Determining Optimal Level of Availability in A Supply Chain

第八單元(2) ：Determining Optimal Level of Product Availability
Determining Optimal Level of

Product Availability
Optimal Matching of Supply and
Demand (III)
蔣明晃教授
【本著作除另有註明外，採取創用CC「姓名標示
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1
Supply Chain Decision-Making
Framework
Competitive strategy
Supply chain strategy
Efficiency Responsiveness
Supply chain structure
Inventory Transportation Facilities Information
Drivers
2
Levers for Increasing Supply Chain Profitability
► Decreasing the costs of overstocking and

understocking
► Reducing the demand uncertainty

》 Improved forecasting to lower uncertainty
》 Quick response: reduce lead time to
increase number of orders per season
》 Postponement of product differentiation
》 Tailored sourcing
Microsoft。
3
BENETTON
Benetton
Benetton
4
BENETTON
Benetton將毛衣的製造程序重新設計，將
原本先染色再編織的程序，改成先將毛線
編織成毛衣，等透過市場調查掌握市場流
行顏色後，才開始進行染色程序。如此，
Benetton公司可以避免大量顏色落伍的存
貨，每年因而節省數百萬美元的成本。
Benetton
Microsoft。
Benetton
5
BENETTON
72hr
12day
6 Microsoft。
ZARA
Microsoft。
Microsoft。
7 zara.com
What’s Quick Response?
► A widely used strategy

》By general merchandise, soft-lines retailers and
manufacturers
》To reduce retail out-of-stocks, forced markdown,
merchandising system and operating costs
► A partnership strategy
》Suppliers and retailers work together to respond more
rapidly to consumer needs
》By sharing POS information to jointly forecast future
demand for replenishable items, and to continuously
monitor trends to detect opportunities for new items
► A JIT strategy
》Spread through the supply chain and seamlessly
linked at each stage by electronic data interchange
8
Basic Elements of QR
Time horizons
Information Logistics
Supplier/
Manufacturing
Manufacturer
Operations
relationships
Philosophical/
Cultural change
9
Example: US Textile and
Apparel Industry in 1986
Synthetics (75%) highly concentrated
Fiber
》Ten firms provide more than 90% of market
More fragmented
Fabric 》6,000 firms
》12 firms provide 1/4 of market
Apparel Extremely fragmented

》15,000 firms (70% employ fewer than 50 people)
Retail Increasing concentration

Major categories:
》Department stores
》Mass merchandisers
》Mail order
》Chains
》Specialty stores
Increasing sophistication
Consumer Expectation of variety/change
Wide choice of retail outlets
10
The Inefficiencies
► Long supply chain

》 From raw material to consumer purchase was 66 weeks
》 11weeks in-plant time
》 40 weeks in warehouse or transit
》 15 weeks in store
► Problems of long supply chain
》 Expensive to finance
》 Too much or too little product was produced and distributed
► 1985-1986 overall loss - $25 billion
11
The Response
► Awaken the industry

》 Focus on the entire supply chain rather than separate
functions within it
► Targeting the common goals
》 Serve the consumer with the right products at the right time,
and the right price
► The total supply chain would achieve major gains in both
efficiency and effectiveness
12
Expected Results through QR
Fiber, Fabric, Apparel, and Retail Inventories (Working Weeks)
70 66
60 Retail
Apparel
50 46
Textile
40 Fiber
Weeks
Fig. 6-15
30
21
20
10
0
Present Quick Very quick
Average Cost per Unit QR system

13
Example: Benetton
► Benetton deliver knitted goods in the hottest new colors seemingly

overnight.
》 It knitted the sweaters in neutral yarn and then dyed them to
meet market demand.
》 Putting in place fast and sophisticated retailer reporting
systems.
► Key technologies
》 Bar code systems
》 Computer networks
》 Automated distribution center
》 EDI or Internet-based EC
》 CIM
14
ECR(Efficient Consumer Response)
ECR is a Global Industry Strategy in which Retailers

and Suppliers Work Together to Deliver Better
Consumer Satisfaction and Value.
15
What is Efficient Consumer Response?
A strategy in which distributors and suppliers are working closely

together to maximize grocery consumer satisfaction and minimize cost.
Timely, accurate, paperless information flow
Consumer
Supplier Distributor Retail store
household
Smooth, continual product flow matched to consumption
16
Anatomy of Efficient Consumer Response
Microsoft。
Microsoft。 Microsoft。 Codigofonte.net網站
Microsoft。
A consumer The scanner An automatic Because The retailer’s in-

