aka: supply chain management– includes all activities required to get the right product to the right customer when that customer wants it. it adds value for customers because it gets products to customers efficiently–quickly and at low cost
supply chain management
refers to a set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores and transportation intermediaries into a seamless operation in which merchandise is produced and distributed in the right quantities, to the right locations, and at the right time, as well as to minimize system wide costs while satisfying the service levels their customers require.
firms that buy products from manufacturers and resell them to retailers, and retailers sell products directly to customers. Manufacturers ship to wholesaler, or in the case of many multistore retailers, to the retailer’s distribution center, or directly to stores.
Many variations to the supply chain exist
some retail chains like Home Depot and Costco function as both retailers and wholesalers; they act as retailers when they sell to consumers directly and as wholesalers when they sell to other businesses, like building contractors or restaurant owners . When manufacturers like Dell and Avon sell directlyto the customers, they are performing both the production and retailing activities. When Dell sells to a university or business, it becomes a B2B transaction, but when it sells to students or employees individually, it is a B2C operation
Supply Chain, Marketing Channels, and Logistics are Related
marketing channel (AKA: supply chain)
the set of institutions that transfer the ownership of and move goods from the point of production to the point of consumption; as such, it consists of all the institutions and marketing activities in the marketing process. Thus, a marketing channel and a supply chain are virtually the same and the terms could be used interchangeably
describes the integration of two or more activities for the purpose of planning, implementing, and controlling the efficient flow of raw materials, in-process inventory, and finished goods from the point of origin to the point of consumption. These activities may include, but are not limited to, customer service, demand forecasting, distribution communications, inventory control, materials handling, order processing, parts and service support, plant and warehouse site election, procurement, packaging, return goods handling, salvage and scrap disposal, traffic and transportation, and warehousing and storage.
logistics management vs supply chain management
logistics management is that element of supply chain management that concentrates on the movement and control of physical products; supply chain management as a whole also includes awareness of the relationships among members of the supply chain or channel and the need to coordinate efforts to provide customers with the best value.
marketing channel management
has been traditionally the responsibility of marketing departments, under the direction of a marketing vice president.
responsibility of logistics
was traditionally the responsibility of operations, under a vice president of operations.
marketing and logistics
their goals were similar, they often saw solutions different and sometimes conflicted. Ex: marketing department’s goal might have been to make sales where the logistics goal is to keep costs low
supply chain management
there is tremendous opportunity in coordinating marketing and logistics activities not only within a firm but also throughout the supply chain. Thus, because supply chain management is a systemwide approach to coordinating the flow of merchandise, it includes both channel management and logistics and is therefore the term that we use
Supply Chains Add Value
Why would a manufacturer want to use a wholesaler or a retailer? Each participant in the supply chain adds value. At each step the product becomes more costly, but also more valuable to the customer. Supply chains add value at each step: the farmer who sold the steak to the consumer had to raise and then slaughter the animal, which means that the steak had more value to the consume than an entire cow would.
Ex of how using supply chain partners can provide overall value
Ex- three manufacturers, each of which sells directly to three consumers in a system requires 9 transactions. Each transaction costs money–ex: the manufacturer must fill the order, package it, write up the paperwork, and ship it–and each cost is passed on to the customer. On the other hand: the three manufacturers and the same three consumers, but this time they go through a retailer. The number of transactions falls to six, and as transactions are eliminated, the supply chain becomes more efficient, which adds value for customers by making it more convenient and less expensive to purchase merchandise.
Zara gains its competitive advantage by bringing fashions to the store and the customers much faster than other apparel retailers. It holds minimal inventory, produces new fashion quickly, and rarely gets stuck with old inventory. Deliveries show up at stores twice a week the newly delivered items rarely remain on shelves for more than a week. Zara only takes about four to five weeks to design a new collection then about a week to manufacture it, so it continually cycles through its inventory of fabric and materials necessary to make its clothing.
or facility for the receipt, storage, and redistribution of goods to company stores or customers, may be operated by retailers, manufacturers, or distribution specialists. Advertising and promotion must be coordinated with those departments that control inventory and transportation.
Supply chain management affects marketing
every marketing decisions is affected by and has an effect on the supply chain.
