Chapter 6: Supply ChainIntegration6-1
6-1 Chapter 6: Supply Chain Integration
6.1IntroductionEffectiveSCM impliesEfficientintegration ofsuppliers,manufacturers,warehousesand storesCoordinate activitiesacrossthe supplychainImprove performance:reduce cost,increase servicelevel.reducethebullwhipeffect.betterutilizeresources,andeffectivelyrespondto changes inthemarketplace.Challenges canbemetbyintegratingthe front-end,customer demandto the back-end,production and manufacturing portion of thesupplychainVarious supply chain integration strategies:Push,pull,push-pullstrategyMatching products and industrieswithsupply chainstrategiesDemand-driven supply chain strategiesThe impact of the Internet on supply chain integration6-2
6-2 6.1 Introduction ⚫ Effective SCM implies: ⚫ Efficient integration of suppliers, manufacturers, warehouses, and stores. ⚫ Coordinate activities across the supply chain ⚫ Improve performance: reduce cost, increase service level, reduce the bullwhip effect, better utilize resources, and effectively respond to changes in the market place. ⚫ Challenges can be met by integrating: ⚫ the front-end, customer demand, ⚫ to the back-end, production and manufacturing portion of the supply chain. ⚫ Various supply chain integration strategies: ⚫ Push, pull, push–pull strategy. ⚫ Matching products and industries with supply chain strategies. ⚫ Demand-driven supply chain strategies. ⚫ The impact of the Internet on supply chain integration
6.2 Push, Pull, Push-PullSystemsPushand Pull traditional categoriesofmanufacturingoperationsMore recenthybrid strategy of combiningthetwo,Push-Pullsystems6-3
6-3 6.2 Push, Pull, Push-Pull Systems ⚫ Push and Pull traditional categories of manufacturing operations ⚫ More recent hybrid strategy of combining the two, Push-Pull systems
Push-BasedSupplyChainsProductionand distribution decisions based onlong-termforecastsManufacturer demand forecastsbased onorders receivedfrom the retailer's warehousesLonger reaction time to changing marketplaceInability to meet changing demand patternsObsolescence ofsupply chaininventoryasdemandforcertainproductsdisappears.Variability of orders received muchlarger than thevariability in customer demand due to the bullwhipeffect.Excessive inventories due to theneed for large safetystocksLargerand more variable production batchesUnacceptableservicelevelsProductobsolescence6-4
6-4 Push-Based Supply Chains ⚫ Production and distribution decisions based on long-term forecasts. ⚫ Manufacturer demand forecasts based on orders received from the retailer’s warehouses. ⚫ Longer reaction time to changing marketplace: ⚫ Inability to meet changing demand patterns. ⚫ Obsolescence of supply chain inventory as demand for certain products disappears. ⚫ Variability of orders received much larger than the variability in customer demand due to the bullwhip effect. ⚫ Excessive inventories due to the need for large safety stocks ⚫ Larger and more variable production batches ⚫ Unacceptable service levels ⚫ Product obsolescence
BullwhipEffectinPush-BasedSupply ChainsLeads to inefficient resource utilizationPlanning and managing are much more difficult.Not clear how a manufacturer should determineproduction capacity? Transportation capacity?Peakdemand?Averagedemand?Results:HighertransportationcostsHigher inventory levels and/or highermanufacturingcostsmore emergency production changeovers6-5
6-5 Bullwhip Effect in Push-Based Supply Chains ⚫ Leads to inefficient resource utilization ⚫ Planning and managing are much more difficult. ⚫ Not clear how a manufacturer should determine production capacity? Transportation capacity? ⚫ Peak demand? ⚫ Average demand? ⚫ Results: ⚫ Higher transportation costs ⚫ Higher inventory levels and/or higher manufacturing costs ⚫ more emergency production changeovers
Pull-BasedSupplyChainsProductionanddistribution demanddrivenCoordinated with true customer demand rather thanforecast demandfirm does not hold any inventory and only responds tospecificordersIntuitively attractive:Reduced lead times through theabilityto betteranticipate incoming ordersfromtheretailersReduced inventory sinceinventory levelsincreasewithlead timesLessvariability inthesystemDecreased inventory at the manufacturer due to thereductioninvariability6-6
6-6 Pull-Based Supply Chains ⚫ Production and distribution demand driven ⚫ Coordinated with true customer demand rather than forecast demand ⚫ firm does not hold any inventory and only responds to specific orders. ⚫ Intuitively attractive: ⚫ Reduced lead times through the ability to better anticipate incoming orders from the retailers. ⚫ Reduced inventory since inventory levels increase with lead times ⚫ Less variability in the system ⚫ Decreased inventory at the manufacturer due to the reduction in variability
ImplementationofPull-BasedSystemsOften difficultto implementwhen lead times are longimpracticaltoreacttodemandinformationmore difficult to take advantage of economies of scaleAdvantages and disadvantages of push and pullsupplychains:new supply chain strategy that takes the best of bothPush-pull supply chain strategy6-7
6-7 Implementation of Pull-Based Systems ⚫ Often difficult to implement ⚫ when lead times are long ⚫ impractical to react to demand information. ⚫ more difficult to take advantage of economies of scale ⚫ Advantages and disadvantages of push and pull supply chains: ⚫ new supply chain strategy that takes the best of both. ⚫ Push–pull supply chain strategy
Push-Pull StrategySome stagesof the supplychainoperatedinapush-basedmanner·typically the initial stagesRemainingstagesemployapull-basedstrategy.Interfacebetweenthepush-basedstagesand the pull-based stages is the push-pull boundary6-8
6-8 Push-Pull Strategy ⚫ Some stages of the supply chain operated in a push-based manner ⚫ typically the initial stages ⚫ Remaining stages employ a pull-based strategy. ⚫ Interface between the push-based stages and the pull-based stages is the push– pull boundary
Supply Chain TimelinePush-pullboundaryPushstrategyPullstrategyRawEndMaterialsCustomerSupplychain time lineFIGURE6-8:Push-pullsupplychains6-9
6-9 Supply Chain Timeline FIGURE 6-8: Push-pull supply chains
General StrategyMake a part of the product to stock -genericproductThe point where differentiationhas to beintroduced is the push-pull boundaryBasedonextentofcustomization,thepositionoftheboundary on thetimelineisdecided6-10
6-10 General Strategy ⚫ Make a part of the product to stock – generic product ⚫ The point where differentiation has to be introduced is the push-pull boundary ⚫ Based on extent of customization, the position of the boundary on the timeline is decided