MAN6617 Final Exam
The value of information (bullwhip effect)
"In modern SCs, information replaces inventory" Why is this true? Information: - helps reduce variability - helps improve forecasts - enables coordination of systems and strategies - improves customer service - facilitates lead time reductions - enables firms to react more quickly to changing market conditions
Information for Coordination of Systems (bullwhip effect):
*Information required to move from local to global optimization - Questions to address: >> who will optimize? >> how will savings be split? - Required information: >> Production status and costs >> Transportation availability and costs >> Inventory information >> Capacity information >> Demand information
4 dimensions of E-Commerce customer experience cycle
*These are what an e-commerce website must do well in order to (1) bring customers on board and (2) ensure repeat purchases - Navigation >> movement through the website - Information >> provision of information of interest to the customer - Customer support >> human contact via phone, email, or live chat - Logistics (*primary importance) >> packaging and shipping >> payment
Emissions inventory - Categories
*Use the inventory to calculate business's exposure - Scope 1: direct emissions (from sources owned by company) - Scope 2: indirect emissions from the use of purchased heat, steam of electricity - Scope 3: other indirect emissions (raw materials extraction, production, transportation for products produced for company by suppliers, outsourced distribution)
5 modern SC technologies
- 3D printing - Virtual reality - Driverless vehicles - Drones - Internet of things (IOT)
E-Waste
- 75% of hazardous wastes in landfills in the US comes from e-waste - Unwanted electronic equipment that contain a cathode ray tube (CRT) or mercury are considered hazardous waste - Hazardous waste regulations do not apply to household sources of electronics, or to "small quantity generators" (220 lb/month) - 2005 Congressional e-waste working group - failed to get industry agreement on the financing scheme for a national collection system
What is Blockchain?
- A distributed database of records, or public ledger of all transactions or digital - Executed and shared among participating parties - Verified by consensus of the majority of the participants in the systems - Data is stored on nodes across a network - The data on these nodes is lumped together on a 'Block' - Over time, more blocks of data get chained together and form a chronological history of events - Each transaction between parties is a 'Block' - The cumulative set of the transactions across the entire is the 'chain' - blockchain
What is ISO 14000?
- A family of global, voluntary environmental management standards developed by ISO - 14001 and 14004 deal with environmental management systems - 14001 is the certification standard
Sony supplier certification issue >> Green Partner Program
- A single seizure affected 7% of Sony's European supply and cost the company 110 million euros in lost sales; Sony dispatched inspectors to audit all suppliers and then developed the Green Partner Program - A supply chain management program that is ISO 14001 certified - Required all of Sony's suppliers to develop environmental management systems - Goal is to reduce environmental liability
Internet of Things (IoT)
- A term used to describe the phenomenon of digitizing and customizing the delivery of goods and services - Gathering, analyzing and acting on data - Via a network of interconnected semi-autonomous devices (aka "edge" devices) - Uses sensors - Uses artificial intelligence via analytics and algorithms - Devices can communicate directly with other devices to aid decision making - Devices are sometimes referred to as "smart" machines
Driverless Vehicles
- A vehicle that is: >> Capable of thinking for itself >> Making decisions based on >>>> Data received >>>> Parameters set - Influences inbound and outbound transportation - Cars, trucks, ships
Factors Favoring Virtual Structure
- High demand volatility >> retailers face high inventory risk - High product variety >> longtail phenomenon: selling low volumes of hard-to-find items to many customers, instead of only selling large volumes of a reduced number of popular items
Network Re-Design: Preponement
- Advance information on the condition of the return product helps in disposition decision >> ex - "new" returns currently must go through entire reverse logistics network before retailer restocking -- this incurs significant transportation and handling costs - Can new returns be restocked at retailers? >> This requires retailers to: >>>> test to see if product is really new >>>> repackage and restock the product >> There is technology that allows testing by retailers: >>>> Bosch "data logger" chip for power tools >>>> HP printer has information on the # of pages printed
IoT: Cons
- All cons associated with previously discussed technologies - Difficult to adopt throughout SC - Security issues - privacy/liability issues - Standards
IoT: Pros for SC
- Automates factories - Anticipates needs of customers - Increased transparency - Increased agility and flexibility
E-Waste Regulation in the US
- CA first state to legislate directly on toxicity of products sold - Effective Jan. 1, 2007 - Covered electronic devices that cannot be sold in the EU cannot be sold in CA - US consumers getting some Restriction of Hazardous Substances (RoHS) compliant products due to EU directive
Hybrid Arrangements (as to traditional vs virtual inventory models)
- Can be used to enhance product variety >> Ex - Kmart stocks popular CDs and drop ships the rest - Provide a backup in case of failure of traditional method >> Ex - Staples drop ships out-of-stock items and provides ordering kiosks
Drones: Pros
- Can deliver in areas with no roads.undeveloped infrastructure - Increased safety/maintenance in operations - Improved SC transparency
Benefits for Demand (Downstream) SC Transparency
- Can limit bullwhip effect >> Sharing POS data >> VMI programs - Better SC coordination - Decreases costs of demand uncertainty
Environmental Responsibility Stage 1: Good Citizens
- Comply themselves with rules of environmental responsibility - Limited monitoring of suppliers - No attempt to go beyond status quo - Example: Home Depot -- expects 1st tier suppliers to 'provide a safe and healthy work environment'
Virtual Reality
- Computer-generated - Realistic immersive environment - Examples >> Training >> Prototyping >> Aid in manufacturing >> Showrooms
Online sales impact on cost: facilities
- Costs related to the number and location of facilities in a network - Costs associated with the operations in these facilities
Lead-time reduction: why?
