Chapter 4

Effects of supply chain

The Bull Whip Effect
What happens when a Supply Chain is plagued with a bullwhip effect that distorts its demand
information as it is transmitted up the chain? In the past, without being able to see the sales of it
products in the distribution channel stage. HP had so rely on sales orders from the resellers to
make product forecast, plan capacity, control inventory, and schedule production. Big variations
in demand were a major problem for HPs Management. The common symptoms of such
variations could be excessive inventory, poor product forecasts, insufficient or excessive
capacities, poor customer service due to unavailable products or long backlogs, uncertain
production planning (i.e., excessive revisions), and high costs of corrections, such as for
expedited shipments and overtime. HPs product division was a victim of order swings that were
exaggerated by the resellers relative to their sales; it, in turn, created additional exaggerations of
orders swings to suppliers.
In the past few years, the Efficient Consumer Response (ECR) initiative has tried to redefine
how the grocery Supply Chain should work. One motivation for the initiative was the excessive
amount of inventory in the Supply Chain, from when products leave the manufacturers
production lines to when they arrive on the retailers selves, has more than 100 days of inventory
supply. Distorted information has led entity in the Supply Chain the plant warehouse, a
manufacturers shuttle warehouse, a manufacturers market warehouse, a distributors central
warehouse, a distributors regional warehouse, and the retail stores storage space to stockpile
because of the high degree of demand uncertainties and variabilities. Its no wonder that the ECR
report estimated a potential of $30 billion from streamlining the efficiencies of the grocery
Supply Chain.

Others industries are in a similar position. Computer factory and manufacturers distribution
centers, the distributors warehouses along the distribution channel have inventory stockpiles.
And in the pharmaceutical industry, there are duplicate inventories in a Supply Chain of
manufacturers such as Eli Lilly or Bristol-Myers Squibb, distributors such as McKesson. Again
information distortion can cause the total inventory in this Supply Chain to exceed 100 days of
supply. With inventories of raw materials, such as integrated circuits ad printed circuits broads in
the computer industry and antibodies, the total chain may contain more than one years supply.In
a Supply Chain for typical consumer product, even when consumer sales do not seem to vary
much, there is pronounced variability in the retailers orders to the wholesalers. Orders to the
manufacturers and to the manufacturers supplier spike even more. To resolve the problem of
distorted information companies need to first understand what creates the bullwhip effect so they
can counteract it. Innovative companies in different industries have found that they can control
the bullwhip effect and improve their Supply Chain performance be coordinating information
and planning along the Supply Chain.
Causes of the Bullwhip Effect
The following four have been identified as the major causes of Bullwhip Effect:
1. Demand forecast updating.
2. Order batching.
3. Price fluctuation.
4. Rationing and shortage gaming.
Each of the four forces in concert with the chains infrastructure and the order managers
rationalize decision-making create the bullwhip effect. Understanding the causes helps
managers design and develops strategies to counter it.
Demand Forecast Updating
Every company in a Supply Chain usually forecasting for its production scheduling, capacity
planning, inventory control, and material requirements planning. Forecasting is often based on

the history from the companys immediate customers. When a downstream operation places an
order, the upstream managers processes that the piece of information as a signal about future
product demand. Based on the signal, the upstream manager readjusts his or her demand
forecasts and, in turn, the orders placed with the suppliers of upstream operation. We contend
that demand signal processing is a major contributor to the bullwhip effect. For example if you
are a manager who has to determine how much to order from a supplier, you use a simple
method to do demand forecasting, such as the new daily demand data become available. The
order you send to the supplier reflects the amount you need to replenish the stocks to meet the
requirements of future demands as well as the necessary safety stocks. The future demands and
the associated safety stocks are updating using the smoothing technique. With long lead times, it
Order Batching
In a Supply Chain, each company places orders with an upstream organization using some
inventory monitoring or control. Demands come in; depleting inventory but the company may
not immediately place an order with its supplier. It often batches or accumulates demands before
issuing an order. There are two forms of order batching: periodic ordering and push ordering.
Instead of ordering frequently, companies may order weekly, biweekly, or even monthly. There
are many common reasons for an inventory system based on order cycles. Often the supplier
cannot handle frequent order processing because the time and cost of processing an order can be
substantial. Many manufacturers place purchase orders with suppliers when they run their
material requirements planning (MRP) systems. One common obstacle for a company that wants
to order frequently is the economies of transportation. There are substantial differences between
full truck-load (FTL) and less-than-truckload rates so companies have a strong incentive to fill a
truck-load when they order materials from a supplier.In push ordering, a company experiences
regular surges in demand. The company has orders pushed in it from customers
periodically because salespeople are regularly measured, sometimes quarterly or annually,
which causes end-of-quarter or end-of-year order surges. Salespersons who need to fill
sales quota may borrow ahead and sign orders prematurely. When a company faces such
periodic ordering by its customers, the bullwhip effect results. If all customers order
cycles were spread out evenly throughout the week the bullwhip effect would be minimal.
The periodic surges in demand by some customers would be insignificant because not all
would be ordering at the same time. Unfortunately, such an ideal situation rarely exists.
Orders are more likely to be randomly spread out or, worse, to overlap. When order cycles
overlap, more customers that order periodically do so at the same time. As a result, the
surge in demand is even more pronounced, and the variability from the bullwhip effect is
at its highest.If majority of companies that do MRP or Distribution Requirement Planning
(DRP) to generate purchase orders do so at the beginning of the month (or end if the
month), order cycles overlap. Periodic execution of MRPs contributes to the Bullwhip
Effect, or MRP jitters or DRP jitters.
Price Fluctuation

