ASCM

Revision

What are some strategic planning and

operational decisions that must be made by
an apparel retailer such as Gap?
As Gap plans supply chain strategy it must first consider the marketing
functions pricing plans in order to structure a supply chain consistent
with these plans. Strategic considerations such as the capacity of each
supplier and assembly operations, sourcing decisions and how logistics
are to be handled are all part of the design. The supply chain must also
settle on communication channels and frequencies.
Supply chain planning takes the strategic decisions as a given and seeks
to exploit efficiencies in the chain to maximize supply chain surplus. The
entire chain should collaborate in forecasting and planning production to
achieve a global optimum. The forecasts should take into account
planned promotions and known seasonal fluctuations in demand.
The operational decision takes the plans as a given and makes day-today decisions to process customer orders, allocate resources to certain
customers, trigger orders from supply chain members, and deliver
product.

Consider the supply chain involved when a

customer purchases a book at a bookstore.
Identify the cycles in this supply chain and the
location of the push/pull boundary.

All supply chain processes can be broken down into four process cycles that connect the five
stages of the supply chain: the customer order cycle, the replenishment cycle, the
manufacturing cycle, and the procurement cycle.
The customer order cycle connects the customer with the retailer; this connection is made as
the book, perhaps Supply Chain Management by Chopra and Meindl, is selected and paid for by
the customer.
The replenishment cycle connects the retailer and the distributor and is triggered by the
retailers need to fill the empty shelf space with another copy of this tome.
The manufacturing cycle connects the distributor and the manufacturer. As demand for the book
is realized and distributors empty their warehouses, they signal the manufacturer to print
another million copies to fill their empty warehouses.
Finally, the procurement cycle connects the manufacturer and the supplier. The manufacturer
requires raw material inputs of paper, ink, etc., to begin the assembly process for another batch
of Supply Chain Management.
The push/pull boundary exists where demand switches from reactive (pull) to speculative (push)
production. For most bookstore supply chains the push/pull boundary is between the customer
order cycle and the replenishment cycle. The customer order pulls the book from the bookstore
shelf but the initial production of the book was triggered by a build order that moved materials
along the supply chain to the retail outlet.

In what way do supply chain flows affect the

success or failure of a firm such as Amazon? List
two supply chain decisions that have a significant
impact on supply chain profitability
The success or failure of a company like Amazon is
decided by the effective function of its supply chain.
The flow of products from publishers to distributors to
customers must be rapid and reliable in order to satisfy
customers. The flow of information back through the
supply chain allows all members to coordinate efforts.
The flow of money allows all supply chain members to
maintain operations. Supply chain profitability is
influenced by sourcing, promotion, and fulfillment
decisions.

Give arguments to support the statement that Walmart

has achieved good strategic fit between its competitive
and supply chain strategies. What challenges does it face
as it works to open smaller format stores in urban
environments?
The best argument to support the statement that Walmart has achieved very good
strategic fit is their success as a company. Competition today is supply chain versus
supply chain, not company versus company, so a companys partners in the supply chain
often determine the companys success. Walmarts strategic focus on cost is evident in
their competitive, product development, supply chain, and marketing strategy. Their
marketing strategy of advertising every day low prices appeals to consumers and does
not disrupt the supply chain by causing surges in demand. Visiting one of their big box
stores reveals low-priced merchandise, both national and store brands, stacked from floor
to ceiling without elaborate displays or decoration. Walmarts logistics and information
systems are famous for coordinating their entire supply chain and allowing it to meet
customer needs at minimal cost. As it opens smaller format stores in urban environments,
Walmart will need to ensure that its supply chain capabilities support its ability to satisfy
the needs of the many new customers in these new stores. In contrast to their big-box
stores, smaller new stores could draw a different customer base that has different
demands. This could result in marketing challenges. Smaller format stores offer less space
for storing and displaying merchandise, which could result in lower product availability
and could lower Walmarts profits due to inability to meet customer demands.

What are some problems that can arise when each stage
of a supply chain focuses solely on its own profits when
making decisions? Identify some actions that can help a
retailer and a manufacturer work together to expand the
scope of strategic fit.
High inventories, poor quality, low customer service, increased returns
are just a number of problems that occur when each stage of a supply
chain focuses solely on its own profits. The trucking company requires
full truckloads for delivery forcing the retailer to carry more inventory
than wanted or needed. The supplier offers discounts to their buyers to
maximize production but forcing the buyers to purchase in larger
quantities than desired. This concept was very prevalent during the
1950s and 1960s as companies to minimize local costs and maximize
their own profits.
Today, retailers and manufacturers have the opportunity to plan
promotions jointly such as Wal-Mart and P&G. They can share sales
information to determine customer trends. Joint product development
opportunities are being explored throughout the supply chain between
retailers, manufacturers and raw material suppliers.

