Management of Uncertainty In Supply Chain

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1 Management of Uncertainty In Supply Chain Prof.D.P.Patil 1, Prof.A.P.Shrotri 2, Prof.A.R.Dandekar 3 1,2,3 Associate Professor, PVPIT (BUDHGAON), Dist. Sangli(M.S.) Abstract- In today s competitive world management of supply chain is a crucial factor for becoming competitive and successful. The supply chain includes every link to the transformation of customer needs in to useful products and to cater them back to the customers.so it is important that smooth operations of every link in the supply chain should be taken care of. Uncertainty in the functioning of any of the links may lead to delays and bottlenecking and may hamper the performance output of the supply chain. So it is necessary to control the various factors which are responsible for supply chain. Proper planning and dealing with uncertainties will certainly lead to better scheduling, up to the mark production levels, timely deliveries and ultimately greater customer satisfaction. Keywords-Customer s satisfaction, Managing uncertainties, supply chain management, uncertainties in supply chain, Supply chain planning tools. I. CONCEPT OF SUPPLY CHAIN A supply chain consists of all stages involved, directly or indirectly, in fulfilling the customer request. The supply chain not only includes the manufacturer or suppliers, but also transporters, warehouses, retailers, and customers themselves. Within each organization such a manufacturer, the supply chain includes all functions involved in fulfilling a customer s request. It includes every link in catering the needs of customers right from transformation up to installation. II. OBJECTIVES 1) Customer Satisfaction MANAGEMENT OF SUPPLY CHAIN 303 2) Protection against fluctuations in demand 3) Better use of men, material and machines 4) Protection against fluctuations in output 5) Customer Satisfaction 6) Protection against fluctuations in demand 7) Better use of men, material and machines 8) Protection against fluctuations in output The starting point of the management activity to understand the customer s demands. It further extends to better asset utilization due to optimization and tries to eliminate the excess vendors, high inventories, uncertainties and resulting longer lead time. Thus it is an attempt to reduce overall inefficiencies in the supply chain. It considers any constrain that may affect the supply chain and its smooth working,andremedial action plan is incarporated.the data is further utilized for future forecasts.italso rationalizes the vendors and reduces the uncertainties in planning with vendors and yields better scheduling. It reduces unnecessary vendoring and can have economies-of-scale benefits.the main target of managing the supply chain is to realize and neutralize the uncertainties in the supply chain. III. UNCERTAINTY IN SUPPLY CHAIN Uncertainties in supply, process and demand are recognized to have a major impact on the manufacturing function. Uncertainty propagates throughout the network and leads to inefficient processing and non-value adding activities. This is expressed in questions such as: what will my customers order? how many products should we have in stock? and will the supplier deliver the requested goods on time and according to the demanded specifications?

2 The presence of stimulates the decision maker to create safety buffers in time, capacity or inventory to prevent a bad chain performance. These buffers will restrict operational performances and suspend competitive advantage. Those companies which cope best with are most likely to produce internationally competitive bottom-line performances. Because of the specific product and process characteristics in food supply chains, such as perish ability of end products, variable harvest and production yields and the huge impact of weather conditions on consumer demand, these chains are especially vulnerable to this type of. The following table no.1 shows Impact of customer needs on implied demand. Table no 1 [1] Meaning of Uncertainty Definition of supply chain is based on the five requirements for effective system management by De Leeuw (2000). If one or more of these requirements is not fulfilled, decision makers in the supply chain will experience resulting in ineffectiveness: (1) The managing system should have an objective and corresponding performance indicators to manage the supply chain in the right direction. (2) To estimate future system states one has to have information on the environment and current supply chain state. (3) There should be enough information processing capacities to process information on the environment and supply chain state. (4) In order to direct the managed system in the right direction one should be able to estimate the impact of alternative actions. This requires a model of the system, presenting the relationships between available redesign variables and performance indicators. (5) There should be enough potential control actions. IV. SOURCES OF UNCERTAINTY These sources of supply chain can be categorized as: Inherent characteristics that cause more or less predictable fluctuations. Uncertainty may take the form of high variability in demand, process or supply, which in turn creates problems in planning, scheduling and control. 304 Impact of customer needs on implied demand Sr.no. Attribute Low implied High implied 1 Product low high margin 2 Average 10% % forecast error 3 Average 1-2% 10-40% stock out rate 4 Average 0% 10-25% forced season end markdown The following table no 2 shows the Impact of customer needs on implied demand. Table no 2 [1] Impact of customer needs on implied demand Sr no Customer Needs 1 Range of quantity required increases Causes Implied demand to Increase because a wider range of the quality required implies greater variances in demand. 2 Lead time decreases Increase because there is less time in which to react to order. 3 Variety of product required increases Increase because demand per

