Supply chain is defined as all necessary sequential operations to deliver required products to the end-users. So, spare-part supply chain starts for the end-user, who need the parts and carryies on with authorized dealer, distributor, main manufacturer, part manufacturer and raw-material manufacturer. There are also many small or large sized agents apart from the ones stated above within the chain. Also, spare-part warehouses, and carriers (forwarding agents) and cargo companies, which ensure the movement of goods, are available within the chain. The main principles of spare-part supply chain are both to meet the requirements of end user within possible shortest time and to decrease the stock level within the system. For this reason, each actor, at all levels, which is the ring of supply chain, keeps a safety (buffet) stock in addition to a main stock. Trying to advance the customer service level, in other words availability level; the members of supply chain benefit from various softwares in order to determine their stock requirements. Most of the softwares available within the market use exponential smoothing method to catch the actual and current demand. In case of an increase in demand of spare parts within the market, those softwares of authorized dealers submit stock orders as a result of this increase in demand, to distributor. As the operations within supply chain are interconnected, distributor, after receiving the order, accepts this order as market data since this order is prepared as a resullt of increase in market demand, and record those datas into his system. Thus, all spare part demands of authorized dealers in compliance with increase in market demand shall be consolidated. Distributor, too, shall increase the total demand level of authorized dealers once more due to the increase in market demand while preparing his order for main manufacturer. So, a demand remarkably over actual market demand is submitted from authorized dealers to distributors, and then, from distributors to manufacturer. This increase, of course, shall not stop in manufacturer phase. This exceed demand shall be reflected to part manufacturer and raw-material manufacturer in the same manner, in other words in expanded levels. TSUNAMI EFFECT defines this high level of excess demand over the actual demand as a result of this process starting from preparation of orders higher than actual demand and submission of this order, after application of same increase in the same manner, by each actor to the next actor.

Every actor of supply chain attempts to meet the demand of his own customer. However, in case of a change of +5% within the market demand, the demand submitted to distributor shall be 2-4 times more than the actual demand. Other various reasons, other than demand fluctations, shall trigger Tsunami effect as well. The first reason is human psychology. In case of a fluctation within the market, spare-part suppliers increase the amount of their orders. In other words, when an increase in demand occurs, since each spare part supplier acts in the same manner while during the preparation of this stock order, unintended Tsunami effect shall be caused and triggered by those suppliers.

Another reason of Tsunami effect is consolidated orders. Authorized dealers, distributors and main manufacturers using spare parts shall prepare their orders by means of a software. Orders, are usually prepared in 15 days or 1 month periods. If other actors including authorized dealers start to consolidate their orders, in other words, prepare their orders in 15-days or 1-month periods instead of weekly-periods, , they shall prevent actual customer demands from being reflected into the system. The most crucial risk here is occured due to consolidation of orders in monthly-periods.

Another reason of Tsunami effect is price fluctations. When distributor makes a price discount, authorized dealers give an order higher than actual spare parts requirement. In other words, authorized dealers purchase spare parts to be required in the future and stock them. In this case, sales volumes of distributor increases in discount periods, however, sales volumes decrease after discount periods. A rise in sales volume reflects as an increase into the distributor’s system. When orders, which are prepared in compliance with this increase, are delivered to distributor, the stock level of distributor is risen since spare parts are sold within promotion-period. Due to high level of stock, distributor performs another promotion, so that the effect of Tsunami expands. In the meantime, the stock levels of distributor and main manufacturer rise again.

Some of the distributors within the supply chain, sometimes, shall not or shall not be able to deliver the required amount of spare parts to authorized dealers. In this case, authorized dealers shall increase the amount of their order in order to receive the amount of order they really require. Tsunami effect shall be occured since the amount of orders are higher than actual requirements.

First of all, each actor should be informed regarding this matter in order to minimise Tsunami effect. Members of supply chain shall take more mindful and cautious steps if they know the results of their actions. Then, supply chain can be improved without any Tsunami effect by considering the following issues:

Transparency of stocks by distributor:
Distributor shall prevent authorized dealers from having speculative attitude by supplying the his stock and shipped part details to them.

