1(a). In the diagram presented, eight effects were observed in the first marking scheme. The items depicted in the marking scheme are reminiscent of the bullwhip effect, which is an incident that occurs when some factors in a demand-motivated supply chain act up. The first observation is the distortion of information. Upon looking closely at the setup of the supply chain, it is easy to leave out and misinterpret bits and pieces of information as a result of the frequent transfer of information from one part of the chain to another.
The second and an obvious characteristic of the organization presented by the diagram is the fragmented supply chain. In the diagram, companies A,B,C,D, and E have an indirect but interdependent relationships as far as supply and demand are concerned. Companies A, B, C, D and E each “own” one particular stage that lead to the delivery of the finished product to the consumer. Taking into account the companies’ relationships with the customer, only Company A has a clear-cut and transparent association with the end user.
The farther a company goes into the supply chain, the more time is required for it to wait for results or further feedback. Thus, there is a need for protective stock. The result is time delays in the processing of orders, payments, and other transactions as there is no direct communication with the end customer. The lack of transparency between transactions leading to the real demand also brings about possible planning distortions. Communication lines between business partners have to be open and frequent for plans to be executed smoothly and perfectly to fruition. (Lee, Padmanabhan and Whang 2004)
The structure of the supply chain as seen in the diagram lends to the amplification of demand further away from real demand. The end consumer is in direct communication only with Company A. Company A, on the other hand has an exclusive partnership with Company B. Likewise, Company B has an exclusive partnership with Company C. The same setup is true for Company D and E. The real demand is what the end consumer requires from Company A. The existing arrangement complicates an otherwise simple business transaction between what is supposed to be a deal between Company A and the end customer.
Should there be periods where demand falls, there is the certainty of an increase in non-value added buffer stocks. The evident absence of communication between the customer and third-party suppliers may result in unreliable deliveries. In attempts to bridge delays in delivery, the customer will tend to order in advance which may result in over-ordering if there is poor capacity planning and delivery schedules are not managed efficiently. The existing setup makes for a rather inefficient supply chain, which is susceptible to miscommunication, error, delays and losses. (Lee, Padmanabhan and Whang 2004)
1(b). Several solutions can be implemented to reduce the impact of the bullwhip effect.
For the existing setup to be more efficient, companies should explore means of integrating several stages in the supply chain. Companies should examine their procedures to determine if there are processes that can be integrated or eliminated. This will result in savings, which will later translate into an increased earning capacity. An improvement of relationships in the supply chain leads to better communication between entities and makes for faster and more efficient transactions. Supply chains with similar setups will greatly benefit from ERP systems or Enterprise Resource Planning Systems. All the data and the processes of an organization will be integrated into one central system with the ERPs. Therefore, utilizing ERPs is a more time-efficient method of managing transactions. (Wikipedia, the free encyclopedia 2007)
EDI (Electronic Data Interchange) or e-procurement implements processes that would automate transactions such as ordering. Like ERP systems, the use of EDI improves the speed of processing transactions and leads to more accurate busienss information. Real time information is the result of the proper use of tools such as ERPs and EDI. Managing transactions using real time information means that the information used is fresh, updated and will lead to better results for the whole organization. Transparency in all components the supply chain will lead to better communication between members of the chain and is essential in efficiently addressing the needs that will make for smooth operations. (Brunke n.d.)
2(a) Organizations use certain criteria to evaluate the performance of a logistics supply chain.
Processes that organizations may be spending too much on will be revealed by a thorough analysis of costs by activity. A review of activity costs will help managers determine where to cut costs within an organization. (Brunke n.d.)
Customer satisfaction is always good measure of the success of a company. Organizations can use valuable feedback information to determine their strengths and weaknesses. Proper attention to and evaluation of issues that customers will raise is a good way of determining what areas to improve on in terms of service levels. (Brunke n.d.)
Two areas that would eat up a significant amount of companies’ budgets are warehousing and transportation costs. In order to deliver quality products to customer, companies must be careful of how they store and transport their products from the warehouses to the stores. In line with this, they must come up with an efficient routing system that would ensure that products will come to their customers on time at the best quality. For example, grocery store chain that has two branches that are near each other don’t need individual warehouses for their inventory. In order to save on costs, the grocery chain should have one warehouse that is located near both stores to keep inventory for both. Delivery routes should be well-planned such that inventory for restocking both stores can be accommodated using one delivery truck. This will help the company save on storage expense as well as fuel expenses. (Brunke n.d.)
Storage and transportation are essential activities in a supply chain. A well-defined warehousing and transportation system will lead to reduced logistics support costs.
It is wise to measure supplier performance to ensure that products are always at top quality. Suppliers should be subject to inspections and evaluations from time to time to guarantee that raw materials or services availed from them are at a par to the company’s standards.
2 (b) All business organizations are not without their fair share of obstacles. In developing a Logistics Information System or L.I.S. there are several common problems that organizations should look out for.
The first problem is inaccurate data. Inaccurate data results from an inefficient system of recording transaction information. In spite of the seemingly trivial, sometimes redundant nature of this activity, it is essential that problems with inaccurate data is dealt with at the onset to prevent a snowball effect of other problems that it may bring about.
Poor forecasting is the result of working with inaccurate data. This may lead to other problems such as overstocking. The lack of systems integration causes delays in processing of data and affects the quality and timeliness of data available for use in the different departments of an organization. The lack of real time information is the result of not dealing with the problem of inaccurate data at the onset. This may bring about serious discrepancies with regards to transaction information. Only an efficient flow of information will be able to remedy these conditions. (Brunke n.d.)
A fragmented supply chain is consequence of a poorly managed supply chain. This is inherent in supply chains wherein the different stages of production are outsourced to different companies or organizations. To prevent an organization from suffering such a condition, it is important to carefully evaluate processes in order to avoid overlapping procedures. (Brunke n.d.)
Reference List
- Lee, Hau L., V. Padmanabhan, and Seungjin Whang. Comments on “information distortion in a supply chain: the bullwhip effect”; The bullwhip effect: reflections. December 1, 2004.
- Wikipedia, the free encyclopedia. Enterprise resource planning. August 9, 2007. http://en.wikipedia.org/wiki/Enterprise_resource_planning#Before (accessed August 10, 2007).