3 4 Number of channels through which product may be acquired increases product becomes more disaggregates. Increase because the total customer demand is now disaggregated over more channels. 5 Rate of innovation increases Increase because new products tend to have more demand. (2) Characteristic features of the chain those results in potential disturbances of system through the entire supply chain to optimize the logistic network. Production planning:-this gives a smooth and optimal flow of the resources by promoting optimized production schedules to maximize the returns on the assets, minimize delays, improved resource utilization and reduce the work in process inventory. Availability planning:-this provides a global, multilevel,rule based strategic planning facility to match the supply chain with customer demands and to upkeep the precise delivery commitment for customer orders, and thereby fulfilling the promise made to the customer. Performance: chain configuration (e.g. inflexible capacities) chain control structure (e.g. wrong decision rules applied) chain information system (e.g. information delays) chain organization and governance structure (e.g. misjudgment by a decision maker) (3) Exogenous phenomena that disturb the system, such as changes in markets, products, technology, competitors and governmental regulations. V. DEALING WITH UNCERTAINTY Uncertainties in supply, process and demand are recognized to have a major impact on the optimistic functioning of a company. This barrier in the efficient working of the supply chain should be better t6aken care of. This task is handled by the supply chain planning tools. VI. SUPPLY CHAIN PLANNING TOOLS Demand planning: - It provides for advanced forecasting and demand planning tool to keep pace with volatile changes in demand and produce accurate forecasts. Supply network planning:-it synchronizes the market demand dynamically with sourcing and production activities and plan material flow All the above functions are now-a-days possible by an intuitive and configurable graphical user interface to manage and optimize the supply chain. VII. A) Managing Supply SOLUTIONS TO UNCERTAINTY A firm can vary supply of product by controlling a combination of the following factors Managing Production Capacity When managing capacity firms use a combination of the following approaches: Time flexibility from workforce In this approach, a firm uses flexible work hours from the workforce to better match the production with demand. In many instances, plants do not operate continually & are left idle during portions of the day & week. Therefore, spare plant capacity exists in the form of hours when the plant is not operational. For example, many plants do not run three shifts, so existing workforce could work overtime during peak periods to produce more to meet demand. The overtime used is varied to match the variation in demand. This system would allow production from the plant to more closely match the demand from customers. Telemarketing centers and banks use part time workers extensively to match supply & demand better. 305

4 Use of seasonal workforce In this approach, a firm uses a temporary workforce during the peak season to increase capacity to match the demand. The tourism industry often employs this approach, in which a base of full time employees exists & the rest are hired only for the peak season. Agriculture also uses this approach for both harvesting & processing. This approach may be hard to sustain if the labor market is tight. Use of subcontracting In this approach, a firm subcontracts peak production so that internal production remains level & can be done cheaply. With the subcontractor handling the peaks, the company is able to build a relatively inflexible but low cost facility where the production rates are kept relatively constant. A key here is the availability of relatively flexible subcontractor capacity. For example, most of power companies do not have the capacity to supply their customers with all the electricity demanded on the peak days. They instead rely on being able to purchase that power from suppliers & subcontractors who have excess electricity. This allows power companies to maintain a level supply and a lower cost. B. Managing Inventory Using common components across multiple products In this approach, a firm designs common components across multiple products, each with a predictably variable demand but with a relatively constant overall demand. Using common components across these products will result in the demand for the components being relatively constant. Therefore a part of supply chain producing components can easily synchronize supply with demand & a relatively low inventory of parts will have to be built up. Build inventory of high demand or predictable demand products When most of the products a firm produces have the same peak demand season, the previous approach is no longer feasible. A firm must then decide which inventory to build during the off season. The answer is to build products with the more predictable demand during the off season because there is less to be learned about their demand by waiting. As more is known about demand closer to selling season, production of more uncertain items should take place. Use of dual facilities dedicated and flexible In this approach, a firm builds both dedicated & flexible facilities. Dedicated facilities produce a relatively stable output of products over time in a very efficient manner. Flexible facilities produce a widely varying volume & variety of products but at higher unit costs. Designing product flexibility into the production processes In this approach, a firm has the market adaptive, flexible production system whose production rate can easily be varied. This system senses the fluctuation in the market demand and the Production system is then changed to match the demand. The production lines are designed such that changing the number of workers on a line can vary the production rate. As long as variation of demand across different product lines is complementary the capacity on each line can be varied by moving the workforce from one line to other. This requires multi skilled workforce. C) Managing demand To manage demand with the goal of maximizing profit, companies must use pricing & production decisions. The timing of the tools can have a tremendous impact on demand. Therefore using pricing to shape demand can help synchronize the supply chain. D) Information Centralization In many of the cases the company has many distribution centers from where the needs of the customers can be catered. This can be better managed if the demand details and inventory status updates are readily available online instanteniously.this can be easily achieved by centralizing the information. The benefit of information centralization derives from the fact that most orders are filled from the warehouse closest to the customer, keeping transportation costs low. 306

