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I M PA C T O F U N C E RTA I N T Y I N
NETWORK
I M PA C T O F U N C E RTA I N T Y I N N E T W O R K 1
G L O B A L I Z AT I O N
Global Supply Chain
CAN EXPRESS
Adobe
WIREDGoogle
DELL
•USATODAY.
Cognizant
Marriott.lenove.
)pepsi.
E M C e nga dagin"INC
BROCADESA nickelodeon
CiTRIX INessBROADCOMSONYI Kawasaki
Supply chain management:

• In commerce, supply chain management, the management of the flow of
goods and services, involves the movement and storage of raw materials, of
work-in-process inventory, and of finished goods from point of origin to
point of consumption.
• It’s the broad range of activities required to plan, control and execute a
product's flow, from acquiring raw materials and production through
distribution to the final customer, in the most streamlined and cost-effective
way possible.
MODULE III 6
Globalization:
The process by which businesses or other organizations develop
international influence or start operating on an international
scale. It’s the free movement of goods, services and people
across the world.
MODULE III 7
Globalization:
• With the advent of globalization, managing supply chain activities has become more
complex.
• Today a company operating in the United States may have its manufacturing facilities
in China, Mexico or Taiwan and its customers throughout the world.
• Many companies in order to manage its global operations may outsource their supply
chain activities to third-party organizations around the globe.
• Outsourcing reduces the supply chain operating cost but when not managed effectively
proves otherwise.
MODULE III 8
Globalization:
• Globalization has dramatically changed how manufacturers operate, offering an
opportunity to reach new customers in new markets while at the same time exposing
firms to greater competition.
• Meanwhile, raw materials and supplier relationships must now be managed on a

global scale.
• Just as there are benefits and costs of globalization, there are similar pros and cons of
a global supply chain. In particular, companies need to manage the related risks.
MODULE III 9
MODULE III 10
Benefits of a Globalized Supply Chain
• Expanded sourcing opportunities
• The opportunity to reach new customers in
new markets
• More room to grow
• More opportunities to save money
MODULE III 11
• Expanded sourcing opportunities:

A world market offers businesses opportunities to
secure a diverse selection of workers, materials, and
products. This larger selection of goods and services
often means the opportunity to select higher-quality or
lower-cost options.
MODULE III 12
• The opportunity to reach new customers in new

markets:
Just as globalization offers more materials and
laborers, it also offers new customers in new locations
with new needs.
MODULE III 13

• More room to grow:
New technologies and a shrinking globe mean that it is
easier for companies to grow generally:
to produce more,
offer more, and
sell more.
Expanding borders also means expanding businesses
and corporations. MODULE III 14
• More opportunities to save money:
Globalization’s biggest benefit is that increases options:
options for source materials,
options for workers, and
options for transportation.
More options mean more chances to save on spending and
increase profits.
MODULE III 15
The Impact of globalization on supply chain networks
Globalization offers companies opportunities to simultaneously
increase revenues
and
decrease costs.
Most of Samsung’s sales were outside its home country of Korea.

In 2012, overseas revenue represented 86% of sales for Samsung.
While maintaining a dominant position in developed markets like the United States, it had also penetrated
effectively into emerging markets such as China and India.
By 2012, Samsung was the leading vendor of smartphones in both markets.
Consumer Electronics
Consumer electronics focuses on small, lightweight, high-value items that are relatively easy and
inexpensive to ship. Companies have exploited large
economies of scale by consolidating production of standardized electronics components in a
single location for use in multiple products across the globe.
Apparels
Apparel manufacture
has high labour content, and the product is relatively
lightweight and cost effective to
transport. Companies have exploited globalization by
shifting much apparel manufacturing to
low-labour-cost countries, especially China. In the first half
of 2009, about 33 percent of U.S.
apparel imports were from China.
The net result is that both(Electronics and Apparels) industries

have benefited tremendously
from cost reduction as a result of globalization.
I M PA C T O F G L O B A L I Z AT I O N O N
S U P P LY C H A I N N E T W O R K S
• Opportunities to simultaneously increase revenues and decrease costs
• Accompanied by significant additional risk and uncertainty
• Difference between success and failure often the ability to incorporate suitable
risk mitigation into supply chain design
• Uncertainty of demand and price drives the value of building flexible

production capacity
MODULE III 21
Risk Factors Percentage of Supply Chains Affected
Natural disasters 35
I M PA C T O F
Shortage of skilled resources 24 G L O B A L I Z AT I O N O N
Geopolitical uncertainty 20
S U P P LY C H A I N
NETWORKS
Terrorist infiltration of cargo 13
Volatility of fuel prices 37
Currency fluctuation 29 Table 6-1