Estimate indicate that 80 percent of transactions between manufacturers and distributors in

the grocery industry made in a forward buy arrangement in which items were bought in
advance of requirements, usually because of a manufacturers attractive price offer.
Forward buying results from price fluctuations in the market place. Manufacturers and
distributors periodically have special promotions like price discounts, coupons, rebates,
and so on. All these promotions result in price fluctuations. When high-low price occurs,
forward buying may well be a rational decision. If the cost of holding inventory is less
than the price differential, buying in advance makes sense. In fact, the high-low pricing
phenomenon has induced a stream of research on how companies should order optimally
to take advantage of low price opportunities.

Rationing and Shortage Gaming

When product demand exceeds supply, a manufacturer often rations its product to
customers. In one scheme the manufacturer allocates the amount in proportion to the
amount ordered. For example, if the total supply is only 50 percent of the total demand, all
customers receive 50 percent of what they order. Knowing the manufacturer will ration
when the product is in short supply, customer exaggerate their real needs when they order.
Later, when demand cools, orders will suddenly disappear and cancellations pour in. this
seeming overreaction by customer anticipating shortages results when organizations and
individual makes sound, rational economic decisions and game the potential rationing.
This effect of gaming is that customers orders give the supplier little information on
products real demand, a particularly vexing problem for manufacturers in a products
early stages.
How to Counteract the Bullwhip Effect
Understanding the causes of bullwhip effect can help managers find to migrate it. Indeed,
many companies have begun to implement innovative programs that partially address the
effect. Next, examine how companies tackle each of the four causes. Categorize the
various initiatives coordination mechanism, namely information sharing, demand
information at a downstream site is transmitted upstream in a timely fashion. Channel
alignment is the coordination of pricing, transportation, inventory planning, and ownership
between the upstream and downstream sites in a Supply Chain. Operational efficiency
refers to activities that improve performance, such as reduced costs and lead-time. We use
this topology to discuss ways to control the bullwhip effect. (See table 1).

Avoid Multiple Demand Forecast Updates

Break Order Batches
Stabilize Prices

Eliminate Gaming in Shortage Situations

Table
1: A Framework for Supply Chain Coordination Initiatives
Causes of
Bullwhip

Demand
Forecast
Update

Order
Batching

Channel
Alignment

Information Sharing
Understanding
system dynamics
Use point-ofscale (POSI data)
Electronic data
Interchange
(EDI)
Internet
Computerassisted ordering
(CAO)

EDI
Internet
ordering

Price
fluctuation

Operational
Efficiency

Vendor
managed
inventory
Discount
for information
sharing
Customer
direct

Discount
for truck-load
assortment
Delivery
appointments.
Consolidati
on
Logistics
outsourcing.

