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Chapter 10

BU435 Chapter 10: BU435 Chapter 10

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Hamidreza Faramarzi

Chapter 10: Coordination in a Supply Chain Lack of Supply Chain Coordination and the Bullwhip Effect Supply chain coordination: all stages of the chain take actions that are aligned increase total supply chain surplus o Requires each stage to share info take into account the effects of its actions on other stages Lack of coordination results when: 1. Objectives of different stages conflict 2. Info moving bw stages is delayeddistorted Bullwhip Effect: Fluctuations in orders increase as they move up the SC from retailers to wholesalers to manufacturers to suppliers o Distorts demand information within the supply chain o Results from a loss of supply chain coordination Effect on performance: o Lack of coordination increases variability and hurts supply chain surplus o Impact on costs: Manufacturing cost (increase) Inventory cost (increase) Replenishment lead time (increase) Transportation cost (increase) Labor cost for shipping and receiving (increase) Level of product availability (decreases) Relationships across the supply chain (decreases) KEY POINT: LACK OF COORDINATION HURTS BOTH RESPONSIVENESS COST IN SC BY MAKING IT MORE EXPENSIVE TO PROVIDE A GIVEN LEVEL OF PRODUCT AVAILABILITY Obstacles to Coordination in a Supply Chain Incentive Obstacles Occur when incentives offered to different stagesparticipants in SC lead to actions that increase variability reduce total supply chain profits o Local optimization within functions or stages of a supply chain o Sales force incentives Information Processing Obstacles When demand info is distorted as it moves bw different stages of the SC, leading to increased variability in orders wi the SC o Forecasting based on orders and not customer demand o Lack of information sharing E.g. planned promotion Operational Obstacles Occur when placing filling orders lead to an increase in variability o Ordering in large lots: Majority of orders arrive in certain focalpoint period o Large replenishment lead times o Rationing and shortage gaming Pricing Obstacles When pricing policies for a product lead to an increase in variability of orders placed o Lotsize based quantity discount: Resulting large lots magnify the bullwhip effect o Price fluctuations: High shipments during the peak period followed by a period of low shipments from the manufacturer (Significant Forward Buying) Behavioral Obstacles Problems in learning within organizations that contribute to information distortion
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