Port operations/custom delays 23 Results of Accenture Survey on Sources of
Customer/consumer preference shifts 23 Risk That Affect Global Supply Chain
Performance of supply chain partners 38 Performance
Logistics capacity/complexity 33
Forecasting/planning accuracy 30
Source: SCM by Chopra
Supplier planning/communication issues 27
Inflexible supply chain technology 21
MODULE III 22
RISK MANAGEMENT IN GLOBAL
S U P P LY C H A I N S
• Global supply chains today are subject to more risk factors than localized supply chains of the past.
These risks include
supply disruption,
supply delays,
demand fluctuations,
price fluctuations, and
exchange rate fluctuations.

• Critical for global supply chains to be aware of the relevant risk factors and build in suitable mitigation
strategies
MODULE III 23

Good network design can play a significant role in mitigating supply chain risk.
R I S K M A N A G E M E N T I N G L O B A L S U P P LY C H A I N S
For instance, having multiple suppliers mitigates the risk of disruption from any one supply source.
An excellent example is the difference in impact on Nokia and Ericsson when a plant owned by
Royal Philips Electronics, located in Albuquerque, New Mexico, caught fire in March 2000.
Nokia adjusted to the disruption quickly, using several other supply plants in its network.
In contrast, Ericsson had no backup source in its network and was unable to react. Ericsson estimated
that it lost revenues of $400 million as a result.
For Example
https://husdal.com/2008/10/18/ericsson-versus-nokia-the-now-classic-case-of-supply-chain-disruption/
For example, Hino Trucks uses flexible capacity at its plants to change production levels for different products
by shifting workforce among lines.
As a result, the company keeps a constant workforce in the plant even though
the production at each line varies to best match supply and demand.
HINO is a Japanese manufacturer of commercial vehicles and diesel engines (including those for trucks, buses and other vehicles)
headquartered in Hino, Tokyo.
As illustrated by above examples,

designing mitigation strategies into the network significantly
improves a Supply chain’s ability
to deal with risk.
Table 6-3
Supply Chain Risks to Be Considered During Network Design
MODULE III 30
Table 6-3
Supply Chain Risks to Be Considered During Network Design
MODULE III 31
Every mitigation strategy comes at a price, however, and may increase other risks.
For example,
increasing inventory mitigates the risk of delays but increases the risk of obsolescence.
Acquiring multiple suppliers mitigates the risk of disruption but increases costs because
Each supplier may have difficulty achieving economies of scale.
Thus, it is important to develop tailored mitigation strategies during network design that achieve a good balance between
the amount of risk mitigated and the increase in cost.
Some tailored mitigation strategies are outlined in Table 6-4.
RISK MANAGEMENT
Table 6-4 Tailored Risk Mitigation
I N G L O B A L S U P P LY
Strategies During Network Design
CHAINS
Risk Mitigation Strategy Tailored Strategies

Increase capacity Focus on low-cost, decentralized capacity for predictable demand.
Build centralized capacity for unpredictable demand. Increase
decentralization as cost of capacity drops.
Get redundant suppliers More redundant supply for high-volume products, less redundancy for
low-volume products. Centralize redundancy for low-volume products
in a few flexible suppliers.
Increase responsiveness Favor cost over responsiveness for commodity products. Favor
responsiveness over cost for short–life cycle products.
MODULE III 33
RISK MANAGEMENT
I N G L O B A L S U P P LY TableTable
6-4 Tailored Risk Mitigation
6-4 [Continued]
CHAINS Strategies During Network Design
Risk Mitigation Strategy Tailored Strategies

Increase inventory Decentralize inventory of predictable, lower value products. Centralize
inventory of less predictable, higher value products.
Increase flexibility Favor cost over flexibility for predictable, high-volume products. Favor
flexibility for unpredictable, low-volume products. Centralize flexibility in a
few locations if it is expensive.
Pool or aggregate demand Increase aggregation as unpredictability grows.
Increase source capability Prefer capability over cost for high-value, high-risk products. Favor cost over
capability for low-value commodity products. Centralize high capability in
flexible source if possible.
MODULE III 34
F L E X I B I L I T Y, C H A I N I N G , A N D
C O N TA I N M E N T
• Flexibility plays an important role in mitigating different risks and uncertainties faced by a
global supply chain.
• Three broad categories of flexibility