Continuous
replenishment
program (CRP)
Everyday
low cost
(EDLC)

Lead-time
reduction
Echelonbased inventory
control

Reduction in
fixed costs of
ordering by EDI or
E-commerce.
CAO

Everyday low
price (EDLP)
Activitybased costing
(ABC)

contend that the bullwhip effect results from rational decision making in the Supply
Chain. Companies can effectively counteract the effect by thoroughly understanding its
underlying causes. Industry leaders like Proctor & Gamble are implementing innovative
strategies that pose new challenges organizational relationships, and implementing new
incentive and measurement systems. The choice of companies is clear: either let the
bullwhip effect paralyse you or find a way to conquer it.
How to Reduce the Bullwhip Effect
One way to reduce the bullwhip effect is through better information, either in the form of
improved communication along the supply chain or (presumably) better forecasts. Because
managers realize that end-user demand is more predictable than the demand experienced by
factories, they attempt to ignore signals being sent through the supply chain and instead focus on
the end-user demand. This approach ignores day-to-day fluctuations in favour of running
level.Another solution is to reduce or eliminate the delays along the supply chain. In both
real supply chains and simulations of supply chains, cutting order-to-delivery time by half
can cut supply chain fluctuations by 80%. In addition to savings from reduced inventory
carry costs, operating costs also decline because less capacity is needed to handle extreme
demand fluctuations.

The simplest way to control the bullwhip effect caused by forward buying and
diversions is to reduce both the frequency and the level of wholesale price
discounting.
In addition to cycle time reductions throughout the supply chain, Haul Lee, V. Padmanabhan, and
Seungjin Whang recommend the following actions to reduce the supply chain management
bullwhip effect:

1. Focus on end-user demand through point-of-sale (POS) data collection, electronic data
interchange (EDI), and vendor-managed inventories (VMI) to reduce distortions in
downstream communication.

2. Work with vendors to create smaller order increments and reduce order batching. Order
batching exacerbates demand fluctuations.

3. Maintain stable prices for products. Price fluctuations encourage customers to overpurchase when prices are low and cut back on orders when prices are high, leading to
large demand fluctuations.Allocate demand among customers based on past orders, not
present orders to reduce hoarding behaviour when shortages occur.

Supply Chain and IT

Information Technology is a prerequisite for successful Supply Chain Management (SCM)
today and will become even more so in the near future. The e-Logistics field is developing
very dynamically. Business-to business transactions are made via the Internet and ERP
systems manage the transactional information within the enterprise. While IT systems are
vital components in supply chains, their successful management relies on intelligent and
coordinated decision making throughout the logistics network. Intelligent Decision
Support using advanced decision technologies is becoming increasingly important in eLogistics and SCM as well. Data Warehouses and Data Mining can be used to store and
analyze product, inventory, and sales information. Simulation and optimization, which can
be found in advanced planning and scheduling systems, can be employed for, e.g.,
inventory, production, procurement and distribution planning. Intelligent agents can, e.g.,
communicate with different partners in a supply chain, assist in collecting information,
share product information, negotiate prices, and distribute alerts throughout the logistics
networks and SCM as well is a very active field in research, consulting, and software
development. Many such technologies or systems have been implemented recently or are
currently in the stage of implementation.
IT is an inseparable part of SCM.
Information technology (IT) is an essential element of the Supply Chain strategy of an
organization. SCM is, to a large extent, about managing information flows. Unfortunately,
lack of sophistication in the information system is still one of the biggest roadblocks to
Supply Chain integration today. IT investments are still guided by technology, functional
and internal considerations and not by business strategy and needs. There is a lack of
extended enterprise functionality, lack of flexibility, lack of more advance functionality
beyond transaction management, and lack of open, modular, internet-like system
architectures. The human error element too is painful.In the absence of trust and
partnership, organizations are not able to share information. It sometimes doesnt happen
even within Supply Chain activities. This leads to amplification of demand of the Supply
Chain, leading to the bullwhip effect. Firms are caught in a tricky situation: even when the
total demand variability is low, the variability in orders is very high. This increases the
Supply Chain cost, rendering these firms uncompetitive. The solution of this problem is a
centralised information system. A few organisations have taken the initiative to integrate
their distribution network by implementing enterprise resource planning and electronic
data interchange across branches networks.
However, their work is incomplete without their suppliers and channel partners. These
organisations do not have centralised information, which could lead to large variability in
orders due to smoothening at various levels of the Supply Chain.

Enterprise Resource Planning (ERP)

Enterprise Resource Planning is a term coined in the early 1990s. It began as a group of
applications or software focused on combining multiple systems into one integrated system
where data could be shared across the enterprise, presumably reducing redundant data entry and
processes. It was originally proposed for manufacturing and production planning.In the mid
1990s, ERP solutions expanded to include ordering systems, financial and accounting systems,
Finally, in the late 1990s, the solutions were again broadened to include systems that made it
possible for entrepreneurs and governmental entities to consider these solutions for their business
processes.The need to undergo an Enterprise Resource Planning project is seen as an opportunity
to not only integrate data systems, but to also redefine processes in the interest of gaining
efficiencies, as well as promote professional growth for employees by introducing new skills and
knowledge in the areas of data management and procedures.ERP systems have been widely
spread. ERP is followed by Wear-House Management systems, Customer Relationship
Management (CRM) and Transportation Management
ERP systems integrate the key execution functions across the business
EDI (ELECTRONIC DATA INTERCHANGE)

