a

vi
ed
ACCURATE RESPONSE:

ar
sh
Making Supply Meet

as
Demand in an Uncertain

w
World

m e
co rc
M.L. Fisher, J.H. Hammond
W.R. Obermeyer, and A. Raman o. ou
er res
Harvard Business Review, May-June
1994
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WAYNE STATE UNIVERSITY IE7325:IFORSSupply2011:ChainJuly

Management
10–15, 2011(Primary Source:
- Melbourne,
https://www.coursehero.com/file/17032186/Chapter-92-Making-Supply-Meet-Demand-in-an-Uncertain-World/ Chopra 2012)
Australia
 Uncertainty: Causes and Effects

a
vi
 Key reasons of uncertainty

ed
• Global competition

ar
• Shorter product life cycles

sh
• Large number and variety of products

as
 Result of uncertainty
• Inaccurate forecasts and so the costs

w
• Manufacturers and retailers end up with more

m e
unwanted goods

co rc
• Loss of potential sales because of stockouts*
o. ou
er res
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H
is

* Stockout costs in some industries exceed total manufacturing cost [Frazier, 86]
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WAYNE STATE UNIVERSITY IE7325:IFORSSupply2011:ChainJuly

Management
10–15, 2011(Primary Source:
- Melbourne,
https://www.coursehero.com/file/17032186/Chapter-92-Making-Supply-Meet-Demand-in-an-Uncertain-World/ Chopra 2012)
Australia 2
 General Measures to Counter Uncertainty

a
 Change in MRP to accommodate current forecast – but SC might be

vi
already filled because of inaccurate one

ed
 Quick response in manufacturing might require unjustifiable capacities

ar
 JIT - dependent on good supplier support and short lead times

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WAYNE STATE UNIVERSITY IE7325:IFORSSupply2011:ChainJuly

Management
10–15, 2011(Primary Source:
- Melbourne,
https://www.coursehero.com/file/17032186/Chapter-92-Making-Supply-Meet-Demand-in-an-Uncertain-World/ Chopra 2012)
Australia 3
 Accurate Response

a
vi
 A new approach to SC planning and
production

ed
 Improves SC performance by

ar
postponing more unpredictable

sh
decisions

as
 Two basic elements:

w
• Segments products according to predictability

m e
of demand by using blend of historic data and

co rc
expert judgment
o. ou
• Take into account missed sales opportunities
er res
by measuring costs of stockouts and mark
downs
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 Enables companies to use the power of

flexible manufacturing and shorter cycle
ur tu

times more effectively

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WAYNE STATE UNIVERSITY IE7325:IFORSSupply2011:ChainJuly

Management
10–15, 2011(Primary Source:
- Melbourne,
https://www.coursehero.com/file/17032186/Chapter-92-Making-Supply-Meet-Demand-in-an-Uncertain-World/ Chopra 2012)
Australia 4
 Incorporate Uncertainty in Production Planning

a
 Most companies do a poor job of incorporating demand uncertainty into

vi
production planning

ed
• Too much reliance on safety stocks

ar
 Two reasons

sh
• It’s complicated to factor multiple demand scenarios and companies don’t
know how to do it

as
• Dramatic increase in demand unpredictability is recent and systems don’t

w
support it

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WAYNE STATE UNIVERSITY IE7325:IFORSSupply2011:ChainJuly

Management
10–15, 2011(Primary Source:
- Melbourne,
https://www.coursehero.com/file/17032186/Chapter-92-Making-Supply-Meet-Demand-in-an-Uncertain-World/ Chopra 2012)
Australia 5
 Final Thoughts

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vi
Improving Forecasts

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 Accurate response requires true changes in At Sport Obermeyer
forecasting

ar
• Be more resourceful in using demand indicators to

sh
improve forecasts

as
• Institute a system of tracking forecast errors

w
– Use previous season’s forecast accuracy
– Use independent forecast and the variance from

m e
experts

co rc
 All SC configuration and production planning
o. ou
decisions must adopt a DSS framework rooted in
er res
a probabilistic model of demand
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WAYNE STATE UNIVERSITY IE7325:IFORSSupply2011:ChainJuly

Management
10–15, 2011(Primary Source:
- Melbourne,
https://www.coursehero.com/file/17032186/Chapter-92-Making-Supply-Meet-Demand-in-an-Uncertain-World/ Chopra 2012)
Australia 6
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