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Traditionally, the decoupling point methodology has been associated with the
material flow pipeline. However, to maximize improvement in supply chain
dynamics, information flow is equally important. Many of the problems exhibited in
the material flow pipeline are the result of the distortion of marketplace sales
information as it is transferred upstream through the supply chain. This research
expands on the traditional material decoupling point methodology and establishes
the role of an information decoupling point within the supply chain. The authors
demonstrate the business opportunities generated by first recognizing the
existence of the supply chain information decoupling point and then learning how
to utilize it to gain strategic advantage. In order to make sensible planning and
delivery decisions, a business must be able to separate out contingency from real
orders as they move upstream from the marketplace. It is the basis for supply
chains moving towards continuous flow and away from point-to-point movements
and ultimately, where appropriate, to holistic control.
The difficulties of matching supply and system. Given such masking of what is
demand due to the inherent dynamics within happening at the marketplace, the need for
a supply chain structure are a long standing transparent information flow is paramount. It
and widespread problem. Market sales is therefore not surprising that it should be at
information notoriously suffers from delay the heart of many successful BPR Programs as
and distortion as it moves upstream through typified by the Carpenter Technology Case
the supply chain. This results in production Study [4].
profiles at the factory, which bear little Effective supply chain management
resemblance to the end consumer’s buying requires companies to develop innovative
behavior. This phenomenon was strategies that integrate both their logistics
demonstrated nearly forty years ago by Jay and manufacturing activities [5]. The concept
Forrester [1]. Unfortunately, real world of postponement has been utilized effectively
supply chains today are still suffering the by supply chains as a way of limiting the
often-painful effects of upstream order effect of the debilitating inherent system
Postponing the variant magnification and by much greater ratios than dynamics on their ability to meet customer
differentiation of a experienced in the original Forrester demands. Postponing the variant
product until the latest simulations [2]. A good illustration of the differentiation of a product until the latest
possible moment reduces Forrester Effect in action as presented by Fine possible moment reduces the risk and
the risk and uncertainty [3] is shown in Figure 1. Quite apart from the uncertainty imposed by the consumer
imposed by the order magnification as it passes upstream, it demands. A good example is in paint
consumer demands. should be noted that other important supply manufacturing business, where rather than
chain behavioral phenomena are also holding stocks of a whole range of colors,
evident. These refer to the geographical which then requires a fair amount of
(frequently by many miles) and temporal forecasting to ensure the right colors are
(usually by many months) separation of cause available, the paint is produced as a neutral
and effect within this volatile dynamic base and color added only on consumer
Figure 1
The Supply Chain Bullwhip Effect
Source: Charles Fine, Clockspeed: Winning Industry Control in the Age of Temporary Advantage, Reading, MA: Perseus Books, 1998.
Figure 2
Traditional Supply Chain with “U” Shaped Total Lead-time
? ? ? ?
Market
Sales
Factory Assembler Finished goods Retailer
Stock
chain strategies as defined by Pagh and However, due to the differences in the two
Cooper, [19] which are available by altering pipelines the information decoupling point
the position of the material decoupling point. requires a definition of its own and is defined
These strategies range from providing highly by the authors as follows:
customized products, which have high The point in the information
uncertainty (full postponement strategy) pipeline to which the marketplace
through to providing a standard product with order data penetrates without
low demand uncertainty (full speculation modification. It is here where
strategy). Despite the fact that the material market driven and forecast driven
decoupling point for each of the previously information flows meet.