EDI allows the electronic transmission of orders, invoice and remittance information
between businesses. EDI has around since the late seventies and it is used as a replacement
for paper-based system has increased dramatically. The concept involves defining a
standard format for transmission of data between two businesses, which allows the whole
transaction process to be automated. Thus, the actual applications at each end neednt be
identical.
Why EDI?
Simple. EDI saves money. It accomplishes this by making more efficient use of valuable
personnel who are released from time-consuming paper work. It also moves business
efficiency by increasing throughput and reducing the scope for errors, and allows more
sophisticated automated business processes to be introduced.

How does EDI work?

EDI take information from a business process and delivers it to a trading partner - a
business that has agreed to participate in the electronic exchange of data. The data is
usually transmitted over a Value Added Network (VAN). The VAN is essentially a giant

virtual switchboard where data is shunted from one participating company to

another.Alternative data can be transferred directly. Direct transmission occurs when a
company connects directly to the computer of its trading partner using a dial-up
connection or dedicated line. Once the trading partner receives the information, the EDI
system will translate the standardised EDI data into the local format for use in the local IT
systems.
Advantages
EDI is an automated method for exchanging data and therefore it eliminates most of the
errors and time delays associated when people are involved.
Disadvantages
The disadvantage of this is that it requires two companies to use compatible hardware and
communications software.
The Postponement Strategy
THE CONCEPT OF POSTPONEMENT
The concept of postponement has a long history of practical applications, as well as academic
literature. Practical application of the concept can be traced back to the 1920's. The first detailed
empirical descriptions appeared in the 1960's. In the literature, the concept was originally
proposed by Alderson and later expanded by Bucklin. The logic behind postponement is that risk
and uncertainty costs are tied to the differentiation (form, place and time) of goods that occurs
during manufacturing and logistics operations. To the extent that parts of the manufacturing and
logistics operations can be postponed until final customer commitments have been obtained, the
risk and uncertainty of those operations can be reduced or fully eliminated.
The concept of postponement lies in organizing the production and distribution of products in
such a way that the customisation of these products is made as close to the point when the
demand is known as possible. Postponement belongs to a set of levers used in inventory
management to attack the variability of demand and supply. This set of levers can be divided into
proactive and reactive. Proactive levers directly attack the causes of variability; reactive levers
help to cope with its consequences. Together with substitution, specialization, and centralization,
postponement is a reactive lever.
The converse concept of postponement is speculation, which holds that changes in form, and the
movement of goods to forward inventories, should be made at the earliest possible time to reduce
the costs of the supply chain. Speculation makes it possible to gain economies of scale in
manufacturing and logistics operations, and limit the number of stock outs.

Optimal Postponement Preconditions

Implementation of postponement works best under certain demand, product and production
preconditions.
Demand Preconditions:

Fluctuation (e.g. seasonal hikes in demand for ski equipment)

Unpredictability (e.g. demand for high tech products with a short product life)

Urgency - operating on short required order lead times relative to the

production cycle (e.g. Benetton would not be able to run its full regular
production cycle after finding out which sweater colours sell best in the
season)

Differentiation - associated with distinct customer segments that require the

company to provide a product line in which the products have different
performance characteristics (e.g. different performance, technological or legal
requirements on the same product in different countries)

Negative correlation for the products in the product line (e.g. success of one
line of printers can have an adverse impact on the demand for the remaining
lines of printers)

Product/product line preconditions:

High product value - products with high unit value have high inventory
holding cost and high cost of oversupply. The postponement concept is best
applied if there is one particular component (or step in operations) that has a
significantly high value added. It makes intuitive sense to delay it. (for
example, in assembling a notebook computer, it would make sense to delay
the instalment and production of different LCD displays until the last minute
rather than the casing of the keyboard since an LCD display is much more
expensive than a keyboard casing).

High customisation - product lines with highly customized end products

usually find it difficult to forecast demand on a product basis. Additionally, it
is usually difficult to find alternative uses for them and therefore their cost of
oversupply is high. Because of this, it is important to realize which
production step has the most significant impact on customization of the

product (point of product differentiation). It makes sense to defer these

operations for the products in the product line (for example, in Benettons
case, it was difficult to forecast demand for each sweater colour; once the
sweater has been dyed in a certain colour, it is virtually impossible to change
it; if the colour did not sell well, the sweater could not be re-coloured).

