SCM (BMEE310L)

Module 4: Coordination & Technology in Supply Chain

Finals Preparation Guide

Topics Covered: Bullwhip Effect | VMI & CPFR | Role of IT | Macro Processes (CRM,
ISCM, SRM) | TMF | Future of IT

1. Supply Chain Coordination & The Bullwhip Effect

What is Supply Chain Coordination?

Supply chain coordination occurs when all stages of the chain take actions that are aligned and
increase total supply chain surplus. It requires each stage to share information and consider the effects
of its actions on other stages.

When Does Lack of Coordination Occur?

1. Objectives of different stages conflict
2. Information moving between stages is delayed or distorted

The Bullwhip Effect

The Bullwhip Effect refers to the phenomenon where fluctuations in orders increase as they move up
the supply chain from retailers to wholesalers to manufacturers to suppliers. Even a small variation in
consumer demand gets amplified at each upstream stage.

Cause Description
Demand Signal Processing Each stage over-reacts to demand changes when
placing orders
Rationing Game During shortages, buyers inflate orders to secure
supply
Order Batching Orders placed periodically rather than
continuously
Price Fluctuations Promotions and discounts cause forward buying
Impact on Performance
A supply chain lacks coordination if each stage optimizes only its local objective, which reduces total
profits. The key performance measures affected are:
• Manufacturing cost
• Inventory cost
• Replenishment lead time
• Transportation cost
• Labor cost for shipping and receiving
• Level of product availability
• Relationships across the supply chain

Key Exam Point: Bullwhip Effect = demand distortion amplifying UPSTREAM. It results from
a LOSS of supply chain coordination.

2. VMI & Collaborative Planning, Forecasting, and Replenishment

(CPFR)

Continuous Replenishment Programs (CRP)

Under CRP, the wholesaler or manufacturer replenishes a retailer regularly based on point-of-sale
(POS) data. Inventory at the retailer is owned by the retailer.

Vendor-Managed Inventory (VMI)

In VMI, the manufacturer or supplier is responsible for all decisions regarding inventory. Control of the
replenishment decision moves to the manufacturer instead of the retailer. VMI requires the retailer to
share demand information with the manufacturer.

CRP VMI
Inventory owned by retailer Manufacturer controls inventory decisions
Based on POS data shared with supplier Retailer shares demand data; supplier decides
Simpler arrangement Deeper integration required

Drawback of VMI
Retailers often sell products from competing manufacturers. If a retailer has VMI agreements with both
P&G and Unilever for detergents, each manufacturer ignores the impact of substitution when making
inventory decisions. Result: inventories at the retailer will be higher than optimal.

Collaborative Planning, Forecasting & Replenishment (CPFR)

Definition: CPFR is a business practice that combines the intelligence of multiple partners in
 the planning and fulfillment of customer demand.

Sellers and buyers may collaborate on any or all 4 supply chain activities:
1. Strategy and Planning
2. Demand and Supply Management
3. Execution
4. Analysis

4 Common CPFR Scenarios

CPFR Scenario Where Applied Industries
Retail Event Collaboration Highly promoted All industries (except EDLP)
channels/categories
DC Replenishment Retail DC or distributor DC Drugstores, hardware, grocery
Collaboration
Store Replenishment Direct store delivery / DC-to- Mass merchants, club stores
Collaboration store
Collaborative Assortment Apparel and seasonal goods Department & specialty stores
Planning

Scenario Details
Retail Event Collaboration: Promotions cause significant demand spikes. Stockouts, excess
inventory, and unplanned logistics costs hurt both retailer and manufacturer. Collaboration to plan,
forecast, and replenish promotions is effective.
DC Replenishment Collaboration: Partners collaborate on forecasting DC withdrawals. Forecasts are
converted to orders committed over a specified time horizon.
Store Replenishment Collaboration: Partners collaborate on store-level POS forecasts converted to
store-level orders. Harder to implement than DC-level; easier for large stores like Costco and Home
Depot.
Collaborative Assortment Planning: For fashion/seasonal goods. Planning horizon is one season.
Forecasts rely more on industry trends, macroeconomic factors, and customer tastes than historical
data.

Risks & Hurdles of CPFR

• Large-scale information sharing creates risk of information misuse
• CPFR partners often have relationships with each other's competitors
• If one partner changes scale or technology, the other must follow or lose the relationship
 3. Role of IT in the Supply Chain

Information provides the foundation on which supply chain processes execute transactions and
managers make decisions. IT encompasses the hardware, software, and people throughout a supply
chain that gather, analyze, and execute upon information.

