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Objectives
Describe supply chain coordination, the bullwhip effect, and their impact on performance Identify causes of the bullwhip effect and obstacles to coordination in the supply chain Discuss managerial levers that help achieve coordination in the supply chain Describe actions that facilitate the building of strategic partnerships and trust within the supply chain Summary discussion: Barilla SpA
Outline
Lack of Supply Chain Coordination and the Bullwhip Effect Effect of Lack of Coordination on Performance Obstacles to Coordination in the Supply Chain Managerial Levers to Achieve Coordination Building Strategic Partnerships and Trust Within a Supply Chain Achieving Coordination in Practice
Bullwhip Effect
Fluctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to suppliers Distorts demand information within the supply chain, where different stages have very different estimates of what demand looks like Results in a loss of supply chain coordination Examples: Proctor & Gamble (Pampers); HP (printers); Barilla (pasta)
Consumer demand
Retailer Order
100
0 11 13 15 17 19 21 23 25 27 29 31 33 35 1 3 5 7 9
900
Retailer Order
200
100 0 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 41 1 3 5 7 9
Distributor Order
Distributor Order
900
800 700 600
500
400 300 200 100 0 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
40
P&G Order
10
Consumer demand
P&G Order
41
0 1 3 5 7 9
11
12
13
14
15
17
Incentive Obstacles
When incentives offered to different stages or participants in a supply chain lead to actions (forward buy)
increase variability reduce total supply chain profits misalignment of total supply chain objectives and individual objectives
Local optimization within functions or stages of a supply chain Sales force incentives
18
Lack of information sharing: each member of the supply chain makes independent forecasts without any access to actual sales data
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Operational Obstacles
Actions taken in the course of placing and filling orders that lead to an increase in variability Ordering in large lots (much larger than dictated by demand) Large replenishment lead times Rationing and shortage gaming (common in the computer industry because of periodic cycles of component shortages and surpluses)
20
Pricing Obstacles
When pricing policies for a product lead to an increase in variability of orders placed Lot-size based quantity decisions Price fluctuations (resulting in forward buying)
21
Behavioral Obstacles
Problems in learning, often related to communication in the supply chain and how the supply chain is structured Each stage of the supply chain views its actions locally and is unable to see the impact of its actions on other stages Different stages react to the current local situation rather than trying to identify the root causes Based on local analysis, different stages blame each other for the fluctuations, with successive stages becoming enemies rather than partners No stage learns from its actions over time because the most significant consequences of the actions of any one stage occur elsewhere, resulting in a vicious cycle of actions and blame Lack of trust results in opportunism, duplication of effort, and lack of information sharing
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23
24
25
Poorer service.
Irregular, unpredictable production and delivery schedules also lengthen lead time, causing delay and customer dissatisfaction.
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27
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Figure 4.2
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Figure 4.3 Weekly Demand for Barilla Dry Products from Corteses Northeast Distribution Center to the Pedrignano CDC, 1989.
31
32
33
35
1. 2. 3. 4.
Thinning retailer/manufacturer margins Increased holding/storage costs Poor product delivery management Impossible to anticipate demand swings
36
Implementation Issues Resistance from Sales and Marketing (1/2) Our sales levels would flatten if we put this program in place. How can we get the trade to push Barilla product to retailers if we dont offer some sort of incentive? If space is freed up in our distributors warehouses, the distributors would then push our competitors product more than ours. It seems that the distribution organization is not yet ready to handle such a sophisticated relationship.
40
Implementation Issues Resistance from Sales and Marketing (2/2) We run the risk of not being able to adjust our shipments sufficiently quickly to changes in selling patterns or increased promotions. We increase the risk of having our customers stock out of our product if we have disruption in our supply process. We wouldnt be able to run trade promotions with JITD. It is not clear that costs would even be reduced.
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Advantages
Manufacturer
Reduced manufacturing costs Increased supply chain visibility Improvement in manufacturing planning Reduced inventory levels Reduced distribution costs Improved fill rates to stores
Distributor
42
JIT contd
Implementation Problems
Employee Concerns
Flattened sales levels Inability to adjust shipments quickly to stock-outs Lack of infrastructure to handle JIT Increased competitor shelf space at distributor
Unconvinced Distributors
Perceived power transfer to Barilla Lack of faith in Barillas inventory management
43
How Can Maggiali Solve the Implementation Problems? Demonstrate that JITD benefits the distributors (lowering inventory, improving their service levels and increasing their returns on assets); Run experiment at one or more of Barillas 18 depots
Maggiali needs to look at JITD not as a logistics program, but as a company-wide effort; Get top management closely involved Trust
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Barilla SpA Part B What did Barilla learn from the experiments in Florence and Milan? (Fig 4.9 & 4.10) How should Barilla change the way it attempts to sell the JITD concept to its distributors? If you were a Barilla distributor, would you sign onto the program after seeing these results?
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Figure 4.9
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Figure 4.10
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Figure 4.11
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Figure 4.12
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How do you evaluate the implementation process Barilla used with Cortese?
Figure 4.11 Figure 4.12
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Higher Variability in Orders Placed by Computer Retailer to Manufacturer Than Actual Sales
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Building strategic partnerships and trust easier to implement these approaches if there is trust
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Process-based view
Trust and cooperation are built up over time as a result of a series of interactions Positive interactions strengthen the belief in cooperation of other party
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Sequential interdependence is the traditional supply chain form Reciprocal interdependence is more difficult but can result in more benefits Figure 16.4
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High
Low
Low
Partners Dependence
68
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70
71
72
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