Tuesday, January 28, 2014

Managing Uncertainty in Supply Chain

Managing Uncertainty in Supply Chain

One of the most important and emerging phenomenon in supply chain management is managing uncertainty that is believed to become one of the winning featured for any firm. Accuracy in predicting uncertainties and the ability and preparedness a firm displays in managing them will decide the competitive advantage of organizations in future. Like all other management areas inventory and supply chain decisions also need accounting for uncertainties. The modern research and analysis has proved that the main objective of supply chain is to identify and manage uncertainties because failing which can lead to an inefficient manufacturing, supply and sale activity.

De Leeuw (2000) identifies following five as essential requirements for an effective system:
  1. The managing system should have an objective and corresponding performance indicators to manage the supply chain in the right direction.
  2. To estimate future system states one has to have information on the environment and current supply chain state.
  3. There should be enough information processing capacities to process information on the environment and supply chain state.
  4. In order to direct the managed system in the right direction one should be able to estimate the impact of alternative actions. This requires a model of the system, presenting the relationships between available redesign variables and performance indicators.
  5. There should be enough potential control actions.

 According a paper “Management of Uncertainty in Supply Chain” by Prof. D. P. Patil (http://www.ijetae.com/files/Volume2Issue5/IJETAE_0512_50.pdf) missing any of the above features will lead to uncertainty. This paper also suggests some supply chain planning tools that include demand planning, supply network planning, production planning and availability planning. One of the ways to manage uncertainties suggested by this paper is Postponement Strategy which suggests delaying some supply chain activities till the actual demand by the customers is revealed. It hints at:
  • Purchasing Postponement
  • Manufacturing Postponement
  • Logistics Postponement
  • Time Postponement
  • Product Development Postponement

This strategy seems to work in lowering the bullwhip effect mentioned in the article by McKinsey & Company which points toward the rapidness of shifts in future demand.
Managing for uncertainties make supply chain processes less efficient but at the same time ignoring them has a cost associated with it too. Therefore, the key is to design strategies with minimal costs for the buffers that uncertainties ask for but more efficient and responsive supply chains.



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