Page 209 - Operations Strategy

184 CHAPTER 5 • PuRCHAsing And suPPly sTRATEgy
produce 100 items in period 3, and so on. Note again, however, that the fluctuation
has been even higher than that in the OEM’s production rate, decreasing to 80 items
per period, increasing to 100 items per period, and then achieving a steady rate of
95 items per period.
This logic can be extended right back to the third-tier supplier. If you do this you
will notice that the further back up the supply chain an operation is placed, the more
drastic are the fluctuations caused by the relatively small change in demand from the
final customer. In this simple case, the decision of how much to produce each month
was governed by the following relationship:

Total available for sale in any period = Total required in the same period
Starting stock + production rate = Demand + closing stock
Starting stock + production rate = 2 * demand (because closing stock

= must be equal to demand)
Production rate 2 * demand - starting stock

qualitative supply chain dynamics
Supply fluctuation is also caused because at each link in the chain there is the potential
for misunderstandings and misinterpretation, both of what each operation wants and
how each is seen to be performing. It may not be able to make the logical association
between how it should be serving its customers and, therefore, what demands it should
be placing on its own suppliers. There are three logical links that have to be correctly
executed:
1 Understanding customer’s needs correctly
2 Understanding the association between what an operation’s customers need and
therefore what its suppliers should be providing
3 Ensuring that suppliers really do understand what is required.

These three links represent the information specifying market requirements flowing
back up the supply chain. For the chain to be working effectively, it is also necessary to
ensure that the performance of each part of the chain is monitored. Again, any opera-
tion in the chain can identify three logical links that must be in place for effective sup-
ply chain performance monitoring
1 Suppliers understand how they are performing.
2 The operation itself understands the association between its supplier’s performance
and its ability to serve its own customers.
3 The operation is correctly interpreting its customer’s view of its own performance.
A model that identifies four types of mismatch that occur between and within each
stage in a supply chain is shown in Figure 5.13 and Table 5.3, which pursues the analy-
sis from the viewpoint of operation B – the focal operation. It highlights some obvious
questions with which an operation can assess its own supply chain performance. Here,
it is enough to point out that, even in the simple three-stage supply chain shown in
Figure 5.13, there are ample opportunities for gaps to exist between market require-
ments and operations performance within the chain.

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