Five interrelated activities emerge in supply chain management:
making information flow, making merchandise flow, managing inventory, designing the supply chain, and managing the relationships among supply chain partners.
1) Making information flow (excluding wholesalers)
customer to store –> store to buyer –> buyer to manufacturer –> store to manufacturer –> store to distribution center –> manufacturer to distribution center and buyer
Flow 1: Customer to Store
sales associate scans the Universal Product Code (UPC) tag on the DVD player and the customer receives a receipt
black and white bar code. contains a 13 digit code that indicates the manufacturer of the item, a description of the item, info about special packaging, and special promotions
Flow 2: Store to Buyer
the point-of-sale (POS) terminal records the purchase of information and electronically sends it to the buyer at Best Buy’s corporate office. The sales info is incorporated into an inventory management system and used to monitor and analyze sales and to decide to reorder more DVDs, change a price or plan a promotion
Flow 3: Buyer to Manufacturer
the purchase info from each Best Buy store is aggregated by the retailer as a whole, which creates an order for new merchandise and sends it to Sony. The buyer at Best Buy may also communicate directly with sony to get info and negotiate prices, shipping dates, promotional events, or other merchandise related issues
Flow 4: Store to Manufacturer
in some situations the sales transaction data are sent directly from the store to the manufacturer, and the manufacturer decides when to ship more merchandise to the distribution centers and the stores. In other situations especially when merchandise is reordered frequently, the ordering process is done automatically, bypassing the buyers
Flow 5: Store to Distribution Center
stores also communicate with best buy distribution center to coordinate deliveries and check inventory status. when the store inventory drops to a specified level, more product are shippied to the store and the shipment info is sent to the Best Buy computer system
Flow 6: Manufacturer to Distribution Center and Buyer
when the manufacturer ships the product to the best buy distribution center, it sends an advanced shipping notice to the distribution centers. The center then makes appointments for trucks to make the delivery at a specific time, date, and loading dock. When the shipment is received at the distribution center, the buyer is notified and authorizes payment to the vendor.
advanced shipping notice
an electronic document that the supplier sends the reailer in advance of a shipment to tell the retailer exactly what to expect in the shipment
purchase data collected at the point of sale goes into a huge database known as a data warehouse. data can be accessed according to the level of merchandise aggregation–SKU (item) vendor, category (eg dresses), or all merchandise. Along the vertical axis data can be accessed by level of the company–store, divisions, or the total company. Along the third dimension, data can be accessed by point in time–day, season, or year
in some cases, manufacturers also have access to this data warehouse
they communicate with retailers using electronic data interchange (EDI) and use supply chain systems known as vendor-managed inventory and collaborative planning, forecasting, and replenishment (CPFR).
Electronic Data Interchange (EDI)
the retailer and manufacturer exchange business documents through EDI. EDI is the computer-to-computer exchange of business documents from a retailer to a vendor and back. In addition to sales data, purchase orders, invoices, and data about returned merchandise can be transmitted back and forth. enables vendors to transmit info about on-hand inventory status, vendor promotions, and cost changes to the retailer, as well as info about purchase order changes, order status, retail prices, and transportation routings.
EDI is transmitted over the internet through
either intranets or extranets
are secure communication systems contained within one company, such as between buyers and distribution centers.
