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Supply Chain Management: Strategy, Planning, and Operation
Seventh Edition
Chapter 10
Coordination in a Supply Chain

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Learning Objectives
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 achieve coordination in a supply chain.
10.4 Understand some practical approaches to improve coordination in a supply chain.

Lack of Supply Chain Coordination and Its Impact on Performance
Supply chain coordination all stages of the chain take actions that are aligned and increase total supply chain surplus
Requires that each stage share information and take into account the effects of its actions on the other stages
Lack of coordination results when:
Objectives of different stages conflict
Information moving between stages is delayed or distorted

Bullwhip Effect (1 of 2)
Fluctuations in orders increase as they move up the supply chain from retailers to wholesalers to manufacturers to suppliers
Distorts demand information within the supply chain
Results from a loss of supply chain coordination

Bullwhip Effect (2 of 2)

Figure 10-1 Demand Fluctuation at Different Stages of a Supply Chain

The Effect on Performance (1 of 2)
Lack of coordination increases variability and hurts supply chain surplus
Impact on costs
Manufacturing cost
Inventory cost
Replenishment lead time
Transportation cost
Labor cost for shipping and receiving
Level of product availability
Relationships across the supply chain

The Effect on Performance (2 of 2)
Table 10-1 Impact of the Lack of Coordination on Supply Chain Performance

Performance Measure
Impact of the Lack of Coordination

Manufacturing cost
Increases

Inventory cost
Increases

Replenishment lead time
Increases

Transportation cost
Increases

Shipping and receiving cost
Increases

Level of product availability
Decreases

Profitability
Decreases

Summary of Learning Objective 1
Supply chain coordination requires all stages to take actions that maximize total supply chain profits. A lack of coordination results if different stages focus on optimizing their local objectives or if information is distorted as it moves across the supply chain. The phenomenon that fluctuation in orders increases as one moves up the supply chain from retailers to wholesalers to manufacturers to suppliers is referred to as the bullwhip effect. This effect results in an increase in all costs in the supply chain and a decrease in customer service levels. The bullwhip effect moves all parties in the supply chain away from the efficient frontier and results in a decrease of both customer satisfaction and profitability within the supply chain.

Obstacles to Coordination in a Supply Chain
Incentive Obstacles
Information Processing Obstacles
Operational Obstacles
Pricing Obstacles
Behavioral Obstacles

Incentive Obstacles
Occur when incentives offered to different stages or participants in a supply chain lead to actions that increase variability and reduce total supply chain profits
Local optimization within functions or stages of a supply chain
Sales force incentives

Information Processing Obstacles
When demand information is distorted as it moves between different stages of the supply chain, leading to increased variability in orders within the supply chain
Forecasting based on orders and not customer demand
Lack of information sharing

Operational Obstacles (1 of 2)
Occur when placing and filling orders lead to an increase in variability
Ordering in large lots
Large replenishment lead times
Rationing and shortage gaming

Operational Obstacles (2 of 2)

Figure 10-2 Demand and Order Stream with Orders Every Five Weeks

Pricing Obstacles (1 of 2)
When pricing policies for a product lead to an increase in variability of orders placed
Lot-size based quantity decisions
Price fluctuations

Pricing Obstacles (2 of 2)

Figure 10-3 Retailer Sales and Manufacturer Shipments of Soup

Behavioral Obstacles (1 of 2)
Problems in learning within organizations that contribute to information distortion
Each stage of the supply chain views its actions locally and is unable to see the impact of its actions on other stages
Different stages of the supply chain react to the current local situation rather than trying to identify the root causes
Different stages of the supply chain blame one another for the fluctuations

Behavioral Obstacles (2 of 2)
No stage of the supply chain learns from its actions over time
A lack of trust among supply chain partners causes them to be opportunistic at the expense of overall supply chain performance

Summary of Learning Objective 2
A key obstacle to coordination in the supply chain is misaligned incentives that result in different stages optimizing local objectives instead of total supply chain profits. Other obstacles include lack of information sharing, operational inefficiencies leading to large replenishment lead times and large lots, sales force incentives that encourage forward buying, rationing schemes that encourage inflation of orders, promotions that encourage forward buying, and a lack of trust that makes any effort toward coordination difficult.

Managerial Levers to Achieve Coordination
Aligning goals and incentives
Improving information accuracy
Improving operational performance
Designing pricing strategies to stabilize orders
Building strategic partnerships and trust

Aligning Goals and Incentives
Align goals and incentives so that every participant in supply chain activities works to maximize total supply chain profits
Align goals across the supply chain
Align incentives across functions
Pricing for coordination
Alter sales force incentives from sell-in (to the retailer) to sell-through (by the retailer)

Improving Information Visibility and Accuracy
Sharing customer demand data
Implementing collaborative forecasting and planning
Designing single-stage control of replenishment
Continuous replenishment programs (C R P)
Vendor managed inventory (V M I)

Improving Operations to Synchronize Supply and Demand
Reducing replenishment lead time
Reducing lot sizes
Rationing based on past sales and sharing information to limit gaming

Designing Pricing Strategies to Stabilize Orders
Encouraging retailers to order in smaller lots and reduce forward buying
Moving from lot size-based to volume-based quantity discounts
Stabilizing pricing

Building Strategic Partnerships and Trust
Easier to use levers to achieve coordination if trust and strategic partnerships are built
Sharing accurate information
Lower transaction costs between stages
All parties must believe that the benefits of improved coordination are being shared equally

Improving Coordination in Practice
Get top management commitment for coordination
Devote resources to coordination
Focus on communication with other stages

Summary of Learning Objective 3
Managers can improve coordination in the supply chain by aligning goals and incentives across different functions and stages of the supply chain. Other actions that managers can take to improve coordination include sharing of sales information and collaborative forecasting and planning, implementation of single-point control of replenishment, improving operations to reduce lead times and lot sizes, E D L P and other pricing strategies that limit forward buying, and the building of trust and strategic partnerships within the supply chain. Top management commitment, the devotion of resources to coordination, and a focus on communication across the supply chain are important requirements for coordination to improve in practice.