Reduction of order-taking and process durations:
The total time for order preparation spent by members of supply chain should be reduced through reduction and simplification of order-taking and order-processing. Thus, spare part suppliers should spend less time in front of their computer screens for order-taking and order-inqury and give more frequent orders.

Reduction of order-amounts:
In theory, authorized dealers within automotive industry shall keep zero-stock. However, a very rapid and efficient order-taking, order-preparation and distribution network shall be required for this. In practice, due to such restrictions and limits, authorized dealers should keep a minimum core stock to meet daily requirements. Whenever a part is sold from the core stock, it should be replaced as soon as possible. So, supply chain members should be directed to give more frequent orders with less quantities.

Daily order-accept and shipment:
Since authorised dealers shall keep a minimum core stock, each required spare part should be shipped in the same day of taken order. Authorized dealer, after ordering required parts, shall take delivery of those parts and not keep those parts for long time within the service. The order and delivery system between distributor and authorized dealer shall be established among other supply chain members as well.

Determination of stock requirements of authorized dealers:
Algorithm of order suggestion software, which is used to determine quantities of various parts in stock of authorised dealers, shall be extremely simple. Complicated algorithms might cause higher stock levels for dealers. Stocks of authorized dealers shoud be reiewed on a weekly basis through software support. After determination of the spare parts, which should be kept within stock, an order should be submitted to the distributor. Following order submission, the same number of the sold parts shall be replaced into the stock as soon as possible. The order and delivery system between distributor and authorized dealer shall be established among other supply chain members as well.

Price of stock and daily orders:
 The purchasing prices of weekly stock orders and daily orders submitted by authorized dealers should be certainly same. Differentiated price applications, first of all, shall make them give only weekly orders. As a result of this, Tsunami effect shall be triggered. On the other hand, authorized dealers might keep their customer waiting for the unavailable parts in their stocks. This fact not only triggers Tsunami effect but also causes customer dissatisfaction.

Single Price Policy for each authorized dealer:
Distributors should not obtain discounts on the basis of amount of spare parts. If so, spare part sales volume will certainly rise in early phases. Nevertheless, both authorized dealers and distributor shall have a high level of stock over their actual market demand as a result of this. On the other side of coin of this application, authorized dealers, who obtain high discount, shall start to sell spare parts to the authorized dealers which do not obtain discount. Finally, distributor shall lose his profit and neutrality.

Controlling of parts which are sold to end-users:
Distributors shall control the amount of spare parts sold by authorized dealers to end-users. If a higher usage above average demands for sales made to end-users, this fact should be investigated immediately. If the cause is an incorrect order, it shall be possible to take mesaures against this problem. On the other hand, such increases in sales might be resulted from wholesale operations of authorized dealers to unauthorized dealers or services. In this case, a sales volume above instant/current need is occured within the market. Distributors should follow not only authorized dealers but also unauthorized dealers in order to prevent this excess sales volume over instant market need.

Management of spare-part supply chain should be avoided from speculations and organized by determination of long-term targets. The authorized dealer shall take the order from end-user and submit his own order directly to the distributor within a perfectly operative supply chain system for spare-part applications. Main manufacturer, after taking the order from distributor, shall submit the order to part manufacturer. Finally, part manufacturer shall deliver the relevant spare parts directly to the authorized service. The relevant part, thus, shall be delivered to the actor who requies the part without causing Tsunami effect. One of the main indicator of success of supply chain is satisfaction of end-user without confronting any negative effect of process. In fact, the magic development oppurtunities, where the transformations and changes shall be made by challenging the system, are included here.

References

Operations Management – Roger G.Schroeder

Sloan Management Review/Spring 1997- The Bullwhip Effect in Supply Chains-Haul L.Lee/V.Padmanabhan/Seungjing Whang