SC Design 511 Part2 Notes

Supply Chain Integration
Part 1
1/29

o The effective coordination of supply chain
processes through the seamless flow of
information up and down the supply chain
o The supply chain can be viewed as a river

that flows from raw material suppliers
(upstream) to consumers (downstream)
o Supply chain management strives to mitigate

the effects of supply chain disruptions
2/29

Upstream Downstream
Tier 3 Tier 2 Tier 1
Tomato Tomato
Tomato Ketchup Distributors Retail
grading paste Consumers
growers factory sales
stations factories
Information flows
Cash flows
Figure 14.1 – Supply Chain for a Ketchup Factory

Notice that product flows
downstream; cash flows
upstream; information flows
both ways 3/29
Supply-Chain Dynamics
o We must consider how the actions of other

links in the chain affect each entity
o Supply chain dynamics can wreak havoc on
supply chain performance measures.
o Actions of downstream supply chain
members can affect the operations of
upstream members.
o Bullwhip effect: demand variability is
amplified as it works up the supply chain
4/29
Bullwhip effect
o Why is it called that?!

o Here’s a bullwhip -->
o A small movement of
the handle results in a larger movement
of the lash.
So a small change in demand downstream

may result in more volatility upstream!
5/29
Supply Chain Dynamics
9,000
Order quantity
7,000
Consumers’
daily demands
5,000
3,000
0
Day 1 Day 30 Day 1 Day 30 Day 1 Day 30 Day 1 Day 30
Month of April
Figure 12.2 – Supply Chain Dynamics for Facial Tissue Notice the “blip” in demand in
the middle of the month. What
might cause such a variation in
demand for facial tissue?
9,000
Retailers’ daily
orders to
manufacturer
Order quantity
7,000
Consumers’
daily demands
5,000
3,000
0
Month of April
Now the “blip” has been
Figure 12.2 – Supply Chain Dynamics for Facial Tissue magnified in the retailer’s
orders. The retailer is reacting
to unexpected demand and a
possible shortage.

Manufacturer’s
weekly orders to
package supplier
9,000
Retailers’ daily
orders to
manufacturer
Order quantity
7,000
Consumers’
daily demands
5,000
3,000
0
Month of April
Figure 12.2 – Supply Chain Dynamics for Facial Tissue The package supplier sees
even more volatility, reacting to
the orders from the
manufacturer.

Manufacturer’s Package supplier’s
weekly orders to weekly orders to
package supplier cardboard supplier
9,000
Retailers’ daily
orders to
manufacturer
Order quantity
7,000
Consumers’
daily demands
5,000
3,000
0
Month of April
Figure 12.2 – Supply Chain Dynamics for Facial Tissue The package supplier passes
on the volatility, which is
magnified even more at the
cardboard supplier.
Why does this happen?!
o Unexpected changes in supply and

demand
o Insufficient communication
o Lags between demand and orders: here
orders are sent in daily or weekly
batches
o External and internal disruptions
What are the disruptions in Clif Bar’s supply chain?
10/29
External disruptions may include…
o Volume changes by customers

o Particularly when lead times are short
o Service and product mix changes
o Affects production of multiple products
o Late deliveries
o Disrupt production schedules
o Underfilled shipments
o On time but not enough
11/29
Internal disruptions may include…

o Internally generated shortages
o Machine breakdowns, quality problems
o Labor shortages or disruptions
o Engineering changes
o Order batching
o New service/product introductions
o Service/product promotions
o Create demand spikes
o Information errors
o Inaccurate forecasts
o Inaccurate inventory counts
o Lack of communication
12/29
Annual Volume versus Variability
Recognizing the different demand profiles of different products or product groups helps a
a manager to choose the appropriate supply chain for each.
Coping Mechanisms
o Coordination is a major task of supply

chain managers
o A coordinated supply chain can deal
better with uncertainties and disruptions
o One road to coordination is to integrate
the supply chain
14/29

Phase 1:
Independent
Suppliers Purchasing Production Distribution Customers
supply-chain
entities
The supply chain begins as a series of related, but

independent, entities.
15/29
Phase 1:
Independent
supply-chain
entities
Phase 2:
Internal Suppliers Purchasing Production Distribution Customers
integration
Internal supply chain

Materials management department
Integration begins by coordinating or combining internal

departments. This may involve improving communication
among departments, or combining them into one
“Materials Management” department.
16/29

Phase 1:
Independent
supply-chain
entities
Phase 2:
Internal Suppliers Purchasing Production Distribution Customers
integration
Internal supply chain

