Supply Chain Coordination

WHAT IS SUPPLY CHAIN COORDINATION?

Supply Chain Coordination refers mainly to the inter-firm operational coordination within a supply
chain. It involves the coordination of continuous material flows from the suppliers to the buyers
and through to the end-consumer in a preferably JIM manner. Inventory management throughout
the supply chain could be a key focal point for the coordination. Production capacity, forecasting,
manufacturing scheduling, even customer services will all constitute the main contents of the
coordination activities in the supply chain. The decision on the supply chain coordination tends to
be operational.

Coordination In Supply Chain Management

The management of inventory, knowledge, and financial flows in a network of suppliers,

manufacturers, distributors, and customers is known as supply chain management (SCM).

Supply Chain coordination aims at improving supply chain performance by aligning the plans and
the objectives of individual enterprises

Successful supply chain management necessitates the coordination and alignment of these flows
both inside and through organisations.

“The Bullwhip Effect”

What is Bullwhip Effect? The bullwhip effect is a supply chain phenomenon describing how
small fluctuations in demand at the retail level can cause progressively larger fluctuations in
demand at the wholesale, distributor, manufacturer and raw material supplier levels. The effect
is named after the physics involved in cracking a whip.

Inventory levels in supply chain over time illustrating the wild swings that develop as product
demand distortion moves from customer to retailer to distributor to manufacturer. Swings in
product demand appear more pronounced to companies further up the supply chain. This distortion
makes effective supply chain management very difficult.
 • Order streams are more volatile than demand, causing distributors to hold extra inventory.
Increased transportation and labor costs arise during high demand, leading to product
rationing, longer replenishment times, and lost sales.

Five Major Factors That Cause the Effect

1. Demand Forecasting - based on received orders can lead to inaccuracies, exacerbated by the
bullwhip effect. Sharing point-of-sale data among supply chain members helps align forecasts with
actual market demand, reducing distortions and improving accuracy.

2. Order Batching - minimizes processing and transportation costs, but distorts demand. Reducing
these costs encourages smaller, frequent orders, improving efficiency through electronic ordering
and third-party logistics

3. Product Rationing - Manufacturers respond to demand exceeding supply by rationing products

based on order quantity, leading to "shortage gaming." Solutions include basing rationing on
historical data and informing customers in advance.

4. Product Pricing - fluctuations distort demand, leading to inconsistent supply chain flows.
Everyday low prices encourage stable purchasing based on need, enhancing forecasting efficiency.

5. Performance Incentives - In supply chains, companies and individuals often work in isolation,
resulting in misaligned incentives. Monthly sales targets lead to discounts on unnecessary
products, while conflicting internal goals hinder efficiency. Accurate costing data and new
incentive plans are essential for alignment.

Global Data Synchronization Network

The Global Data Synchronization Network (GDSN) is a network of independently owned and
operated databases that can exchange data with each other and the GS1 Global Registry. The GS1
Global Registry acts as a central coordinator between all the other databases to provide for timely
and traceable distribution of verified product descriptive information between all the databases. It
is the locator and routing mechanism for finding source data and sending requested data between
databases.

GS1 is a global, not-for-profi t organization of member organizations, including GS1 US,

representing more than 100 countries around the world. GS1 is based in Brussels, Belgium. GS1
US is the former Uni- form Code Council and consists of the EAN UCC System, UCCnet,
EPCglobal US, RosettaNet, and UNSPSC. GS1 US is based in New Jersey, USA
(www.gs1us.org).

The GDSN is being administered by GS1 and increasingly is being used by companies in consumer
goods retail and related areas. It allows data about products to be continuously updated as new
products are re- leased, existing products evolve, and obsolete products are discontinued. The
benefits are significant beginning with the fact that each company needs only to make a single
connection to their selected database or “data pool” as GDSN calls them. Once they do this they
can send and receive data to and from any other company that is connected to any other data pool
that is part of the GDSN. Other benefits include things such as elimination of the need for
companies to maintain massive cross-reference tables to translate be- tween the different part
numbers for the same product that are used by different supply chain partners. This reduces many
ordering and billing errors that consume people’s time and result in delays in product deliveries
and cash flows between companies. It also simplifies order tracking and tracing individual items
as they move through a supply chain.

Other benefits include things such as elimination of the need for companies to maintain massive
cross-reference tables to translate be- tween the different part numbers for the same product that
are used by different supply chain partners. This reduces many ordering and billing errors that
consume people’s time and result in delays in product deliveries and cash flows between
companies. It also simplifies order tracking and tracing individual items as they move through a
supply chain.
1. Load Item and Location Data – the seller or manufacturer registers with a GS1 certified data
pool and uploads item and location data to their data pool.

2. Register Data – a small subset of item and location data is sent by the data pool to GS1 Global
Registry.

3. Request for Subscription Data – the buyer or retailer subscribes to a data pool and to categories
of products or to particular suppliers to receive the related item and location data. Buyer requests
data from their data pool. The data pool requests this data from the GS1 Global Registry and the
Global Registry sends the request to the data pool containing this data.

4. Publish Requested Data – the seller’s data pool provides requested item and location data to
the data pool of the buyer and the buyer’s data pool sends the data to the buyer. Buyer updates its
systems with this data. Buyer and seller now have identical item and location data—data
synchronization is complete.

PRODUCT CLASSIFICATION
Products that move through a supply chain need to be identified and traced so that people know
how many products are moving through their supply chains. Products also need to be classified
so that people know what types of products they are handling. All supply chains handle a mix of
different product types and that mix changes over time. As the product mix changes, the supply
chain itself must change.

