Volatility and robustness
The most important decision you will have to make is how to set-up your strategy in such a way that it is robust for:
- changing market conditions
- changing supplier conditions
- changing supply chain set-up
- changing price settings
- increasing or decreasing competition
- surges in demand
- new products
- changing product-market combinations
- changing product lifecycles
For your geographic scope you can choose between several options. They will all have a different impact when volatility hits the supply chain:
1. Regional Focus for Sourcing and Customer Sales
- Customer service orientation/ Quick response orientation
- Transportation Cost Minimization
2. National Focus for Sourcing and Customer Sales
- Expanded Customer base
- Expanded Supplier Base
- Higher Transportation Cost / Longer Transit Time
- Economies of Scale in Purchasing
3. Global Sourcing and Regional Sales
- Lower Purchase Costs
- Higher Transportation Costs / Longer Transit Time
- Greater Risks of Late Deliveries
4. Regional Sourcing and Global Sales
- Expanded Market
- Sufficient Availability of Low Cost Suppliers
- Higher Transportation costs
- Customer Service Risks
5. Global Sourcing and Global Sales
- Maximum Flexibility
Distributor Inventory Management Strategies
From a robustness perspective, you can look at what inventory management strategies would be best to use.
1. Demand Pull
- Distributor wins bids from customer
- Source needed inventory from suppliers to meet bid requirements
2. Inventory Push
- Accumulate Inventory
- Sell off Inventory on-hand to market customers
- For fast moving products, you accumulate inventory.
- For slow moving products, you win bid first then accumulate inventory to meet sales requirements.
1. All Inclusive
Average Supplier Price to Distributor (exclusive of Transportation Charges and Time) are given below for the start of the game; individual suppliers deviate from average price based on their operating performance and location:
2. Product Specialization
- Focus on sub-set of available products
- Could focus on high-end/higher margin products
- Customer Request For Quotes to Distributors specify types and quantities of product required; and customer need by date
- Distributor response to market RFQ includes
1. Total Order Price, including transportation which is automatically added to the base price quoted by Distributor.
2. Promised Delivery Date, the Actual Delivery Date depends on inventory availability and transit times; transit times are defined in the game: 24-36 hours for intra-continental delivery; and 48-56 hours for inter-continental delivery.
- Inventory depreciation is rapid: 2% a week across the x-treme supply chain game’s four product categories.
- All shipments from supplier to distributor and distributor to supplier are air shipments.
- Transportation time & costs have a fixed and variable component: The fixed component is higher for inter-continental shipping and includes time and costs of customs clearance. The variable component is related to shipping distance e.g. greater the distance of shipment, higher the transport costs. There is a discount for larger shipment sizes: discounts are given for shipments above 100 pounds and above 1000 pounds. To get these discounts, Distributors should look for opportunities to respond to larger size customer orders; and to send out RFQs of larger size to suppliers.
Based on information from Sandor Boyson and Tom Corsi, R.H. Smith School of Business, UMD