- Customer orders are filled quickly - The bullwhip effect is reduced - Forecasts are more accurate - Inventory levels are reduced
Modern SC technologies issues yet to be resolved
- Cybersecurity/data - Standards - Regulations/safety
Driverless Vehicles: Pros
- Decreases labor costs - Reduced human errors - Increased efficiency and range - Improved data transparency
Elements of ISO 14001
- Develop an environmental policy - Identify an organization's environmental aspects - Decided on organization's goals and objectives - Develop formal produces and systems for achieving them - Control and document performance - Continually review and improve the system
Opportunities in the Supply Chain (sustainable business)
- Direct link between carbon emissions and supply chain efficiency >> minimizing rush orders >> route optimization >> reducing idling >> more efficient transport (hybrid electric vehicles, 757s instead of 727s) - Taking a broader view of the supply chain
Modern technologies promise to improve SC:
- Efficiency - Some safety - customization/personalization - Agility
How to reduce lead times (bullwhip effect):
- Electronic Data Interchange (EDI) -- allows for immediate order receipt - Cross-docking
How to reduce variability (bullwhip effect):
- Eliminate promotions >> unlikely that full elimination will happen; communication and planning keys - Year-round low pricing
Environmental Responsibility Stage 2: Movers and Shakers
- Expand scope of monitoring throughout supply chain - Environmental product differentiation - Examples: HP - includes all direct suppliers & Samsung - design for life-cycle
Why NOT Track SC Transparency?
- Financial barriers - Can't see beyond first-tier suppliers - Increased level of risk with data sharing >> risk is competitive, i.e., info may be shared with competitors *Advantages of transparency generally far outweigh the disadvantages
Drones
- Flying robots - Unmanned aerial vehicles (UAV's) - Can be used at any SC stage - Most notably used for last-mile delivery - Also used in humanitarian and/or disaster events - Can also be used to simply monitor stages in SC via cameras
The term "drop shipping" refers to
- Freight carriers that leave packages at a warehouse. - 3PL's that carry goods from a carrier to a receiver - The use of multiple modes of transportation for the delivery of goods *None of the above*
Stages of Environmental Responsibility (generally)
- Good citizens >> Compliance - Movers and shakers >> Scope - Trailblazers >> Structural
Online sales impact on customer service: returnability
- Harder with online orders - Proportion of returns likely to be much higher
Factors Favoring Traditional Structure
- Higher sales volume >> can more easily justify investments in order fulfillment - High need for order consolidation >> suppliers may be fragmented >> transportation companies can help with this via cross docking or consolidation with multiple transport modes - Lack of wholesaler capabilities, particularly for small orders
Path to Build Supply/Upstream SC Transparency
- Identify and prioritize risks - Visualize risks >> can use 3rd party websites for this (Sourcemap, Source Intelligence, Knowthechain.org) - Use transparency levers to close information gaps - Manage and monitor
Environmental Responsibility Stage 3: Trailblazers
- Implement structural changes in supply chain - Introduce new technology, process or product - Examples: POSCO - implemented environmentally friendly steel-making process & Toyota - reconfigured distribution center for supplier parts & reduced # of trucks by half
Virtual Reality: Pros
- Improved customization - Customer service experience - Enhanced data availability for workers
Consequences of the bullwhip effect:
- Increased safety stock - Reduced service level - Inefficient location of resources - Increased transportation costs - Increased production costs
What are the consequences of the bullwhip effect?
- Increased transportation costs - Reduced service level - Increased safety stock
How does Nabsico cope with the Bullwhip Effect?