purchases forwards the ordering production is tied store computer
“Product A” transaction record system allows directly into acknowledges
from a to an in-store the product A demand, retailers receipt of the
computer. The supplier to shipment and
supermarket. become
Product A match automatically
The transaction manufacturer, production to increasingly freed issues a computer-
is recorded by whose computers demand using from the need for generated payment
the store’s interface with the product excess inventory or electronic fund
scanner. retailer’s, notes movement and warehousing transfer payment,
the transaction information and of excess inventory, eliminating the
and automatically forecasting. thus opening the need for paper
reorders a door for increased invoices and
replacement unit cross-docking and streamlining the
on a just-in-time accounting process.
direct store
basis.
delivery shipments.
17
Efficient Consumer Response Process
Change management
Replenishment
Integrated EDI
Continuous replenishment
Promotion Computer-assisted ordering Retail
Manufacturing
business Flow-through distribution business
strategy Activity-based costing strategy
Store assortments
Category management
Flexible manufacturing
Product introductions
Open communication
18
ECR Strategies & Objectives
Strategies Objectives
Optimize the productivity of

Efficient Store Assortment inventories and store space at the
consumer interface
Optimize time and cost in the
Efficient Replenishment
replenishment system
Maximize the total system
Efficient Promotion/Pricing efficiency of trade and consumer
promotion & pricing
Maximize the effectiveness of new
Efficient Product Introductions product development and
introduction activities
19
ECR Components
► Logistics (Supply Side)

》 Continuous Replenishment
》 Cross Docking
► Category Management (Demand Side)
》 Understanding Consumer Needs
》 Decisions Made with Data
》 Category vs. Brand Focused
》 Total Systems Approach
► Enabling Technologies (Tools)
》 Electronic Fund Transfer (EFT)
》 Electronic Data Interchange (EDI)
》 Activity Based Costing (ABC)
》 Item Coding & Database Maintenance
20
Example: Throughput Time Improvement
of Dry Grocery
CURRENT DRY GROCERY

CHAIN
Distribution warehouse
Packing Supplier warehouse (Forward buy 9 days, Retail store Consumer
line 38 days turn inventory 31 days) 26 days Purchase
40 days
104 days
ECR DRY GROCERY CHAIN

Distributor
Packing Supplier warehouse warehouse Retail store Consumer
line 27 days 22 days Purchase
12 days
61 days
21
ECR Requirements
► Think Total Supply Chain

》Multi-Function, Multi-Echelon Cooperation
► Convert Efficiencies to Customer Value
》Drive True Efficiency and Recognize Inefficiency
► Emphasize on Consumer
》Work Together to Create Demand
► Change Business Processes
》Identify What’s Wrong Today
► Trust
》To be Partners
》Share Data
22
Example: P&G’s CRP Process
Direct store level shipment

臺灣大學郭瑞祥老師
Stores
Store
Delivery Orders
Dedicated Carriers and Demand and

Prescheduled Inventory
Appointments
Codigofonte.net網站
Customer
Distribution
Centers
Shipping info. Ordering info
Codigofonte.net網站 Codigofonte.net網站
P&G Customer
Plant Headquarters
Codigofonte.net網站
P&G
23
Headquarters
Barriers
► Lack of Trust
► Lack of Fairness - Open Trading
► No Information Sharing
► Lack of Resource Commitment
► Lack of Industry Standards
► Culture (Negotiation Environment)
► Measurement/Rewards
24
Quick Response: Multiple
Orders per Season
► Ordering shawls at a department store

》Selling season = 14 weeks
》Original replenishment lead time = 15 weeks
》Reduced replenishment lead time = 6 weeks
》Cost per handbag = $40
》Sale price = $150
》Disposal price = $30
》Holding cost = $2 per week
► Expected weekly demand = 20
► SD of weekly demand = 15
25
Quick Response: Multiple
Orders per Season
► Two ordering policies:

》A single order must arrive at the beginning of the
season to cover the entire season’s demand
》Two orders are placed in the season, one arriving
at the beginning of the season and the other
arriving at the beginning of the eighth week
► Two situations:
》The buyer’s forecast accuracy doesn’t improve for
second order
》The buyer’s forecast accuracy does improve for
second order
26
Impact of Quick Response: Forecast doesn’t
improve for second order (SD=15 )
20  14 + 1.75  14  15 20  7 + 1.75  7  15 209  2 - 69
Single Order Two Orders in Season
Average Average
Service Order Expect. Initial OUL for Ending Expect.
Overstoc Total
Level Size Profit Order 2nd Order Invent. Profit
k Order
0.96 378 97 $23,624 209 209 349 69 $26,590
0.94 367 86 $24,034 201 201 342 60 $27,085
0.91 355 73 $24,617 193 193 332 52 $27,154
0.87 343 66 $24,386 184 184 319 43 $26,944
0.81 329 55 $24,609 174 174 313 36 $27,413
0.75 317 41 $25,205 166 166 302 32 $26,916
27
Observations
 It’s possible to provide the same level of product availability to

the customer with less inventory if a second follow-up order is
allowed
 The average overstock to be disposed of at the end of the
sales season is less if two orders are allowed
 The profits are higher if second order is allowed
28
Leftover Inventory vs. Number
of Order Cycles per Season
Unsold Inventory
at End of Season
Number of Order Cycles

per Season
29
Expected Profit vs. Number of
Order Cycles per Season
Expected Profit
Number of Order Cycles

per Season
30
Forecast Improves for Second
Order (SD=3 instead of 15) 20  7 + 1.75  7 3
Single Order Two Orders in Season

