Coordination in a supply chain

the presentation is about managing coordination between the supply chains for fast movement of resources.factors affecting the coordiantion in supply chain.

1. Coordination in a Supply C hain Name: Chaitrali Gijare

2. Content Introduction Lack of supply chain coordination Bullwhip effect The effect Lack of Coordination on Performance Managerial levels to achieve coordination Continuous Replenishment and Vendor-Managed Inventories Collaborative Planning, Forecasting, and Replenishment 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 o ther 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 C hain 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. E xample : 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. T his 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 Aligning goals and incentives Improving information accuracy Improving operational performance Designing pricing strategies to stabilize orders 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 Sharing point of sale data Collaborative forecasting and planning Single stage control of replenishment Continuous replenishment programs Vendor managed inventory (VMI) Team work. Better forecasting

24. Improving Operational Performance 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 I nventories 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 I nventories

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 I nventories

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 G erman detergent manufacture, and Eroski , a S panish food retailer.

37. Another successful implementation involved is Johnson & Johnson and S uperdrug 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

46. Thank you