How could a grocery retailer use inventory to increase the

responsiveness of the companys supply chain?
The logistical driver of inventory encompasses all raw materials,
work in process, and finished goods within a supply chain. A
grocery store can be more responsive in the eyes of its
customers if it offers a broader variety of SKUs and/or maintains
a greater quantity of each SKU. A greater quantity of each SKU is
problematic for highly perishable items like produce, meat, fish,
etc. For these items, a grocery store supply chain should be set
up to permit frequent orders so that freshness is ensured and a
stockout situation wont exist for a significant length of time. A
grocery store supply chain should use historical demand patterns
for seasonal items to relieve stress on all members and provide
customers with product during peak demand periods.

How could an auto manufacturer use transportation

to increase the efficiency of its supply chain?
Transportation, a logistical driver, entails moving
inventory from point to point in the supply chain. The
trade-off in transportation is between the cost of
transportation and the speed at which product is
transported. Slower modes of transportation reduce
cost, but could be a reasonable approach if suppliers
are co-located with the assembly operations. If the
supply chain is designed in such a way, and
assembly operations are located with proximity to
markets, then the supply chain can be run cheaply
without holding too much inventory in transit.

How could a bicycle manufacturer increase

responsiveness through its facilities?
Facilities, another logistical driver, are the actual
physical locations in the supply chain network where
product is stored, assembled, or fabricated. A facility
that is designed to be flexible can respond quickly to
market demands by retooling to produce different
models or products, whereas a dedicated facility cannot.
Locating a facility close to the market will increase
responsiveness at the cost of decreased economies of
scale that might be achieved with a centralized location.
A facility that is under capacity will be less responsive
than a facility that is appropriately sized or has excess
capacity.

How could an industrial supplies distributor use

information to increase its responsiveness?
Information is a cross-functional driver and consists of data and
analysis concerning facilities, inventory, transportation, costs,
prices, and customers throughout the supply chain. Information
serves as a connection among all members of the supply chain
and operates within each member to facilitate internal
operations. Accurate information can improve responsiveness by
helping an industrial supplier better match supply and demand.
Information that is gathered farther down the supply chain can
be transmitted instantaneously and accurately to the supplies
distributor. Instead of waiting for a human to call or FAX an order,
the distributor can replenish inventory to the necessary levels or
provide what is needed to fill the order as it is realized.

Motorola has gone from manufacturing all its cell

phones in-house to almost completely outsourcing
the manufacturing. What are the pros and cons of
the two approaches?

Sourcing is the set of business processes required to purchase foods and

services. These decisions are crucial because they affect the level of
efficiency and responsiveness that Motorola can achieve. The Motorola
production system for their line of pagers was hailed as a breakthrough
in mass customization, so it was somewhat surprising when Motorola
outsourced cell phones. Sourcing decisions should be made based on
the total supply chain surplus; if a third party can help the chain achieve
greater surplus, then the function is a prime candidate for outsourcing.
Motorola was willing to give up some control and possibly some of its
design talent and assembly expertise because it felt that the supplier
could provide product of an appropriate level of quality with the
responsiveness necessary. Products and services that are outsourced
are rarely brought back in-house and should never be tied too closely to
the outsourcing partys core competency.

A distributor has heard that one of the major manufacturers from

which it buys is considering going direct to the consumer. What
can the distributor do about this? What advantages can it offer the
manufacturer that the manufacturer is unlikely to be able to
reproduce?

The two supply network designs that the distributor can

propose to counter the manufacturers proposal are the
distributor storage with package carrier delivery and the
distributor storage with last mile delivery. Both of these
counter-proposals offer higher order visibility for the
customer while having simpler information
infrastructure than with manufacturer storage. The
response time for both is excellent, and the customer
experience is also superior to the direct model. If the
manufacturer is trying to provide excellent customer
service, the increased costs in transportation and
potentially higher levels of inventory may be acceptable
tradeoffs.

What types of distribution networks are

typically best suited for commodity items?
Commodity items are available from many sources and
customers expect them to be delivered quickly; if a
supply chain cant be responsive, the customers will
move on to the next source. A distribution network
designed for retail storage with customer pickup
achieves quick response for high demand, low variety
products. Other commodity products can be effectively
distributed using distributor storage with last-mile
delivery, which is also suited for high demand, quick
response products.

What type(s) of network(s) is (are) best

suited to highly differentiated products?
The networks that are best suited to highly
differentiated products are the manufacturer storage
with direct shipping and the manufacturer storage with
in-transit merge. Both approaches have the ability to
aggregate inventories and postpone product
customization, which would help support a wider variety
of products.

