Supply chain decisions sourcing

Besides development of the above components of the supply chain, it is important to consider trade-offs. These are decisions that have to be made for each step in the supply chain. Figure 4.14 provides an overview of the steps and trade-offs in the supply chain from sourcing areas in Asia, Eastern Europe and South America towards a European market destination. 

What are the major sources of uncertainty that can affect the value of supply chain decisions ... 

Forecasts are always inaccurate and should thus include both the expected value of the forecast and a measure of forecast error. To understand the importance of forecast error, consider two car dealers. One of them expects sales to range between 100 and 1,900 units, whereas the other expects sales to range between 900 and 1,100 units. Even though both dealers anticipate average sales of 1,000, the sourcing policies for each dealer should be very different, given the difference in forecast accuracy. Thus, the forecast error (or demand uncertainty) is a key input into most supply chain decisions. Unfortunately, most firms do not maintain any estimates of forecast error. 

Note that unlike the solution in the earlier section, this approach takes account of the cost along the entire path from the plant to the warehouse to the customer zone. However, it still does not account for plant P2 s capacity when making the customer zone sourcing decision. Thus, a possible reason for the absence of a lowest-cost solution for the supply chain is that we may not have allocated plant P2 s capacity optimally across the warehouses. 

Supplier strategic collaboration activities also impact supply chain performance in the Source decision area. These activities include electronic ordering and supplier-managed inventory. In addition, the presence of on-site employees of key suppliers facilitates strategic supplier collaboration activities that enhance overall supply chain performance. 

The authors recommend forsaking their traditional forecasting as if they were dealing with independent demand. In place of this, they would utilize end-user sales for their production decisions and communicate it throughout the chain, an application of the demand-driven supply chain concept. They note one obstacle is that the source of the information, the retailer, has the least amount of safety stock — only 10 percent. So it has that much less motivation to participate. The upstream inventory, and its cost, is invisible. 

Similar to partnerships, information systems requirements will spring from many sources. We define the supply chain in terms of both physical movement and information movement. That information might be back-office transaction data or, increasingly, front-office market and sales applications and shop floor decision support. 

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