OUL for Average
Service Order Average Expect. Initial Ending Expect.
2nd Total
Level Size Overstock Profit Order Invent. Profit
Order Order
0.96 378 96 $23,707 209 153 292 19 $27,007
0.94 367 84 $24,303 201 152 293 18 $27,371
0.91 355 76 $24,154 193 150 288 17 $26,946
0.87 343 63 $24,807 184 148 288 14 $27,583
0.81 329 52 $24,998 174 146 283 14 $27,162
0.75 317 44 $24,887 166 145 282 14 $27,268
31
Notes
 Quick response is clearly advantageous to a retailer.

 But as the retailer order size drops, the manufacturer
sells less to the retailer. Thus, the manufacturer
make a lower profit in the short term if all else is
unchanged. It seems to benefit retailer at the
expense of the manufacturer.
32
Meaning of Postponement
 Delay the timing of the crucial processes in which

end products assume their specific functionality,
features, identities, or ‘personality’
 Can be viewed as information strategy
 3 different kinds of postponement:
》pull, logistics, form
33
Pull Postponement
 BTS vs BTO
 Decoupling point: the point from which the process
switches from a build-to-stock mode to the build-to-
order mode.
 Meaning of pull postponement:
》Making the decoupling point earlier in the process.
34
Pull Postponement
 Basic Elements:
》The process steps must be sequenced so that the
less differentiating steps are performed at prior to
the decoupling point.
》After the decoupling point, the process steps can
be performed flexible and fast.
》Accurate order capture for BTO.
 Example: National Bicycle, Benetton.
35
延遲差異化
延遲差異化(Postponement Differentiation)之
意義
》此種延遲主要是運用在最終產品的需求未
確定時,先生產一些通用或產品族共通的部
分,等到特定的產品需求確定後再進行生產
或製造,以減少不確定性
36
延遲差異化的做法
作業程序的重排序(Resequencing)
》例子: Benetton, postpone dyeing until after
assembled. Cost: 10% more expensive, new
machine purchased and employee retrained.
》例子: US disk drive manufacturing. Insert generic
circuit board into assembly, complete much of the
testing, remove the generic circuit board, and add
customer-specific boards later.
37
產品的共通性(Commonality)
》利用產品線或產品族的重新設計來達成
》例子: Printer manufacturing, redesign the new
and old products to share a common circuit board
and printhead such that final process can be
delayed.
38
模組化(Modularity)：
》模組化產品設計：將功能採模組化，使各個模組能
夠簡易且以較低成本的添加到產品上。例子： HP
Laser Jet
》模組化製程設計：製程應設計盡量獨立的生產模組，
容易因應不同的要求進行彈性的調整。例子：print-
and-pigment mixture, Levis jeans
39
標準化(Standardization):
》建立數種顧客所需的標準化產品之選擇.
機動敏捷的供應網路(Agile Supply Networks)
》某些網路節點存放基本的產品, 並在收到顧
客訂單時進行客製化的最後作業.
40
延遲差異化施行的考量
重新排序或延遲時所需資本投入之考量。
重新排序或延遲時所需技術與能力之考量。
延遲的結果可能使存貨成本提高。
在國際運籌作業中，各進出口國對原物料，零
組件或在製品的關稅考量。
41
Logistics Postponement
 Meaning:
》 Redesign the tasks in the SC so that some of
the customization steps can be performed
downstream closer to the customers.
42
Concurrent and Parallel Processing
 Concurrent and parallel processing involves

modifying the manufacturing process so that steps
that were previously performed in a sequence can
be completed at the same time.
》 reduce lead time
》 reduce inventory cost
 A key is the concept of modularity or decoupling
43
Requirements for logistics postponement
 can not lead to quality degradation.

 downstream sites have capability to perform the
task without excessive cost and time.
 potentially to procure the necessary components or
modules for the customization.
 the engineering team is able and willing to design
products and processes to defer the steps
effectively.
44
Form Postponement
 Meaning:
》postponement is achieved through the change in
the form of the product structure by standardizing
some of the process steps or components.
 Example: HP Laser Printer.
45
Postponement Enablers
 Products or processes should be modular in

structure.
 Design engineer should be aware of the importance
of SCM to pursuit design for postponement
opportunity.
 Must involve multiple functions or organization in
collaboration.
 Quantify the costs and benefits to determine the best
point for postponement
46
The Value of Postponement
► Improve matching of supply and demand: need to

qualify the benefit with additional cost
► Increase profitability: differentiate after receiving
customer order so that inventories can be reduced
► Valuable for selling a large variety of products with
demand that is independent and comparable in size
47
Value of Postponement: Benetton
 For each color

