Jun
3
Demand Amplification within the supply chain
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It comes as no surprise that actors within the supply chain (suppliers, distributors manufacturers etc) influence each other. The concept of an integrated network is nothing revolutionary and the cause and effect nature of these relationships has been at the center of various studies for many years.
An area of specific interest are the difficulties associated with schedule of supply and production to meet demand. Demand can be erratic with peaks and troughs commonplace within most organizations. These variations in requirements and supply are amplified within the supply chain when re-orders are made – this is then rippled through the tiers of the supply chain (distributors, manufacturers, raw material suppliers). Accommodating these fluctuation increases the cost of doing business by building inventory throughout and lengthening lead times.
Much of the early work in analyzing these patterns was carried out by Jay Forrester. Forrester was a systems theorist who utilized computer simulations to monitor the effect of interactions between actors and industrial business cycles.
The research carried out by Forrester focused on the disturbance to the supply chain as a result of reorder patterns. He used computer simulation to demonstrate the distortion of order information that occurs along the supply chain demonstrating that fluctuations in demand patterns had dramatic affect on inventory levels and manufacturer output. Through computer simulation, in one case Forrester was able to demonstrate that a 10 per cent increase in sales rippled through suppliers and distributors (through increased inventory holdings) to an output increase by manufactures of 40% resulting in unnecessary costs.
Forrester showed that the lag in information between supplier chain participants produced medium term demand amplification which rippled through the supply chain. In understanding the nature of the integrated supply chain and the need to ensure the smooth flow of information and materials, Forrester was perhaps an early pioneer of supply chain management
The subject of demand amplification has been researched by various professionals apart from Forrester. Jack Burbidge carried out studies around the same time as Forrester (early 1960’s) and identified similar issues (although focused on the topic from a manufacturing perspective and focused on short term demand amplification as a result of internal decisions on the timing and size of batches).
Despite Forresters work being carried over 50 years ago – it’s still acutely relevant today – and modern improvement programs often utilize the theory – overlaying it on modern organizations, recognizing similar patterns and reviewing how improved communication
and sharing of information and forecast data can reduce the bullwhip effect that Forrester defined.
Jun
3
The seven stages of the buying process
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In most organizations the buying process is one of the most important activities that the business performs – its responsible for committing company money and facilitating customer satisfaction. For many its as a complex mix of activities however it can be easily boiled down to a series of sequential steps. Whilst purchasing processes vary from organization to organization, (several companies such as Cips.com or supply-chain.org offer advice for tailoring processes to individual industries), there are a series common activities requiring certain documents and controls (authorizations) which are familiar to most businesses.
1/ Identify requirements
Before any purchasing can be undertaken the requirements need to be identified and relayed to the purchaser – this might be in the form of a requisition or a more complex bill of materials – depending on the industry the requirements may be quite detailed.
2/ Identifying suppliers
Once the requisition has been received the purchasing team will set about identifying the suppliers that could be used – this might be from an approved supplier list or there may be a need to research the market if the item has not been previously obtained.
3/ Quotation and selection
Once a potential supplier (or group of suppliers) has been identified a request for quotation is sent out seeking price and availability (lead time) for the item. Once all replies have been received the purchasing department will select the supplier (based on various criteria often cost).
4/ Raise a purchase order
The purchasing department will then raise a purchase order to send to the selected supplier – apart from cost and leadtimes – the purchase order may also quote terms and conditions of supply among other information. In some cases the supplier may confirm receipt of the order by sending an order acknowledgement
5/ Expediting
In some cases the order may be expedited to ensure that delivery dates are met.
6/ Delivery
The supplier will dispatch the goods, these are often received in the organizations warehouse or goods receipt area where they are checked against the purchase order to ensure that the correct items (quantity and quality) have been received.
7/ Issue of goods to end user
Once receipted the goods can be issued to the original requester – an accompanying issue document (often referred to as an issue voucher) may accompany the goods with a signature required to confirm receipt.