Supply Chain Planning Under Uncertainty essay

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Results from the study by Petersen, Ragatz and Monczka show that effective collaborative planning depends on information quality, and the trust level firms share. The authors purport: "Collaborative planning activities between supply chain partners are expected to lead to better performing supply chains" (Petersen, Ragatz & Monczka, Introduction section ¶ 1). In addition, numerous other researchers have also explored the perception relating to supplier alliances, that enhanced collaborative planning produces positive effects on joint business outcomes (Mohr and Spekman; Monczka; Handfield; as cited in Petersen, Ragatz & Monczka). A number of other studies also note similar contentions regarding supplier integration into new product development (Ragatz, Handfield & Scannell, as cited in Petersen, Ragatz & Monczka); supplier development (Krause, as cited in Petersen, Ragatz & Monczka); collaborative planning, forecasting and replenishment (Barratt & Oliveira, as cited in Petersen, Ragatz & Monczka), as well as in a myriad of additional supply chain-related regions. Ultimately, effective collaborative planning improves supply chain performance as it facilitates decisions that reflect a broad view of the supply chain; accounting for interactions among various supply chain firms. Forms the improvements may be noted in include better on-time delivery, reduced purchase prices, increased inventory turns, enhanced responsiveness, better quality, and/or reduced overall cost.

Defining Uncertainty

Merriam-Webster Online (2008) defines the term "uncertainty" as the "lack of sureness about someone or something." Brindley and Ritchie (2004), albeit, define the "uncertainty" "as the absence of information concerning the decision situation and the need to exercise judgment in determining or evaluating the situation, alternative solutions, possible outcome etc.." In addition, in an attempt to describe the essence of uncertainty in an engineering project, Parks (2007) attests that uncertainty exists in the following scenario:

Oil forecasts are a roll of the dice. You may know as much as the oil experts. That is, you know that a barrel of oil is pricey and getting pricier. Beyond that, nobody - not even those who get paid to prognosticate - has a real handle on the push and pull that goes into figuring how much oil people need, how much can be pumped, and how much can be refine. (Parks, p. ***)

Uncertainty, nevertheless, generally involves concern with apprehension regarding a decision or situation, principally about a future outcome or result. This purported apprehension may make planning for the future a difficult task.

Uncertainties in Supply Chain

Uncertainty, propagated across every aspect of the supply chain, can lead to inefficiency in the operation and reduce value. In the supply chain literature, a large number of studies have investigated the sources of uncertainty and techniques to manage them (Levi-Levi et al., 2004; ***; ***; need to list several authors her to match statement made)

Some of the major factors contributing to uncertainty include: the challenge of matching supply to demand, fluctuation of inventory and back-log across chain, inaccuracy in forecasting, delivery lead time, manufacturing yields, transportation time and components availability (Levi-Levi et al., 2004). According to Gupta and Marinas (2003):

The need to account for uncertainty in the planning decisions can essentially be traced back to the core functionality of planning models, which is to allocate resources for the future based on current information and future projections. The foremost consideration in incorporating uncertainties into the planning decisions is the determination of the appropriate representation of the uncertain parameters. (Gupta & Marinas 2003)

In any supply chain, volatility in the demand for goods and services may be categorized as one of the most important sources of uncertainty. The failure of a business to take necessary measures to protect against volatility could have devastating consequences, traditionally derivatives of extremely higher production costs, and customer dissatisfaction and loss in market share (***). Forecast error proves to primarily be a source of uncertainty. Given the increase in product variety and decrease in products life cycles, product demand has become increasingly difficult to forecast. As businesses consider entering into new markets, developing new products, and/or expanding in existing markets, uncertainty regarding the size of customers' demand should always constitute a pertinent consideration (***). Like demand, supply uncertainty serves as another significant source of uncertainty in the supply chain that may also produce devastating consequences on organizations, if/when the necessary measures are not taken to protect against it. When a firm orders goods or services from its supplier, the uncertainty regarding the quantity will be delivered, as well as the time the order will arrive.