There are two major standards presently in use for product classification.

1. The United Nations Standard Products and Services Code (UNSPSC). The United
Nations Development Program (UNDP) and Dun & Bradstreet Corporation (D&B) jointly
developed the UNSPSC in 1998. The UNSPSC is a hierarchical classification with five
levels. These levels allow analysis by drilling down or rolling up to analyze expenditures
and product usage at each level. Each level in the hierarchy has its own unique number.
Starting with the highest level, the five levels are segment, family, class, commodity, and
business function.
2. The GS1 Global Product Code or GPC. The GPC was developed by GS1 and is used in
the GDSN to identify different types of products. The GPC is also a hierarchical
classification scheme and it has four levels: Segment; Family; Class; and Brick. These two
product-classification schemes are not mutually exclusive and they can be used together.
It does require all parties to agree on the rules they will use to translate product codes
between UNSPSC numbers and GPC numbers.

COLLABORATIVE PLANNING, FORECASTING, AND REPLENISHMENT

To facilitate the coordination that is needed in supply chains, an industry group known as the
Voluntary Interindustry Commerce Standards (VICS) (www.vics.org) has set up a committee
to investigate collaborative planning, forecasting, and replenishment issues (CPFR). This
committee documents best practices for CPFR and creates guidelines to follow for CPFR. Supply
chains where people use technology to support a CPFR process are the most efficient supply
chains, because they can best man- age the factors that give rise to the bullwhip effect. The CPFR
process is divided into the three activities of planning, fore- casting, and replenishment. Within
each activity there are several steps:
Collaborative Planning

• Negotiate a front-end agreement that defines the responsibilities of the companies that
will collaborate with each other

• Build a joint business plan that shows how the companies will work together to meet
demand

Collaborative Forecasting

• Create sales forecasts for all the collaborating companies

• Identify any exceptions or differences between companies

• Resolve the exceptions to provide a common sales forecast

Collaborative Replenishment

• Create order forecasts for all the collaborating companies

• Identify exceptions between companies

• Resolve the exceptions to provide an efficient production and delivery schedule

• Generate actual orders to meet customer demand

CPFR IN ACTION

Nimble Co. makes home entertainment systems. They’ve set up a collaborative system with their
suppliers and retailers. This means they share data like sales numbers, inventory levels, and future
forecasts with each other, so everyone can plan ahead more effectively.

How CPFR Helps

CPFR stands for Collaborative Planning, Forecasting, and Replenishment. It’s a way for
companies in a supply chain to work together, share information, and make better decisions to
avoid problems like running out of stock or overproducing.

Here’s how it works in the Nimble Co. case:

 1. Data Sharing: Nimble Co. gets real-time sales data from stores selling their products. They
also get regular sales forecasts and inventory updates from these retailers.

2. Planning and Adjusting: With this data, Nimble Co. can adjust its production schedule
based on how fast products are selling. If sales are higher than expected, they can make
more products to keep up with demand.

3. Coordinating with Suppliers: Nimble Co. then shares this information with its
suppliers—the companies that provide parts for their entertainment systems. This helps the
suppliers adjust their own production schedules to make sure they have enough parts
available.

4. Addressing Supply Challenges: In this case, one of the component suppliers can’t keep
up with the increased demand, but another supplier offers a slightly modified part that can
meet the need. Because everyone is working together and knows what’s going on, the
change is quickly made to the product design without causing delays.

Benefits of CPFR

• Less Waste: By sharing information, everyone in the supply chain can optimize their
operations—this means less overproduction and fewer inventory shortages.

• Better Coordination: Since everyone has access to the same data, Nimble Co. can increase
its production quickly, without any retailer running out of stock.

• Quicker Response to Demand: When Nimble Co. sees a rise in customer demand, they
can adjust fast, making sure they have enough products available to meet that demand.

The key idea behind CPFR is that when companies work together and share important
information, they can make smarter decisions. This helps reduce problems like the bullwhip effect,
where small changes in demand can cause big disruptions in the supply chain.

Other big companies like Walmart, Dell, and Procter & Gamble are already doing this—by sharing
sales and inventory data with their suppliers and retailers, they improve their efficiency and boost
profits for everyone in the chain.

In Summary
By using CPFR, Nimble Co. can better manage its supply chain, respond quickly to changes in
demand, and keep things running smoothly for both itself and its partners. The result is faster
production, fewer stockouts, and a stronger competitive edge

How to Start Supply Chain Collaboration

• To promote collaboration is to measure the bullwhip effect within your company. Over a
period of time such as a quarter or a year, compare the volume and frequency of orders you
receive from your customers with the volume and frequency of orders you place with your
suppliers.

What is the extent of this divergence?

• This can be done by plotting the divergence on a graph and analyzing the company's
location in the supply chain.
• Many companies are not aware of the cost of the bullwhip effect on their supply chains,
and it may be more efficient for them to collaborate to reduce demand fluctuations.
• Once you have established the magnitude of the bullwhip effect in your company, then get
some estimates of the cost consequences in different areas of the company:
1. Production costs,
2. Transportation costs,
3. Shipping and receiving costs,
4. Inventory levels
5. Product availability, and
6. Order lead times.
• Sales & Operations Planning (S&OP) is a business process that helps companies maintain
demand and supply balance by focusing on aggregate volumes and handling mix issues. It
occurs monthly and involves General Management, Sales, Operations, Finance, and
Product Development. S&OP links the company's Strategic Plans to detailed processes,
allowing managers to view the business holistically and predict future outcomes.