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...When production materials or components are threatened to be in short supply, suppliers typically place them "on allocation", which means that suppliers distribute their limited inventory across all their downstream customers to make sure each one gets at least some of their order. Even if you ordered 10,000 monitors for January delivery, you may get only 5,000 due to shortages in availability. Allocation allows suppliers to meet some of the orders from all purchasers, so that no one is left with zero product. The idea is that giving everyone a portion of requirements is somehow better, in the long run, than giving some customers 100% of their orders and other customers nothing.
Invariably, some people will over-order to compensate, particularly if the shortage becomes widely apparent. There are many examples of this behavior, particularly for industrial products and components...
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SCM102 Specifications
Rating:
(1456 ratings)Total Reading Time: Approx. 1 - 2 hours (for average readers)
Word Count: Approx. 9,000 words
Author: Dr. Warren H. Hausman
Professor of Management Science & Engineering, Stanford University
Certificate: Counts toward Fundamentals of Supply Chain Management
Datasheet: 
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Contents
- Introduction to Supply Chain Strategies
- Functional vs. Innovative Products
- Efficient vs. Responsive Supply Chain Strategies
- Aligning Products and Strategies
- Product Life Cycle Revisited
- Improving Efficient Supply Chains
- Beer Game Introduction
- Beer Game Simulation
- Beer Game Results
- Bullwhip Effect: Importance and Causes
- Cause 1: Information Distortion
- Cause 2: Order Batching
- Cause 3: Promotions
- Cause 4: Allocation Gaming
- Counteracting Information Distortion: Forecasting Problems and the Hockey Stick Effect
- Counteracting Information Distortion: Vendor-Managed Inventory (VMI)
- Counteracting Information Distortion: Supplier Managed Availability (SMA)
- Counteracting Information Distortion: Reducing Lead Times, Reserving Capacity, and Direct Sales
- Counteracting Information Distortion: Keeping Safety Stocks Steady
- Counteracting Order Batching
- Counteracting Promotions
- Counteracting Allocation Gaming
- Conclusions
- Test Your Knowledge
- Feedback