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SCM Book Part18 Part3

The document discusses supply chain coordination and the bullwhip effect. Lack of coordination occurs when different supply chain stages have conflicting objectives or distorted information sharing. This can result in the bullwhip effect, where demand fluctuations increase up the supply chain from retailers to manufacturers. Good coordination requires stages to take actions that increase total profits and share accurate information while accounting for impacts on other stages. Conflicting objectives and information delays between independently owned stages make coordination challenging.

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99 views2 pages

SCM Book Part18 Part3

The document discusses supply chain coordination and the bullwhip effect. Lack of coordination occurs when different supply chain stages have conflicting objectives or distorted information sharing. This can result in the bullwhip effect, where demand fluctuations increase up the supply chain from retailers to manufacturers. Good coordination requires stages to take actions that increase total profits and share accurate information while accounting for impacts on other stages. Conflicting objectives and information delays between independently owned stages make coordination challenging.

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© © All Rights Reserved
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skis, so Gulmarg lost all sales that it could not meet in a month because of insufficient

inventory and production. Gulmarg’s skis were normally priced at $800 a pair.
Before making its production plans, Gulmarg had done market research to fully
understand the impact of promotions on customer behavior. Dropping price from $800 to
$750 attracted new customers, but also resulted in existing customers shifting the timing
of their purchase to take advantage of the discount. Customer behavior was also affected
by actions taken by the competitor, Kitz. If only one of the two companies promoted in a
given month, it saw a 40 percent increase in sales for the month and a forward movement
of 20 percent of demand from each of the three following months. In other words, If
Gulmarg promoted in October but Kitz did not, Gulmarg observed a 40 percent increase
in October demand and a shift of 20 percent of demand from November, December, and
January to October. The competitor that did not promote experienced a 20 percent drop
in sales for the promotion month and a 10 percent drop in sales for each of the three
following months. If one of the companies promoted in October and the other in
December, changes in demand were cumulative, with the October promotion having the
first impact, followed by the December promotion. In other words, demand for each
company shifted from that provided in Table 9-9 based on the October promotion. The
December promotion then affected the revised demand. For example, if Kitz promoted in
October and Gulmarg chose to promote in December, Gulmarg would observe a 20
percent drop in demand in October and a 10 percent drop in demand in November,
December, and January compared with the figures in Table 9-9. The December promotion
would then increase demand in December by 40 percent of the reduced amount (because
of the earlier Kitz promotion). Similarly, forward buying from January would also be
based on the reduced amount because of the October promotion by Kitz. Forward buying
from February and March would be based on demand not affected by the October
promotion by Kitz. If both companies promoted in a given month, each experienced a
growth of 10 percent for that month and forward buying equivalent to 20 percent of
demand from each of the three following months.
Should Gulmarg promote? If so, in which month should it promote? If not, why not?

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CHAPTER 10

Coordination in a Supply Chain

LEARNING OBJECTIVES

After reading this chapter, you will be able to

10.1 Describe supply chain coordination and the bullwhip effect, and their impact on
supply chain performance.
10.2 Identify obstacles to coordination in a supply chain.
10.3 Discuss managerial levers that help improve coordination in a supply chain.
10.4 Understand some practical approaches to improve coordination in a supply chain.

In this chapter, we extend the ideas from Chapter 9 and focus on improving coordination
across the supply chain. We discuss how lack of coordination leads to a degradation of
responsiveness and an increase in cost within a supply chain. We describe various
obstacles that lead to this lack of coordination and exacerbate variability through the
supply chain. We then identify appropriate managerial levers that can help overcome the
obstacles and improve coordination. In particular, we discuss how collaboration can
improve supply chain performance.

LACK OF SUPPLY CHAIN COORDINATION AND ITS IMPACT ON PERFORMANCE

10.1 Describe supply chain coordination and the bullwhip effect, and their impact on supply chain performance.

Supply chain coordination improves if all stages of the chain take actions that are aligned
and increase total supply chain surplus. Supply chain coordination requires each stage of
the supply chain to share information and take into account the impact its actions have on
other stages.
A lack of coordination occurs either because different stages of the supply chain have
local objectives that conflict or because information moving between stages is delayed
and distorted. Different stages of a supply chain may have conflicting objectives if each
stage tries to maximize its own profits, resulting in actions that often diminish total supply
chain profits (see Chapters 11, 13, and 15). Today, supply chains consist of stages with
different owners. For example, Ford Motor Company has thousands of suppliers, from
Goodyear to Motorola, and each of these suppliers has many suppliers in turn. Not only
does each stage focus on its own objectives, but information is also often distorted as it
moves across the supply chain because complete information is not shared between stages.
This distortion is exaggerated by the fact that supply chains today produce a large variety
of products. Ford produces different models, with several options for each model. The
increased variety makes it difficult for Ford to coordinate information exchange with
thousands of suppliers and dealers. The fundamental challenge today is for supply chains
to achieve coordination in spite of multiple ownership and increased product variety.
One outcome of the lack of supply chain coordination is the bullwhip effect, in which
fluctuations in orders increase as they move up the supply chain from retailers to

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