16-1,Chapter 17 Coordination in the Supply Chain,Supply Chain Management (3rd Edition),16-2,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,16-3,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,16-4,Lack of SC Coordination and the Bullwhip Effect,Supply chain coordination all stages in the supply chain take actions together (usually results in greater total supply chain profits) SC coordination requires that each stage take into account the effects of its actions on the other stages Lack of coordination results when: Objectives of different stages conflict or Information moving between stages is distorted,16-5,Bullwhip Effect,Fluctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to suppliers (shown in Figure 16.1) 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 Barilla (pasta),16-6,The Effect of Lack of Coordination on Performance,Manufacturing cost (increases) Inventory cost (increases) Replenishment lead time (increases) Transportation cost (increases) Labor cost for shipping and receiving (increases) Level of product availability (decreases) Relationships across the supply chain (worsens) Profitability (decreases) The bullwhip effect reduces supply chain profitability by making it more expensive to provide a given level of product availability,16-7,Obstacles to Coordination in a Supply Chain,Incentive Obstacles Information Processing Obstacles Operational Obstacles Pricing Obstacles Behavioral Obstacles,16-8,Incentive Obstacles,When incentives offered to different stages or participants in a supply chain lead to actions that increase variability and 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,16-9,Information Processing Obstacles,When demand information is distorted as it moves between different stages of the supply chain, leading to increased variability in orders within the supply chain Forecasting based on orders, not customer demand Forecasting demand based on orders magnifies demand fluctuations moving up the supply chain from retailer to manufacturer Lack of information sharing,16-10,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) Figure 17.2 Large replenishment lead times Rationing and shortage gaming (common in the computer industry because of periodic cycles of component shortages and surpluses),16-11,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) Figure 17.3,16-12,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,16-13,Managerial Levers to Achieve Coordination,Aligning Goals and Incentives Improving Information Accuracy Improving Operational Performance Designing Pricing Strategies to Stabilize Orders Building Strategic Partnerships and Trust,16-14,Aligning Goals and Incentives,Align incentives so that each participant has an incentive to do the things that will maximize total supply chain profits Align incentives across functions Pricing for coordination Alter sales force incentives from sell-in (to the retailer) to sell-through (by the retailer),16-15,Improving Information Accuracy,Sharing point of sale data Collaborative forecasting and planning Single stage control of replenishment Continuous