》 Mean demand = 1,000; SD = 500
 For each garment

》 Sale price = $50
》 Salvage value = $10
》 Production cost using option 1 (thread are dyed and the
garment was knitted) with long lead time = $20
》 Production cost using option 2 (dying was postponed until
after the garment was knitted) = $22
 What is the value of postponement?
48
 Option 1:
》 CSL* = (p - c) /(p - s) = 30/40 = 0.75
》 O* = NORMINV(0.75, 1000, 500) = 1,337 units of each color
》 Expected profits from each color = $23,644
》 Expected overstock for each color = 412
》 Expected understock for each color = 75
》 5348 sweaters are produced, expected profit of $94,576 with
an average of 1,648 sweaters sold on clearance and 300
customers turns away for lack of sweaters
49
 Option 2: c = $22 instead of $20

》 CSL* = (p - c) /(p - s) = 28/40 = 0.70
》 O*A = NORMINV(0.70, 10004, 500 4 ) = 4,524 units
》 Expected profits = $98,092
》 Expected overstock for each color = 715
》 Expected understock for each color = 190
 Expected profit increases from $94,576 to $98,092

 Expected overstock declines from 1,648 to 715
 Expected understock declines from 300 to 190
50
Value of Postponement with
Dominant Product
 Color with dominant demand (red): Mean = 3,100, SD = 800
 Other three colors: Mean = 300, SD = 200
 Option 1:
》 CSL* = 0.75
》 Optimal production of red sweaters O* = NORMINV(0.75,
3100, 800) = 3,640; expected profit = $82,831, expected
overstock = 659, expected understock = 119
》 Optimal production of each other color sweater = 435;
expected profit = $6,458, expected overstock = 165,
expected understock = 30
》 Total production = 4,945, expected profit = $102,205,
expected overstock = 1,154, expected understock = 209
51
Value of Postponement with
Dominant Product
 Option 2:
》 A = 3100 + 3300 = 4,000; A = 800 2  200 2  3  872

》 Total production = 4,457; expected profit = $99,872,
expected overstock = 623, expected understock = 166
 Expected profit without postponement = $102,205

 Expected profit with postponement = $99,872
52
Meaning of Pure Postponement
 Postponement may reduce overall profit for a firm if a

single product contributes the majority of the demand,
since the increased manufacturing expense due to
postponement outweighs the small benefit from
aggregation
53
Tailored Postponement: Benetton
 On the portion of the certain demand, postponement provides

little value, thus, company needs to use lower cost method.
 On the portion of the uncertain demand, postponement
significantly improves forecast accuracy, thus, company is
willing to incur higher cost to achieve the benefit.
 Produce Q1 units for each color using Option 1 and QA units
(aggregate) using Option 2
54
Tailored Postponement: Benetton
Manufacturing Policy Average Average Average

Q1 QA Profit Overstock Understock
0 4524 $97847 510 210
1337 0 $94377 1369 282
700 1850 $102730 308 168
800 1550 $104603 427 170
900 950 $101326 607 266
900 1050 $101647 664 230
1000 850 $100312 815 195
1000 950 $100951 803 149
1100 550 $99180 1026 211
1100 650 $100510 1008 185
55
The Benefit of Tailored Postponement
 Tailored postponement allows a firm to increase its

profitability by postponing only the uncertain part of
the demand and producing the predictable part at a
lower cost without postponement
56
The Meaning of Tailored Sourcing
 A combination of two supply sources: one focusing

on cost but unable to handle uncertainty well, and the
other focusing on flexibility to handle uncertainty but
a higher cost
 A backup policy
 Disadvantage: increasing complexity of
implementation
57
Tailored Sourcing
 Sourcing alternatives
》 Low cost, long lead time supplier
 Cost = $245, Lead time = 9 weeks
》 High cost, short lead time supplier
 Cost = $250, Lead time = 1 week
58
Tailored Sourcing Strategies
Fraction of demand from

Annual Profit
overseas supplier
0% $37,250
50% $51,613
60% $53,027
100% $48,875
59
Tailored Sourcing: Multiple Sourcing Sites
Characteristic Primary Site Secondary Site
Manufacturing Cost High Low
Flexibility
High Low
(Volume/Mix)
Responsiveness High Low
Engineering Support High Low
60
Dual Sourcing Strategies
Strategy Primary Site Secondary Site
Volume based dual

Fluctuation Stable demand
sourcing (Benetton)
Product based dual Unpredictable

Predictable, large
sourcing(Levi products, Small
batch products
Strauss) batch
Model based dual Older stable

