Question

1. a. Why 'Push Based Supply Chain' reacts more slowly to change demand than 'Pull Based System'?

b. Logistic abilities are traditionally classified into Strategic, Tactical and Opersional based on the horizon of planning. Describe the three types of decisions, set the level of the three types of decisions. Give examples of each decision level.

Answer 1

Ans: A When demand uncertainty is low, a push-based supply chain allows the firm to reduce costs by making use of economies of scale in production and distribution without increasing inventory holding costs. A pull-based supply chain reacts to real customer orders rather than to forecasts. Thus, lead times and variability in the system are reduced by matching supply and demand. This leads to improved customer service and decreased inventory holding costs.

By moving the push-pull boundary earlier, lead times and variability in the system are decreased and service levels are improved due to increased ability to match supply and demand. Also, inventory levels are decreased because there is little or no inventory in the pull portion of the supply chain. By moving the push-pull boundary later, costs can be reduced by taking advantage of economies of scale. Furthermore, inventory levels may decrease due to risk pooling effects and reduced safety stocks, if, for example, the push-pull boundary is moved later by delaying product differentiation.

The main problem with push systems is that they are based on forecasts that are almost always wrong. Despite billions spent annually in the US for the best computers and most sophisticated software, actual demand varies from forecasts. Forecasting does not make the end consumer react more rationally or predictably. When it comes right down to it, no matter how sophisticated its algorithm, a forecast is only a guess. Wrong guesses mean excess investment and lower profits, due to missed sales. They also lead to other problems like high carrying costs, discounting, disposals, missed sales, weak customer loyalty, shortages, high debt loads, inventory disposals, emergency shipments, rescheduled production and attenuated profits.

B. Strategic planning is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. Generally, strategic planning deals, on the whole business, rather than just an isolated unit, with at least one of following three key questions:

• “What do we do?”
• “For whom do we do it?”
• “How do we excel?”

Tactical planning is short range planning emphasizing the current operations of various parts of the organization. Short Range is generally defined as a period of time extending about one year or less in the future. Managers use tactical planning to outline what the various parts of the organization must do for the organization to be successful at some point one year or less into the future. Tactical plans are usually developed in the areas of production, marketing, personnel, finance and plant facilities

Operational planning is the process of linking strategic goals and objectives to tactical goals and objectives. It describes milestones, conditions for success and explains how, or what portion of, a strategic plan will be put into operation during a given operational period.
An operational plan addresses four questions:

• Where are we now?
• Where do we want to be?
• How do we get there?
• How do we measure our progress?