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GANESH RAMKUMAR PATRICK TRAIN MATTHEW VIDOTTO CHRISTOPHER WATSON Prof. MICHAEL KIRK SCM 512 MARCH 11th 2014
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How did you feel about making decisions with partial information?
Not having any information from upstream or downstream partners was a major challenge to all of us; it made it virtually impossible matching supply with demand and keeping costs down. Without information order quantities and safety stock were a gamble and my order was lower than demand again, creating a deeper back order and tremendous costs. Back orders swiftly increased as without knowing the status and lead times of the factory node it was hard to plan how to deal with the backlog. This combination of demand uncertainty and demand variability resulted in significant inventory fluctuations that out of sync with demand. indications as to when demand would drop I ordered more. Without any
Additionally, the lead times between each echelon made it quite difficult to satisfy demand in a just-in-time manner. Without the necessary information (i.e. sales forecasts shared along the supply chain), our order sizes failed to compensate for the lack of responsiveness. We were unable to anticipate and plan inventory based on future demand; instead, decisions made were reactionary and we were operating at high risk. Without visibility and information transparency across the supply chain we felt like decisions were made arbitrarily. It was a dangerous guessing game from beginning to end, and this highlighted the importance of relevant and reliable information in optimizing supply chains.
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Order Batching
In this scenario, nodes place aggregate multiple planned orders into larger batched orders to reduce transportation costs, fixed order costs and/or other transaction costs, or to take advantage of bulk discounts or other offers. Buyers usually factor in safety stock requirements as well, in anticipation of demand variability during the now longer (batched) cycle time. As demand is passed upstream towards the manufacturer, batching and safety stock increments may occur at each echelon, resulting in significant demand fluctuations further up the chain.
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Price Fluctuations
Recurring increases and/or decreases in price often leads to a poor buying patterns downstream (towards the customer). Buyers begin to purchase in bulk when prices are low, and reduce orders when prices rise. Known as forward buying, this practice causes significant demand variability upstream that are amplified by long lead times and large lot sizes.
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used to drive demand for a short period of time, while the base pricing model provides constancy in long-term price expectations among downstream buyers.
Solution 2 | Disintermediation
A supplier may opt to circumvent the distributor entirely and utilize a direct-to-store or consignment channel to sell goods directly to retailers or even end customers. These nodes are less likely to have the buying power of a distributor or wholesaler, and demand variability would be minimized to a much smaller range. In addition, lower end-to-end lead time would make the entire chain more responsive to market demand.
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CITATION
Rong, Y., Synder, L., & Shen, Z.-J. M. (2008, August 20). Bullwhip and Reverse Bullwhip Effects under the Rationing Game. Retrieved March 9, 2014, from Social Science Research Network: http://ssrn.com/abstract=1240173
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4,834.50 5,443.50
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Plot of Inventory/Backorders
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