Unit 9: Supply Chain Integration and the Bullwhip Effect
This unit covers supply chain integration as an analysis of dealing with uncertainty in supply and demand, the tradeoffs between efficiency and responsiveness in supply chains, and different metrics of supply chain performance used in the analysis. Further, the Bullwhip effect, as one aspect of uncertainty, describes the variability magnification moving from customer to producer in the supply chain.
Completing this unit should take you approximately 13 hours.
Upon successful completion of this unit, you will be able to:
- describe possible supply chain integration strategies to help mitigate supply and demand uncertainty depending on the product or industry;
- describe a range of supply-chain strategies, such as agile supply chains and risk-hedging supply chains, as a function of supply chain type and product type;
- analyze the efficiency and responsiveness of a given supply chain with performance metrics; and
- illustrate the bullwhip effect through consumer-to-producer analyses of increasing order variability.
9.1: Demand and Supply Uncertainty in Supply Chains
Supply chains serve a strategic purpose, from moving products to enhancing key business outcomes. These supply chains must also contend with globalized uncertainties that can be attributed to shifting product demand to political instability, weather-related disasters, or even man-made problems. How a firm's supply chain responds and reacts to uncertainty will determine its success at navigating the challenge at hand.
Read this study, which surveyed supply chain managers to understand how they address supply chain uncertainty. Section 5 identifies the study's solutions to overcoming uncertainty.
9.1.1: Supply Chain Strategies
Supply chain strategy has become an ever-growing area of importance in many organizations. Managing the people, processes, and technologies of these supply chains is vital to achieving efficient and effective systems. Since there are many elements, components, and complex relationships, it is imperative to carefully manage the interdependencies to address strategic priorities.
Watch this video. This webinar recommends strategies to overcome complexities affecting business operations. Five drivers of complexities and uncertainty are presented. How does understanding these drivers help a business be proactive and increase competitive advantage?
9.1.2: Push- and Pull-Based Systems
A supply chain usually consists of both push-based and pull-based systems. A push-based system is where demand projections determine what will enter the process and what will stop at retail stores for customers. A pull-based system is related to just-in-time (JIT) inventory focusing on last-second deliveries.
Read this article. It covers how understanding a supply chain can improve internal production processes. Pay particular attention to the section that outlines push versus pull. Can you compare and contrast each system?
9.2: Types of Supply Chains
In simple terms, a supply chain starts with raw materials and ends with a sale of a finished good. There are many different types of supply chains based on industry, product, services, and deliverables. Most large corporations employ multiple supply chain approaches to fulfill customer orders and are monitored by supply chain managers.
Read this article. Sixteen different types of supply chains are presented in Figure 2. Select one type from the High Complex / High Business Impact quadrant, what are some benefits and challenges associated with it?
9.2.1: The Efficient, Responsive, and Agile Continuum
Accurately anticipating and forecasting demand and delivering on time will continue to be an evolving business requirement for supply chains. Efficient supply chains are fairly stable when dealing with functional products. In contrast, responsive supply chains are more efficient when dealing with innovative products. Finally, agile supply chains are geared toward a fast-evolving process and highly innovative products.
Read this chapter. The main objective of this reading is to identify the different strategies and characteristics of supply chains. Pay attention to Figure 1 and the explanation for each. What types of companies do you think use Agile supply chains which deal with evolving and highly innovative products?
9.2.2: The Effects of Demand and Supply
Demand and supply continuously exert pressure on supply chains and uncertainties within the system. Increasing customer demand forces the supply chain to respond by speeding up production, decreasing logistics times, and increasing quality. Yet uncertainties in inventory supply can cause variations in available stock and potential discrepancies in delivery time.
Read this article. An integrated production-inventory model is constructed to address supplier, manufacturer, and retailer uncertainties. According to the author, what are the three types of uncertainties in supply chain management?
9.2.3: Agile and Lean Production Processes
Agile and lean are key concepts in project management that strive to produce fast and sustainable results. An agile focus emphasizes individual interactions, collaboration with customers, and a plan to respond to change. A lean method focuses on the quality of products and increases in production and efficiency.