Some Practical Approaches to Improve Supply Chain Coordination (1 of 2)
Continuous replenishment and vendor-managed inventories
A single point of replenishment
C R P wholesaler or manufacturer replenishes based on P O S data
V M I manufacturer or supplier is responsible for all decisions regarding inventory
Substitutes

Some Practical Approaches to Improve Supply Chain Coordination (2 of 2)
Collaborative planning, forecasting, and replenishment (C P F R)
Sellers and buyers in a supply chain may collaborate along any or all of the following
Strategy and planning
Demand and supply management
Execution
Analysis

Common C P F R Scenarios
Table 10-2 Four Common C P F R Scenarios

C P F R Scenario
Where Applied in
Supply Chain
Industries Where Applied

Retail event collaboration
Highly promoted channels or categories
All industries other than those that practice E D L P

D C replenishment collaboration
Retail D C or distributor D C
Drugstores, hardware, grocery

Store replenishment collaboration
Direct store delivery or retail D C-to-store delivery
Mass merchants, club stores

Collaborative assortment planning
Apparel and seasonal goods
Department stores, specialty retail

Collaborative Planning, Forecasting, and Replenishment (C P F R) (1 of 2)
Retail event collaboration
D C replenishment collaboration
Store replenishment collaboration
Collaborative assortment planning
Organizational and technology requirements for successful C P F R
Risks and hurdles for a C P F R implementation

Collaborative Planning, Forecasting, and Replenishment (C P F R) (2 of 2)

Figure 10-4 Collaborative Organizational Structure

Summary of Learning Objective 4
V M I and C P F R are two practical approaches to improve coordination in the supply chain. Under V M I, the supplier is responsible for managing product inventories at the retailer while ensuring an agreed upon level of service. Under C P F R, supply chain members manage forecasting, planning, and replenishment in a collaborative manner. Partners may set C P F R relationships to collaborate on store events, D C replenishment, store replenishment, or assortment planning. D C replenishment collaboration is often the easiest to implement because it requires aggregate-level data. Store replenishment collaboration requires a higher level of investment in technology and data sharing to be successful.

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SPT 512 – Module 6 Assignment

Instructions
Contact a campus recreational sport program and ask what types of development opportunities they offer their student employees. How do they handle their disciplinary process for student employees? What do you feel they are missing? In your write-up, provide suggestions on ways you think they can improve.

For additional details, please refer to the Short Paper/Case Study RubriC PDFdocument.

Guidelines for Submission: Short papers should use double spacing, 12-point Times New Roman font, and one-inch margins. Sources should be cited according to a discipline-appropriate citation method. Page-length requirements: 24 pages.

Short Paper/Case Study Analysis Rubric

Guidelines for Submission: Short papers should use double spacing, 12-point Times New Roman font, and one-inch margins. Sources should be cited according
to a discipline-appropriate citation method. Page-length requirements: 12 pages (undergraduate courses) or 24 pages (graduate courses).

Critical Elements Exemplary (100%) Proficient (90%) Needs Improvement (70%) Not Evident (0%) Value

Main Elements Includes all of the main
elements and requirements
and cites multiple examples to
illustrate each element

Includes most of the main
elements and requirements
and cites many examples to
illustrate each element

Includes some of the main
elements and requirements

Does not include any of the
main elements and
requirements

Inquiry and Analysis Provides in-depth analysis that
demonstrates complete
understanding of multiple
concepts

Provides in-depth analysis that
demonstrates complete
understanding of some
concepts

Provides in-depth analysis that
demonstrates complete
understanding of minimal
concepts

Does not provide in-depth
analysis

Integration and
Application

All of the course concepts are
correctly applied

Most of the course concepts
are correctly applied

Some of the course concepts
are correctly applied

Does not correctly apply any of
the course concepts

Critical Thinking Draws insightful conclusions
that are thoroughly defended
with evidence and examples

Draws informed conclusions
that are justified with evidence

Draws logical conclusions, but
does not defend with evidence

Does not draw logical
conclusions

Research Incorporates many scholarly
resources effectively that
reflect depth and breadth of
research

Incorporates some scholarly
resources effectively that
reflect depth and breadth of
research

Incorporates very few scholarly
resources that reflect depth
and breadth of research

Does not incorporate scholarly
resources that reflect depth
and breadth of research

Writing
(Mechanics/Citations)

No errors related to
organization, grammar and
style, and citations

Minor errors related to
organization, grammar and
style, and citations

Some errors related to
organization, grammar and
style, and citations

Major errors related to
organization, grammar and
style, and citations

Earned Total 100%

Short Paper/Case Study Analysis Rubric

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