New product flexibility
● Ability to introduce new products into the market at a rapid rate
Mix flexibility
● Ability to produce a variety of products within a short period of time
Volume flexibility
● Ability to operate profitably at different levels of output
MODULE III 35
F L E X I B I L I T Y, C H A I N I N G , A N D C O N TA I N M E N T
Product Plant
Figure 6-1 Different Flexibility Configurations in Network
MODULE III 36
Firm that sells four different products
MODULE III 37
Firm that sells four different products
MODULE III 38
Containment example, avoid spreading diseases
Flexibility is increased, the marginal benefit derived from the increased

flexibility decreases.
DEMAND FORECASTING
I N A S U P P LY C H A I N
Outline
• Introduction
• Characteristics of forecasts
• Components of forecasts and forecasting methods
• Basic approach to demand forecasting
• Time series forecasting methods
• Measures of forecast error
• Forecasting demand at Tahoe Salt
• Forecasting in practice
Introduction
• Planning is the fundamental activity of management.

• Forecasting forms the basis of planning.
• Be it planning for
• Sales and Marketing
• Production Planning
• Manpower Planning
Inventory Planning
• Forecasts are extremely important.
What is Forecasting?
Forecasting is a scientifically calculated guess.
Process of predicting a future events.
Aim of Forecasting
The aim of forecasting is to reduce the risk or uncertainty that the firm faces
In its short-term operational decision making and in planning for its long term
growth.
R O L E O F F O R E C A S T I N G I N A S U P P LY C H A I N
• Demand forecasts form the basis of all supply chain planning
• Used for both push and pull processes
Production scheduling,
inventory,
aggregate planning
Sales force allocation,
promotions,
new production introduction
Plant/equipment investment, budgetary planning
Workforce planning, hiring, layoffs
• All of these decisions are interrelated
CHARACTERISTICS OF FORECASTS
Forecasts are always inaccurate and should thus include both the expected
value of the forecast and a measure of forecast error
• To understand the importance of forecast error,
• consider two car dealers, the sourcing policies for each dealer should be
very different, given the difference in forecast accuracy. Thus, the forecast
error (or demand uncertainty) is a key input into most supply chain
decisions. Unfortunately, most firms do not maintain any estimates of
forecast error.
Car Dealer 1 Car Dealer 2

Sales Range between 100 and 1900 Sales range between 900 and 1100
units units.
Average Sales 1000 units Average Sales 1000 units
Forecast error is high Forecast error is low

Long-term forecasts are usually less accurate than short-term

forecasts
• For example, if a store manager places an order by 10 a.m., the order is
delivered by 7 p.m. the same day. Therefore, the manager has to forecast
what will sell that night only less than 12 hours before the actual sale. The
short lead time allows a manager to take into account current information
that could affect product sales.
• This forecast is likely to be more accurate than if the store manager had to
forecast demand a week in advance.
Aggregate forecasts are usually more accurate than disaggregate forecasts.
For example,
• it is easy to forecast the Gross Domestic Product (GDP) of the United States for a given year with less than a
2% error.
• However, it is much more difficult to forecast yearly revenue for a company with less than a 2% error, and it is
even harder to forecast revenue for a given product with the same degree of accuracy.
• The key difference among the three forecasts is the degree of aggregation.
• The GDP is an aggregation across many companies, and the earnings of a company are an aggregation across
several product lines.
• The greater the aggregation, the more accurate the forecast.

In general, the farther up the supply chain a company is (or the farther it is from the
consumer), the greater the distortion of information it receives.
One classic example of this phenomenon is the bullwhip effect, in which order variation is amplified as orders
move farther from the end customer.
Collaborative forecasting based on sales to the end customer helps upstream enterprises reduce forecast error.
COMPONENTS OF A FORECAST AND

FORECASTING METHODS
• Companies must identify the factors that influence future demand and then
ascertain the relationship between these factors and future demand
Past demand
Lead time of product replenishment
Planned advertising or marketing efforts
Planned price discounts
State of the economy
Actions that competitors have taken
Components of a forecast and forecasting Methods
Forecasting Methods
1. Qualitative
– Primarily subjective and rely on human judgment
1. Time Series
Use historical demand only and
Best with stable demand
Components of a forecast and forecasting Methods
Forecasting Methods
1. Causal
Relationship between demand and some other factor
• For example,
• product pricing is strongly correlated with demand
1. Simulation
Imitate consumer choices that give rise to demand
• Airlines simulate customer buying behaviour to forecast demand for higher-fare seats when no
seats are available at lower fares.
BASIC APPROACH TO DEMAND FORECASTING
The following five points are important for an organization to forecast effectively.
1. Understand the objective of forecasting.
2. Integrate demand planning and forecasting throughout the supply chain.
3. Identify the major factors that influence the demand forecast.
4. Forecast at the appropriate level of aggregation.
5. Establish performance and error measures for the forecast.
Understand the Objective of Forecasting
Every forecast supports decisions that are based on it, so an important first step is to identify
these decisions clearly.
Examples of such decisions include
how much of a particular product to make,
how much to inventory, and
how much to order.
Integrate Demand Planning and Forecasting Throughout the Supply Chain
A company should link its forecast to all planning activities throughout the supply chain.
These include
capacity planning,
production planning,
promotion planning, and
purchasing, among others.
Identify Major Factors That Influence the Demand Forecast
A firm must identify demand, supply, and product-related phenomena that influence the
demand forecast.
Forecast at the Appropriate Level of Aggregation
Given that aggregate forecasts are more accurate than disaggregate forecasts, it is important to
forecast at a level of aggregation that is appropriate, given the supply chain decision that is driven
by the forecast.
Establish Performance and Error Measures for the Forecast