Towill, Childerhouse, and Disney (2000) classified the supply chain uncertainty into the following four broad categories:

Process uncertainty affects the internal capacity of the organization to reach the planned production.

Supply uncertainty indicates that the supplier cannot carry out the organization's requirements (in time, right amount and correct specifications - quality or price).

Demand uncertainty concerns the predictability of the demand amount and the variety of product.

Control uncertainty relates to the information flow in the organization and to the way the organization transforms the orders into goals of production and material requests.

Risks and Supply-Side Contingency Planning

Uncertainty includes risks and contingency planning, and should be part of the planning and decision making of the supply chain. In the article "Supply-Side Contingency Planning," Gregory Gilbert, and Michael Gips (2000) identify the following components vital in dealing with risks:

Identifying risks: Involves considering all the possible risks, along with the full impact on the operations. Risks that involve the supply chain as a whole, including disruptions from utility suppliers such as water, electric, and phone need to be accessed. The question needs to be addressed: What back-ups are in place for each supplier's encase disruptions occur in their section of the supply chain? The risk management team should examine the supplier's managerial procedures, processes, financial health, and resources and where applicable their suppliers.

Assessing risks: Based on the potential impact of each risk, it is vital to examine each risk for less recognizable effects, and determine what measures need to be implemented to cover all problems. A common example, the loss of power, proves to be particularly significant consideration, as when power is lost, it disrupts security precautions, in addition to halting the production line.

International suppliers run the risk of strikes, weather and natural disasters, as well as national security interrupting service. Risks related to shipping also foster the need for a back-up supplier in a second geographical area.

Gilbert and Gips (2000) cite the following example: "...Disasters may strike all such companies in a geographical area, and if a business relies solely on this arrangement, it will have little recourse" (¶ 26). Gilbert and Gips (2000) recommend the following considerations for addressing risks:

Ranking risks involves listing each risk in regards to impact and likelihood. Cost of disruption in business vs. The cost of a contingency agreement has to be examined, as well as the level of risk the company is willing to allow. Supply chain professionals need to rank risks according to scenario and cost, and determine the tolerance level the company is willing to accept. Recovery times may be charted, and plans implemented to achieve targeted recovery times for different incidents (Gilbert & Gips 2000).

Managing risks: Risk reduction occurs in a well-prepared company. A good guideline for supply chain professionals to follow: Invest much detail in high risk incidents, and less in the smaller risks. Gilbert and Gips (2000) also relate the following factors as vital considerations for effectively managing risks: Supplier choice: The best suppliers are not affected by continual natural disaster/s, or subject to civil and military unrest. Supply chain professionals need to examine the continuity planning, financial health, business stability and integrity, and reliability of utility suppliers (Gilbert & Gips 2000). Diversity provides for competitive bidding and prevents emergency incidents. Back-up suppliers must be able to accommodate for the increase of business, when/if the need arises. Should a supplier face natural or military unrest within their region, diversity provides for the continued flow of supplies (Gilbert & Gips 2000). Stockpiling: Due to the critical nature some equipment possess, some numerous companies maintain an inventory of parts and equipment. A number of it departments, for example, stockpile servers, disk drives, modems, monitors, and other hardware components.

As no ready source of these inventories would be available if the supplier has a problem, companies relying suppliers with patented processes often frequently stockpile goods. Insurance, according to Gilbert & Gips (2000) proves to be a viable idea for companies depending suppliers with patented processes. Purchasing the supplier outright offers a backup plan for some companies, albeit this may prove to be too costly a solution. In addition, the acquisition of a new company compounds administrative burdens, and consequently could veer the business from vital core competencies. In addition, owning the supplier only reduces disruption risk evolving from disputes, not other risks such as natural or civil disasters (Gilbert & Gips 2000).

Pooling Resources with other companies at times provides a sense of backup protection for suppliers. When/if disaster strikes one business, other businesses will, in turn,…[continue]

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