Supply Chain Management

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Supply Chain Management

• Lecture 3

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Outline

• Today
• Some more supply chain examples
• Chapter 2
• Thursday
• Chapters 2 and 3
• Homework 1
• Online Wednesday afternoon September 2
• Due Tuesday September 8

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Maximizing supply chain surplus
Manufacturer
Distributor
Retailer
Customer
10
5
1
Distributor profit 600(5-1) 2,400
Supply chain profit 1,800 2,400 4,200
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Maximizing supply chain surplus
Manufacturer
Distributor
Retailer
Customer
10
1
Supply chain profit 5,000
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Celestial Seasonings

• The herbs were originally harvested by hand in
  the Rocky Mountains
• Currently, herbs and leafs come from growers
  around the world
• Weve been working to establish sustainable
  harvests and fair wages for more than 30 years

What are advantages of having one production
facility?
What are disadvantages of having one production
facility?
What advantages does selling tea over the
Internet provide?
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Interceptor Body Armor

• The interceptor body armor system consists of a
  vest made of Kevlar that has a front and back
  insert for a ceramic protective plate
• March, 2003 Start of the invasion of Iraq
• April, 2003 Congress approves to buy 300,000
  interceptor body armor vests
• October, 2003 Nearly one-quarter of the 130,000
  U.S. troops in Iraq still had not been an
  interceptor body armor vest

"Bulletproof vests target of debate," The Houston
Chronicle . 18 Oct, 2003
"Body Armor Saves Lives in Iraq Pentagon
Criticized for Undersupply of Protective
Vests,"Washington Post . 4 Dec, 2003
What went wrong?
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Interceptor Body Armor
Demand77,052
Demand210,783
Supply23,900
Demand8,593
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Interceptor Body Armor
Demand478,541
Demand108,808
Supply40,495
Demand9,586
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Interceptor Body Armor

• The interceptor body armor system consists of a
  vest made of Kevlar that has a front and back
  insert for a ceramic protective plate
• March, 2003 Start of the invasion of Iraq
• April, 2003 Congress approves to buy 300,000
  interceptor body armor vests
• October, 2003 Nearly one-quarter of the 130,000
  U.S. troops in Iraq still had not been an
  interceptor body armor vest
• Production
• October, 2002 Production capacity 3,000 plates
  per month
• October, 2003 Production capacity 25,000 plates
  per month

Where should the production facilities be located?
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Crocs

• Crocs shoes are made from Croslite
• The founders wanted to name the shoes something
  that captured the amphibious nature

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General Map of Crocs Basic supply, production
and distribution processes
Accessories
Various Suppliers
Sports protectors
Mold producers
Dye
Labeled, packaged Croc
Package Label
Mold
Compound
Assemble
Chem Pellets
Color Pellets
Size Style blanks
Complete Croc
Warehouse and distribute
Dow Chem others
Small retailer
In-season orders
Large Retailer Distribution
Production Orders (plus )
Pre-booked orders
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Owned by Crocs vs. outourced
Crocs Global Production strategy
3
Mold Canada Bosnia China Mexico Brazil
Compound Italy Florida China Mexico
Package Label Denver
Assemble Denver 3rd party distributor
Warehouse / distribute Denver
2
1
Bosnia China Mexico Brazil
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4
5
1 Maintain Florida plant for Made in USA
label2 Take advantage of tariffs, e.g., Canada
to Isreal3 Maintain higher service component
of warehousing and labeling for small
retailers4 Minimize geographic transport by
producing in region, including warehousing5
Move style and size molds between facilities to
maximize production6 Use China for large
volume, long-term orders from pre-season orders
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Crocs

• Crocs shoes are made from Croslite
• The founders wanted to name the shoes something
  that captured the amphibious nature
• Revolutionized the shoe industry supply chain
  model
• First shoe sold in 2003 (Revenue 1.2 million)
• Flip flop sandal introduced in 2006 (Revenue 355
  million)
• Crocs expands its product line beyond Croslite in
  2007