Newer products
sourcing products
61
Contracts for Product Availability
and Supply Chain Profits
 Many shortcomings in supply chain performance occur because

the buyer and supplier are separate organizations and each
tries to optimize its own profit
 Total supply chain profits might therefore be lower than if the
supply chain coordinated actions to have a common objective of
maximizing total supply chain profits
 Double marginalization results in suboptimal order quantity
 An approach to dealing with this problem is to design a contract
that encourages a buyer to purchase more and increase the
level of product availability
 The supplier must share in some of the buyer’s demand
uncertainty
62
Contracts for Product Availability
and Supply Chain Profits
 Many shortcomings in supply chain performance occur because

the buyer and supplier are separate organizations and each
tries to optimize its own profit
Impact
 Total supply chainof Supply
profits Chain be
might therefore Contracts on
lower than if the
Profitability:
supply chain Buyback
coordinated actions to have a Contracts
maximizing total supply chain profits
common objective of
 Buybacks
 Double by publishers
marginalization results in suboptimal order quantity
 An
 approach
Tech Fibertoproduces
dealing with thisatproblem
jacket v = $10isand
to design
charges aacontract
wholesale
that price
encourages a buyer
of c = $100. Skito purchasesells
Adventure morejacket
and increase the
for p = $200.
level of product availability
Demand is normal distributed with =1,000 and =300. Unsold
 The jackets
supplierhave
mustnoshare in some
salvage value. of the buyer’s demand
uncertainty
 Should TF be willing to buy back unsold jackets? Why?
 CSLSA = 0.5, SA orders 1,000, expected profit = $76,063; TF
sells 1,000 for a total profit of $90,000. Total expected SC profit
= $166,063
63
Impact of Supply Chain Contracts on
Profitability: Buyback Contracts
 Buybacks by publishers
 Tech Fiber produces jacket at v = $10 and charges a wholesale
price of c = $100. Ski Adventure sells jacket for p = $200.
jackets have no salvage value.
= $166,063
64
The Categories of Supply Contract
 Horizon Length
 Pricing: linear (proportional) or non-linear (two-part
tariff); buyback, holding cost subsidies, payment for
inability to supply
 Periodicity of ordering: fixed or random
 Quantity commitment:
》 Total minimum commitment: quantity or dollar value
》 Periodical commitment
》 Demand commitment
》 Capacity commitment
65
The Categories of Supply Contract
 Flexibility:
》 Magnitude or frequency of adjustments
 Delivery commitment:
》 Lead time
》 Shipment policy
 Quality: defect rates, specifications
 Information sharing
66
Supplier Selection and Contracts
 Contracts for Product Availability and Supply Chain Profits

》 Buyback Contracts
》 Revenue-Sharing Contracts
》 Quantity Flexibility Contracts
 Contracts to Coordinate Supply Chain Costs
 Contracts to Increase Agent Effort
 Contracts to Induce Performance Improvement
67
 Buybacks by publishers
 Tech Fiber produces jacket at v = $10 and charges a wholesale
price of c = $100. Ski Adventure sells jacket for p = $200.
jackets have no salvage value.
= $166,063
68
 For entire SC, SC makes $190 for each jacket sold,

and only loses $10. Thus, the cost of understocking
is $190, and the cost of overstock is $10.
 The optimal CSL for entire SC is 0.95 and produce

1,493 jackets. Total SC profit is $183,812.
69
Return Policy : Buyback
contracts
 Issue of Double Marginalization

 Wholesale price c
 Buyback price b
 Manufacturing salvage value $sM
 The salvage value for retailer is s=b
 Optimal order quantity O*
 Expected manufacturing profit
= O*(c-v) – b  expected overstock at retailer
70
Buyback Contracts
Wholesal Buy- Optimal Expected Expected Expected Expected

e Price c back Order Profit for Returns Profit for Supply
price b Size for SA to TF TF Chain
SA Profit
$100 $0 1000 76063 120 90000 166063
100 30 1067 80154 156 91338 171492
100 60 1170 85724 223 91886 177610
110 0 962 66252 102 96230 162482
110 78 1191 78074 239 100480 178555
110 105 1486 86938 493 96872 183810
120 0 924 56819 80 101640 158459
120 96 1221 70508 261 109225 179733
120 116 1501 77500 506 106310 183810
71
Buyback Contracts
 Manufactures can use buyback contracts to increase their own

profit as well as total supply chain profits. Buyback contract also
encourage retailers increase product availability
 Manufactures need to consider the cost associated with a return
 As the cost associated with a return increases, buyback
contracts become less attractive.
 Applications: (1) bookstores return the cover of the book to
reduce the cost of return; (2) manufactures use holding cost
subsidies.
72
Contracts for Product Availability and Supply
Chain Profits: Buyback Contracts
 Allows a retailer to return unsold inventory up to a specified

