As a human being, we all consume products and/or services all the time. This morning you got up and ate your breakfast, e.g., eggs, milk, bread, fresh fruits, and the like. After the breakfast, you drove your car to work or school. At your office, you used your computer, perhaps equipped with 27” LCD monitor. During your break, you drank a cup of coffee and played with your iPhone. So on and so forth. You probably take it for granted that you can enjoy all of these products. But if you take a closer look at how each of these products can be made and eventually delivered to you, you will realize that each one of these is no short of miracle. For example, which fruit do you like? Consider fresh strawberries. In order for the strawberries to be on your breakfast table, there must be numerous functions, activities, transactions, and people involved in planting, cultivating, delivering, and consuming strawberries. Moreover, all of these functions, activities, transactions, and people are connected as an integral chain, through which physical products like strawberries themselves and virtual elements such as information and communication flow back and forth constantly. By grouping related functions or activities, we have a supply chain, comprised of four primary functions such as supplier, manufacturer, distributor, and finally consumer. A supply chain is essentially a value chain. For the society or economy as a whole, the goal is to maximize value, i.e., to create satisfactory value without spending too much. In order to create the maximum value for the strawberry supply chain, every participant in the chain must carry out its function efficiently. In addition, all of the members must coordinate with each other effectively in order to ensure value maximization. We have to face the same issues for almost all the products and services we take for granted in our everyday life, e.g., cars, hamburgers, haircuts, surgeries, movies, banks, restaurants, and you name it! In this course, we want to understand fundamental principles of value creation for the consumers or the market. We try to answer questions like how the product or service is made, how the value-creating activities or functions are coordinated, who should play what leadership roles in realizing all these, and so on. As our course title hints, we approach all of these issues from a learning perspective, which is dynamic in nature and emphasizes long-term capability building rather than short-term symptomatic problem solving.
To Minimize the Mismatch between Supply and Demand
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Del curso dictado por Korea Advanced Institute of Science and Technology
Supply Chain Management: A Learning Perspective
328 calificaciones
Korea Advanced Institute of Science and Technology
328 calificaciones
De la lección
Supply Chain Strategy I: Structural and Infrastructural Dimensions
In order to optimize the supply chain performance, the firm must design its supply chain effectively. In this chapter, we will talk about how to design the effective supply chain and look into the designing factors of supply chain management in detail.
Conoce a los instructores
Bowon KimProfessor
KAIST Business School
Today's, final topic is about mismatch between supply and demand.
We already said the goal of supply chain management is to maximize efficiency
driven value, and responsiveness driven value at the same time.
That somehow very closely related with
minimizing the mismatch between supply and demand.
So we won't understand why, and under what circumstances such mismatch occurs.
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This is, again supply chain system here.
Supply chain system here.
And then the market demands, the customers
demand, and then a supply chain system supplies.
And if there is a lost balance between supply and demand we say that,
balanced supply and demand relationship, or match, occurs.
The other, if supply is larger than demand, we call that as overstocking.
And if supply is less than demand, that's understocking.
And either case is, the mismatch, between supply in the match.
Why mismatch occurs, there are lots of
reasons under which such a mismatch occurs.
Whatever happens, overstocking or understocking involves cost.
Lots of a cost.
For instance, what are the overstocking cost in others
if you, produce more than actually demanded in the market.
You'll probably have to pay inventory holding cost, maybe obsolescence
cost and waste occurs, and you know, obsolescence occurs.
And we can think about lots of costs.
What about this understocking cost?
In other words you know, if you, if, you
know, we don't make enough to satisfy the market demand.
That's understocking cost.
We lose our current sales, but that's not the end of the story.
Customers come to a store, and they find
that you know, what they want is not there.
Then they will go to another company.
They will go to my competitor, and maybe they will not come back again.
They will not come back to me again.
That's loyalty loss, okay?
So, overstocking, understocking, both are problems
of inventory, inventory problems, overstocking, understocking.
We have to avoid both, overstocking and understocking at the same time.
And both, actually, involve large [UNKNOWN].
We want to ask why then this mismatch occurs?
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Externally, maybe the customer's requirements or customer's
needs changes, or simply, there is too much uncertainty out there.
That's external reasons.
Internal reasons.
The company's inability to gather more accurate in
demand information and therefore the company cannot plan properly.
Or sometimes the company is in able, unable to plan schedule better.
With the, the given forecasting, with the
given information the company cannot plan a schedule.
More effectively that's that's the fault on the company.
Or there is inability to develop new product
added by the customers at the right time.
In other words the customer needs and customer requirements changed a lot.
But the company is not able to develop a new
product that meet or that satisfy the changing customer needs.
There are also some other environmental reasons, why does mismatch occurs.
Too much technological change, technological innovation.
High competition in the market.
Because of the competition uncertainty intensifies, and you know?
Also there are some macroeconomic forces as well.
