Supply Chain Integration

• Eddie Davila defines supply chain integration as the process of coordinating and aligning all parts of the supply chain to work together seamlessly.

  • This involves connecting internal processes within a company as well as collaborating with external partners like suppliers and distributors.

  • The goal of integration is to enhance information flow, improve efficiency, reduce costs, and respond more effectively to customer demands.

Obstacles to integration

• Eddie Davila discusses several obstacles to supply chain integration that can hinder the alignment and coordination across various supply chain components. Key obstacles include:

Push System and Its Characteristics

• Eddie Davila defines a push system as a supply chain strategy where production and inventory decisions are based on forecasted demand.

  • This approach involves producing goods in advance and "pushing" them through the supply chain to meet anticipated customer orders.

  • In a push system, companies rely on sales forecasts to determine production quantities and distribution schedules.

• Pros to Push:

  • High inventories (quality discounts, lower ordering costs, less likely to run out of stock)

  • Shorter lead times for end consumer

  • Mistakes and defects tolerable

• Cons to Push:

  • High inventory (high holding costs and increased risk of shrinkage)

  • Low customization flexibility (not good in a trendy market)

  • Mistakes and defects are tolerable which means more waste and higher operational costs (plus humans may take too much advantage of this)

  • Forecasting miscalculations can be costly (risk of shortages or overproduction)

Pull System

• Eddie Davila explains a pull system as a supply chain approach where production and inventory are driven by actual customer demand rather than forecasts.

  • In a pull system, products are manufactured or ordered only when needed, which helps minimize inventory levels and reduce waste.

  • This approach is often associated with lean manufacturing principles, as it aligns production closely with consumption.

    • Eddie Davila describes lean manufacturing as a production methodology focused on minimizing waste and maximizing efficiency within the manufacturing process. The goal of lean manufacturing is to create more value for the customer using fewer resources by continuously improving processes and reducing non-value-added activities. Originated from the Toyota production system.

• Pros to Pull:

  • Low inventories (low holding costs, decreased shrinkage and handling)

  • Demand driven system minimizes waste

  • Flexible manufacturing possible (ability to adapt to changes in market, tech, laws and so customers are more satisfied)

  • Closer supplier ties are developed

• Cons to Pull:

  • Low inventories (higher ordering costings, higher number of deliveries)

  • Lead times may be longer (since there is no FG inventory)

  • Risky customer service rates (stockouts more likely)

  • Possibly a tougher sell

  • Forecasting miscalculations can be costly

    • If the demand is high- does the supply chain have available capacity? Will lead times increase??

    • If the demand is low- did you build too much capacity? Now we will have sunk costs.

Supply Chain Planning

• Elements of SCM planning:

  • Product planning, demand planning

  • Supply and inventory planning, sales and operations

  • Financial planning

  • Supply chain execution

Lean Systems

Postponement: Push and Pull

• Push the standardized portions of manufacturing

• Delay the final assembly of the end item

• Pull only the customized options offered to customers

  • Inventory requirements (push has WIP) + (pull has component inventory)

  • Eddie Davila defines postponement as a strategy in supply chain management where certain stages of the production or customization process are delayed until customer demand is clearer. By postponing final assembly or customization, companies can respond more accurately to customer preferences, reducing excess inventory and minimizing the risk of unsold goods.

    • Postponement allows companies to produce generic versions of a product up to a certain point, after which they customize the product based on actual orders.

Supply Chain Strategy: Trade Offs

• Cost

• Quality

• Speed

• Flexibility

Bullwhip Effect: Causes and Effects

• Price fluctuations- promotions, quantity discounts, special pricing/payment options… might cause order batching

• Order batching- a strategy of intentionally placing large orders

• Rationing- due to shortage buyers only get partial orders from suppliers. And if demand is higher than available supply…. Might cause gaming

• Shortage gaming- retailers artificially inflate order sizes in an attempt to counteract rationing.

  • In some cases, shortage gaming may also occur with lead times. Poor forecasting, poor analysis, poor communication

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