SUPPLY CHAIN MANAGEMENT CASES 1. DEMAND MANAGEMENT IN SCM 2.

NOT ALL CUSTOMERS ARECREATED EQUAL

GROUP- 6. SHILPA MUKESH, T.S.SANGEETHA, RHONY JACOB, NIDIN SASI, GODWIN MATHEW ROCK

School Of Management Studies CUSAT, KALAMASSERY

INTRODUCTION
Demand forecasts form the basis of all supply chain planning. All push processes in the supply chain are performed in anticipation of customer demand, whereas all pull processes are performed in response to customer demand. For push processes, a manager must plan the level of activity, be it production, transportation, or any other planned activity. For pull processes, manager must plan the level of available capacity and inventory but not the actual amount to be executed.

ROLE OF FORECASTING IN SCM

Supply chain sales forecasting management can significantly influence operating performance within each member, and across members, of a supply chain. To affect supply chain operations in a positive manner, organisations working together in a supply chain must improve forecasting management performance as well as supply chain forecasting management performance. The four dimensions of sales forecasting management- functional integration, approach, systems, and performance measurement can be extended to incorporate a supply chain orientation. Initiatives such as Collaborative Planning, Forecasting and replenishment reflect the four forecasting management dimensions and provide an approach to forecasting that addresses factors that influence forecasting management performance and SC forecasting management performance.

Company A- consumer SC Competitive Advantage

Case: Company A is a major manufacturer of snack foods that sells through many outlets. Retailer B represents a major percentage of sales for company A. Company A has realized that Retailer B was driven by same two values that drive many retailers: traffic and vendor float. Company A decided to concentrate on improving the vendor float of Retailer B. Company A calculated retailer Bs vendor float and found venders are financing 50% of Retailer Bs working capital. If Retailer B could push their payment terms to some extent, Retailer Bs vendor float would be 100%, which means Retailer B would have none of its own money invested in his own working capital- the venders are financing it.

Competitive Advantage through Forecasting Demand

Company A developed a forecasting and demand planning process to manage the supply chain flows: the flow of the product, the flow of services, the flow of information, the flow of financial resources, and the flow of demand and forecasts. Company A made changes in traditional inventory management system. Automations made possible by using EDI technology. The traditional system affects the shelf life of the product, average days of inventory that Retailer B carries in its store and RDCs, inventory levels Company A carries to meet the sudden large order it eventually receives from Retailer B etc. After examining the flows Company A started to forecast demand for their product in the stores, sales of product, promotions, merchandising activities, co-op ads, and so forth and will forecast individual demand. Retailer B has now the ability to sell Company A products in all their stores have no investment in inventory. The high vendor float made possible so that no Retailer B dollars are invested in the inventory component. This create motivation for Retailer B to sell more of this product, to give it better merchandising, better merchandising, better shelf location, and better storage placement because the more of this product Retailer B sells, the more money Retailer B is making on a zero investment in inventory. The supply chain system management allows Company A to monitor sales of each of their products real time in each Retailer B store.

Manage Demand (Not just the Forecast) in the Supply Chain

Changing vendor minimums to allow reorder quantities that don't overstock stores, yet permit the most efficient processing through the DC. Identify vendors who cannot replenish quickly enough and buy enough to hold back a qty for replenishing from the DC to avoid stock-outs. Demand-projecting software is being reviewed to assist in developing reorder quantities.

NOT ALL CUSTOMERS ARE CREATED EQUAL

The early period of product arrangement structure (giving importance to production) had been replaced to demand based structure, giving importance to customers first and is basically due to inflation, volatility of market, satisfaction etc which makes the organization to maintain or sustain the competitive advantage they have. The growth of ICT in the supply chain management was a boon and spur for this competitive advantage. Maintaining this superiority in market is possible only by attaining this competitive advantage. Saying about advantage two very crucial factors are 1) the assets company possess and 2) the capability of organization to utilize them. Again this can be - achieved either by 1) cost advantage where the organization follow a leadership state and thus is possible to vary their prices accordingly, while if competitors will try to follow them. 2) differentiation how different one from competitors. It definitely depends on factors like the perception of customer towards the product and pre-emptive state where imitations are impossible by the competitors (says the imitations will remains the same and customers are able to identify the company easily). Two ways of attaining the competitive advantages is The competitor cantered where the companies will closely monitor their competitors like followers do and will implement the same what they are actually doing. The market studies and business intelligence were all concerned with this. The managers always trying to achieve market shares by tracking their close competitors and differentiate them

