1. Supply Chain Management Managing Material Waiting Time
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

2. Outline A key to matching supply and demand
Levers for improved matching of supply and demand
The bullwhip effect: Barilla
The impact of aggregation
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

3. The Supply Chain The Procurement or supply system The Operating System
The Distribution System
Raw Material
supply points
Movement/
Transport
Storage
STORAGE
PLANT 1
PLANT 2
PLANT 3
WAREHOUSE
MARKETS
Manufacturing
Finished Goods A B C
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

4. Key Financial Indicators of Supply Chain Performance
Return on Assets
Net Present Value …
These are LAGGING indicators. What must the supply chain do to achieve this?
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

5. Costs of not Matching Supply and Demand
Cost of overstocking
liquidation, obsolescence, holding
Cost of under-stocking
lost sales and resulting lost margin
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

6. Accurately Matching Demand with Supply is the Key Challenge: Inventories
... by 1990 Wal-Mart was already winning an important technological war that other discounters did not seem to know was on. “Wal-Mart has the most advanced inventory technology in the business and they have invested billions in it”. (NYT, Nov. 95).
WSJ, Aug. 93: Dell Computer stock plunges. The company was sharply off in forecast of demand resulting in inventory writedowns.
BW 1997:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

7. Mass Customization Mass Production Mass Customization
Produce goods and services at low enough cost that nearly everyone can afford them
Mass Customization
Produce goods and services at affordable prices with enough variety and customization that nearly everyone can find exactly what they want .
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

8. Implications Markets have become increasingly heterogeneous
Demand for individual products is very unstable
Along with shorter development cycles comes shorter product life cycles
How to provide increased variety and keep costs down?
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

9. A Key to Matching Supply and Demand
When would you rather place your bet? A B C D
A: A month before start of Derby
B: The Monday before start of Derby
C: The morning of start of Derby
D: The lead horse is an inch from the finish line
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

10. Push/Pull View of Supply Chains
Procurement,
Manufacturing and
Replenishment cycles
Customer Order
Cycle
Customer
Order Arrives
PUSH PROCESSES
PULL PROCESSES
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

11. Role of Inventory in the Supply Chain
Cost
Availability
Responsiveness
Efficiency
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

12. Demand uncertainty and forecasting
Forecasts are usually (always?) wrong
A good forecast includes a measure of forecast error, e.g., standard deviation
The forecast horizon must at least be as large as the lead time. The longer the forecast horizon, the less accurate the forecast
Aggregate forecasts tend to be more accurate than disaggregate forecasts.
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

13. Demand uncertainty and forecasting
Year Demand Forecast Error
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

14. Uncertainty Uncertainty Customer Information Demand Uncertainty
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S. Chopra/Operations/Supply Chain

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18. Information Uncertainty: Barilla Spa
Why are order sizes at Pedrignano so much more variable than those at Cortese?
What can Barilla do to improve coordination in its supply chain?
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

19. The Bull-Whip Effect: Causes
Rational and Optimizing Players in Supply Chain
Order Batching
Price Variations
Sales Force Incentives
Demand Signal Processing
Rationing Game
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

20. Reducing Batch Size Wal-Mart: 3 day replenishment cycle
Seven Eleven Japan: Multiple daily replenishment
P&G: Mixed truck loads
Efforts required in:
Transportation (Cross docking)
Information
Receiving
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

21. Quantity Discounts Quantity Discounts Cost/Unit $3 $2.96 $2.92 5,000
Notes:
5,000
10,000
Order Quantity
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

22. Trade Promotions Trade Promotions Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

23. Trade promotions Trade Promotions Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

24. The Bullwhip Effect: Countermeasures
Order Batching
Reduce setup cost, aggregation during transport, switch to volume based quantity discounts (rolling horizon)
Price Variations
Every day low pricing, sell-thru based promotions
Sales Force Incentives
Incentives based on sell-thru, rolling horizon
Demand Signal Processing
Supply chain visibility, collaborative forecasting and planning
Rationing Game
Turn and earn
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

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27. Tackling Demand Uncertainty
The longer the forecast horizon, the less accurate the forecast
Supply Chain Goal: Quick Response
Aggregate forecasts tend to be more accurate than disaggregate forecasts
Supply Chain Goal: Accurate Response
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

28. Quick Response Shorten supply lead time
Increase replenishment frequency
Coordinate supply chain
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

29. A Key to Accurate Response: Inventory Pooling
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

30. Accurate Response Examples
Information centralization: Wal-Mart, The Gap, mail order
Specialization: W.W. Grainger
Product substitution: Dell, Category Management
Notes:
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

31. Accurate Response at Dell
Geographical aggregation: One location in the US;
three locations worldwide
SKU aggregation: Postponement and component
commonality
Manufacture common
components
Final Assembly and delivery
Customer order
arrives
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

32. Hewlett Packard: Postponement
Vancouver DC
Sale
Localization at Vancouver No
Postponement
(unit cost
cheap)
Notes:
Localization at DC
Postponement
(unit cost
expensive)
S. Chopra/Operations/Supply Chain
S. Chopra/Operations/Supply Chain

33. Improved Matching of Supply and Demand
Notes:
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S. Chopra/Operations/Supply Chain