mentioned postponement strategies are at The order information pipeline
different points of the supply chain, the decoupling point is the point at which
governing principle is always to move the information turns from the high value actual
material decoupling point as close to the end consumer demand data to the typical
consumer as possible thereby ensuring the upstream distorted, magnified and delayed
shortest lead-time for the consumer. This order data. Traditionally, in supply chains this
approach also enables full capitalization of tends to be placed at the same point as the
the benefits of divorcing the customer material decoupling point and is therefore
variability from the demands placed on the placed as close to the end consumer as
majority of players in the supply chain. possible. This positioning is very wasteful
and limits the effectiveness of the high value
The Information Decoupling Point resource of undistorted order information
As previously stated, there are a available on the dynamics of the supply
minimum of two pipelines within the supply chain. Therefore to maximize the strategic
chain; the material flow and the information potential of these data within the supply
flow. The authors argue that both flows have chain, in direct contrast to the material
their own significant decoupling point, the decoupling point, the information decoupling
strategic use of which differs due to the point should be moved as far upstream as
dynamic effect each has on the performance possible. This enables upstream players to
…each supply chain has of the supply chain, Mason-Jones and Towill include within the ordering decisions the
both a material [20]. Hence, each supply chain has both a unbiased undistorted, rich information that is
decoupling point and an material decoupling point and an information already available downstream. There will be
information decoupling decoupling point each of which is a separate greater upstream market order penetration
point each of which is a entity. Only by recognizing this and while leaving the point at which the supply
separate entity. strategically positioning both can full chain directly responds to the customer (the
performance improvements be realized. material decoupling point) intact. Figure 5
summarizes this perception of the two that transparency of information is the vital
decoupling points and their relative positions step forward. How frequently it should be
within the supply chain structure. sampled and used for delivery and capacity …the argument for
Theoretically, the argument for moving planning depends on the individual business. moving the information
the information decoupling point upstream in For example, a supplier to a supermarket may decoupling point
order to give more players the benefit of receive hourly point-of-sale data, but plan upstream in order to
having undistorted data appears quite clear capacity over a weekly horizon. But it can give more players the
and straightforward. However, the question make such planning decisions far better on benefit of having
that needs to be answered here is how the the basis of an undistorted view of what is undistorted data appears
information decoupling point is moved and really happening in the marketplace. Indeed, quite clear and
what will be the effects on the dynamic this information would be fundamental in any straightforward.
responses of the supply chain. Our view is Continuous Replenishment Program [21].
Material
Push Decoupling Pull
point
Market
Sales
Factory Assembler Finished goods Retailer
Stock
Information Direct Market Sales Information
Decoupling
point
Figure 6
Causal Loop of the Decision Support System (DSS) Utilizing Market Sales Information
Enrichment Mechanism
Our customers
order
Actual market
Smoothing time sales
constant Smoothing time
Dispatch to
our customers constant
Retailer
2 Distributor
Design
Warehouse Brewery
3
Material flow pipeline
4
Market sales Distorted order
information information
Design 1
Design 2
Design 3
Design 4
=Information
decoupling point
order/stock control policies. Such a simulation all such players to have an undistorted view
model has been many times verified on real of the consumer buying behavior thereby
world supply chains including the electronics enabling the supply chain to operate
products industry and the automotive industry effectively without the added burden of the
[28]. The APIOBPCS based simulation model distortion of end customer demand
may be used confidently as a benchmark to characterized by the Forrester Effect.
demonstrate performance enhancement for a In order to analyze the strategic benefits
wide range of practical supply chains. Note of the information decoupling point and In order to analyze the
from the Causal Loop Diagram that we have the determine where in the supply chain its strategic benefits of the
freedom to mix the marketplace information optimal position might be, four competing information decoupling
with our direct customer orders in any designs were simulated. Figure 7 illustrates point and determine
combination we wish. The important point is the selected relative information decoupling where in the supply
that by minimizing downstream order point positions in the supply chain. Design 1 chain its optimal
uncertainty, we have the data needed to make simulates the traditional supply chain where position might be, four
an informed judgement [29]. only the retailer accesses the actual buying competing designs were
The demonstrator model utilized is a pattern. This design provided data against simulated.
four level supply chain constituting a retailer, which the other designs could be
distributor, warehouse and factory. For benchmarked. Design 2 and 3 test the
convenience, the material flow lead times are dynamics of the supply chain as the
set the same at each stage. If anything, due to information decoupling point is moved
the presence of resonance effects, such further upstream enabling an increasing
equality tends to highlight potential areas for number of players to utilize the consumer
performance improvements [30] Figure 7 sales information. Finally, Design 4 analyzes
shows a representation of the optimized order the potential dynamic improvements
information pipeline. This adaptation we call available if the information decoupling point
the information enrichment model, and it is is moved to the furthest point upstream
achieved via an electronic point of sales link thereby enabling all four members of the
(EPOS) to all players down stream of the supply chain to have a direct line of sight to
information decoupling point. This enables the consumer.