Properties of Good Information

1. Accurate
2. Accessible in a timely manner
3. Of the right kind
4. Shared across stages

Where IT Supports Decision-Making

Decision Area Information Required
Facility Location, capacity, schedules; trade-offs among efficiency vs. flexibility,
demand, exchange rates, taxes
Inventory Demand patterns, carrying costs, stockout costs, ordering costs
Transportation Costs, customer locations, shipment sizes for routing, mode, and vendor
decisions
Sourcing Product margins, prices, quality, delivery lead times
Pricing & Revenue Demand volume, customer willingness to pay, product margins, lead times,
availability

Real-World Examples: Seven-Eleven Japan, Walmart, Amazon, UPS, and Netflix have built
their success on availability and analysis of information.

4. Supply Chain Macro Processes

Supply chain management scope has expanded from optimizing performance across a single division,
to the enterprise, and now to the entire supply chain. There are three macro supply chain processes:

CRM ISCM SRM

Customer Relationship Internal Supply Chain Supplier Relationship
Management Management Management
Downstream processes Internal planning & fulfillment Upstream processes (company
(company to customer) processes to supplier)
Customer Relationship Management (CRM)
CRM covers the processes that take place between an enterprise and its customers downstream in the
supply chain.

1. Marketing: Decisions on which customers to target, how to target them, what products to offer,
how to price, and how to manage campaigns.
2. Sell: Focuses on making an actual sale. Provides the sales force with information needed and
executes the actual sale.
3. Order Management: Ties together demand from the customer with supply from the enterprise.
4. Call/Service Center: Primary point of contact between company and customers. Helps
customers place orders, suggests products, solves problems, and provides order status
information.

Internal Supply Chain Management (ISCM)

ISCM includes all processes involved in planning for and fulfilling a customer order.

• Strategic Planning: Focuses on network design of the supply chain. Key decisions: location
and capacity planning of facilities.
• Demand Planning: Forecasting demand and analyzing the impact of demand management
tools such as pricing and promotions.
• Supply Planning: Takes demand forecasts and available resources as input, produces an
optimal plan to meet demand.
• Fulfillment: Executes the plan by linking each order to a specific supply source and means of
transportation.
• Field Service: After delivery, focuses on setting inventory levels for spare parts and scheduling
service calls.
📝 There must be strong integration between the ISCM and CRM macro processes.

Supplier Relationship Management (SRM)

SRM covers all processes between an enterprise and its suppliers upstream in the supply chain.

• Design Collaboration: Aims to improve product design through manufacturer-supplier

collaboration. Software helps select components with positive supply chain characteristics.
• Source: Software assists in qualifying suppliers, supplier selection, contract management, and
supplier evaluation.
• Negotiate: Negotiation starts with a request for quote (RFQ) and may include the design and
execution of auctions.
• Buy: Software executes actual procurement including creation, management, and approval of
purchase orders.
• Supply Collaboration: Once supply agreement is established, performance is improved by
collaborating on forecasts, production plans, and inventory levels.

5. Transaction Management Foundation (TMF)

All operations and analytics related to the three macro processes (CRM, ISCM, SRM) rest on the
Transaction Management Foundation (TMF). TMF includes:
• Basic Enterprise Resource Planning (ERP) systems (financials, HR, etc.)
• Infrastructure software
• Integration software

Key Point: TMF software is necessary for the three macro processes (SRM, ISCM, CRM) to
function and communicate with one another. Early ERP focused on transaction management
and process automation. The current focus is on improving decision-making in the three
macro processes.

The IT Framework Diagram (Figure 17-1 / 17-2)

The framework is organized as three pillars sitting on top of TMF:
SRM (Upstream) ISCM (Internal) CRM (Downstream)
Design Collaboration Strategic Planning Market
Source Demand Planning Sell
Negotiate Supply Planning Call Center
Buy Fulfillment Order Management
Supply Collaboration Field Service

TMF (Transaction Management

Foundation) - Underpins all
three

6. Future of IT in Supply Chain & Risk Management

Future of IT in Supply Chain

• Managers must include the future state of the business in IT decision-making.
• If emerging trends will become crucial in the future, IT choices must account for them now.
• IT systems often last much longer than planned — evaluate future flexibility before choosing.
• If long-term vendor support is uncertain, ensure advantages outweigh this risk.
• Ensure software fits both current AND future needs of the company.

Risk Management in IT
Sources of Risk
• Installing new systems (revised business processes, integration challenges)
• Software glitches
• Power outages
 • Viruses and cybersecurity threats

Mitigation Strategies
Strategy Description
Incremental Installation Install new IT systems in incremental stages, not
all at once
Duplicate Systems Run old and new systems in parallel to verify new
system performance
Minimum Complexity Implement only the level of complexity that is truly
needed