Supply Chain Management for e-Business

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					Supply Chain Information Sharing

ECM 8400 Supply Chain Management for eCommerce Fall 2000 September 5, 2000

Arun Rai eCommerce Institute Robinson College of Business Georgia State University Atlanta, GA 30303 arunrai@gsu.edu

Agenda
The bullwhip effect  Types of information shared  Models of information sharing  Challenges to information sharing  Supply chain metrics  Wrap-up


The Bullwhip Effect
Upstream amplification of demand variation Progression of a brushfire to an inferno!

Customer

Retailer

Distributor

Factory

Tier 1 supplier

Equipment

Machine Tools at Bullwhip Tip
100%
% Change, year to year

50% 0%
1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989

-5 0 % -1 0 0 %

Data from United States, 1961-1991 (GDP, vehicle production, and machine tool orders

% change GDP % change vehicle production index % change net new orders machine tool industry

1991

The Diaper Supply Chain!
80 70 60 50 40 30 20 10 0
11 13 15 1 3 5 7 9

Ripples to tidal waves Stockpiles and stockouts Insufficient or excessive capacities Higher costs Factory Distributor Wholesaler Retailer Customer

O rder

17

19

Week

21

Types of Shared Information


Inventory information









Transition to echelon-based inventory systems Upstream companies can determine when and what to produce Downstream companies can improve service levels with less inventory The Apple-Fritz Supplier Hub • Fritz manages entire inbound logistics for Apple • Consolidates freight, clears customs, manages the hub, manages local transportation to Apple • FLEX system Competitor sharing of inventory information

Types of Shared Information


Sales Data




Variance of orders greater than that of sales The “bullwhip effect” - four key causes • Demand signal processing
– Move to sharing sell-through data and POS retail data
• •

Order batching
– Infrequent access to demand information

Order rationing
– Hoarding of scare products

•

Promotions

Types of Shared Information


Sales Data




Variance of orders greater than that of sales The “bullwhip effect” - four key causes • Demand signal processing
– Move to sharing sell-through data and POS retail data
• •

Order batching
– Infrequent access to demand information

Order rationing
– Hoarding of scare products

•

Promotions

Types of Shared Information


Order status for tracking/tracing




MircoAge-UPS alliance Impacts on: • Customer service • Payment cycle • Labor cost

Types of Shared Information


Sales Forecast





Vendor Managed Inventory Collaborative Forecasting and Replenishment Quantity-Flexible contracts • Buyer allowed to make limited changes to forecast information shared with suppliers. Why?

Types of Information Sharing


Production/Delivery Schedule




Improves due-date estimation Expand planning horizons Performance metrics Capacity information



Other Information Sharing




Models of Information Sharing


Information Transfer Model
 



Transfer information to the other who maintains the database for decision-making Natural evolution of EDI-based transactional model • MicroAge -UPS • Seven Eleven Japan EDI Limitations • Multiple industry-specific standards • Rigid design for transaction processing • Rigid text formats • Batch-oriented • Installation costs

Models of Information Sharing


Third Party Model


Third party collects and maintains supply chain information • Apple- Fritz alliance, with Fritz as the 3rd party • Instill corporation (www.instill.com) in the food services industry • Digital markets (www.digitalmarket.com) in the electronic parts market

Models of Information Sharing


Information Hub Model



Third party is replaced by a system Pandesic’s (www.pandesic.com) e-business solutions (Intel and SAP)

From EDI to MSPs: The shifting focus of applications and their providers Application providers (point-to-point-EDI)

Sellers

Buyers

Marketplace provider

App. Service Providers (ASPs)

eHub

Challenges
Aligning incentives of different partners  Trust and cooperation  Confidentiality of shared information  Anti-trust implications, such as possible price fixing behavior  Timeliness and accuracy of information  Technological constraints


Deploying an Effective SCM Measurement System  Be demand-driven and supply-aware  Enterprise-wide & inter-enterprise process focus  A dashboard must have a few, easily measurable metrics that monitor the pulse of the supply chain  Visible cost segment metrics to total cost metrics


Price-based procurement to total acquisition cost



Essential to determine true margins

Supply Chain Function & Costs

SC, Functions & Costs

Physical Function

Market mediation function

Physical Function
Physical Function (converting raw materials into parts, component & finished goods, & transportation).

Production

Transportation

Inventory

• Minimize inventory & maximize production efficiency • SC flow of information critical • Suppliers, manufacturers, & retailers coordinate activities to meet predictable demand at lowest cost. • Physical efficiency: Some Measures Plant capacity utilization Inventory Turns

Market Mediation Function
Market mediation function (variety of products reaching the marketplace matches what consumers want to buy

Supply > Demand

Demand > Supply

Mark downs

Lost sales

Dissatisfied customers

Critical flow of information from marketplace to the chain Speed & Flexibility Contribution margin X stockout% = % of sales costs

Some measures: Product availability, Fill rate, Fulfillment time

The Bottom-line of SCM
Net Profit after Tax  Revenue growth



Return on Assets  Fixed capital efficiency



Revenue growth by segment 

Physical network optimization



Operating cost reductions
 

Working capital efficiency
   

Total delivered cost Structural reduction/cost flexibility Worldwide effective tax rate



Tax minimization


Demand supply management Inventory deployment/velocity Receivables (DSO) Payables (DPO)

NOPAT and capital allocations must be improved for SCM to be effective

SCM Metrics

Operational Cost

Time and Response

Profitability and Margins

Customer Service

 Total delivered  Total supply  Operational  Customer cost by product chain cycle time margins by service levels by  Days  Order to product, customer sales/inventory customer channel, segment, (DSI) and levels (delivery cycle geography channel, and  Excess and time)  Net operating geography along obsolete  Response time to profit after tax customer buying inventory customer  Effective tax rate patterns and  Backlog and requests and  Return on total dimensions shortages orders supply chain  “Perfect” orders  Postsales and assets service cycle time and time to fix

SCM Metrics

Operational Cost

Time and Response

Profitability and Margins
 Cash flow metrics

Customer Service
 Order-fill rates  On-time delivery  Delivery to customer request  Customer “convenience” measures

 Days payable  Supply P.O.:  Capital receipt time flexibility: fixed  Manufacturing capital to total cycle time delivered cost  Commodity costs to industry costs and trends  Costs by channel, product line, and geography