Enterprise Applications:

Part 2 Supply Chain

Management

Different Enterprise
Applications
Enterprise System (Part 1)
Supply Chain Management Systems
(Part 2 this presentation)
Customer Relationship Management
Systems (Part 3)

Supply Chain

SOURCE OF COSTS
SHIPPING COSTS
RAW MATERIALS FROM MANY SOURCES
MANUFACTURING FROM MANY SOURCES
CUSTOMERS ALL OVER THE WORLD
MOVEMENT OF MATERIAL COSTS MONEY
IF NOT MANAGED OPTIMALLY, SHIPPING
COSTS CAN BE HIGH

INVENTORY COSTS
STORAGE COSTS
INTEREST COSTS

INVENTORY COSTS
EVERYBODY IS HOLDING INVENTORY
WAITING FOR THE OTHER PERSON TO
ORDER
TYING UP MONEY
Inventory costs
INTEREST COSTS
STORAGE COSTS

ALSO CAN LEAD TO THE BULLWHIP EFFECT

Bull Whip Effect

BULL WHIP EFFECT

SMALL CHANGE IN DEMAND LEADS
TO LARGE CHANGES IN INVENTORY
(READ PETER SENGE THE FIFTH
DISCIPLINE)

STEADY STATE

MANUFACTUR
ER
MANUFACTURES:
4
SHIPS 4
STOCKS 4

DISTRIBUTOR

RETAILER

ORDERS 4
SHIPS 4
STOCKS 4

ORDERS 4
SELLS 4
STOCKS 4

Steady State
Retailer
At beginning of week has 8 units
Sells 4 Units
At end of week has 4 units
Orders 4 units
At beginning of next week has 8 units

Same with distributor and

manufacturer

Consider Small Change

Retailer has 8 units at start of week

Retailer sells 6 units that week.
Retailer has 2 units at end of week
Now has to order for next week
Wants to be prepared for higher sales
He sold 6 this week; wants to be ready
for sales of 6 again
So how much should he order?

Retailer Reasoning
Sales of 6 each week
So he should have 12 at beginning of
week
He has 2 in stock
So he orders 10, i.e., (12-2)
NOTICE:
Small change in sales (2) increased
weekly order from 4 to 10, i.e., by 6

Distributor Reasoning

Distributor has 8 units at beginning of week

Gets order for 10
At end of week, her inventory is -2.
She wants to be ready for sales of 10/week,
i.e., have 20 units at beginning of week.
She has -2
So she orders: 22
NOTE: Small change in consumer sales (2
units) has increased distributor order/week
from 4 to 22

Manufacturer Reasoning

Manufacturer has 8 units at beginning of week

Gets order for 22
At end of week, her inventory is -14.
She wants to be ready for sales of 22/week,
i.e., have 44 units at beginning of week.
She has -14
So she makes: 58
NOTE: Small change in consumer sales (2
units) has increased manufacturer
production/week from 4 to 58

Summary of Changes in
Orders
Increase in customer sales: 2
Increase in retailer order: 6 (4 to 10)
Increase in distributor order: 18 (4 to
22)
Increase in manufacturer production:
54 (4 to 58)

Summary of Changes in
Inventory
At beginning of week
Retailer from 8 to 12
Distributor from 8 to 20
Manufacturer from 8 to 44

Overall in supply chain

Inventory has increased from 24 (8+8+8) to 76
(12+20+44)

In other words, small change in sales leads to big

changes in inventory
This is known as bull whip effect.

HOW DO WE CONTROL?

Push and Pull

Push and Pull

Push (earlier method; still used by many
organizations)
Project demand
Make product
And work very hard to sell product
Advertising
Discounts

Pull (trend is towards this model)

Wait till customer orders
Then make and deliver
Just in time

Just-in-time
Deliver based on need

DANGERS OF JIT
IF THERE IS A BURP IN THE
SYSTEM, EVERYTHING CAN COME TO
A STANDSTILL.
FLU OF 1918

SUPPLY CHAIN SOFTWARE -1

SUPPLY CHAIN PLANNING
FLEXIBILITY FOR DIFFERENT DEMAND
LEVELS
INVENTORY LEVELS
RAW MATERIAL
INTERMEDIATE PRODUCTS
FINISHED PRODUCTS

WHERE TO STORE
HOW TO TRANSPORT

SUPPLY CHAIN SOFTWARE 2

Supply Chain Execution Systems
Tracks physical status

How much made

How much in warehouse
How much in transit where
If changes occur: e.g., more needed

Is product available in another location

Can product be made
Is transportation available
Is warehouse space available

SOURCES OF BUSINESS
VALUE
REDUCED INVENTORY COSTS
BETTER UTILIZATION OF
MANUFACTURING
AVOIDING SHORTAGES
REDUCING TRANSPORTATION COSTS

Supply Chain Management

Supply Chain
Push to Pull

Information Systems and Supply

Chain Management
Supply Chain Mgmt Software
Global Supply Chain (I skipped thisread in book)
Business Value

Supply Chain Management: Last

Slide
Keep inventory costs to a minimum
Keep shipping/storage costs to a
minimum