So, a key supply chain management.
Goal or let's say it is sort of action strategy or action item.
Is to minimize the mismatch.
How?
Effective coordination.
So in order to minimize the mismatch coordination social digit, right.
So external resist you know, then to
corporate this to you gotta do external coordination.
You know the two overcome this inability inside the company.
You better do internal coordination.
And that is environmental that is enviromental issues as well.
Again this involves our coordination as well.
Basically, on uncertainty also, one of such core reasons why
we have to, you know, we have to face this mismatch issue.
That there are two different types of uncertainty.
These these two types of uncertainties are the
most relevant to our discussion is applied to management.
There is uncertainty which is at the aggregate level.
So, we call that as aggregate level uncertainty.
In other words, how many passenger cars will be able to sell in 2015?
How many cars?
How many passenger cars?
Let's say, we will be able to sell two million passenger cars.
That's aggregate level, aggregate level, forecasting.
That's combining all these different product types or product lines.
Passenger cars, that's a big category, right?
And aggregate level of uncertainty is relatively easy to deal with.
In other words we can make forecasting relatively easily or relatively
effectively, regarding this aggregate level of uncertainty.
Because we just need some of these macro economic variables.
We use some eco, econometrics approaches and methodologies.
But, if there is you know, consistence, consistent
difference, consistent difference, between
aggregate level demand and aggregate level supply.
Then we have to for example, if aggregate demand
is very, very large then aggregate supply, that
means that we have to adjust our capacity, increase
our capacity, or we refocus on the target market.
With the other, if aggregated demand is much much
smaller than aggregated supply, then again we needed to reduce
our capacity we need to adjust our capacity and
we probably needed to work harder to generate market demand.
Or, you know, your product development or quality improvement.
So, aggregated of a demand is relatively easy.
As soon as we are able to do forecasting using macroeconomic variables.
How many passenger cars will we be able to send next year?
We have to look at these income numbers, we have to look at population numbers,
we have to look at the interest rate, we have to look at exchange rate.
And disposable incomes, age groups, and you know,
employment rate, and so on and so forth.
So those are the macroeconomic variables.
So it's relatively easy to delete aggregate level uncertainty.
But, if there is consistent difference between aggregate deba, demand
and aggregate level of supply, then this is the issue we have to deal with.
Bio adjusting capacity it's not an issue of forecasting.
Now, let's say that we believe that we're going to
be able to sell two million cars next year, passenger cars.
Let's say it's, Hyundai Motor problem.
Then the question is, out of this two million, how
much is sooner that we will be able to sell?
How much, small car Avante we'll be able to sell.
Or, how much USP, as UV, right?
Sports Utility Vehicle, we will be able to sell.
You gotta decide this one.
This is the product mix level uncertainty, which is much, much higher.
We'll be able to sell you know 500,000 units of a spi, ski parka next season.
That's aggregate level uncertainty.
Which is relatively easy to deal with as soon
as we gather some of this macroeconomic relevant, macroeconomic variables.
But the question is, which style will we
be able to sell out of these 500,000 units.
How about the colors, how about the style, how about the size?
That's more difficulty issues.
And so Dever is at the, you know, the product mix level.
So in order to do with this product mix-level
uncertainty, responsiveness is the key, responsiveness is the key.
Why?
Because if we assume that demand and supply roughly
balanced at the aggregated level, and therefore now we
gotta have flexibility to mobilize our capacity to satisfy
this changing mix of customer requirements in the market.
So under that circumstance the value of flexibility is very high
and the supply chain coordination becomes more variable.
So how to incorporate this in this when we do this production
planning and how we do this, you know, how we implement this
delaying strategy and delaying technique when we forecast.
One of the more specific forecasting method, if we have abundant
data, if we have many data points then we can use quantitative
method regression analysis in time series analysis.
If we don't have enough data, and few
data available, then we gotta use qualitative method.
Judgmental, market research and expert opinion and so on and so forth.
So, product mix-level uncertainty becomes a big issue.
Only when, demand, is lawfully equivalent
to supply at the aggregate level.
Then, product mix-level uncertain becomes important, and
we have to, deal with, we have to be able to provide.
Responsiveness and flexibility.
So we needed to utilize more
sophisticated coordination tools.
Right so I think that next lecture we probably
talk about some of these more specific supply chain
coordination tools, or mechanisms in order to
enhance the forms supply team performance.
Okay.
Today's lecture is very important lecture.
It is somehow based on all this previous lectures, and
at the same time, it gives us a very clear direction.
For our continuing discussion and supply chain management.
And I hope that now you have more you know, specific knowledge
and more specific understanding about this supply chain
management and I think that for the remaining lectures,
we will get deeper, get into deeper develop discussion.
In supply chain management, and how to maximize, how to optimize this efficiency
to bring value and responsiveness driven value at the same time.
I want to see you all very soon.
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