Managerial Levers to Achieve Coordination in a Supply Chain

Having identified obstacles to coordination, we now focus on actions a manager can take to help overcome the obstacles and achieve coordination in the supply chain. The following managerial actions increase total supply chain profits and moderate information distortion: Aligning goals and incentives Improving information visibility and accuracy Improving operational performance Designing pricing strategies

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Continuous Replenishment and Vendor-Managed Inventories in a Supply Chain

Information distortion can be dampened by practices that assign replenishment responsibility across the supply chain to a single entity. Replenishment decisions made by a single entity ensure visibility and a common forecast that drives orders across the supply chain. Two common indus­try practices that assign a single point of responsibility are continuous replenishment programs

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Collaborative Planning, Forecasting, and Replenishment in a Supply Chain

The VICS Association has defined CPFR as “a business practice that combines the intelligence of multiple partners in the planning and fulfillment of customer demand.” In this section, we describe CPFR and some successful implementations. It is important to understand that success­ful CPFR can be built only on a foundation in which the two

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Achieving Coordination in a Supply Chain in Practice

Quantify the bullwhip effect. Companies often have no idea that the bullwhip effect plays a significant role in their supply chain. Managers should start by comparing the variability in the orders they receive from their customers with the variability in orders they place with their suppliers. This helps a firm quantify its own contribution

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The Role of Cycle Inventory in a Supply Chain

A lot or batch size is the quantity that a stage of a supply chain either produces or purchases at a time. Consider, for example, a computer store that sells an average of four printers a day. The store manager, however, orders 80 printers from the manufacturer each time he places an order. The

Estimating Cycle Inventory-Related Costs in a Supply Chain in Practice

When setting cycle inventory levels in practice, a common hurdle is estimating the ordering and holding costs. Given the robustness of cycle inventory models, it is better to get a good approxi­mation quickly rather than spend a lot of time trying to estimate costs exactly. Our goal is to identify incremental costs that change

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Economies of Scale to Exploit Fixed Costs in a Supply Chain

To better understand the trade-offs discussed in this section, consider a situation that often arises in daily life—the purchase of groceries and other household products. These may be purchased at a nearby convenience store or at a Costco (a large warehouse club selling consumer goods), which is generally located much farther away. The fixed

Aggregating Multiple Products in a Single Order in a Supply Chain

As we have discussed earlier, a key to reducing lot size is the reduction of the fixed cost incurred per lot. One major source of fixed costs is transportation. In several companies, the array of prod­ucts sold is divided into families or groups, with each group managed independently by a sepa­rate product manager. This

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Economies of Scale to Exploit Quantity Discounts in a Supply Chain

We now consider pricing schedules that encourage buyers to purchase in large lots. There are many instances in business-to-business transactions in which the pricing schedule displays econ­omies of scale, with prices decreasing as lot size increases. A discount is lot-size based if the pricing schedule offers discounts based on the quantity ordered in a

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Short-Term Discounting: Trade Promotions in a Supply

Manufacturers use trade promotions to offer a discounted price to retailers and set a time period over which the discount is effective. For example, a manufacturer of canned soup may offer a price discount of 10 percent for the shipping period December 15 to January 25. For all pur­chases within the specified time horizon,

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Managing Multiechelon Cycle Inventory in a Supply Chain

A multiechelon supply chain has multiple stages and possibly many players at each stage. The lack of coordination in lot sizing decisions across the supply chain results in high costs and more cycle inventory than required. The goal in a multiechelon system is to decrease total costs by coordinating orders across the supply chain.

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Delivery Strategy at MoonChem

John Kresge, vice president of supply chain, was very con­cerned as he left the meeting at MoonChem, a manufac­turer of specialty chemicals. The year-end meeting evaluated financial performance and discussed the fact that the firm was achieving only two inventory turns a year. A more careful look revealed that more than half the inven­tory

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Pricing and Delivery at KAR Foods

NZ All Natural Ice Cream (NAN) began in 1984 as a small shop in Christchurch, which is the largest city in the South Island of New Zealand. With NAN specializ­ing in producing ice cream with all natural ingredients without any artificial colors or flavors, it is highly regarded by the public concerned about health,

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The Role of Safety Inventory in a Supply Chain

Safety inventory is inventory carried to satisfy demand that exceeds the amount forecast. Safety inventory is required because demand is uncertain, and a product shortage may result if actual demand exceeds the forecast demand. Consider, for example, Bloomingdale’s, a high-end department store. Bloomingdale’s sells purses purchased from Gucci, an Italian manufacturer. Given the high

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Factors Affecting the Level of Safety Inventory in a Supply Chain

The appropriate level of safety inventory is determined by the following two factors: The uncertainty of both demand and supply The desired level of product availability As the uncertainty of supply or demand grows, the required level of safety inventories increases. Demand for milk at a supermarket is quite predictable. As a result, supermarkets

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Determining the Appropriate Level of Safety Inventory in a Supply Chain

We now discuss the relationship between safety inventory and the CSL and fr. In this section, we restrict our attention to the continuous review policy. The periodic review policy is discussed in detail in Section 12.6. The continuous review policy consists of a lot size Q ordered when the inventory on hand declines to

Impact of Supply Uncertainty on Safety Inventory in a Supply Chain

In our discussion to this point, we have focused on situations with demand uncertainty in the form of a forecast error. In many practical situations, supply uncertainty also plays a significant role. The impact of supply uncertainty is well illustrated by the impact of the grounding of MSC Napoli on the south coast of

Impact of Aggregation on Safety Inventory in a Supply Chain

In practice, supply chains have varying degrees of inventory aggregation. For example, Barnes & Noble sells books from retail stores with inventory geographically distributed across the country. Amazon, in contrast, ships all its books from a few facilities. Seven-Eleven Japan has many small convenience stores densely distributed across Japan. In contrast, supermarkets tend to

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Impact of Replenishment Policies on Safety Inventory in a Supply Chain

In this section, we describe the evaluation of safety inventories for both continuous and periodic- review replenishment policies. We highlight the fact that periodic review policies require more safety inventory than continuous review policies for the same level of product availability. To simplify the discussion, we focus on the CSL as the measure of

Managing Safety Inventory in a Multiechelon Supply Chain

In our discussion so far, we have assumed that each stage of the supply chain has a well-defined demand and supply distribution that it uses to set its safety inventory levels. In practice, this is not true for multiechelon supply chains. Consider a simple multiechelon supply chain with a sup­plier feeding a retailer that

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