UPSTREAM MOVEMENT OF
DECOUPLING POINT
0 20 40 60 80 100
% of dynamic improvement
have available the actual marketplace of the supply chain. The dynamic
information for better forecasting and improvements estimated via the verified
decision making. aggregate product six-echelon simulation
This section summarizes a substantial model realized for each BPR stage is
reengineering program aimed at streamlining summarized in Figure 10. Although in
an electronics products supply chain, which practice some BPR stages overlapped, for the
included a strategic placement of both the purpose of illustration the simulation is based
material and information decoupling points on sequential implementation. For
[33]. The process of supply chain redesign consistency, judgements were made on the
consisted of a series of overlapping business basis of dynamic response at the most
process reengineering (BPR) programs that upstream echelon to a step change in the
began in the early 1980’s and which continue marketplace. The linear scale was selected so
to be enabled through to the present day. As that 0% is the base point and 100% is the
part of its BPR initiative, the electronics idealized best possible response. Once all
products company concentrated the later four stages of improvement were completed,
stages on establishing and strategically the supply chain model predicted an
placing both a material and an information impressive resulting estimated dynamic
decoupling point. The optimized strategy is improvement of 92% in comparison to its
illustrated in Figure 9 where the positioning of initial baseline performance. The final system
both decoupling points can be clearly design eventually generated the desirable
identified in what has since become upstream pattern of virtual level scheduling.
recognized as the legal supply chain [34]. As At the same time the system retains the highly
can be seen, the material decoupling was desirable automatic trend following
placed as close to the consumer as possible capability throughout the chain.
(at the finished goods assembler), while What is apparent from Figures 9 and 10
available postponement opportunities were is that the latter two stages of the BPR
maximized. The information decoupling program involve establishing and strategically
point was placed as far upstream as possible, placing both material and information
thereby communicating the actual consumer decoupling points. The utilization of both the
demand direct to the components assembler. EDI enabled information decoupling point
The component assembler is forewarned of (which occurs in stage D) and product design
changes in sales profile and is able to meet material decoupling point (stage E)
the necessary demands of the supply chain. approaches enabled the supply chain to
The company’s BPR program was further improve its dynamic performance due
carried out in four key stages as identified in to these sources alone by approximately 42%
Figure 10. Each stage of the BPR program as shown in Figure 10. In this supply chain
actively improved the dynamic performance information transparency was in place before
Global
DEMAND INFO
Material
Planning STOCK INFO STOCK
System INFO
PUSH STOCK PULL
PLAN
INFO
STOCK
INFO PULL
PULL PULL PULL PULL PULL
PULL
D.P.
PULL
finalization of the material flow decoupling material flows. These require operational
point in its present form. This is because in strategies, which are sympathetic and which
the electronic products supply chain, the integrate and compliment the individual
material flow decoupling point location is characteristics of both pipelines. The
heavily dependent on product design [35], decoupling approach has been successfully
which generally takes longer to achieve, utilized within the material pipeline by many
compared to the installation of EDI. It is the companies. However, utilizing a decoupling
combination of information transparency and point can create benefits in the information
product modularization that enables mass flow pipeline. The information decoupling
point is the point in the supply chain at which
customization [36].
the order information changes from
marketplace sales data to forecast driven data.
Conclusion It is the basis for supply chains moving
Supply chains are constructed around towards continuous flow and away from
two principal pipelines: the information and point-to-point movements and ultimately to
Figure 10
Estimated Improvements in Dynamic Performance of a Electronics Products Supply Chain
at Various Stages of BPR Program
0 25 50 75 100
% of dynamic improvement
Denis R. Towill is the Lucas Research Professor and Director of the Logistics
Systems Dynamics Group at Cardiff University. He holds the Higher Doctorate of
DSc from the University of Birmingham. His experience inlcudes the design of a
wide range of hard and soft systems, including supply chains, in aerospace,
process, automotive, electronic products and maritime industries. He has published
over 350 papers, 12 of which have been awarded institution prizes. He is past
Chairman of the Management and Design Board of the Institution of Electrical
Engineers. In 1988 he became only the second manufacturing systems engineer to
be elected to the Royal Academy of Engineering. He can be reached at Cardiff
University, 65-68 Park Place, Cardiff CFI 3YP, Wales, U.K. Phone: 41 1222 874271.
Fax: 44 1222 874301. E-mail: http://www.cf.ac.uk/uwcc/masts/