Value of Information in Supply Chain Management - Copy

8/2/2019 Value of Information in Supply Chain Management - Copy

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Group Members-


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The integration activities taking place among a network of

facilities that procure raw materials , transform them into

intermediate goods and then final product and deliver

product to customer through distribution channels.

Introduction


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Supply Chain Stages


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Inventory levels:

Orders:

Production:

Delivery status:

Role of Information in Supply Chain


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The Bullwhip Effect

The tendency of the variability of orders rates to

increase as they pass through the levels of a supply

chain towards producers and raw material suppliers.


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Effect of Order Variability


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Factors Contributing to Increase in Variability

in the Supply Chain

Demand

Forecasting

Inflated OrdersPrice

Fluctuation

Batch Ordering

Lead Time


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Impact of Information on Bullwhip Effect

Types of Information:

1. Centralized Demand Information-

Provide each stage of supply chain with completeinformation on the actual customer demand.

Creates more accurate forecasts rather than orders

received from the previous stage.


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Cont

Types of Information:

2. Decentralized Demand Information-

Retailer does not make its forecast informationavailable to the remainder of the supply chain.

Other stages have to use the order information.


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Methods for Coping with the Bullwhip Effect

1. Reducing Uncertainty:

2. Reducing Variability:

3. Lead Time Reduction:

4. Strategic Partnership:


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1. Centralizing information will reduce variability

2. Upstream stages would benefit more

3. Unfortunately, information sharing is a problem in manyindustries

4. Inflated forecasts are a reality

5. Forecast information is inaccurate and distorted-

Forecasts inflated such that suppliers build capacity.

Suppliers may ignore the forecasts totally.

Information Sharing And Incentives


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Capacity Reservation Contract:

Buyer pays to reserve a certain level of capacity at thesupplier

A menu of prices for different capacity reservations

provided by supplier

Buyer signals true forecast by reserving a specific capacitylevel

Contractual Incentives to Get True Forecasts from

Buyers


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Advance Purchase Contract:

Supplier charges special price before building capacity

When demand is realized, price charged is different

Buyers commitment to paying the special price revealsthe buyers true forecast

Cont


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Three Golden Rule for Forecast are:

The forecast is always wrong.

The longer the forecast horizon, the worse the forecast.

Aggregate forecasts are more accurate.

Effective Forecast


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Judgmental Methods: involve the collection of expertsopinions.

Market Research Methods: involve qualitative studiesof consumer behavior.

Time-Series Methods: mathematical methods.

Causal Methods: forecasts are generated based on avariety of system variables.

Categories of Forecast


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What is the purpose of the forecast? How is it to be used?

What are the dynamics of the system for which theforecast will be made?

How important is the past in estimating the future?

Selection of Effective Forecast Technique


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1. Many interconnected systems:

Manufacturing, storage, transportation, and retailsystems.

The outputs from one system within the supply chainare the inputs to the next system.

Trying to find the best set of trade-offs for any onestage isnt sufficient.

Need to consider the entire system and coordinatedecisions.

Information for the Coordination of Systems

Selection of Effective Forecast Technique


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2. Systems are not coordinated:

Each facility in the supply chain does what is best for

that facility The result is local optimization.

Cont


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1. Issues:

Who will optimize?

How will the savings obtained through the coordinated

strategy be split between the different supply chainfacilities?

2. Methods to address issues:

Supply contracts

Strategic partnerships

Global Optimization


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It means meeting the customers demand from available

retailer inventory.

1. Inventory Pooling:

Dealers have to order before demand is realized

Centralized distribution system preferred mostly

Locating Desired Products


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2. Distributor Integration:

Distributors are an important partner in the supply

chain

Distributors have a wealth of information about

customers needs and wants

Successful manufacturers can use this information

when developing new products and product lines Distributors are integrated so that expertise and

inventory located at one distributor is available to

others.

Cont


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It is define as the time between placing an order and the

receipt of goods ordered.

Supply chain design that reduce lead-time:

1. Push-based supply chain

- Production and distribution decision are based on long termforecast

2. Pull-based supply chain

- Production and distribution are demand driven so that theyare coordinated with true customer demand rather than forecast

demand

- Only respond to specific order

Lead-Time Reduction


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1. The ability to quickly fill customer orders.

2. Reduction in the Bullwhip effect.

3. More accurate forecast due to decreased forecast

horizon.

4. Reduction in finished goods inventory levels.

Importance of lead-time reduction


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Helps reduce variability in the supply chain.

Helps suppliers make better forecasts, accounting for

promotions and market changes.

Enables the coordination of manufacturing and

distribution systems and strategies.

Enables retailers to better serve their customers by

offering tools for locating desired items. Enables retailers to react and adapt to supply problems

more rapidly.

Enables lead time reductions.

Benefits of Information


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1. Exchanging detailed and frequent information is costly.

2. Performance benefit can be achieved only if smallamount of information is exchanged between supply

chain participants.

Decreasing Marginal Value of Information


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Value of Information in Supply Chain Management - Copy

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