Trends in Supply Chain Technology – Bullwhip

Pete Sinisgalli, President Manhattan AssociatesPete Sinisgalli, president & CEO of Manhattan Associates was the guest speaker at the Atlanta Council of Supply Chain Management Professionals Roundtable on Monday night. His talk was on Trends in Supply Chain Software Industry. Starting with the perpetual problem statement "Why are our inventory levels up?". Sinisgalli’s premise is that the world is ever more complicated; he lists several reasons:

  • Globalization: more players, time zones, languages cultures, touch points, hand offs
  • Outsourcing: complicated control of services and products
  • Regulations: SOX, ePedigree, Homeland Security
  • Shorter product life cycles: time to market and excess inventory
  • Channel convergence: phone, web, retail
  • Integration: collaboration across cultures and languages
  • Emerging technology: RFID, Voice Automation

All leading to increases in cost, risks, and complexity that will be a barrier for some and an opportunity for others. Sinisgalli goes on to describe the "Bullwhip Effect" of inventory accumulation along the supply chains as a result of all of the above. There are a number of causes that contribute to the Bullwhip Effect:

graph of demand

 

 

  • Demand signal processing: Use of recent demand to generate a forecast, which tends to exaggerate both high and low swings, especially as that forecast is propagated back up the supply chain
  • Order batching (or lumping): The end retailer/distributor combines potential smaller orders to gain efficiencies in administrative costs, volume-pricing opportunities, and/or transportation savings
  • "Gaming" of tight supply products: Buyers at each level "over order" to ensure supply or mitigate against allocations
  • Price variations: Deals offered at any level promote orders that exceed true demand, followed by long periods of no orders while true demand continues

Individually and together, these factors cause spikes and valleys in orders in the face of relatively consistent and predictable end consumer demand. These spikes confuse members of the supply chain on the true level of demand, causing them to produce and stock goods according to the spikes, resulting not only in excess inventory, but often more manufacturing and distribution assets than should be required. Material planners often get into more trouble when they stock out then when they create excess. The solution? The key is passing true end user demand back up through the chain, and then using this information to drive continuous replenishment strategies. Sinisgalli finished with a rhetorical question "Is your supply chain a necessary evil or a strategic weapon to differentiate and add shareholder value?" He propositioned that there are four phases or waves of supply chain maturity.

  1. Optimized execution
  2. Demand management
  3. Collaborative
  4. Predictive

Many (most?) companies are well along on stage 1 and beginning to look up and down stream. Few but the huge channel masters are able to drive collaboration, while he points to Dell and Wallmart as examples of supply chain leaders now pushing the frontiers by predicting supply disruptions and taking preplanned responses.