CHAPTER 3: THE VALUE OF INFORMATION

Problem 1: Answer these questions about the Barilla case study?

a) Diagnose the underlying causes of the difficulties that the JITD program was created to solve?

What are the benefits and drawbacks of this program?

Answer : JITD was created to solve the problems of a) effects of fluctuating demand (Bullwhip Effect)
b) stockouts issue that strain Barilla’s manufacturing and logistics operations.

Benefits: Barilla can make better delivery decisions and improve its demand forecasts, be more
effectively meet end-consumer’s need and more evenly distribute the workload on its
manufacturing and logistics systems. The inventories of Distribution Centers (customers) could be
reduced.

Drawbacks:

1. Sale Persons lost their incentives, because the sale will be predictable or flat.

2. It will be difficult to run trade promotions with JITD.

3. Cost might increase due the needs to increase internal inventories

4. It might create stockouts problem instead of solving it.

5. Customers need to improve their equipment (computer, bar-code scanner, etc) and

share their sales data that they are reluctant to do.

6. The customers might work with other vendors for their extra space for inventories.

b) What internal conflicts or barriers does the JITD program create? What causes these conflicts?
How would you deal with this?

Answer: The implementation will take away some needs for sale and marketing that Barilla depend
so much for their success as documented in the case study. The sale will be flat that takes away the
bonus for the sale persons and since the trade promotions will be difficult to run with JITD, the
function of marketing will be reduced somewhat.

I am not Donald Trump, so I will provide opportunities for both sale and marketing personnel that
might be impacted by this program do cross training for other company’s functions and provide a
new way of doing sale or trade promotion using JITD as a tool. The incentive or bonus for sale
persons could be fixed and be more customer service oriented.

c) As one of Barilla’s customers, what would your response to JITD be? Why?

Answer : will be gladly accepted the program. The reasons: The program if implemented can smooth
out the bullwhip effect and reduce the needs to monitor goods and replenish them that can save the
cost for inventories and warehouse space.

d) In the environment in which Barilla operated in 1990, do you believe JITD (or a similar kind of
program) would be feasible? Would it be effective? If so, which customers wouldyou target next?
How would you convince them that the JITD program was worth trying? If not, what alternatives
would you suggest to combat some of the difficulties that Barilla's operating system faces?
Answer (d): The program can help them smooth out the bullwhip effect and the product delivered to
them won’t be charge until sold. Barilla will monitor goods and replenish needed inventories when
supplies are low. The inventories will reduce to needed level thus save them cost for inventories and
space.

Alternatives suggested:

1. Reduce the varieties of products provided to the customers (consumers), the easiest way is to
drop the least value-added products. This will reduce the needs to have so many different
inventories and SKU for both Barilla and customers.

2. The company is vertically integrated, instead of JITD approach, try JIT (lean production) approach
for its manufacturing that Barilla has control and can be done within the company.

The proposed system will be effective if it can be implemented correctly, and indeed, subsequent
results showed that JITD was very effective. In order to show value, it would be useful to
demonstrate that JITD benefits the distributors (lowering inventory, improving their service levels,
and increasing their returns on assets) by running experiment at one or more of Barillas 18 depots. If
customers will not agree to JITD, they may at least agree to collaborative forecasting or increased
supply chain visibility.

e) Compare the JITD strategy proposed by Barilla to the celebrated JIT strategy developed by
Toyota and others

Answer (e):

There are several significant differences between Barilla’s and Toyota’s JIT strategy. Barilla’s Just In
Time Distribution strategy is based on details derived from the customer’s inventory records:

Barilla
Barilla’s Just In Time Distribution strategy is
based on details derived from the customer’s
inventory records. JITD requests customer
inventory information and proceeds to
makeproduction decisions based on these
figures. The customer therefore receives a
supply ofinventory equivalent to the predictions
made by the company.
This is different from Barilla’s production process
since no information is sought from the
customer as is done by Barilla and supply
decisions are entirely dependent on the number
of orders received
Toyota
Toyota’s JIT production on the other hand makes
supply decisions based on the demand at that
particular time .For instance,the supply of
automobiles and parts by Toyota is done on an
order basis. The entire production process will
therefore be focused on the particular orders
received from the customers. Goods are
produced according to the orders made by the
customer.
The Kanban concept as applied by Toyota
ensures that there are no excesses in the
manufacturing process. Preceding processes can
only transfer their finished products to the next
process to avoid inventory backlog. The JITD
process on the other hand does not focus on the
individual processes of production but rather
ensures that the entire production process is
geared toward producing a certain level of
goods. There are therefore no arrangements to
monitor individual processes since the goods
introduced in the first process represent the
exact forecasted amount that Customers are
Likely to demand during the particular period
Case: Reebok NFL

1. Given the uncertainty associated with player demand, how should Reebok approach
inventory planning for NFL replica jerseys

2. What should Reebok’s goal be? Should Reebok minimize inventory at the end of the
season? Or maximize profits? Can Reebok achieve both? What service level should
Reebok provide to its customers?

Reebok's goal should be to maximize profits, while taking into account the production costs, the
revenue it can get from a sale, inventory holding costs and salvage value of the excess jerseys. This is
because although Reebok may want to minimize inventory, it needs to consider the impact such an
action will have on the service level and its profitability.

A low inventory may mean lower holding costs and lower risks of having excessive dressed jerseys
after the end of season, which may become obsolete due to players switching teams or changes in
jersey design. However, it could also mean a lower service level as it takes 4-8 weeks for jerseys to
arrive at their warehouse from the CM. By that time, the demand would have yet changed again as
the NFL games are played almost every week. Therefore, it would be better for Reebok to aim at
maximizing profit, as that will take all the risk, service level and inventory into account.

Reebok can achieve both and the key is in the forecast. The more accurate the greater chance to
achieve both of the goals

High service level: providing all customer order, including the revised order.
Problem 2: Discuss how each of the following helps to alleviate bullwhip effect?

Answer:

a). E-Commerce and Internet: E-Commerce and Internet have come a long way since their inception.
Customers have the option of, making the orders online at any point in time. There are specific shop
timings to affect the sales of the product but this does not apply after the inception of E-Commerce.
Added to this; most of the internet applications today are so effective that they can actually be
integrated with the existing databases to provide sales and customer demand information at
different stages of the supply chain. This advancement in technology definitely helps in alleviating
the bullwhip effect since the upstream stages of the supply chain can plan and have an idea of the
changes in customer demand for a product. All the stages in the supply chain can make effective and
efficient decisions, to involve in similar inventory polices and planning activities so that the whole
supply chain can be optimized (Global Optimization) rather than any sequence (i.e. Sequential
Optimization). Thus E-Commerce and Internet definitely adds value in increasing the vital
information to control inventory, production, lead-times etc.

b). Express Delivery: Express delivery options basically help in reducing the lead-times associated in
each of the stages of the supply chain. As a matter of fact lead-time is one of the major causes to add
to the variability in the supply chain, as a result enhancing the bullwhip effect across the upstream
stages. Due to the availability of information and the express delivery options that are being offered
today; for example, by FedEx, UPS etc, the suppliers are able to ship the components at a faster rate
to the manufacturers and similarly the warehouses to the retailers. Thus Express Delivery options
are able to resolve the bullwhip effect to a great extent, which is providing an opportunity for the
players in the supply chain to plan well and effectively. Also, as discussed in this chapter the
manufacturers and distribution centres will have an option open to wait till the demand for different
products reach the full truck load limit so as to save in the transportation costs. As a result of all
these advantages the Express Delivery of Goods definitely helps in alleviating the bullwhip effect.