Materials management department
Phase 3: Internal
Finally,
Supply-chain Suppliers supply Customers external
integration chain entities are
also included.
Integrated supply chain
17/29
The SCOR Model
o The Supply Chain Council developed the SCOR model

to promote a process view of supply chain integration
o The overall process consists of the subprocesses:
o Plan: coordination of internal and external
processes
o Source: supplier relationships
o Make: new service/product development, order
fulfillment
o Deliver: order fulfillment, customer relationships
o Return: supplier relationships, order fulfillment,
customer relationships
18/29
SCOR and Linkages
First-Tier Supplier Service/Product Provider
Support Processes Support Processes
New service/ Business- New service/ Business-

product to-business product to-business
development (B2B) development (B2B)
External Consumers
process customer process customer
External Suppliers
relationship relationship
process process
make
Supplier Order Supplier Order
relationship fulfillment relationship fulfillment
process process process process
Figure 14.3 – External Supply Chain Linkages
SCOR and Linkages


External Consumers

External Suppliers
process process
make
PLAN
SCOR and Linkages


External Consumers

External Suppliers
process process
make
SOURCE
SCOR and Linkages

product to-business product to-
development (B2B) development consumer
External Consumers
process customer process (B2C)
External Suppliers
relationship customer
process relationship
process
make
DELIVER
SCOR and Linkages


External Consumers

External Suppliers
process process
make
Figure 14.3 – External Supply Chain Linkages RETURN
SCOR Model
Here’s a process view of the SCOR model.

The Internal Supply Chain
o Purchasing
o Choose suppliers
o Negotiate contracts
o Purchase supplies or components
o Production
o Schedule input, output, transformation
o Determine output quantities
o Distribution: flow to customers
25/29
Internal Integration
o Materials management
o Combines purchasing and production
decisions about inventory
o Cross-functional coordination
o Information systems
o What obstacles may arise?
o Inertia and reluctance to change
o Investment in new processes/software/
equipment/training
26/29
External Integration
o Now link to suppliers and customers

o Sharing of information
o Forecasting demand
o Managing inventory
o Shared responsibilities and liabilities
o One approach to external integration is
vendor-managed inventory (VMI)
27/29
Vendor-Managed Inventory
o Buyer shares sales data and inventory

status via Electronic Data Interchange*
o Vendor proposes orders, buyer approves,
delivery and payment
o Examples
o Proctor & Gamble + Walmart
o Pillsbury + grocery chains
o Campbell’s soup + supermarkets
* Direct computer communication between buyer and seller; see p. 556
28/29
Suitability of Integration
o Is a fully integrated supply chain right for every
situation?
o What are the advantages?
o Cost savings
o Vendor expertise in forecasting
o What are the risks?
o Loss of control, quality, flexibility
o To evaluate the advantages of integration, look at
supply chain functions (part 2 of this presentation)
29/29

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SC Design 511 Part2 Notes

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Supply Chain Integration

Supply Chain Integration

o The supply chain can be viewed as a river

o Supply chain management strives to mitigate

Supply Chain Integration

Tier 3 Tier 2 Tier 1

Figure 14.1 – Supply Chain for a Ketchup Factory

o We must consider how the actions of other

o Why is it called that?!

So a small change in demand downstream

Supply Chain Dynamics

Supply Chain Dynamics

Supply Chain Dynamics

o Unexpected changes in supply and

External disruptions may include…

o Volume changes by customers

Internal disruptions may include…

o Coordination is a major task of supply

Supply Chain Integration

The supply chain begins as a series of related, but

Internal supply chain

Integration begins by coordinating or combining internal

Supply Chain Integration

Internal supply chain

The SCOR Model

o The Supply Chain Council developed the SCOR model

Support Processes Support Processes

New service/ Business- New service/ Business-

Figure 14.3 – External Supply Chain Linkages

SCOR and Linkages

Support Processes Support Processes

New service/ Business- New service/ Business-

process customer process customer

SCOR and Linkages

Support Processes Support Processes

New service/ Business- New service/ Business-

process customer process customer

Support Processes Support Processes

New service/ Business- New service/ Business-

SCOR and Linkages

Support Processes Support Processes

New service/ Business- New service/ Business-

process customer process customer

Figure 14.3 – External Supply Chain Linkages RETURN

Here’s a process view of the SCOR model.

o Now link to suppliers and customers

o Buyer shares sales data and inventory

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