Read this article. Both lean and agile principles were tested to determine if they improved performance in the coastal forest industry. While both agile and lean methodologies have obvious differences, in your analysis what are some similarities?
9.3: Supply Chains and Product Types
Various products should be matched to a specific supply chain to optimize supply chain performance. Furthermore, as the industry and product lines evolve, so should the supply chain management strategy. In selecting the most appropriate supply chain type, operations managers should consider whether they operate in a just-in-time environment, low inventory turnover conditions, or quick-moving inventory with perishables.
Read this article. The authors study whether organizational products are aligned with optimal supply chain types. Besides the product, what other aspects must be analyzed when selecting a specific type of supply chain?
Modern organizations have abundant choices in selecting the right product supply chain. Functional products are items that are purchased regularly, are widely available from multiple sources, and have long life cycles. Alternatively, innovative products are new to the marketplace, have unpredictable demand, and usually have short life cycles.
Read this article. Researchers suggest that products belong to either a functional or innovative category, where innovative products are much more challenging to price. What innovative products do you own, and how do you know you are getting the value you paid for?
9.4: Measuring and Optimizing Supply Chain Performance
Performance metrics and models are tools to manage how well a supply chain is operating. Through analysis, organizations can identify what aspects need attention to respond appropriately and maintain continuity. Using data and analytics, a firm's supply chain can be proactive instead of reactive, which is key to helping navigate any rapid changes occurring in a business.
Read this article. A predictive performance management model is introduced to manage complex business network collaborations and minimize uncertainty. Pay attention to the innovative performance management systems characteristics. What other attributes would you add to the list?
Supply chain optimization is the employment of processes, tools, and technology to ensure operations are performing at their highest potential. The goal is to deliver quality products to customers at the lowest possible cost and highest profit. To do so, operations managers balance manufacturing, inventory distribution, transportation, fulfillment, and customer service.
Watch this video, which combines qualitative and quantitative data to identify strategies for supply chain optimization. One strategy is to employ a new centralized distribution model. What challenges or benefits do you feel they will encounter with this change?
9.5: The Bullwhip Effect
The bullwhip effect in supply chains is a concept used to describe fluctuating inventory due to demand changes. These fluctuations start small but can end up generating much larger problems upstream or downstream of the chain. This phenomenon is named as such because when an individual snaps their wrist while holding a whip, it creates fluctuating wave patterns.
This article analyzes the bullwhip effect in sales games and consumer returns. Focus on Part 3, Complexity Analysis of the Demand System.
Read this article on using software to model the bullwhip effect.
9.5.1: Variability and the Magnification of Demand
Fluctuating product demand leads companies today to continually seek ways to minimize and reduce uncertainty. Varying demand, coupled with ripples in sales, can magnify issues at any point in the supply chain and adversely affect distribution nodes, also known as physical locations, of a network. A supply chain can address this uncertainty by either holding inventory, maintaining a safety capacity, or analyzing changes in sales through data and information.
The main point of the paper is to address supply chain networks in terms of sustainability. How can customization of physical networks help to better manage demand?
9.5.2: Distortion, Coordination, and Information Sharing
Members within a supply chain are often separate and independent entities with distinct operations. A key mechanism to supply chain optimization is coordination, collaboration, and accurate information sharing. This collective engagement in sharing real-time information can mitigate the consequences of the bullwhip effect.
Read this paper. The article reviews the coordination of information in supply chains classified by information types, impact on performance, and information policies. Figure 2 presents the depth of information flow. What should an organization do with this information, given the analysis?
9.6: IT and e-Commerce
Information technology has changed the way in which business organizations operate. This technology paved the way for e-commerce, where businesses and consumers can interact and trade effortlessly. In addtion, the ease of transactions has significantly influenced the way in which supply chains operate and the way they are managed.
Read this article. The authors provide a broad view of decisions on supply chain management concerning e-commerce in China, considering several factors, including consumer access to the internet and telecommunication infrastructure for a given location. Two case studies are included to evaluate the models included in the article. Pay particular attention to the intersection of IT and non-IT considerations for firm supply-chain management strategies.
Study Guide: Unit 9
We recommend reviewing this Study Guide before taking the Unit 9 Assessment.
Unit 9 Assessment
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Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
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