- Integrated Information System >> Global EDI network that links agents with production and inventory information >> EDI order transmission to HQ >> EDI linkage with air carriers >> Data linked to manufacturing - Coordinated Planning >> Frequent review allows fast reaction >> Integrated distribution strategy >> Sharing of information and exceptions
What is ISO 14000 certification not?
- It does not attest to environmental attributes of the product - It doesn't say that the firm is in compliance with an environmental regulation - It does not mean that any government authority has inspect or approved the company's environmental operations
Why Sustainable Business
- Legal reasons >> liability >> current and impending regulation - Business reasons >> potential for cost/risk reduction >> marketing opportunities >> innovation opportunities >> reputation/consumer good will - Ethical reasons >> Personal or institutional culture
Driverless Vehicles: Cons
- Loss of jobs - Safety issues - Insurance - regulations/laws - Cybersecurity issues
Costs of Virtual Inventory
- Loss of product margin >> markups = 10-15% of regular wholesale price - Loss of control of control impacting negatively on service >> retailer may lack info transparency to wholesaler's inventory >> exposure to rationing by wholesaler bc retailer has no safety stock as a buffer - Threat of disintermediation (elimination of middlemen) - Quality control and returns
Online sales impact on cost: transportation
- Lower cost of "transporting" information goods in digital form - For non digital, aggregating inventories increases outbound transportation
Online sales impact on cost: inventory
- Lower inventory levels if customers will wait - Postpone variety until after the customer is received
Online sales impact on customer service: Flexible pricing, product portfolio, and promotions
- Manage revenues from product portfolio more effectively than traditional channels - Promotion information can be conveyed to customers quickly and inexpensively
Blockchain for Supply Chains: Drawbacks
- Nascent technology - Link between physical product and transactional data not guaranteed - Not 100% secure - Confidentiality >> desire to not allow external parties to have access to data >> permissioned blockchains addresses this to some degree - Scalability >> theoretically infinitely scalable due to distributed data structure >> problem is with real-time demand (ex - Visa processes 2000 tps; blockchain rate is 10 tps) - Energy Consumption >> as every node runs on blockchain in order to maintain 'consensus', a ridiculous amount of energy is consumed - Law >> variance in commercial codes, regulations, etc that govern rights of ownership
The Bullwhip Effect:
- Order variability is amplified up the supply chain - Upstream echelons face higher variability -- what you see is not what they face
Characteristics of Blockchain
- Permission-less (accessible to anyone) - Transparent (visible to everyone) - Immutable (permanent) - Secure (extremely difficult to tamper with) *Note - In practice, more commercial blockchains use private (authorized participants), permissioned (public view = read-only) architecture
Online sales impact on customer service: Response time to customers
- Physical products take longer to fulfill than retail store - No delay for information goods
How to reduce uncertainty (bullwhip effect):
- Point of sales (POS) data - Sharing information - Sharing forecasts and policies
Blockchain for Supply Chains: Summary
- Potential to improve supply chains - Most immediate consequences: could improve costs of transactions and quality of information - Nascent technology - Early applications: food and pharmaceutical industries
Coping with the Bullwhip Effect in Leading Companies:
- reduce uncertainty - reduce variability - reduce lead times - strategic partnerships
Information for effective forecasts (bullwhip effect):
- Pricing, promotion, new products >> different parties have this info >> retailers may set pricing/promotion but should share this info with distributors and/or manufacturers as they may have new product or availability information - Collaborative forecasting addresses these issues
Lead-time reduction: how?
- Process analysis - EDI - Transportation choices
Achieving Coordination in Practice
- Quantify the bullwhip effect - Get top management commitment for coordination - Devote resources to coordination - Focus on communication with other stages - Try to achieve coordination in the entire supply chain network - Use technology to improve connectivity in the supply chain - Share the benefits of coordination equitably
What Technologies are Companies Using for SC transparency?