Companies should establish clear performance measures to
evaluate the accuracy and timeliness of the forecast.
M e a s u re s o f F o re c a s t E r ro r
• Forecast errors contain valuable information and must be
analyzed for two reasons:
1. Managers use error analysis to determine whether the

current forecasting method is predicting the systematic
component of demand accurately
2. All contingency plans must account for forecast error
T H E R O L E O F I T ( S O F T WA R E T O O L S )
IN FORECASTING
• Software is important
Large amounts of data
Frequency of forecasts
Importance of high-quality results
• Can forecast demand by products and markets
• Real time updates help firms respond quickly to changes in
marketplace
• Facilitates demand planning
The Role of IT (software tools) in

Forecasting
Text Book: Supply Chain Management: Strategy, Planning, and
Operation, seventh edition, Sunil Chopra
Chapter 6: Designing Global Supply Chain Networks
Chapter 7: Demand forecasting in SC, page number 189 to 215
MODULE II DRIVERS AND METRICS 92

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I M PA C T O F U N C E RTA I N T Y I N

Supply chain management:

• Meanwhile, raw materials and supplier relationships must now be managed on a

Benefits of a Globalized Supply Chain

• Expanded sourcing opportunities:

• The opportunity to reach new customers in new

Benefits of a Globalized Supply Chain

The Impact of globalization on supply chain networks

Globalization offers companies opportunities to simultaneously

Most of Samsung’s sales were outside its home country of Korea.

The Impact of globalization on supply chain networks

The Impact of globalization on supply chain networks

The net result is that both(Electronics and Apparels) industries

• Opportunities to simultaneously increase revenues and decrease costs

• Accompanied by significant additional risk and uncertainty

• Uncertainty of demand and price drives the value of building flexible

Risk Factors Percentage of Supply Chains Affected

Volatility of fuel prices 37

Currency fluctuation 29 Table 6-1

Inflexible supply chain technology 21

exchange rate fluctuations.

RISK MANAGEMENT IN GLOBAL

As illustrated by above examples,

Source: SCM by Chopra

Some tailored mitigation strategies are outlined in Table 6-4.

Risk Mitigation Strategy Tailored Strategies

Source: SCM by Chopra

Risk Mitigation Strategy Tailored Strategies

• Three broad categories of flexibility

Figure 6-1 Different Flexibility Configurations in Network

Firm that sells four different products

Containment example, avoid spreading diseases

Flexibility is increased, the marginal benefit derived from the increased

• Planning is the fundamental activity of management.

Forecasting is a scientifically calculated guess.

Process of predicting a future events.

• To understand the importance of forecast error,

Car Dealer 1 Car Dealer 2

Average Sales 1000 units Average Sales 1000 units

Forecast error is high Forecast error is low

Long-term forecasts are usually less accurate than short-term

• The greater the aggregation, the more accurate the forecast.

COMPONENTS OF A FORECAST AND

Components of a forecast and forecasting Methods

BASIC APPROACH TO DEMAND FORECASTING

Understand the Objective of Forecasting

BASIC APPROACH TO DEMAND FORECASTING

Integrate Demand Planning and Forecasting Throughout the Supply Chain

Identify Major Factors That Influence the Demand Forecast

BASIC APPROACH TO DEMAND FORECASTING

Forecast at the Appropriate Level of Aggregation

Establish Performance and Error Measures for the Forecast

1. Managers use error analysis to determine whether the

The Role of IT (software tools) in

Chapter 6: Designing Global Supply Chain Networks

Chapter 7: Demand forecasting in SC, page number 189 to 215

MODULE II DRIVERS AND METRICS 92

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