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Improving supply chains decision making

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Wednesday, February 27, 2013

Video Presentation

Decision making for high performance - demand-pull supply chain management

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Christoph Lenhartz
Pinnacle Strategies

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Talk Description
Often, companies find their Supply Chain Management (SCM) investments are not yielding the expected benefits and that the performance of their supply chain is low. Decisions often focus on efficiency only instead of ensuring reliability.

Technology is transaction-driven and does not support proper decision making to do the right things at the right time. SCM design and decision making is delegated instead of making it a top management priority: Successful supply chains are customer-centric and built around the value proposition of the business. Such integration must be driven by the senior leadership.

A Systems Approach to Supply Chain Management

The key to better decision making in SCM and to improve supply chain performance is to treat the supply chain as a system, where efficiency is a by-product of system performance. Priorities for supply chain improvement must be:

1. Improve reliability
2. Improve return on investment
3. Reduce operating costs

A reliable supply chain will not generate excessive investment. In fact, excessive amounts of inventory are a primary indicator of an unreliable process. High inventories and operating costs are often the result of decisions that were taken to resolve synchronization errors. These are the symptoms of poor performance, not the cause.

Decisions to improve supply chain performance must address the root causes; not the symptoms. Smart process design that integrates our understanding of human behavior and process variation can create a pull system for the entire supply chain. In such a system inventories and costs are minimized and reliability maximized.

Demand-Pull Supply Chain Management

With a push-based supply chain, products are pushed through the channel, from the supplier to production through to the distribution organization to the end user. In such a system, decisions making relies on forecasts. Forecasts are always wrong as nobody can exactly predict the future and backwards-looking, assumptions, and “best guesses” are used to develop the forecast. When the market doesn’t react as it has in the past, it takes some time for the push-based supply chain to respond to changes in demand, which results in overstocking or bottlenecks and delays (the bullwhip effect), unacceptable service levels and product obsolescence.

In a pull-based supply chain, procurement, production and distribution are demand-driven so that all decision making is based on actual customer or end-user orders, rather than forecast demand.
The pull demand system controls inventory investment, thus stabilizing supply chain performance, allowing supply chain managers to make rational tradeoffs and decisions regarding supply chain variables and performance.

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