Factors in Information Exchange / Distortions in the Supply Chain

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Factors in Information Exchange / Distortions in the Supply Chain

🔥 Strong exchange of information and various distortions of information across the supply chain are both playing an important role in the effectiveness (and ineffectiveness) of supply chains.
Remember the popular idioms: "A chain is as strong as it's weakest link" and "A thread usually breaks where it is thinnest".
In Supply Chain Management these quotes mean that the success or failure of an entire supply chain depends on the success/failure of any of the links in it.

Factors Requiring Strong Information Links In Supply Chains

In order to have an effective and strong supply chain there is a need for strong 2-way information dissemination across the supply chain (both upstream and downstream).The following are some of the factors that reuire strengthening the information exchange in supply chains:

1. MINIMIZING LEAD TIME - The latency between the initiation and completion of all supply chain processes is critical. Optimizing the total lead time between the placement of an order and the delivery of the goods to meet customer demand is crucial to make responsive, effective and cost-effective supply chains.
2. EXTENDED ENTERPRISES - The seamless fabric that connects different supply chain partners to form a single supply chain unit is very important in ensuring effective supply chain management. Extended enterprises is a concept that a company (a supply chain node) does not operate in isolation because its success is dependent upon a network of partner relationships (downstream and/or upstream).
3. MORE EFFECTIVE INFORMATION DISTRIBUTION - Effective communication due to new technologies enable effective supply and demand information to flow along the supply chain. Through reduction of information hoarding more effective and strong supply chains are possible..
4. EFFECTIVE CASH FLOWS - The use of Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) also contributes to effective supply chain management. Because EBITDA can be improved by business process optimization, direct effort optimization, efficient use of tools and non CAPEX equipment, ERP and PLC management, logistics optimization, machine optimization, network optimization, production optimization, R&D optimization and risk management among other factors.
5. OPTIMAL STOCK LEVELS - Through the use of accurate demand forecasts, modern Inventory Management models, and supply chain planning technology, optimal (lower) stock levels can be attained across the supply chain to the final consumers (while keeping the lead time intact). There is no longer necessarily a trade-off between customer satisfaction and reasonable inventory carrying costs and/or operational costs.

Factors Causing Distortions in Information in Supply Chains

The following factors and practices cause ineffectiveness and inefficiencies in the supply chain. They can be considered the weakest "links" of the supply chains:

1. VARIATIONS DUE TO IMPERFECT INFORMATION FLOW - Distortion of demand and supply information across the supply chain will result in an ineffective supply chain. See: Bull Whip Effect.
2. DIFFERENT OBJECTIVES AND POLICIES - Different players in the supply chain may have different and contradictory objectives or policies resulting in possibly conflicts of interest and mismatch in expected performances. For instance a Free Return Policy might harm or benefit other parties in the supply chain.
3. INACCURATE DEMAND FORECASTS - Different deterministic and probabilistic inventory management models are used by purchasing managers in demand forecasts, stock or inventory level management and cost management. However inaccurate usage of these models may lead to inaccurate demand forecasts, thereby distorting the information flow along the supply chain. This eventually leads to Bull Whip Effects.
4. RATIONING GAME - Inventory hoarding by manufacturers in response to speculation may also affect the strength and effectiveness of the chain. Overstocking of inventory in anticipation of surges in future demand is a gamble that can lead to losses and ripple effects the supply chains as customers will respond accordingly through demand exaggerations (Bull Whip Effect).
5. ORDER BATCHING - Retailers usually use an order batching process whereby they combine many customer orders into one or more purchasing orders. This results in total tardiness and order picking problems, hence rendering the supply chain weaker and less effective.

Factors To Strengthen Information Exchange In Supply Chains

1. REDUCTION IN INFORMATION DISTORTIONS - For example, this can be achieved through using more communication technologies and adopting integrated CRM, forecasting and ordering systems.
2. REDUCTION IN STOCK-OUTS - For example through the use of EDI, JIT and Cross-docking.
3. REDUCTION IN LEAD TIMES - In particular by implementing JIT operations across the supply chain.
4. AVAILABILITY OF INVENTORY - More flexibility through more responsive inventory management models.
5. REDUCE UNCERTAINTIES IN DEMAND AND SUPPLY - Attained through adoption of deterministic and probabilistic inventory management models such as CPFR, Stochastic models, EOQ and EPQ.
6. REDUCE VARIABILITY IN PRICING - For example through adopting an Every Day Low Pricing strategy (EDLP) by retailers.
7. STRATEGIC PARTNERSHIPS - This can be achieved through establishing trust between partners and by licensing, outsourcing, franchising, Vendor Managed Inventory (VMI) and through Extended Enterprises.
8. TECHNOLOGY AND INNOVATION - By embracing new technologies and positively respond to technological changes, and by implementing continuous improvement (Kaizen).

⇨ What further strategies can be adopted in order to strengthen information exchange in supply chains?

References:
Baganha M.P and Cohen M.A (1998), "The Stabilizing Effect of Inventory Management in Supply Chains", Operations Research, 46(3), p. 572-583
Chen F,Li J and Zhang H (2013), "Managing Downstream Competition via Capacity Allocation", Productions and Operations Management 22(2), p. 426-446
Xun Wan and Stephen M Disney (2016), "The bull Whip Effect,: Progress, Trends and Directions. European Journal of Operational Research, 250, p. 691-701

		Comments Rating
		1 Joanne Friedman CEO, Canada
	Industry 4.0 in Supply Chains I suggest the author look at Industry 4.0 for the means to strengthen the exchange of data. "The premise for Industry 4.0 is that emerging smart technologies could be wedded to production systems so ...