c). Collaborative Forecasts: As discussed earlier, the collaborative forecasts helps in attainment of
global optimization of the supply chain. This is assured only when all the players or stages in the
supply chain adhere to the fact that they are open to the information sharing. Whenever the
concept of information sharing exists then the availability of the customer demand, Sales and the
stock on hand information at each stage of the supply chain is made clear and the different players
such as the suppliers, manufacturers, warehouses and the retailers can involve or use the same
inventory policy to control their inventory. This helps in sharing the risk across the supply chain and
will help in proper planning, maintenance of inventory, reduction in lead-times and transportation
and variability and thereby reducing the bullwhip effect.

d). Everyday Low Pricing: Everyday low pricing is excellent concept that will make the customers buy
products on a regular basis. As observed in the case of Wal-Mart, this concept helps in managing the
products in such a way that the price of the product offered to the customers can be reduced for the
periods henceforth. This is achieved by collaborating with the manufacturer to control the inventory
of the retailer. In order to achieve this, there is a requirement of information sharing from the
retailer to the manufacturer, so that the manufacturer estimates the demand in the retail store and
makes agreements to replenish the goods himself. This is successfully implemented in Wal-Mart and
as discussed above is one of the best ways to reduce the bullwhip effect across the supply chain.

e). Vendor - Managed Inventory: Vendor - Managed Inventory is the same situation where the
manufacturer gets to know the consumer demand from the retailer and manages and replenishes
the inventory at the retailer. In order to involve in the Vendor Managed Inventory the retailer should
be able to share the demand and sales information with the manufacturer or the distributor. The
advantage of this concept is that this can be applied across all the upstream stages of the supply
chain and can reduce the supply chain costs to a greater extent by reducing the risks involved across
all the stages and improving the management of inventory. Thus, due to the above explained
advantages the Vendor – Managed Inventory helps in alleviating the bullwhip effect.

f). Supply Contracts: Supply contracts go a long way in achieving Global optimization of the supply
chain. It helps the supply chain players in the long run in sharing their profits, costs and reducing the
risks on mutual agreements and by creating win-win situations. The supplier contracts are mainly
made to share the customer information across all the stages of supply chain. These are generally
made for a mutual benefit among the supply chain players. For example the retailer will share the
information of the customer demand and sales information with the distribution centre. The
distribution centre will involve in providing some incentives to the retailer in the form of making
money if the sales exceed a certain value or help in the retailers promotional and advertising
activities. Over the years the manufacturing and service industries have realized the importance of
supply contracts in reducing the risks, uncertainties and the corresponding variabilities that exist in
supply chain. Hence we can state that Supply Contracts came a long way in achieving Global
Optimization of the Supply Chain and thereby alleviating the bullwhip effect.

Problem 3: What are the advantages to retailers sharing inventory? For instance, you suppose to go
the car dealer, to find a blue model and he doesn’t have that model in stock. Typically he will obtain
the model from another local dealer. What are the disadvantages to the retailer?

Answer:

The advantages to the Retailer are:

a). He wins the confidence of the customer. And thereby increases his sales and service levels.
b). He will share the profit from another local retailer from whom he is obtaining the car.
c). Creates a Win - Win situation for him, the consumer and the local dealer.
d). Reduces the lead time and thereby involves in on-time delivery.
e). Reduces the bullwhip effect.

The Disadvantages of the Retailer are:

a). He loses the total sale value of the car since he is collaborating with the another local dealer.
b). Risk of losing the customer. Since even though he assures the car to the customer, the
customer has always has the option of going to his competitor to go and buy the car.
c). Increased lead time.
d). Reduced Revenues.
e). Reduced Service Levels.
f). Should be in definite supply contract with the local dealer.

Problem 4: Discuss five ways that lead times in the supply chain can be reduced?

Answer:

The ways in which the lead times in the supply chain can be reduced are by:

1). Information Sharing: Information sharing can reduce the order processing times to a Greater
extent and thereby reducing the lead-times.

2). By accurately estimating safety stock and base-stock levels to help not to get out of stock. That is
involving in more accurate forecasting of demand in the upstream stages of the supply chain.

3). By the usage of EDI (Electronic Data Interchange) to reduce the information lead time and
therefore involving proper planning of inventories.

4). Reducing Ordering Lead Times By cross docking.