5 VIII. CONCLUSION E) Specialization Most supply chains provide a variety of products to the customers. When inventory is carried at multiple locations; a key decision for a supply chain manager is whether all products should be stocked at every location. Clearly, a product that does not sell in a geographical region should not be carried in inventory by the warehouse or retail store located there. F) Postponement strategy A postponement strategy aims at delaying some supply chain activities until customer demand is revealed in order to maintain both low systems wide cost and fast response. 1. Purchasing postponement Delay purchasing of some expensive and fragile materials 2. Manufacturing postponement Products in semi-finished forms and can be customized quickly in Production facilities. 3. Logistics postponement Products in semi-finished forms and can be customized quickly in Production facilities close to customers. 4. Time postponement Finished products are kept in central location and are distributed quickly to customers. 5. Product development postponement G) Demand Forecasting Forecast of future demand are essential to a supply chain manager s decision making and planning processes. From the above discussions it can be concluded that; A supply chain consists of all stages involved, directly or indirectly, in fulfilling the customer request. And the prime objective of the managing system is to have a strategy and corresponding performance indicators to manage the supply chain in the right direction. This can be better done by firstly identifying the sources of and then by synthesizing the available information and seeking opportunities to tackle the causes to root out them. This roadmap will certainly lead to better scheduling, up to the mark production levels, timely deliveries and ultimately greater customer satisfaction. CASESTUDY REFERENCE ORGANIZATION: WALL MART STORES To manage the uncertainties in supply chain the famous store wall mart are using following strategies 1) They directly procure the product from manufacturers. All intermediate links are bypassed. 2) Every time conducting meetings with the vendors to understand their cost structure 3) For transportation it has company owned 3500 trucks. The driver has to report their hours of service to the coordinator on daily basis. The coordinator arranges the trips according to available driving time. 4) For better communication in store Wall mart is using bar code systems Due to which the information like in stock, cost is quickly available. COMPARISON OF WAL-MART WITH COMPETITIORS The Wal-Mart successfully managed the problems.the following table shows difference at various stages in supply chain between Wal-Mart and the other competitors. 307

6 TABLE.3 [3] COMPARISON OF WAL-MART AND ITS COMPETITIORS Sr. Stage in supply Wal-Mart Competitors chain 1. Direct inventory 85% 55-65% supply from warehouse to retail stores 2. Shipping cost 3% of total expenditure 5% of total expenditure 3. Replenishments Maximum 2 Maximum 5 time days days REFERENCES [1]Sunil Chopra & Peter Meindl, Supply chain management, Publisher Prentice Hall, Edition 2001 [2]Dr.Seth, Global management solutions demystified, Publisher Thomas education publication, Edition 2006 [3]P.Mohanchandra,Wal-Mart supply chain management practice, Online research paper2003 [4]Kumaraguru Mahadevan,Supply chain An insight for Australian CEOS and Managers, Online research paper [5]Supply chain definition and activities, Web page [6]S.Shiva Ramu Twntieth century management tools& techniques; Wheeler publishingedition

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