“The manufacturer is trying to decide how many units to produce for the upcoming
ID: 406397 • Letter: #
Question
“The manufacturer is trying to decide how many units to produce for the upcoming season. If too many products are produced, some of the products may be left unsold by the manufacturer to the distribution center. If too few products are produced, the manufacturer may lose some potential profit it could make from sale to the distribution center.” A similar challenge is faced by the distribution center. In other words, if too many products are bought by the distribution center from the manufacturer, some of the products may be left unsold by the distribution center to the retail stores. If too few products are bought by the distribution center, the distribution center may lose some potential profit it could make from sale to the retail stores. Discuss how the manufacturer and the distribution center can resolve their respective challenges while neither party should benefit at the expense of the other.
Explanation / Answer
The manufacturer and partners should give up the efficency mindset and apply agility to the supply chain so that they can think of whole supply chain rather than their interests alone.
The Manufacturer should use internet and other real time systems to gather the real time demand and supply numbers and these numbers should be consistent across all the partners in supply chain.
The real time supply at retailers should be available across distribution center and manufacturer. This will help them to project when to buy or produce new lots. Also the demand projection numbers should be consistent across all three partners in chain and the demand function should be based on inputs from retailers, distribution centers and manufacturer.
Eventually, it is finally depends on the managers of these partners to take a call on whether to buy/produce any extra lots. The consistency in data would be useful for each of them to take an independent calls
Selfish calls would not anybody as data is consistent and it would cost the parter who is taking the selfish call and thus this system disincentivise them to try to benefit at expense of rest of the partners in the supplu chain
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