Professional Documents
Culture Documents
Effort spent for supply chain activities are invisible to the customers.
Estimated that the grocery industry could save $30 billion (10% of
operating cost) by using effective logistics and supply chain strategies
A typical box of cereal spends 104 days from factory to sale
A typical car spends 15 days from factory to dealership
Faster turnaround of the goods is better?
Laura Ashley (retailer of women and children clothes) turns its inventory
10 times a year five times faster than 3 years ago
inventory is emptied 10 times a year, or an item spends about 12/10 months in
the inventory.
To be responsive, it relocated its main warehouse next to FedEx hub in
Memphis, TE.
Upstream
Downstream
The right
Product
+ + + + +
The right
Price
The right
Store
The right
Quantity
The right
Customer
The right
Time
= Higher
Profits
P&G or other Third Albertsons Customer wants
manufacturer party DC Supermarket detergent
Chemical
Plastic cup Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)
Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)
Material
Information
Supplier Customer
Funds
Supply
The task of SCM is to design, plan, and execute the activities at the different stages
so as to provide the desired levels of service to supply chain customers profitably
In 2000, the US companies spent $1 trillion (10% of GNP) on
supply-related activities (movement, storage, and control of
products across supply chains). Source: State of Logistics Report
Frequent Supply shortages Low order fill
Inefficient rates
logistics
High
Tier 1 Manufacturer Distributor Retailer Customer stockouts
Supplier
Supply
Inventory
Purchase Inventory
Transportation
Customer
Customer Order
Cycle
Retailer
Any cycle
Replenishment Cycle 0. Customer arrival
1. Customer triggers an order
Distributor 2. Supplier fulfils the order
3. Customer receives the order
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
What instigates the movement of the work in the system?
Customer
Order Arrives
Push-Pull boundary
Dell / Compaq
Dell buys some components for a product from its suppliers after
that product is purchased by a customer. Extreme case of a pull
process
Zara, Spains answer to Italys Benetton
Sells apparel with a short design-to-sale cycle, avoids markdowns.
Strategy
A plan for achieving organizational goals
Tactics
The actions taken to accomplish strategies
Operational decisions
Day to day decisions to support tactics
Ted is an undergrad. He would like to have a career in
business, have a good job, and earn enough income to live
comfortably
New Marketing
Product and Operations Distribution Service
Development Sales
High
Efficiency frontier
Inefficiency Region
Low
Responsive
(high cost)
Gourmet dinner
supply chain
<High margin>
Responsivenes
spectrum
Lunch buffet
<Low margin>
Efficient
(low cost)
supply chain
Certain Implied Uncertain
demand uncertainty demand
spectrum
Wal-Mart: Efficiency
Target: More quality and service
Carrefour: International, ambiance
K-Mart: Confused.
Squeezed between Target and Wal-Mart
Reliance on coupon sales
Do coupons stabilize or destabilize a Supply chain?
Efficient
(low cost)
supply chain
Certain Uncertain
demand demand
Integration is the central theme in SCM
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
How to achieve
Efficiency Responsiveness
Logistical
Inventory Transportation Facilities
Drivers
Cross-
Information Sourcing Pricing Functional
Drivers
Convenience: Cycle inventory
No customer buys eggs one by one
Pipeline inventory
Work in process or transit
Air
Truck
Rail
Ship
Pipeline
Electronic
Production
Flexible vs. Dedicated
Flexibility costs
Production: Remember BMW: a sports car disguised as a sedan
Service: Can your instructor teach music as well as SCM?
Sports: A playmaker who shoots well is rare.
Information
Accurate?
Accessible?
Up-to-date?
In the Correct form?
If not, database restricted ability. How difficult is it to import data into SAP?
Information drives the decisions:
Good information means good decisions
Planning
Operational
Planning
SCM
Transactional IT
Expensive and difficult to implement
About 25% of ERP installations are cancelled within a year
About 70% of ERP installations go over the budget
500
400
300
200
100
0
1965 1973 1981 1989 1997
IT investment($B)
Source Kanakamedala,
Ramsdell, Srivatsan (2003).
McKinsey Quarterly, No 1.