The customer cantered where the customer is the crux of issue. The end values one customer is enjoying is closely monitored and the benefits they need to get is monitored and try to be fulfilling them. It is in this point of view we need to understand the fact that the customers have their own choices and will be having different perspectives for the same, which makes to achieve such an advantage for the companies, and this explains the condition not all customers are created equal. Now we should be able to know Who are your profitable customers- one who is loyal to company How is it possible to reach them on time How to reach the competitive advantage through participants

To attain competitive advantage for companies CASE STUDY ANALYSIS OF COMPANY O Implementing a supply chain value strategy CASE:
Supply chain of the auto after market:

Company O

Warehouse distributors

Auto repair shops

Company O is in the auto after market, which provides replacement parts to auto repair shops through a network of distributors called warehouse distributors or WDs. The product in the supply chain is installed by a mechanic as part of an auto repair. As a result there is no brand recognition in the process and the owners mainly value three things in this process: They want their car back the same day they took their car in for repair They want the problem fixed They were sensitive to the price of the parts

This led the auto mechanics to value three things: They needed the parts within 24 hrs of ordering them from the WD so they could be ready for scheduled repair appointments They were very concerned about product quality The lower the price on the parts, the higher their margin Company O can be described as a commodity business as there is no difference between the competitors in the market with respect to promotional programs or product quality or features, the only basis on which to compete is price. However, since the major competitors had near identical manufacturing processes, identical suppliers, and identical supply chains (the same supplier delivery systems to the plants and the same WDs to distribute the product to the same auto mechanics), their cost structures were very similar and any reduction in price was immediately matched by the competition, a move that simply reduced profit margins for all without increasing overall sales.

The competitive advantage of company O can be achieved when the corporate vision of the company as a manufacturer of products in the auto aftermarket is changed to a marketer and distributor of products in the auto aftermarket. In other words to focus the attention of the company not on the products itself but on how it got to the customer. This can be better understood with the flowchart of supply chain value strategy:

Supply Chain Value Strategy:

Identify the Identify the value Choose the value Provide the value Communicate the value Asses the delivered value

c o m p et iti v e a d v a nt a

The first step is to realize that not all customers are created equal -- some are critical to our success, some are less important and should be treated as such, and some are distracting us from serving the first two groups and should not be served at all. To understand these segments of customers, companies first need to answer several questions about their supply chains:

Who is our customer? How do we reach our customer? How do we reach competitive advantage with our customer? (Hint: It is not always the product.)

As the first question indicates, identifying the relevant customer is the first step. Once we identify who the customer is, we must identify what the customer values, choose the customer values that we will emphasize, provide that value to the customer, communicate to the customer the fact that we are providing that value, and finally (and continuously) assess the customer's satisfaction with the value we are delivering. This is true in business-to-business (B2B) and business-to-customer supply chains. Many companies in consumer products industries, when asked, "Who is your consumer?" will say, "The individuals who buy our products." When asked, "Who is your customer?" they will say, "Wal-Mart, Target, CVS Drugstore, Best Buy, Circuit City," or various other retailers that often represent a significant percent of their overall sales. That question often involves more than just the product. We may make a product that is priced no differently than the competition, has no different brand equity than the competition, and is promoted no differently. In fact, the product looks, for the large part, like a commodity. There, seemingly, is no basis on which to compete, other than price. However, if we create a cluster of services around a product through the supply chain and through trade partners that gives our company a distinct advantage in the marketplace -- not product based, but supply chain service based -- then we are achieving this SCM competitive advantage idea. In the case of company O it was realized that having a commodity product does not mean that it is a commodity business alone. There are always services in the supply chain that can be offered with a product that can differentiate it in the minds of the relevant customer. The important aspect is that logistics services offered with the product often hold the key to differentiating a commodity product from its competition. Another aspect where the company O gained competitive advantage was in the inventory management. The excess inventory of the WD where sold to the company O, in this way WD no longer had to buy it from the competitions. This guaranteed on time delivery and also reduced the inventory costs and lead times.

Through company Os cases study its clear that never confuse a commodity product with a commodity business. Instead look at all supply chain participants to determine which value the company can use to achieve the competitive advantage. Company Os logistic system was developed much later but when it was fully developed it could not match the infrastructure changes. It was based on how the product was distributed and how hard it was for the competition. Another aspect where the company focused was on the requirements of the members of their downstream supply chain.

Another important factor is the SATISFACTION OF PROFITABLE CUSTOMERS Serving the customers which you cant satisfy
The case explains how the medical company P was able to attain competitive advantage by knowing the profitable customers (here is the surgeons who plan their operations a week before). The supply chain implemented by P was in such a way that they collected the operation details for such surgeons through the head nurses of specific hospitals and they came to know from hospital administrators that the forecasted operations required proper sterilization and after use activities like recycling & reuse or proper disposal of the same. The customer value requirements prepared by P helps them to know regarding this and priority was given for proper arrangement of surgical instruments at right time and also the proper disposal after the use.