Why has the online channel been more successful in the computer
hardware industry compared to the grocery industry? In the future,
how valuable is the online channel likely to be in the computer
hardware industry?
The computer hardware industry is selling a constantly changing product
that is purchased on a per-household basis, less routinely than the
commodity products that make up groceries. A company like Dell can
leverage the Internet as a marketing and distribution tool to advertise
new capabilities and options before bricks and mortar retailers can. Dell
also removes whatever intimidation (or frustration) factor might be
experienced by conversing with in-store sales representatives.
Computers have a very high value to shipping cost ratio, so the
increased shipping costs when compared to a traditional store are
negligible. Groceries have a much lower ratio; although in-store shoppers
are incurring costs to pick up their groceries, those costs are hidden in
comparison to the delivery charge on an itemized bill from Peapod.
The online channel will continue to be a valuable tool in the computer
hardware industry but its value is likely to diminish as hardware
platforms become more standardized with most of the customization
occurring with software.

Amazon sells books, music, electronics, software, toys, and home

improvement products online. In which product category does
going online offer the greatest advantage compared with a retail
store chain? In which product category does the online channel
offer the smallest advantage (or a potential cost disadvantage)
compared with a retail store chain? Why?
Amazons greatest online channel advantage comes from book
sales; they are able to list millions of book titles that a physical
store cannot possibly carry on their shelves. Cost advantages for
Amazon are few and far between; the item price to shipping cost
ratio for books, music, and software is not as high as most
consumers would prefer. Amazon certainly has no cost advantage
with music and software. Both are readily sold over the Internet; it
would behoove Amazon to partner with another Seattle-area
company to make this the norm. Electronics, hardware, and even
toys are products that most consumers would like to experience
before making a selection. Any cost advantage Amazon might
have in these sectors may be overshadowed by an inability to hold
the item on-line.

How do the location and size of warehouses affect the

performance of a firm such as Amazon? What factors
should Amazon take into account when deciding where
and how big its warehouses should be?
The location and size of Amazons warehouses have a direct bearing
on how responsive and efficient they can be. At one time Amazon ran
their on-line bookstore out of one warehouse in Seattle; this
warehouse was small by todays standards and was unable to keep
up with peak demand. Amazon has since added other geographically
distributed warehouses that hold the items with steadier demand.
The dispersion of warehouses allows Amazon to ship from closer to
the customers and the stocking of items with more even demand
allows for a higher service level at a reasonable cost.
Amazon should consider what regions are underserved by the
current network of warehouses and where it is most economical to
locate the next warehouse, effectively balancing their efficiency and
responsiveness with their strategy.

How is the rise in transportation costs likely

to affect global supply chain networks?
As transportation costs rise, more companies will elect
to place facilities closer to the customer in order to
lower overall transportation costs. Companies must
weigh these increasing costs against the cost of
additional inventory and infrastructure costs in making
the strategic decision where to place facilities. As
transportation costs rise, these decisions will greatly
impact overall supply chain profits.

Amazon has built new warehouses as it has

grown. How does this change affect various
cost and response times in the Amazon
supply
chain?

Logistics and facility costs incurred within a supply chain

change as the number of facilities, their location, and capacity
allocation is changed. As Amazon has added warehouses, their
logistics, inventory and facility costs have changed. An
increased number of warehouses increases that fixed cost but
can be exploited to reduce transportation costs. These
potentially fall if the warehouses are spread throughout a
distribution area, which increases responsiveness at a similar
cost or maintains responsiveness at a reduced cost. Inventory
costs also change with an increased number of warehouses;
Amazon is holding more total inventory and can take
advantage of pooling to reduce quantities of some items.

Consider a firm such as Apple or Dell, with very

few production facilities worldwide. List the pros
and cons of this approach and why it may or may
not be suitable for the computer industry.

The advantage for Apples and Dells network design is

lower facility costs; they can locate in just enough
countries to avoid tariffs and mitigate some of their
exchange rate and demand risk. The disadvantage is
the lack of responsiveness this adds to their systems. A
customer has no expectation of zero flow time, so they
know as they enter the transaction that they must wait
for their merchandise. Shipping from one of the
production facilities adds to the delay, which is highly
visible on the companys or the package carriers web
site. The shipping costs might also be a concern for
some customers, but the value to shipping cost ratio is
so high that these costs seem like small potatoes in

Consider a firm such as Ford, with more than 150

facilities worldwide. List the pros and cons of
having many facilities and why it may or may not
be suitable for the automobile industry.

Automakers often use a multiplant strategy to create

server facilities. These server facilities provide product
for the market where they are located, thereby taking
advantage of tax incentives, local content requirements,
tariff barriers, and high logistics costs. This can be a
good strategy if market demand exists for your product;
when demand drops, the producer is left with expensive
excess capacity. If the facilities are flexible, production
of popular models can continue to prepare product for
export. If facilities are inflexible or all sales are flat, then
the producer must bear the cost or shed assets.