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Supply Chain Management and Global Operations; driver or barrier? Part 2 of 3

So, in the first part of this paper a couple of days of ago, we explained what SCM is.

Based on this, there are 3 concepts that affect supply chain management:

Demand amplification, deterministic chaos and parallel interactions

  • Demand amplification. Uncertainty is the name of the game. The decision makers do not know definitely what to decide in the short, middle and long term. Variations in the demand are caused by the final customer. Nevertheless, there are other factors about why the demand is never going to be certain, which are:
  1. a) Demand forecasting
  2. b) Order batching
  3. c) Price fluctuations in the marketplace
  4. d) Rationing and shortage gaming

To know what customers request on a product or service is never totally certain. That is why that companies must carry buffer inventories and yet further additional overheads in the shape of expediters and schedulers. All this explained by the “Bullwhip effect”, a term used in SCM, to reflect the oscillating effect of inaccurate information or improper forecasts can have on inventories levels. Keep this concept in mind.

 

2)  Deterministic chaos. What is chaos? It is the inherent unpredictability in the behavior of a complex natural system and in relation in a modern usage. Chaos denotes a state of disorder and irregularity. In supply chain systems, the decision making process is related to adjust inventory policies to avoid stock outs, over inventory, erratic re-ordering and poor customer service levels.

So, how to balance up this level of confidence against chaos. The lack of confidence can be reduced if two points are attacked: Visibility and Control.

  • Due to the length of supply chain systems there is no detailed knowledge of what goes on in other parts of the chain, as finished goods inventory, material inventory, work-in-process, etc. The solution here, is to share information among the members of the supply chain, this is because shared information reduces uncertainty and thus reduces the need for safety stock.
  • It describes the situation that even if information is shared and a manager knows the scope of the process, sometimes it is hard to control the different operators related to the supply chain, due to these operators are out of his/her hands like suppliers mistakes, weather, not flexible production lines or production schedule changes are not feasible.
  • Parallel interactions. They are the interactions that occur between different channels of the same tier in a supply network. Like for example a vendor supplying material or a finished part for a customer. It has to be remembered that supply chains are dynamic systems and that at any point of time, hundreds of activities and decisions are happening somewhere in the chain.

But even among all these number of decisions, there are concepts that can help to reduce the parallel interactions. We must work to level up trust and commitment, and improve the relationship lifecycle. Trust has a role to play within and between inter- and intra-organizational relationships. However, you must be careful when sharing information. Do not be so naïve. To control parallel interactions is a complex case, in an ethical point of view, trust is necessary to develop business relationships, but hard to achieve.

That is all for today. Thanks a lot for your attention. We will release the 3rd part and final note of this paper. In the meantime, take care and keep walking on my friend.

Jorge Maldonado. Egresado de la Universidad Autónoma de Nuevo León como Ingeniero Administrador de Sistemas. Cuenta con una Maestría en International Logistics and Supply Chain Management en la Universidad de Glamorgan South Wales en Reino Unido. Profesionalmente se ha desarrollado en empresas de manufactura y tecnologías de información.

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