5). Involving in more accurate forecasts; due to decreased forecast horizon.

6). Involving in optimal distribution network designs.

7). Obtaining point of Scale Data from the retailer will help the supplier know the exact sales of the
retailer and thereby involving in maintaining right amount of stock at the right time in the right
proportion and at the right location (Distribution centre or Warehouse).

8). Involving in Vendor Managed Inventory.

9). Involving in Supplier contracts, that is in the situations where the retailer is out of stock, retailer
can ask the wholesaler or the warehouse to directly ship the components to the customer.

Problem 5: Consider the supply chain for breakfast cereal. Discuss the competing objectives of the
farmers who make the raw materials, the manufacturing division of the company that makes the
cereal, the marketing of the company that makes the cereal, the distribution arm of the grocery
chain that sells the cereal and the manager of an individual grocery store that sells the cereal.

Answer:

The competing objectives for the farmer would be producing the raw material i.e. harvest as much
as much as raw material possible and sell it to the manufacturer i.e. in large quantities. The
manufacturer might not want to take the risk in buying large amount of raw material from the
farmers, because of the fluctuations in demand from the distributors. The competing objective for
the distributor arm of the grocery chain would be getting the required packets or quantities of
cereals according to the demand of the retailer. So the major objective for them is to manage the
uncertainty in demand from the retailer or the actual grocery store and get the right quantities from
the manufacturer. The competing objective of the grocery store is to understand and answer the
uncertainty in the customer demand and getting in required quantities of the cereal.

Problem 6: Consider Example 5-1 and discuss strategies that could help Newbury Comics and
SoundScan Inc. Solve the misalignment problem.

Answer:

Information sharing is an important element in reducing the variability in the supply chain and
thereby reducing the bullwhip effect. But if they ate not done on the basis of reliable contracts and
agreements then it will be a loss to one of the players involved in it. Here in the Newbury comics
case, the company got price incentives on the record labels provided by the SoundScan and in return
to that; Newbury Comics used to share the information with the Sound Scan, but the discrepancy
came when SoundScan started sharing the information from the competing retailers which did not
comply with the Newbury Comics supply terms because they did not receive the exact aggregated
demand for the products. So in order to avoid such a misalignment in the information sharing
SoundScan should come into terms like what sort of information they would want to share with
Newbury comics and to what levels. Since this causes loss to the Newbury Comics, if SoundScan
shares the Newbury information to other competing retailers. Thus both the parties should be
careful in sharing the information and making agreements as we can observe in this case it’s a great
loss for the Newbury Comics to stay in competition in the market.
CHAPTER 4: IT AND BUSINESS PROCESS

1. What are the four major challenges faced by supply chains that can be aided by IT?

1. Information availability on each product from production to delivery point

2. Single point of contact
3. Decision making based on total supply chain information
4. Collaboration with supply chain partners

2. What is the impact of business processes on supply chain management IT?

3. How can ERP vendors take advantage of Internet technology?

Thanks to the Internet of Things, direct connection with end users now has become a
key feature of an ERP system. Traditionally, the ERP system’s service module was
updated with customer information for each serial number, either at the time of
shipment or after. When a manufacturer sells directly to a customer, the end user is
visible in the ERP system from the very beginning. But when products are sold through
dealers, obtaining end-user data has been a challenge.

By enabling the product to communicate with the manufacturer from the moment it
begins operation, the Internet of Things resolves this problem, giving manufacturers
additional flexibility in their sales model and providing them with a treasure chest of
information for service operations as well as engineering.

4.

Decision Focus: including SC Master Planning, Demand Planning and inventory

Planning. SC master planning can help reduce the propagation of unexpected events
within the supply chain network and influence the decisiveness of the members of SC

Data Aggregation (Dữ liệu phâ n chia): Data shows the resource allocation in short
planning periods such as weeks or months. Including: Enterprise Resource Planning,
Customer relationship management and supplier relationship management.

Time to Implement: demand planning, production scheduling, inventory management

and transport planning.

The number of users involved in the analysis: