Sunday, November 23, 2008
Information for inventory: mitigating the Bull Whip
In another of our supply chain classes we have discussed the tradeoff between information and inventory within a company. This basic tradeoff is that the more information a company has on actual demand the less inventory they need to carry. This information can be gained through collaboration within the supply chain. By sharing information between companies within the supply chain companies can better predict demand and therefore cut down on the need for extra safety stock. This safety stock is a symptom of a common supply chain phenomenon known as the bull whip effect. Basically as orders go up the supply chain companies don't want to be the one that runs out of inventory so they add an extra certain percentage to their order. This extra percentage causes more and more inflated demand as the order moves up through the chain. By sharing information through an ERP system or an JIT 2 methodology companies can better meet demand and help mitigate the risks of the Bull Whip effect.
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2 comments:
Is JIT 2 having a supplier associate at the customer, attending meetings and then purchasing from the supplier on behalf of the customer? That was all I was able to find, in a quick search.
If this is the case, what types of businesses can this methodology be applied. It does not seem practicle to have several hundred supplier associates at a customer, especially if these associates are in competition with one another. So is the methodology only used with businesses that choose to sole source? If so do you know of any research that compares the benefits associated with unrestricted information flow and the cost increases from the lack of competition. Anyway, I am interested in what JIT 2 means and how it is applied.
Jason
Yes, JIT 2 is locating a supplier associate at a customer's location. This associate can play many roles at the customer location. For instance, he will usually own the responsibility of all ordering from the particular customer and the management of the inventory. In addition, he may participate in the planning of new products and speak for his supplier as to what they can and cannot supply. The associate is mainly responsible for facilitating communication between the supplier and the customer by knowing everything that he can about both parties and using that information to achieve cost savings through efficiency increases.
It indeed would not be practical to have several hundred of these associates. Suppliers generally only adopt this practice for their major customers.
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