High component commonality / modularity - component commonality refers

to a high degree of shared components across the product line. Shared
components result in inventory pooling effects and also shared production
process steps. The component commonality can be taken one step further in
the modularity concept, which uses sharing of bundles of the components
instead of single components.

Production preconditions:

Balanced process capabilities - capabilities, such as cost, time, quality and

flexibility need to be kept in balance. Delaying the component production
until shortly before the demand is known may imply producing in small
batches. However, if the set up and changeover cost of the production
equipment is high, there is a high level of scale economies in running
large batches that would be lost.
Availability and quality of the outside suppliers - in order to serve more
flexible production needs, the outside suppliers need to possess similar
capabilities in terms of flexibility of deliveries, speed of order fulfillment
and quality of service.
Availability of information and IT systems in place - a steady flow of
information is needed so that the company can effectively manage the
balance between the supply and the demand.

Postponement benefits:
Increased sales by being able to postpone the production to the point when the demand
is better known, the company can greatly improve its forecasting abilities and will run a
lower risk of losing sales, because the product is not available. Not only can the company
improve its performance in its existing business; the newly gained flexibility capabilities
can translate into dramatic improvements in meeting the customer requirements, which
can attract business that was previously not attainable.

 Lower inventory holding cost

Lower cost of obsolescence
Lower scrap cost
There are two sources of these benefits:
Improved forecasting
Delaying expensive operations and point of product differentiation this enables the
company to maintain the bulk of its inventories in the cheaper and/or pre-customized
form. As a result, company will achieve the benefits of a larger inventory buffer (pooling
effect) without having to carry the full cost of it.

The Postponement Strategy Examples

Paints Insta Color
Emulsion Paints Asian Paints
One of the first, and now classic, examples of this strategy was to postpone the colour of paint to
the retailer/customer level. Rather than holding a wide variety of premixed colours, retailers
began to stock paint in a neutral colour, and customize the final colour upon specific customer
orders. This of course, dramatically reduced the retailers' number of necessary stock keeping
units (SKU's).
Paints The Effect

Reduce Inventory Levels

Very High Customer Service
Reduction in Forecasting Errors
Product quality undiluted
No loss of scale economics

Hewlett Packard
Overview: Hewlett Packard is known as a leader in the application of postponement techniques.
One of the areas where they have done this most effectively is in customizing their printers close
to the local markets where they are actually being sold. The idea they use is to postpone

commitment of a printer to a certain geographic market by producing universal printers and then
applying power supplies and labels (the parts that differentiate printers for local markets) at the
last stage once demand is more certain. This allows them to gain pooling effects and therefore,
to better match supply and demand.
Traditionally, most computer peripheral manufacturers have built one plant for a major market,
such as the Americas, Asia, or Europe and then shipped product from this plant to regional
Distribution Centers (DCs) around that market. In many instances, only one worldwide plant
existed with shipments made from this plant to Distribution Centers around the world. These
Distribution Centers provided quick response to customer orders for products and were needed in
a major market to reach customers within a certain time window. This supply chain seemed to
make sense since there were some economies of scale to having a centralized plant supplying an
entire major market.
Problem: However, there are certain problems with the traditional system that necessitated
looking at the policy again. The first problem is the amount of finished goods inventory that
must be carried in the local Distribution Centers. Since shipments come from a distant plant, not
only did these Distribution Centers need to stock a large amount of inventory to compensate for
the lead-time, they also had to stock additional inventory to handle all of the product
proliferation that took place. For example, in Europe, many different versions of a single printer
model must be made due to the different power sources and sets of languages. Compounding this
problem is the increasing emphasizes placed on speed. The lead time from when a customer
orders a product to when they received it is being squeezed and HP had to find ways to reduce
cycle time while trying to keep inventory costs low. This squeeze on lead times means that
postponing back at the plant level is not an option. Local Distribution Centers are needed to meet
this short lead-time demand. So how can the apparently contradictory goals of increasing service
and reducing inventory be met?
Management Decision and Outcome: The solution, following the postponement philosophy,
was to actually build some assembly functions into their Distribution Centers. This way, the
plant could send generic printers to the Distribution Centers and they could be customized there
for the local markets. This allowed HP to take advantage of inventory pooling at the DC level
which dramatically cut inventory. Certainly, it seemed that this would increase costs since there
are economies of scale to these manufacturing processes. However, the decrease in inventory
more than made up for the increased cost in creating some assembly functions at the DC level.
Essentially, what HP did was postpone the customisation of the printer until the printer was
actually in the geographic area where the demand was coming from and until orders were more .