amount at an agreed upon price
 Increases the optimal order quantity for the retailer, resulting in
higher product availability and higher profits for both the retailer
and the supplier
 Most effective for products with low variable cost, such as music,
software, books, magazines, and newspapers
 High tech industry provides price support for retailers due to
price drop rapidly
73
Chain Profits: Buyback Contracts
 Downside:
》 Results in surplus inventory that must be disposed of, which
increases supply chain costs
》 Lead the retailer to exert less effort to sell
》 May increase information distortion through the supply chain
because the supply chain reacts to retail orders, not actual
customer demand
74
Revenue Sharing Contracts
 Manufacture charges the retailer a low wholesale

price and shares a fraction of the revenue generated
by the retailer.
 The retailer cost will be decreased due to lower

overstock cost, thus, retailer will increase the level of
product availability resulting higher profits for both
manufacturer and retailer.
75
 Manufacturer’s production cost = v

 Wholesale price charged by manufacturer = c
 Manufacturer shares a fraction f of the retailer’s revenue
 Retailer charges a retail price p and has a salvage value sR for
unsold items.
 The understocking cost = Cu = (1-f)p – c
 The overstocking cost = Co = c – sR
76
Cu (1  f ) p  c
CSL*  probabilit y(demand  O *)  
Cu  Co (1  f )p  sR
Expected manufactur er' s profit
 (c  v )O * fp(O *  expected overstock at retailer )
Expected retailer' s profit
 (1  f ) p(O *  expected overstock at retailer )
 sR  expected overstock at retailer - cO *
77
 Example: TF charges only c = $10 for each jacket,

SA sells the jacket for p = $200 and shares f of the
revenue to TF. Demand at this price is normal
distributed with a mean 1000 and a standard
deviation 300. Assume that no salvage value for any
leftover jackets.
78
Wholesale Revenue- Optimal Expected Expected Expected Expected
Price c Sharing Order Size Overstock Profit for Profit for Supply
Fraction f for SA At SA SA TF Chain Profit
$10 0.3 1440 449 124273 59429 183702
10 0.5 1384 399 84735 98580 183315
10 0.7 1290 317 45503 136278 181781
10 0.9 1000 120 7606 158457 166063
20 0.3 1320 342 110523 71886 182409
20 0.5 1252 286 71601 109176 180777
20 0.7 1129 195 33455 142051 175506
79
 Observations: revenue sharing with a lower

wholesale price allows both retailers and
manufactures to increase their profit. The revenue
sharing encourages retailers to increase the level of
product availability
 Applications: video rental industry, such as

Blockbuster.
80
Chain Profits: Revenue Sharing Contracts
 The buyer pays a minimal amount for each unit

purchased from the supplier but shares a fraction of
the revenue for each unit sold
 Decreases the cost per unit charged to the retailer,

which effectively decreases the cost of overstocking
81
Chain Profits: Revenue Sharing Contracts
 Have a similar effect as buyback contracts but eliminate the cost

of returns
》 Lower retailer effort
》 Suited for products with low variable cost and a high cost of
return
》 Result in supply chain information distortion
 Enabler: require an information infrastructure to monitor sales at
retailer
82
Quantity Flexibility Contracts
 If a retailer order O units the manufacturer commits to supplying

up to Q = (1+)O and the retailer commits to buying q = (1-)O
 How can quantity flexibility contracts help increase profitability?
83
 Manufacturing cost per unit: v

 Wholesale price: c
 Retailing price: p
 Retailer salvage value: sR
 Manufacture salvage value: sM
 Demand (2)
84
 Scenario:
》 Retailer orders O units, manufacture commits to supply Q
units
》 Manufacturer produces Q units
》 Retailer purchases q units if demand R is less than q; R
units of demand R is between q and Q; Q units if demand is
higher than Q
85
 Expected quantity purchased by retailer
Q
QR  qF (q )  Q[1  F (Q )]   xf ( x )dx
q
Q q Q q

 qF (q )  Q[1  F (Q )]   [FS ( )  FS ( )]   [fS ( )  fS ( )]
   
 Expected quantity sold by retailer

Q
DR  Q[1  F (Q )]   xf ( x )dx
0
Q Q
 Q[1  F (Q )]  FS ( )  fS ( )
 
86
 Expected overstock at retailer
QR  DR
 Expected retailer profit
D R  p  (Q R  D R ) s R  Q R  c
 Expected manufacture profit
Q R  c  (Q  Q R ) s M  Q  v
87
Expected Expected Expected Expected Expected
Wholesal Order
  e price c size O
purchase sale by profits for profits for supply
by SA SA SA TF chain profit
0.00 0.00 $100 1,000 1,000 880 $76,063 $90,000 $166,063
0.20 0.20 $100 1,050 1,024 968 $91,167 $89,830 $180,997
0.40 0.40 $100 1,070 1,011 994 $97,689 $86,122 $183,811
0.00 0.00 $110 962 962 860 $66,252 $96,200 $162,452
0.15 0.15 $110 1,014 1,009 945 $78,153 $99,282 $177,435
0.42 0.42 $110 1,048 1,007 993 $87,932 $95,879 $183,811

