Chapter5

TheValueofInformation

5.1IntroductionValueofusinganytypeofinformationtechnologyPotentialavailabilityofmoreandmoreinformationthroughoutthesupplychainImplicationsthisavailabilityoneffectivedesignandmanagementoftheintegratedsupplychain

InformationTypesInventorylevelsOrdersProductionDeliverystatus

MoreInformationHelpsreducevariabilityinthesupplychain.Helpssuppliersmakebetterforecasts,accountingforpromotionsandmarketchanges.Enablesthecoordinationofmanufacturinganddistributionsystemsandstrategies.Enablesretailerstobetterservetheircustomersbyofferingtoolsforlocatingdesireditems.Enablesretailerstoreactandadapttosupplyproblemsmorerapidly.Enablesleadtimereductions.

5.2BullwhipEffectWhilecustomerdemandforspecificproductsdoesnotvarymuchInventoryandback-orderlevelsfluctuateconsiderablyacrosstheirsupplychainPG’sdisposablediaperscaseSalesquiteflatDistributorordersfluctuatemorethanretailsalesSupplierordersfluctuateevenmore

4-StageSupplyChainFIGURE5-5:Thesupplychain

EffectofOrderVariabilityFIGURE5-6:Theincreaseinvariabilityinthesupplychain

FactorsthatContributetotheVariability-DemandForecastingPeriodicreviewpolicyCharacterizedbyasingleparameter,thebase-stocklevel.Base-stocklevel= Averagedemandduringleadtimeandreviewperiod+ amultipleofthestandarddeviationofdemandduringleadtimeandreviewperiod(safetystock)Estimationofaveragedemandanddemandvariabilitydoneusingstandardforecastsmoothingtechniques.EstimatesgetmodifiedasmoredatabecomesavailableSafetystockandbase-stockleveldependsontheseestimatesOrderquantitiesarechangedaccordinglyincreasingvariability

Increaseinvariabilitymagnifiedwithincreasingleadtime.Safetystockandbase-stocklevelshavealeadtimecomponentintheirestimations.Withlongerleadtimes:asmallchangeintheestimateofdemandv