Company P

Hospital admin

Head nurse

Surgeon

Patient

In all directions we see there is information flow and through value implementation the profitable and valued customers were identified. Now the info the company collected made them to revamp their supply system. Now what they could glean through proper data collection was the instruments has to be sterilized and should be in proper arrangement which will helps the head nurses to take them from carrier and just hand over them to surgeons and the used ones after operation has to be properly taken care of. Now they made a delivery in form of cases in each day which contains the specific instruments for specific operations which was arranged in advance by the doctors and they are known to the administrators and nurses, through them P collects valid info and arrange such deliveries in each day and the used ones will be recollected in same case and will be taken over by P at the end of each day. So what they did was through proper customer demand they streamlined the process, make the delivery and recollection simple but effectively. Now this was helpful for health insurance companies also. They knew the fact that the company P is arranging the surgical instruments in very careful manner and the hospitals dealing with them are supposed to have some kind of integrity and prominence. This helped them to reduce their cost in very effective way and the trust was able to enumerated in figures. So proper forecasting, knowing the demand as accurately from specific accountable customers, the information flow, proper communication, helps P to make proper decisions and implement them in proper way. So from the fact Not All Customers are Equal what P did was

Identified the valuable customers Identified the demand of them (planned way) Try to incorporate the supply chain system including them.

Customer Gap
A Customer Gap is the Gap arises by misunderstanding the customer expectation about the product. This gap can be happen in various levels of supply chain management. There are mainly five levels of customer gaps .They are

Gap 1. Expected quality by customer ------companys perception of customer expectation. Gap2. Product/service quality design characteristics ------ companys perceptions of customer expectations. Gap3. Actual product/service quality ------ product/service design characteristics. Gap4. Actual product/service quality------External Communications to customers Gap5. Expected quality by customer ------perceived quality by customer These gaps are creating the frustrated customer and retailer.

CASE analysis
This case explains how Dell computer overcome the gaps that existed in the supply chain, especially identifying their expectation. Dell entered into a relatively established market, and applied customer focus, supplier partnerships, mass customization, and just in time delivery to implement the strategy of virtual organization and become industry leader. By selling directly to the customer via web, Dell computers uses e-commerce to communicate with the customer, maintain low cost, and customizing products according to customer specification. This reduced the first gap in the supply chain management. Dell will install company specific software before delivery. And keeps a electronic register of the customers assets (software) . This helps company to become customers virtual IT department, than a traditional supplier. By creating the virtual organization, that means most of the employees of Dell are contract workers (supply chain partners), this made real Dell employees to concentrate on activities that create most value for the customer. Coordination with virtual manufacturing and inventory velocity reduced the price of the product. Dell has the virtual manufacturing contract with large companies e.g. Sony for monitors. And monitors collected directly from the factory and send to the customer according to the specification by logistic partners. (makes internal coordination more accurate).

Company Q-final customers versus trade partners Case analysis:

Leveraging logistics: a leap to profitability and success Company Q, a major global manufacturer of customer appliances long based its competitive positioning on the development of excellent quality products with recognizable features that customers wanted. This strategy established Q as a respected brand in consumer appliances. but most of its product innovations were quickly copied by competitors, and the level of quality maintained by company Q was no different in the eyes of the consumer than any other manufacturer. to make matters worse, other competitors spent amounts of money on advertising, thus creating greater brand equity than company Q. This brand equity led to a perception by retailers that company Q.

Company Qs strategy
Company decided to focus its attention not just on the final consumer of their products but upon the retailers that sell their products .company Q implemented logistic leverage in the form of series of changes to their supply chains that allows company Q to guarantee (given certain information provided by the retailers on point of sale demand and inventory levels availability of product and on time delivery to the stores a much higher percentage of the time than any of their competitors. Company could manage to reduce their days sales outstanding (DSO) or the amount of finished product in inventory, while simultaneously raising their in stock percentage by 5 points. This positively affects profitability. its market share dramatically increased. it combined its strategy with increased ads to create great final customer brand equity and thus overcome the retail store traffic concerns of the retail customers.

Following scm driving four it stopped the supply to certain retailers because they would not provide company Q with the POS data company Q needed to make their version of logistic leverage work. These strategies help company Q to make profits and gaining market share for both company Q and its trade partner retailers

FIGURES

Fig : 1