What are advantages of having multiple production
facilities?
What are advantages of short lead times?
How does Crocs plan for demand?
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Netflix

• Worlds largest online movie rental service

Where is Netflixs inventory?
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Netflix
What are the differences between Netflix and
Blockbuster
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Netflix

• Netflix versus Blockbuster store

8,000 Stores
100s per location
89,000
1,000-8,000per location
16 DCs
3.3 million
381
13,500
Where should the distribution centers be located?
How does Netflix plan for demand?
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Achieving Strategic Fit
What is a strategy in general?
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Strategy
Corporate Strategy
Competitive Strategy
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What is Competitive Strategy?

• Competitive strategy
• Defines, relative to competitors, a companys set
  of customer needs that it seeks to satisfy
  through its products and services
• Wal-Mart
• Everyday low prices
• Coors
• The coldest tasting beer in the world, brewed
  with Rocky Mountain spring water
• Dell
• Custom-made computer systems at a reasonable cost

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Strategy
Corporate Strategy
Competitive Strategy
Supply Chain Strategy
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Competitive Strategy

• To execute a companys competitive strategy, all
  functions that play a role must each develop its
  own strategy

Finance, Accounting, Information Technology
NewProductDevelopment
Marketingand Sales
Operations
Distribution
Service
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What is Strategic Fit?

• Strategic fit
• For any company to be successful, its supply
  chain strategy and competitive strategy must fit
  together
• Wal-Mart
• Everyday low prices
• Owns its infrastructure and distribution network
• Coors
• The coldest tasting beer in the world, brewed
  with Rocky Mountain spring water
• Refrigerated transport, main facility near Rocky
  Mountains
• Dell
• Custom-made computer systems at a reasonable cost
• Online ordering, no middle-man

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How is Strategic Fit Achieved?

• Understanding the customer and supply chain
  uncertainty
• Understanding the supply chain capabilities
• Achieving strategic fit

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1. Understanding the Customer and Supply Chain
Uncertainty

• Understanding customer uncertainty
• Demand varies along certain attributes
• Quantity in each lot, response time, variety of
  products needed, convenience, price, innovation,
  etc
• Implied demand uncertainty
• Demand uncertainty due to the portion of demand
  that the supply chain is targeting, not the
  entire demand

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1. Understanding the Customer and Supply Chain
Uncertainty

• Understanding supply uncertainty
• Supply uncertainty is strongly affected by the
  life-cycle position of the product. New products
  being introduced have higher supply uncertainty
  than mature products

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1. Understanding the Customer and Supply Chain
Uncertainty
Demand Uncertainty
Demand Uncertainty
Low (Functional Product)
High (Innovative Product)
Low (Functional Product)
Low (Functional Product)
High (Innovative Product)
Low (Functional Product)
Basic Appeals, Grocery, Food, Most Commodities
Efficiency, Information Integration,
Auto-Replenishment, VMI (Efficient SC)
Fashion Appeals, Computers, Pop Music, Toys
Build-to-Order, Flexible Mfg, Accurate Response,
Postponement (Flexible SC)
Low (Stable Process)
Low (Stable Process)
Supply Uncertainty
Some Power, Some Food Produce, Precious Metals
M-commerce, Telecom, High-end Servers,
Semiconductor
Buffer Inventory, Shared Resources,
Multi-Sourcing, Info Sharing (Risk-Hedging SC)
Supply Network, Postponement, Design
Collaboration (Agile SC)
High (Evolving Process)
High (Evolving Process)
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2. Understanding the Supply Chain Capabilities

• Supply chain capabilities
• Supply chain responsiveness
• Respond to wide ranges of quantity demanded,
  short lead times, large variety, innovative
  products, high service level, etc
• Supply chain efficiency/cost

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2. Understanding the Supply Chain Capabilities
Responsiveness
High
Low
Cost
High
Low