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Supply/ Demand Chain Correlation

The configuration and co-ordination of a supply and demand chain is obviously a broad topic, involving inter-dependencies among R&D, marketing and production functions, generating substantial flows of goods and technical, market and financial information. This paper focuses on flows of goods rather than information in the supply chain, addressing logistical issues such as production scheduling, orders to and deliveries from suppliers, and shipping times. The research examined the international value chain of a personal computer manufacturer called CCT. Costs and lead times for products sourced from Singapore for the U.S. market were compared with those for similar products sourced locally in California for the same market. The quantitative data were supplemented with a series of interviews to collect more qualitative information. A simulation model of the company’s supply and demand chain was developed using these data; the model was used to examine the impact of distance on indicators of supply chain performance such as demand fulfilment and inventory levels.

Markides and Berg assert that offshore sourcing not only raises “the cost of inventories, transportation, and administration, but also leads to a loss of economies of scale, lower quality, longer lead times, and the freezing of current technology” (23). A number of industry- directed publications support the view that firms engaging in offshore sourcing often fail to account for the added costs of international sourcing, particularly intangible costs such as less flexibility and the potential loss of competitiveness in core technologies. A study by the National Tooling and Machining Association estimated that offshore sourcing could add from 24% to 78% to the quoted price, while longer lead times and lower quality could impose further costs which could not be reliably assessed. A number of case studies used for teaching also illustrate the substantial operational problems that international sourcing can generate.

The supply chain is traditionally characterized as a stable system in which components and goods move smoothly from suppliers to assembly to customers. By contrast, the analysis of CCT’s operations led to a conceptualization of the supply chain as a complex, dynamic system in which each stage of the chain is subject to disruptions, or shocks. Various sources of disruption can affect the system. Demand fluctuates in an unpredictable way, production problems affect output, and suppliers do not always deliver usable products on time. Senior management can also cause disruptions by taking decisions that are unexpected at the operating level, for example, to discontinue a product or to reduce a price dramatically.

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The flows of goods and information that link the supply chain together are also subject to time lags and disruptions, which are a function of the distance between stages of the supply chain and the mode of integration. For example, distance not only increases shipping time but also the possibility of long delays caused by weather, strikes, or customs problems. Time zones, cultural and language differences, and the lack of face-to-face communication can impair flows of information. In this complex, dynamic system, a disruption to one element of the chain generates a sequence of changes and adjustments in other parts of the system [Levy 1994a]. If distances are small, short lead times and good communication should help the supply chain to react quickly to the disruption.

Kiel, D. L. “Managing Chaos and Complexity in Government: A New Paradigm for Managing Change, Innovation and Organizational Renewal”, Jossey-Bass: San Francisco, 1994.

Markides and Berg. “ Decison Making in the Supply/ Demand and Forecasting Analysis Relations”. Minnesota: Independent Publishers, 1998.

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