$101,64
0.00 0.00 $120 924 924 838 $56,819 $158,459
0
$108,00
0.2 0.2 $120 1,000 1,000 955 $70,933 $178,933
0
$104,80
0.5 0.5 $120 1,040 1,003 996 $78,874 $183,677
3
88
Quantity Flexibility Contract
 Common for components in the electronic and

computer industry
 Example:
》 Benetton: retailer required to place order 7 months before
delivery, but allow retailer to alter up to 30% quantity
ordered in any color and assign to another color 3 months
before delivery and allow retailer to alter up to 10% after the
start of the season
89
Chain Profits: Quantity Flexibility Contracts
 Allows the buyer to modify the order (within limits) as

demand visibility increases closer to the point of sale
 Better matching of supply and demand
 Increased overall supply chain profits if the supplier
has flexible capacity
 Can be effective if a supplier sells to multiple retailers
with independent demand
90
Chain Profits: Quantity Flexibility Contracts
 Downsize:
》 Supplier needs to have inventory or excess flexible capacity
》 Lower levels of information distortion than either buyback
contracts or revenue sharing contracts due to aggregation of
uncertainty from supplier
》 Lower retailer effort
91
Vendor-Managed Inventory(VMI)
 VMI: manufacturer or supplier is responsible for all decisions
regarding product inventories at the retailer
 Requirements: share info from retailers
 Benefits:
》 Increase profit of manufacturer
》 Improve manufacturer forecast accuracy
》 Avoid double marginalization
 Drawbacks:
》 Impact of product substitution to bring higher inventory in
retailer
92
CPFR Model
1. 協同合作協議
CP
2. 協同商業計劃
3. 共同的銷售預測
CF
4. 例外狀況的判定
與處理
5. 共同的訂單預測
6. 例外狀況的判定
CR
與處理
7. 訂單產生 Business Wire網站
93
導入CPFR的好處
•避免不必要庫存 •提升流程效率
–庫存成本 –訂單管理
–報廢 –採購
–外部庫存 –人力管理
CPFR
•增加收益 •提高物流利用率
–避免缺貨 –提高配送效率
–提高促銷效率 –整合運輸管理
–提升業績
94
協同規劃，預測與補貨(Collaborative Planning,
Forecasting, and Replenishment, CPFR)
目標：
》對共同作業過程，格式與績效指標的協調一致
》透過POS資料，分享一個共同預測與需求規劃
》在一個協調機制下，對需求滿足，滿足的優先
次序與供應分配的管理之相互溝通
》對未來促銷的預先通知以減少長鞭效應
》透過共同技術的分享，使需求，存貨與運送的
資料更透明化
95
協同規劃，預測與補貨(CPFR)
指導原則：
》共同交易架構的建立：語言，作業模式，
與資料標準
》企業的流程必須清楚定義
》作業的流程與共同的術語必須轉換成特定
與共同的標準
96
協同規劃，預測與補貨(CPFR)
績效指標：
》預測準確度的提升
》顧客服務水準的提高
》缺貨率的降低
》存貨水準的降低
》較佳的財務資金結構
97
CPFR Roadmap
 Published by VICS (Interindustry Commerce

Standard Association)
 Nine steps:
》 Develop guidelines for the relationships
》 Develop a joint business plan
》 Create a sales forecast
》 Identify exceptions for the sales forecast
》 Collaborate on exception items
》 Create an order forecast
》 Identify exceptions for the order forecast
》 Resolve/collaborate on exception items
》 Generate orders
98
Contracts to Coordinate
Supply Chain Costs
 Differences in costs at the buyer and supplier can lead to

decisions that increase total supply chain costs
 Example: Replenishment order size placed by the buyer. The
buyer’s EOQ does not take into account the supplier’s costs.
 A quantity discount contract may encourage the buyer to
purchase a larger quantity (which would be lower costs for the
supplier), which would result in lower total supply chain costs
but higher inventory levels and lot sizes
 Quantity discounts lead to information distortion because of
order batching
99
Contracts to Increase Agent Effort
 There are many instances in a supply chain where an agent

acts on the behalf of a principal and the agent’s actions affect
the reward for the principal
 Example: A car dealer who sells the cars of a manufacturer, as
well as those of other manufacturers
 Examples of contracts to increase agent effort include two-part
tariffs (a franchise fee and sell product at cost) and threshold
contracts (increasing margin to dealer for higher threshold)
 Threshold contracts increase information distortion, however.
One way to offer threshold incentives over a rolling horizon.
100
Contracts to Induce
Performance Improvement
 A buyer may want performance improvement from a supplier

who otherwise would have little incentive to do so
 A shared savings contract provides the supplier with
a fraction of the savings that result from the performance
improvement such as lead time, quality
 Particularly effective where the benefit from improvement
accrues primarily to the buyer, but where the effort for the
improvement comes primarily from the supplier
101
版權聲明
頁碼作品授權條件作者/來源
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft 服務合約