Motorola
Overview: Motorolas Land Mobile Products Sector/Radio Products Americas Group (RPAG)
has recently adopted a postponement manufacturing and distribution strategy for its two-way
radio (pager) business. The shift towards postponement allows RPAG to carry more variety
without increasing inventory. But on the other hand, the shift in strategy also requires additional
investment in its warehouse system.
Problem: RPAG builds radios for many national, regional, and local retailers. These retailers
often demand many different varieties in packaging, housing, and frequency because the ultimate
end users demand variety. In the past, products would be manufactured to stock from different
plants and then sent to the Atlanta DC.
Management Decision and Outcome: The recent shift in strategy is making to order. The most
expensive part of the radio, the circuit board, is still manufactured at various plants and sent to
the Atlanta DC. At the DC level, pre-manufactured circuit boards are now put in different
housing, label, and packaging only after an order is received. With the new strategy, the DC can
carry more variations of finished good products without tying up additional money in inventory.
Furthermore, customer service also improves because the DC no longer needs to rely on the
factory to ship special ordered products. The DC is able to customize packaging for short runs of
special products.
However, the new strategy also requires the DC to take on additional responsibilities. RPAG has
evolved from a push to a pull operation. Consequently, the DC must now be able to track and
move inventory more efficiently to meet customer demands. Thus, RPAG had to install a
warehouse management system (WMS) to control the flow of inventories. Furthermore, RPAG
also adopted vendor-managed inventory (VMI) for retail customers to better manage its
inventory.

The Integrated Supply Chain Strategy

In order to optimise performance, supply chain functions must operate in an integrated manner.
But the dynamics of the enterprise and the market make this difficult; materials do not arrive on
time, production facilities fail, workers are ill, customers change or cancel orders, etc. causing
deviations from plan. The Integrated Supply Chain Management (ISCM) addresses coordination
problems at the tactical and operational levels. It is composed of a set of cooperating, intelligent
agents; each performing one or more supply chain functions, and coordinating their decisions
with other agents -this is called a Logistical Execution System (LES). Our approach views
problem-solving as a constraint satisfaction/optimisation process where agents influence each
other's problem solving behaviour through the communication of constraints. Coordination
occurs when agents develop plans that satisfy their own internal constraints but also the

constraints of other agents. Negotiation occurs when constraints, that cannot be satisfied, are
modified by the subset of agents directly concerned. The recent advent of the Internet and WWW
as infrastructures for global connectivity has confirmed the distributed multi-agent orientation of
the project and has allowed us to develop new Internet agent technologies that can aptly support
the global integration and management of the supply chain

.
Achieving an Integration Supply Chain

Integrated Supply Chain

INBOUND
SUPPLY
CHAIN

Outsourcing
Inbound Transportation
Production Planning
(For Outsourcing &
in-house)

STORAGE

Warehousing
Inventory Control

OUTBOUND
SUPPLY
CHAIN

Order Processing /
Inventory
Outbound
Transportation

Performance Measurement

Delivery
Order fill rate
es
Cost
Inventory
Freight
Overheads

Service
On time

Time
Order cycle time
Replenishment lead-

time

Supply Chain Performance Metrics:

Why we are doing simulation? Because, we want to analyze our supply chain. We need a set of
performance metrics, which can be used to determine comparative efficiencies of different
configuration of supply chain. These metrics can be either qualitative or quantitative. Qualitative
factors include Customer satisfaction, flexibility of supply chain, information and material flow
integration etc. But since these can't be measured as numerical quantity, so it is very difficult to
do comparison based on it. Quantitative factors are as follows:
Cycle Time - can be supply chain process lead time or order-to-delivery of lead-time.
Customer service level - measured by computing order fill rate, stock out rate, back order rate
and delivery probability of each individual element. Inventory Levels and holding cost, Resource
Utilization, Transportation cost Beside this we can also include cost of raw materials, penalties
for incorrectly order filled etc to our performance metrices.
Job Scope Available
Role and Scope

Is crucial in any industry

Is critical for any product or Service
Can be the deciding factor in various industries
Available as an industry option by itself

Industry Independent Options

Purchase
Inventory Management
Production Planning
Warehousing
Transportation
Channel Management

As an Industry
Road Transport companies
Shipping Companies
Freight Forwarding Companies
Third Party Logistics companies