The correct hang on chain strategy depends on several factors. A product characterized by stable demand and reliable supply cannot be managed in the same manner as one characterized by unstable demand and unreliable supply. (Lee 2011).
Demand predictability is associated with product type, operating(a) versus innovation. Functional products are characterized by low demand indecision, more predictable demand, stable demand, long product life, low memorial cost, low profit margin, low product variety, broad(prenominal) plenty per SKU, low pains-out cost and low obsolescence Example include staple fiber foods. Innovative products are characterized by gamy demand uncertainty, sticky to forecast, variable demand, high inventory cost, high profit margins, high product variety, low volume per SKU, high stock-out costs and high obsolescence.
In the absence of direct information on the essential requirement of the customer, organizations are forced to make forecasts. To avoid the mishap of stock-outs most organizations carry safety stock.
What happens is that as we move save up the supply chain the magnitude of the safety stock carried increases. This phenomenon is referred to as the bullwhip effect. (Lee et al 1997)The effects of this include prodigal inventory, excessive capacity, insufficient capacity, long backlogs and uncertainty in production planning.
mavin of the major problems that affect performance is uncertainty. There are devil parameters to uncertainty. Uncertainty in demand and uncertainty in send time. One of the major effects of lead time uncertainty is the bull whip effect which results in increases in supply chain cost and decrease in customer process level (Heydari et al 2009).
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