3 及著作權法第46、52、65條合理使用。
Benetton。
本作品轉載自網站(http://www.benetton.com/ )，瀏覽日期2012/1/11。依據
4 著作權法第46、52、65條合理使用。(因網站商品隨時更新，故此頁面無
永久性網址。)
Benetton。
本作品轉載自網站(http://www.benetton.jp/ )，瀏覽日期2012/1/11。依據
永久性網址。)
Benetton。
永久性網址。)
Benetton。
永久性網址。)

5, 6 及著作權法第46、52、65條合理使用。
102
版權聲明


zara。本作品轉載自網站
(http://www.zara.com/webapp/wcs/stores/servlet/home/es/es/zara-W2011-r )，
7 瀏覽日期2012/1/11。依據著作權法第46、52、65條合理使用。(因網站商
品隨時更新，故此頁面無永久性網址。)




103
版權聲明
本作品轉載自Codigofonte.net網站(http://www.codigofonte.net/galeria-de-
17 imagens/cliparts/23) ，瀏覽日期2012/2/20。依據著作權法第46、52、65條
合理使用。
23 臺灣大學郭瑞祥老師
23 imagens/cliparts/visualizar/FABRICA2.gif)，瀏覽日期2012/2/18。依據著
作權法第46、52、65條合理使用。
23 imagens/cliparts/visualizar/PREDIO4.jpg)，瀏覽日期2012/2/22。依據著作
權法第46、52、65條合理使用。
本作品轉載自Business Wire網站
(http://www.businesswire.com/multimedia/home/20040518005256/en/108853
93 7/VICS-CPFR-Moving)，瀏覽日期2012/2/22。依據著作權法第46、52、
65條合理使用。
104

Determining Optimal Level of Availability in A Supply Chain

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第八單元(2) ：Determining Optimal Level of Product Availability

Determining Optimal Level of

Supply chain strategy

Inventory Transportation Facilities Information

► Decreasing the costs of overstocking and

► Reducing the demand uncertainty

► A widely used strategy

Apparel Extremely fragmented

Retail Increasing concentration

► Long supply chain

► Awaken the industry

Fiber, Fabric, Apparel, and Retail Inventories (Working Weeks)

Average Cost per Unit QR system

► Benetton deliver knitted goods in the hottest new colors seemingly

ECR is a Global Industry Strategy in which Retailers

A strategy in which distributors and suppliers are working closely

Timely, accurate, paperless information flow

Smooth, continual product flow matched to consumption

A consumer The scanner An automatic Because The retailer’s in-

Optimize the productivity of

► Logistics (Supply Side)

CURRENT DRY GROCERY

ECR DRY GROCERY CHAIN

► Think Total Supply Chain

Direct store level shipment

Dedicated Carriers and Demand and

► Ordering shawls at a department store

► Two ordering policies:

20  14 + 1.75  14  15 20  7 + 1.75  7  15 209  2 - 69

Single Order Two Orders in Season

0.96 378 97 $23,624 209 209 349 69 $26,590

0.94 367 86 $24,034 201 201 342 60 $27,085

0.91 355 73 $24,617 193 193 332 52 $27,154

0.87 343 66 $24,386 184 184 319 43 $26,944

0.81 329 55 $24,609 174 174 313 36 $27,413

0.75 317 41 $25,205 166 166 302 32 $26,916

 It’s possible to provide the same level of product availability to

Number of Order Cycles

Number of Order Cycles

Single Order Two Orders in Season

0.96 378 96 $23,707 209 153 292 19 $27,007

0.94 367 84 $24,303 201 152 293 18 $27,371

0.91 355 76 $24,154 193 150 288 17 $26,946

0.87 343 63 $24,807 184 148 288 14 $27,583

0.81 329 52 $24,998 174 146 283 14 $27,162

0.75 317 44 $24,887 166 145 282 14 $27,268

 Quick response is clearly advantageous to a retailer.

 Delay the timing of the crucial processes in which

 Concurrent and parallel processing involves

 A key is the concept of modularity or decoupling

 can not lead to quality degradation.

 Products or processes should be modular in

► Improve matching of supply and demand: need to

 For each color

 For each garment

 What is the value of postponement?

 Option 2: c = $22 instead of $20