Consumer Sales at Retailer Consumer demand Retailer's Orders to Wholesaler Retailer Order Wholesaler's Orders to Manufacturer Wholesaler Order Manufacturer's Orders with Supplier Manufacturer Order

 Demand forecast updating ◦ Amplification depends on lead time and forecasting method  Order Batching ◦ Upstream parties place orders with suppliers less frequently than they receive customer orders ◦ Uses inventory to meet frequent customer orders and only replenishes when inventory is low due to costs of ordering/holding and quantity discounts  Price Fluctuations ◦ Change downstream party purchasing behavior  Rationing and Shortage Gaming ◦ Downstream parties try to maximize order fulfillment by padding orders

 Information Sharing: ◦ Point of sales systems ◦ Electronic Data Interchange (EDI) ◦ Radio Frequency Identification Tags  Channel Alignment ◦ Centralized supply chain: single stage control of replenishment ◦ Vendor-managed inventory ◦ Drop shipping ◦ Cross-docking; logistics outsourcing ◦ Order fulfillment based on past sales ◦ Collaborative planning, forecasting and replenishment (CPFR)  Operational Efficiency & Lead-time Reduction ◦ Postponement ◦ Standardization ◦ Every day low pricing

Low High Price Responsiveness Customer Need Implied Demand Uncertainty Functional Products: Detergent, Gas Innovative Products: High Fashion, AppleWatch

 Responsiveness: the ability to ◦ Respond to wide ranges of quantities demanded ◦ Meet short lead times ◦ Handle a large variety of products ◦ Build highly innovative products ◦ Meet a very high service level  Efficiency: ◦ Minimize the cost of making and delivering a product to the customer

Efficient ChainResponsive Chain Primary GoalLow CostQuick Response Pricing StrategyLower MarginsHigher Margins Manufacturing Strategy High UtilizationMaintain Capacity Flexibility Inventory StrategyMinimize InventoryMaintain Safety Inventory Lead Time StrategyReduce if possibleAggressively Reduce Transportation StrategyLow Cost ModesResponsive Modes Supplier StrategySelect based on Cost and Quality Select based on Speed, Flexibility and Quality Supply Chain Coordination Collaborate; centralize; share info to cut costs Achieve speed and flexibility

Tactic  1. Reduce total number of suppliers  Certify suppliers  Ask for JIT delivery from key suppliers  Involve key suppliers in new product design  Develop software linkages to suppliersResults  Average 20% reduction in 5 years  Almost 40% of all companies surveyed were themselves currently certified  About 60% ask for this; about 54% do this  Almost 80% claim to do this  About 50% claim this; about 15% more than have EDI links to suppliers

© 2011 Pearson Education, Inc. publishing as Prentice Hall Table 11.6 Typical Firms Benchmark Firms Lead time (weeks)158 Time spent placing an order42 minutes15 minutes Percentage of late deliveries33%2% Percentage of rejected material1.5%.0001% Number of shortages per year4004