1. Supply Chain Integration
Designing & Managing The Supply Chain
Chapter 5
Zhang Xiaohui

2. Case: Modern Book Distribution
Seven regional warehouses, services major bookstore chains and smaller independent booksellers
Bookselling industry change
superstores: require MDB ship directly to stores
online booksellers: establish their own DC
Opportunities and challenges for MDB

3. Contents Introduction Push, pull, push-pull systems
Demand-driven strategies
Impact of the Internet on supply chain strategies
Distribution strategies
Central versus Decentralized Control
Central versus local facilities
Summary

4. Introduction Supply chain integration Purpose
coordinate activities across the supply chain, including coordinating production, transportation, inventory decisions and more generally, integrating the front-end of the supply chain – customer demand, to the back-end of the supply chain – the production and manufacturing portion.
Purpose
reduce cost
increase service level
reduce the bullwhip effect
better utilize resources
effectively respond to changes in the market place

5. Push, pull, push-pull systems
Push-based supply chain
production and distribution decisions are based on long-term forecasts.
React slow and large variability lead to:
Inability to meet changing demand patterns
Excessive inventories
Larger and more variable production batches
Unacceptable service levels
Product obsolescence

6. Push, pull, push-pull systems. cont
Pull-based supply chain
production and distribution are demand driven.
Effect:
decrease lead times
decrease inventory of retailers
decrease variability in the system
decrease inventory of manufacturer
Lead times too long, difficult to implement pull-based systems
Difficult to take advantage of economies of scale in manufacturing and transportation

7. Push, pull, push-pull systems. cont
Push-pull supply chain
some stages operated in a push-based manner, the remaining stages employ a pull-based strategy. (PC, delayed differentiation)
The interface: push-pull boundary
Push strategy
Pull strategy
Push-pull
boundary
Raw
materials
End
customer
Supply chain time line

8. Push, pull, push-pull systems. cont
Aggregate forecasts
PC manufacturer
components: push-based
assembly: pull-based
Postpone/delay differentiation
produce a generic or family product: push-based
specific end-products: pull-based

9. Push, pull, push-pull systems. cont
Identifying the appropriate supply chain strategy Ⅰ
computer Ⅱ
furniture Ⅳ
Books & CDs Ⅲ
grocery L H
Economies
of scale
Demand uncertainty
pull
push

10. Push, pull, push-pull systems. cont
Box Ⅱ
high demand uncertainty: pull
important economies of scale: push
furniture industry: production-pull; delivery-push
Box Ⅳ
low demand uncertainty: push
low economies of scale: pull
books & CDs: push-pull strategy
automobile: push-based strategy
failure of GM’s push-pull strategy
pull
push Ⅰ Ⅱ Ⅳ Ⅲ L H
Economies of scale
Demand uncertainty

11. Push, pull, push-pull systems. cont
Implementing a push-pull strategy in the supply chain:
Portion
Push
Pull
Portion of SCM
Relatively small uncertainty
High uncertainty
Objective
Minimize cost
Maximize service level
Complexity
High
Low
Focus
Resource allocation
Responsiveness
Lead time
Long
Short
Processes
Supply chain planning
Order fulfillment
Buffer inventory
output
input

12. Demand-driven strategies
Demand forecast
use historical demand to develop long-term estimates of expected demand
Demand shaping
determines the impact of various marketing plans (promotion, rebates)
Accuracy – forecast error: standard deviation

13. Demand-driven strategies .cont
Increase forecast accuracy
push-pull boundary
market analysis, demographic and economic trends
optimal assortment
incorporate collaborative planning and forecasting processes
Supply and demand management
allocate marketing budgets and associate resources
impact of deviations from forecast demand
impact of changes in supply chain lead times
impact of competitors’ promotional activities

14. Impact of the Internet on supply chain strategies
B2B increase from $43 billion in 1998 to $1.3 trillion in 2003
Living.com
Furniture.com
Peapod
Amazon.com
Dell computers
Cisco

15. Impact of the Internet .cont
E-business
a collection of business models and processes motivated by Internet technology and focusing on improvement of extended enterprise performance
E-commerce
the ability to perform major commerce transactions electronically
E-commerce is only part of e-bussiness
Internet technology is the force behind the business change
The focus in e-business is on the extended enterprise (B2B, B2C)

16. Impact of the Internet .cont
Grocery industry
Peapod change from a pure pull strategy to a push-pull strategy
most on-line grocers have failed
low level of demand uncertainty, high economies of scale
a push-based strategy is more appropriate
Book industry (Amazon.com)
a pure pull system in the first few years(Ingram Book Group)
a push-pull system (several warehouses)
Retail industry (Wal-Mart, Kmart, Target)
distribution and warehousing infrastructure in place
high-volume, fast-moving products: push strategy
low-volume, slow-moving products: push-pull strategy

17. Impact of the Internet .cont
Transportation and Fulfillment
Traditional
E-fulfillment
Supply chain strategy
Push
Push-pull
Shipment
Bulk
Parcel
Reverse logistics
Small part of the business
Important and highly complex
Delivery destination
Small number of stores
Large number of geographically dispersed customers
Lead times
Relatively long
Relatively short

18. Distribution strategies
Direct shipment
directly from the supplier to the retail stores without going through DCs
Warehousing (classical strategy)
warehouses keep stock and provide items to customers
Cross-docking
distribute continuously from the suppliers through warehouses to customers (keep items no more than 10 to 15 hours)

19. Direct shipment Advantages
retailer avoids the expenses of operating a distribution center
lead times are reduced
Disadvantages
risk-pooling effects are negated
transportation costs increase
Common when:
Fully loaded trucks
Lead time is critical (grocery industry)

20. Cross-docking Warehouses function as inventory coordination points
Store often less than 12 hours
Difficult to manage:
advanced information systems
fast and responsive transportation system
forecasts are critical, sharing of information
effective only for large distribution systems
Wal-Mart

21. Distribution strategies .cont
Factors influence distribution strategies:
customer demand and demand variability
service level
transportation costs
inventory costs
Comparison
Strategy
Attribute
Direct shipment
Cross-docking
Inventory at warehouses
Risk pooling
Take advantage
Transportation costs
Reduced inbound costs
Holding costs
No warehouse costs
No holding costs
Allocation
Delayed

22. Distribution strategies .cont
Transshipment
shipment of items between different facilities at the same level in the SCM to meet some immediate need
Retailer level
ship the items either to the store where the customer originally tried to purchase or to the customer’s home
Conditions
appropriate information systems
reasonable shipment costs
same owner
Take advantage of risk-pooling
one can view inventory in different retail outlets

23. Centralized versus decentralized control
Lead to
Information access
Decentralized control
Local optimization
Only its own information
Centralized control
Global optimization
Sharing information

24. Central versus local facilities
Safety stock
Overhead
Economies of scale
Lead time
Service
Transportation costs
Local
High
Unrealized
Short
Better
Inbound
Outbound
central
Low
Realized
Long

25. Summary Push-pull strategies Demand-driven strategies
Internet revolutionize SCM
Distribution strategy