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Philips Electronics Synchronizes Its Supply Chain

This presentation shows the innovative approach adopted by philips to increase supply chain profitability

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Amit Chaudhary
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338 views30 pages

Philips Electronics Synchronizes Its Supply Chain

This presentation shows the innovative approach adopted by philips to increase supply chain profitability

Uploaded by

Amit Chaudhary
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Philips Electronics Synchronizes Its Supply Chain to End the Bullwhip Effect

Whats covered?
Bullwhip effect definition Results of the bullwhip effect Causes of the bullwhip effect Preventive Actions Case Study Toyotas logistic principles & Other applications Conclusion

Bullwhip Effect Definition


The bullwhip effect is the uncertainty caused from distorted information flowing up and down the supply chain.

It can be detected when orders sent to the manufacturer and supplier create a large variance than the sales to end customer.

Example
Actual Demand from a Customer = 8 Units To avoid the run out of floor stock, the retailer will keep 2 units extra. The order given to Supplier = 10 Units To have a cost advantage and to have enough stocks for timely shipment of goods, the supplier will purchase in bulk. The order given to Manufacturer = 20 Units After getting the bulk orders, the manufacturer will ensure Economy of Scale in production to meet demand. No. of units manufactured = 40 Units

Example
Now 40 units have been produced for a demand of only 8 units Actions to be taken: The retailer will have to increase demand by dropping prices or finding more customers by marketing and advertising.

Feast or Famine Diagram


At one point of time we have excessive inventories and at another point of time we have a stock out and thereby we are unable to meet the demand.

Demand ~ Supply Curve of a Product

Who is affected?
Nearly all industries are affected!
Firms that experience large variations in demand are at risk. Firms that depend on suppliers upstream or distributors and retailers downstream may be at risk.

Evolution
The phenomenon was first found at Proctor & Gamble (P&G).
This effect was named as the BULLWHIP EFFECT by the P&G executives as it resembled a BullWhip. The Bull Whip effect is also know as Whip-Lash or the Whip-Saw Effect.

Results of the bullwhip effect


Excess inventories Problems with quality Increased raw material costs Overtime expenses Increased shipping costs

Results of the bullwhip effect - continued.


Lost customer service Lengthened lead time Lost sales Unnecessary adjusted capacity

Causes of the bullwhip effect


Un-forecasted sales promotions Sales incentives Lack of customer confidence Customers turning back sales orders Freight incentives

Solving the Bullwhip dilemma


Improve communication along the supply chain.
Retailers notifying firms upstream of sales promotions will help clarify demand signals from consumers Improved information will improve demand forecasts upstream in the supply chain.

Solving the Bullwhip dilemma - continued


Improve sources of forecast data
Firms can use data from Point of Sale computer systems to derive data from forecasting Firms along the supply chain can use EDI systems to retrieve data on items that are legitimately being purchased by customers

Solving the Bullwhip dilemma - continued


Work with firms upstream and downstream in the supply chain
Create smaller order increments to decrease time between orders. Order processing will become closer to real-time. Work to develop consistent pricing of products to avoid demand fluctuations from the sale of inexpensive products.

The Project
Project team (Philips Semiconductors (PS) and Philips Optical Storage) CQM consultants, TUe operations research experts.

DVD drive Manufacturing process

Multi echelon optimization model

The Collaborative-PlanningSupport Tool


The CP process comprises four stages:

Stage Stage Stage Stage

1. 2. 3. 4.

Gather data. Decide. Escalate. Deploy.

Business Impact

Logistics principles proposed by Toyota to mitigate Bullwhip effect


1. Synchronisation :
No overproduction or waiting time Quick response to changing requirements

2. Takt :
Each operation performs equally

Logistics principles proposed by Toyota to mitigate Bullwhip effect


3. Flow:
Reduced lead times Cuts inventory lot size High variety flexibility

4. Pull:
Decentralized material control No information distortion

Logistics principles proposed by Toyota to mitigate Bullwhip effect


5. Standardisation:
Improved process quality Consistency in cycle time

6. Integration:
Reduced uncertainty of material flow Quick response due to undelayed and undistorted data

Other Ways
Mitigating Bullwhip effect
Aligning of Goals and Incentives. Improving Information visibility and accuracy. Improving Operational performance. Designing pricing strategies to stabilize orders. Building strategic partnerships and trust. 2 Methods to reduce Bullwhip effect Continuous replenishment and Vendor Managed inventories Collaborative Planning, Forecasting and Replenishment

Other Ways
Examples:
Vendor Managed Inventory to reduce Bull whip effect Kmart implemented Vendor managed inventory with 50 of its suppliers Benefits: Inventory Turns on seasonal items increase from 3 to 10 and on non seasonal items from 12 to 20. Fred Meyers reduced inventories by 40%, and increase the fill rate by 98%

Other Ways
Other ways of mitigating Bullwhip effect
Collaborative Planning , Forecasting and Replenishment (CPFR) : has been implemented by more than 300 companies.

Specific Example: Henkel, German detergent manufacturer, and Eroski, a Spanish food retailer Benefit: Forecasting error reduced from 70% to less than 20%

Examples
Example : Hyper city Mall in India adopted CFPR practice. Benefits: Decrease of 2% in stock levels Increased Revenue Elimination of Expired stock Reduction in write offs

Summary
Causes of the bullwhip effect may include: poor forecasting of sales incorrect information Sales incentives, sales promotions lack of customer confidence.

Summary- Continued..
Results of the bullwhip effect can include: excess inventories problems with quality increased costs, overtime expenditures, lost customer service, lost sales and more.

Summary - Continued
Solutions to the bullwhip effect include: improved information flow stable pricing, small order increments, focused demand on EDI or POS systems and removal of sales incentives.

References

Cachon, G. P., Randall, T. and Schmidt, G. M., 2006. In Search of the Bullwhip Effect. Working Paper, Wharton School of Business, University of Pennsylvania. Chatfield, D. C., Kim, J. G., Harrison, T. P. and Hayya, J. C., 2004. The Bullwhip Effect-Impact of Stochastic Lead Time, Information Quality, and Information Sharing: A Simulation Study, Production and Operations Management, 13(4), 340-353. Chen, F., Drezner, Z., Ryan, J. K. and Simchi-Levi, D., 2000. Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information, Management Science, 46(3), 436-443. Croson, R. and Donohue, K., 2003. Impact of Pos Data on Supply Chain Management: An Experimental Study, Production and Operations Management, 12(1), 1-11. Croson, R. and Donohue, K., 2006. Behavioral Causes of the Bullwhip Effect and the Observed Value of Inventory Information, Management Science, 52(3), 323-336.

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