Tuesday, January 28, 2014
After learning about the bullwhip effect in this week's readings and learning how variations in information up and down a supply chain can lead to greater inventories--and less liquidity for businesses--I cannot help but think about an overarching theme that is crucial to effective supply chain systems: communication and information sharing. While the McKinsey article did mention greater information sharing and better IT systems are beneficial to curbing the bullwhip effect (Christoph Glatzel, Stefan Helmcke, and Joshua Wine 2009), I do not think the article did a good enough job of specifying ways that information, communication, and relationship-building can lead to better inventory management.
In the first week of class, we read about how communication, trust, and strong relationships are essential components to supply chains. It is clear to me that these concepts are critical to mitigating the impact of the bullwhip effect on businesses. Businesses should think about how to incorporate existing technologies and better methods of communication within a supply chain to ensure that up-to-date information is providing accurate demand forecasting along the various components in a supply chain. An article I read out of the University of San Francisco addresses this subject. It recommends that supply chains use point-of-sale data (POS) and that such data should be made available to all partners in a supply chain ("How to Manage the Bullwhip Effect on Your Supply Chain"). The article then suggests that entities can access these data using a vendor-managed inventory (VMI) system to provide a platform for greater sharing among cogs in a supply chain ("How to Manage the Bullwhip Effect on Your Supply Chain").
The idea of a vendor-managed inventory system is fascinating to me because it shows how technology, communication and information sharing can make the process of inventory management and purchasing new inventory more efficient. In such a system, a retailer that sells produce (for example) will not need to keep track of their produce inventory to order more produce from the supplier when it runs out of celery, carrots, lettuce, etc. Instead, through POS data and electronic sharing, the produce retailer's supplier will be able to keep track of the retailer's inventory and replenish the out-of-stock items automatically ("Definition of Vendor Managed Inventory"). This system prevents companies from miscalculating demand and ordering too much inventory, which (as public policy and management majors in financial analysis know) can free up cash for companies to reinvest in other components of their business.
While these systems are beneficial to the efficiency of a supply chain, a VMI does take work away from staff. While the Vendor Management System website, http://www.vendormanagedinventory.com/setup.php, does say that this will allow employees to focus their attention elsewhere, will senior management feel the same way? When speaking of low-skilled work, will senior management actually find other uses for employees whose former jobs were to count inventory? Could VMI systems lead to layoffs and a new stream of structural unemployment for inventory or stocking employees?
Christoph Glatzel, Stefan Helmcke, and Joshua Wine 2009, "Building a Flexible Supply Chain for Uncertain Times," retrieved from http://www.mckinsey.com/insights/operations/building_a_flexible_supply_chain_for_uncertain_times.
"How to Manage the Bullwhip Effect on Your Supply Chain", retrieved from http://www.usanfranonline.com/managing-the-bullwhip-effect-on-your-supply-chain/
"Definition of Vendor Managed Inventory", retrieved from http://www.vendormanagedinventory.com/definition.php