- RFID: tag items so they can be tracked through entire SC - Barcoding: same idea as RFID - Enhanced product labels - Hitachi sand-grain microchip: more info for each item than RFID/bar codes - Genetic testing: used for items like meat to verify that they are what they appear to be -Advanced info systems also helpful
Benefits of virtual Inventory
- Reduced investment in inventory and fulfillment capabilities - Wider product selection - More predictable product availability - Lower costs due to economies of scale - Lower transportation costs
3D Printing: Pros
- Reduction in component weight - From Make-to-Stock to Make-to-Order - Inventory reduction - Can produce closer to consumers - Current uses: >> Healthcare - prosthetics and dental >> Manufacturing - replacement parts
Impact of Online Sales on Customer Service
- Response time to customers - product variety - product availability - customer experience - faster time to market - order visibility - retainability - direct sales to customers - flexible pricing, product portfolio, and promotions - Efficient funds transfer - inventory - facilities - transportation - information
Benefits of Supply/Upstream Transparency
- Risk management - Quality assurance - Authenticity concerns - Environmental issues - Labor issues at origin
Drones: Cons
- Safety issues - Training for operators - regulations/laws - liability/insurance - Privacy issues
Online sales impact on cost: information
- Share demand, planning and forecasting information throughout its supply chain - Additional costs to build and maintain the information infrastructure
3D Printing: Cons
- Slower than traditional production - More expensive than traditional production - Intellectual property rights - Enables counterfeit goods manufacturing/distribution moved further downstream - Needs increased communication
IoT: Applications
- Smart Factories - Smart Houses - Smart Cities - Smart Agriculture
Types of SC transparency
- Supply or Upstream transparency - Demand or downstream transparency
Virtual Reality: Cons
- The slow acceptance of VR glasses - Safety issues/motion sickness - Security/data privacy
Traditional vs virtual inventory models (drop shipping)
- Traditional >> wholesaler > retailer > customer and back - Virtual >> wholesaler sends product direct to customer based on info received from retailer
Blockchain for Supply Chains: Benefits
- Transparency - Security - Speed of information - Innovation - Information Flow
Strategic partnerships (coping with bullwhip effect):
- Vendor managed inventory (VMI) - Data sharing
Reverse consignment is:
- When a manufacturer owns inventory located at a supplier - Also called pre-positioning - Used in apparel manufacturing
3D Printing
- also known as additive manufacturing (AM) systems, is able to manufacture three-dimensional components and products directly from raw material and 3D design data - Enables >> Mass customization >> Rapid prototyping
What does blockchain do for SCs?
- integrity of goods >> ensuring brand (ex - diamonds) - trust >> ensuring pedigree (ex - food) - SC tracking, esp for globalized SCs - Track quantity: specification and origin of containers, trailers, and pallets as they move in SC - Record shipping documents, receipts, etc - Provide downstream participants with details concerning manufacturing processes, raw ingredients, etc - Simplify regulatory and auditing process for insurance, customs, clearance, and duty information - Monitor shared information
What are the causes of the bullwhip effect?
- promotional sales >> forward buying - volume and transportation discounts >> batching - inflated orders >> popular toys at Christmas - demanding forecasting >> order-up-to (reorder) points are modified as forecasts change; orders increase more than forecasts - long cycle lead times
How does the bullwhip effect happen?
- variability of orders can (and often is!) greater than variability of actual demand - higher lead times = higher variability
Reasons for firms to pursue sustainable business as discussed in the lecture include all of the following except
Accounting issues
Online sales impact on customer service: product availability
Aggregating inventory and better information on customer preferences improves product availability
Supply Chain Transparency
Captures the extent to which information about the (1) companies, (2) suppliers and, (3) sourcing locations is readily available to end-users and other companies in the supply chain
Online sales impact on customer service: product variety
Easier to offer larger selection
Online sales impact on customer service: customer experience
Improved access, customization and convenience
The benefits of upstream transparency include all of the following except:
Increased visibility of demand.
Initiatives that Wal-Mart implemented to enhance its supply chain sustainability includes all of the following except:
Increasing the number of suppliers that they are dealing with
The e-Commerce customer experience cycle includes all of the following except
Marketing
As discussed in class, the benefits of Blockchain include all of the following except:
Mature technology
According to the article "How Green is My Orange?" what is the biggest single source of emissions when making orange juice?
Nitrogen fertilizer
In general, online sales outperform traditional brick and mortar retail sales along the dimensions of
Order status tracking
The probability of having a product in stock when a customer order arrives is
Product availability
Environmental product differentiation - Main idea:
Sell products that: - Create lower environmental impact than comparable products - Have less burdensome production processes than comparable products - Extract price premium and/or expand market share *Main question: Under what conditions will it work? Avoid greenwashing!
Collaborative planning, forecasting, and replenishment (CPFR)
Sellers and buyers in a supply chain may collaborate along any or all of the following: 1. Strategy and planning 2. Demand and supply management 3. Execution 4. Analysis
Online sales impact on customer service: Direct sales to customers
Social networking channels allow firms to directly pitch products and promotion
Preponement definition
The earlier you know the condition of the returned product in the reverse network, the better
Supply or Upstream transparency
The extent to which retailers and consumers can monitor the origin of products
Demand or downstream transparency
The extent to which suppliers and manufacturers can monitor demand
When considering green issues in the Supply Chain, what does "greenwashing" mean?
To falsely portray some characteristics or products as being sustainable
VMI is _______
Vendor Managed Inventory
In general, traditional brick and mortar retail sales outperform online sales along the dimension of
request fulfillment