Role in the supply chain
Set of processes required to purchase goods and services in a supply chain
Supplier selection, single vs. multiple suppliers, contract negotiation
Poor IT design
Unreliable, duplicate data
Security problems: too much or too little
Ignoring uncertainties
The flight from uncertainty and ambiguity is so motivated that we often
create pseudocertainty.
Nitin Nohra, HBR February 2006 issue, p.40.
Poor integration
Elusive inventory costs
Accounting systems do not capture opportunity costs
Challenges
A Case Study
Largest convenience store in Japan with market value of $95 B. The third
largest retail company in the world after Wal-Mart and Home Depot.
Established in 1974.
In 2000, total sales $18,000 M, profit $620 M.
Average inventory turnover time 7-8.5 days.
Stock value increased by 3000 times from 1974 to 2000.
In 1985, there were 2000 stores in Japan, increasing by 400-500 per year.
Return on equity 14% over 2000-2004.
A SEJ store is about the half the size of a US 7-eleven store,
that is about 110 m2.
Sales:
Products
32.9% Processed food: drinks, noodles, bread and snacks
31.6% Fast food: rice ball, box lunch and hamburgers
12.0% Fresh food: diary products
25.3% Non-food: magazines, ladies stockings and batteries.
Services: Utility bill paying, installment payments for credit companies, ATMs, photocopying
More factual info:
Average sales about twice of an average US store
SKUs offered in store: Over 3,000 (change by time of day, day of week, season)
Virtually no storage space
No food cooking at the stores
SC strategy:
Micro matching of supply and demand (by location, time of day, day of week, season)
1999: 8,027
6000 2004: 10,356
5000
4000
2000
1000
0
85 86 87 88 89 90 91 92 93 94
1400
1200
1000
800
Net Sales
600
400
200
0
85 86 87 88 89 90 91 92 93 94
100
90
80
70
60
50 Profit
40
30
20
10
0
85 86 87 88 89 90 91 92 93 94
14
12
10
8
Inventory
6
4
2
0
85 86 87 88 89 90 91 92 93 94
Quick access to up to date information (as opposed to data):
In 1991, SEJ implemented Integrated Service Digital Network to link stores,
headquarter, DCs and suppliers
The number of truck deliveries per day is reduced by a factor of 7 from 1974 to 2000. Still,
at least 3 fresh food deliveries per day. Goods are received faster with the use of scanners.
Have many outlets, at convenient locations, close to where customers can walk
Focus on some territories, not all: When they locate in a place they blanket (a.k.a.
clustering) the area with stores; stores open in clusters with corresponding DCs.
844 stores in the Tokyo region; Seven Eleven had stores in 32 out of 47 prefectures in 2004. No stores in
Kobe.
Success rate of franchise application <= 1/100
Is food preparation a good idea at 7-eleven locations?
e.g. Compare microwave heating vs. salad preparation.
Why SEJ does not allow direct delivery from suppliers to retailers?
Point out which of the following strategies can also be used in US (or Taiwan)
Information strategy
Facilities strategy
Discuss the differences between the Japanese and US (or Taiwanese) consumers with
regard to
Frequency and amount of grocery purchase
Use of credit cards vs. cash for purchase
7-eleven inventory turnover rate is 50 in Japan and 19 in the USA.
7-eleven growing rapidly in the US so it aims to be a web depot in both the US and
Japan. Does this make sense from a supply chain perspective?
Cost vs. Responsiveness
Business strategy
What is the risk of micro-matching strategy?
No direct deliveries to SEJ, what is the potential risk of this strategy if used in the
USA?
Excerpts from
www.deloitte.com/dtt/cda/doc/content/dtt_2008globalpowersofr
etailing.pdf
Downloaded on Jan 30, 2008.
De Kok, A.G., S. C. Graves (Editors). 2003. Supply Chain
Management, Coordination and Operation. Elsevier Publishing
Company, Amsterdam, Netherlands,.
Handfield, Monezka, et. al. (2011). Sourcing & Supply Chain
Management (5th edition). McGrawHill.
Wisner, et. al. (2012). Supply Chain Management: A Balanced
Approach. (International Edition). South-Western Cengage-
Learning.