The basis for this recommendation is the cost-benefit ratio for each step in this adoption. It states that the buyer company has four decision-making zones, namely:

As depicted in the figure, the models propose the phased implementation of trust, integration, investment, and alignment strategies. This will ensure that the operational risk factor always remains at its lowest during implementation. The model defines eight levels of partnership program as shown in the Table.

The text highlights the importance of the execution focal point and the active functional spheres, along with the type of resource shared with the provider. The success of the provider partnership execution relies entirely on the performance of the human resource involved. Davies (2002) discusses the global failures and causes of partnerships, stating that partnerships can be both advantageous and detrimental.

Many of these companies have a short lifespan, and those that do survive often face challenges. To make matters worse, they not only fail; they decline into strategic and managerial nightmares in which companies lose their products, customers, markets, marketing plans, strategies, core companies, and other intellectual property, and even the entire company. The essential conditions for these failures are the possession of privileged information and the opportunity for opportunistic behavior driven by self-interest. Furthermore, he argues that partnership is essentially a "win-win" concept based on the belief that the convergence of mutual and complementary interests, the sharing of privileged information, and intimate collaboration and cooperation can produce strategic results that exceed what either of the partners can achieve alone or through arm's length agreements. To achieve this, companies must implement win-win strategies,

win-win structures, and win-win operating environments that reduce a company's exposure to the debilitating and destructive effects of partner risk by countering the tendency for competition, zero-sum thinking, and business-as-usual mentality.

MEASURES FOR SUPPLY CHAIN PERFORMANCE

Supply chain performance measures aim to provide a quantitative basis for understanding the performance of the supply chain and indicate potential areas for implementing corrective measures.

Since improvement projects have a specific time delay, current period results may indicate the impact of previous efforts in efficiently managing the supply chain. Therefore, it is important to also understand the nature of current improvement efforts during the evaluation period. Consequently, supply-chain performance measures can include both post-process and process indices.

Fiscal indices for evaluating supply chain performance

Post-process indices rely on historical data to assess the performance of the supply chain function during the specified time period. These measures typically utilize information from annual company reports to calculate indices.

Inventory is the most representative point in the one-year study, post-process index supply concatenation public presentation compute stock list steps. The following steps for supply concatenation public presentation could be computed from annual studies. Traditionally, inventory turnover ratio and number of inventory turns are used to assess the performance of the supply chain. While these steps are useful for accounting and control functions, they do not provide significant assistance to the operations function. Conversely, number of days of inventory is a helpful measure for operations.

The text discusses how numbers can be used to analyze and improve business operations. For example, if a company has sales of Rs 300 million and an inventory investment of Rs 60 million, the inventory turnover ratio is 20 percent and

the number of inventory turns is five. Another way to express this is in terms of days, which in this case is 2.4 months. An inventory investment of 2.4 months indicates that the time it takes for various activities such as procurement, manufacturing, and distribution is within 2.4 months. To reduce inventory in this case, it is necessary to reduce lead time proportionately. Understanding the relationship between activities and inventory investment helps the operating forces to take appropriate actions to reduce lead time effectively.

Similarly, the company's recognition footings enjoyed by the clients, and their impact on the overall capital demands can be indicated to operational forces through DSO, DPO, and CCD. In order to obtain a detailed breakdown, one can calculate the number of days of inventory for each category (i.e. Raw Material, WIP, and Finished Goods) and link them to specific activities in the supply chain. The formula for adjusting each inventory category is provided below: Extracts from the annual reports for the year ended March 2011 and March 2012 of a manufacturing company are presented. Determine the relevant post-process indices of supply chain performance.

Are there any important deductions that can be made based on the calculation?

Infusions from one-year study

(All values are in crores,) Throughout the year, there is an increase in TID, DSO, and CCD. It is evident that the company is experiencing higher inventory pressure and has extended credit terms to its customers. Consequently, although finished goods inventory has decreased, there is a significant increase in DSO and CCD. This increase has led to a higher working capital requirement. The number of days of inventory for raw materials has notably increased during

the year.

Interestingly, in the same clip, the recognition term for providers has decreased. This decrease could be due to several factors, such as an increase in production or poor performance by providers resulting in an increase in safety stock.