a collaborative network that uses Internet technology to link businesses with their suppliers, customers, or other businesses–typically private and secure
through EDI suppliers can
show buyers pictures of their product and buyers can issue requests for proposals and the 2 parties can electronically negotiate prices and and specify how the product should be made and how it should look
three main benefits of EDI
1) it reduces the cycle time, or the time between the decision to place an order and the receipt of merchandise. info flows quicker using EDI-inventory turnover is higher. 2) EDI improves the overall quality of communications through better record keeping; fewer errors in inputting and receiving an order; and less human error in the interpretation of data 3) the data transmitted by EDI are in a computer-readable format that can be easily analyzed and used for a variety of tasks ranging from evaluating vendor delivery performance to automating reorder processes
(VMI) is an approach for improving supply chain efficiency ion which the manufacturer is responsible for maintaining the retailer’s inventory levels in each of its stores
by sharing the data in the retailer’s data warehouse and communicating that info via EDI, the manufacturer determines a reorder point–a level of inventory at which more merchandise is required. When inventory drops to the order point, the manufacturer generates the order and delivers the merchandise. usually used to replenish inventories at the retailers distribution center
technological advancements has sophisticated VMI, sharing of POS transaction data allows consignment. it is when the manufacturer owns the merchandise until it is sold by the retailer, at which time the retailer pays for the merchandise. it provides an incentive for the manufacturer to pick SKUs and inventory levels that will minimize inventory and generate sales
Collaborative Planning, Forecasting, and Replenishment (CPFR)
the sharing of forecast and related business info and collaborative planning between retailers and vendors to improve supply chain efficiency and product replenishment. Although retailers share sales and inventory data when using a VMI approach, the manufacturer remains responsible for managing the inventory. In contrast, CPFR is a more advanced form of retailer-manufacturer collaboration that involves sharing proprietary info, such as business strategies, promotion plans, new product developments and introduction, production schedules, and lead time info.
pull supply chain
a supply chain in which orders for merchandise are generated at the store level on the basis of sales data captured by POS terminals. Basically, the demand for an item pulls it through the supply chain. Less likelihood of being overstocked or out of stock because the store orders merchandise as needed on the basis of consumer demand. Increases inventory turnover and its more responsive to changes in customer demand. Becomes even more efficient than a push approach when demand is uncertain and difficult to forecast because the forecast is based on consumer demand.
push supply chain
less sophisticated than pull supply chain. Merchandise is allocated to stores on the basis of forecasted demand. Once a forecast is developed, specific quantities of merchandise are shipped (pushed) to distribution centers and stores at predetermined time intervals
Pull approach is not the most effective in all situations
1) a pull approach requires a more costly and sophisticated info system to support it 2) for some merchandise, retailers don’t have the flexibility to adjust inventory levels on the basis of demand 3) push supply chains are efficient for merchandise that has steady, predictable demand, such as milk and eggs, basic men’s underwear, and bath towels. Most retailers use a combo of both approaches
2) Making merchandise flow
making merchandise flow involves first deciding if the merchandise is going to go from the manufacturer to a retailer’s distribution center or directly on to stores. Once in a distribution center, multiple activities take place before it is shipped on to the store.
Distribution Centers vs. Direct Store Delivery
the decision is up to the retailer and depends on the characteristics of the merchandise and the nature of demand. To determine which distribution system is better, retailers consider the total cost associated with each alternative and the customer service criterion of having the right merchandise at the store when the customer wants to buy it.
Advantages of using a distribution center
1) more accurate sales forecasts are possible when retailers combine forecasts for many stores serviced by one distribution center rather than doing a forecast for each store. By delivering most of the inventory to a distribution center, and feeding the stores merchandise as they need it, the effects of forecast errors for the individual stores are minimized, and less backup inventory is needed to prevent stockouts 2) distribution center enable the retailer to carry less merchandise in the individual stores, which results in lower inventory investments systemwide. If the stores get frequent deliveries from the dist center then they need to carry less extra merchandise as backup stock 3) it’s easier to avoid running out of stock or having too much stock in any particular store because merchandise is ordered from the distribution center as needed 4) retail store space is typically much more expensive than space at a dist center, and dist centers are better equipped than stores to prepare merchandise for sale. As a result, many retailers find it cost-effective to store merchandise and get it ready for sale at a distribution center than in an individual store
why you wouldn’t use a distribution center
1) only a few outlets, DC isn’t necessary, too costly 2) many outlets in one area, product can be consolidated and delivered to the vendor directly to all the stores in one area 3) direct store delivery gets merchandise to stores faster and used for perishable goods 4) direct store delivery ensures that their products are on the store’s shelves, properly displayed, and fresh
performs the following activities: coordinating inbound transportation; receiving, checking, storing and cross-docking; getting merchandise “floor ready”; coordinating outbound transportation
1) Management of Inbound Transportation
buyers and planners are much more involved in coordinating the physical flow of merchandise to the stores
the person who coordinates deliveries to the distribution center. specifies delivery times, specifies how merchandise should be placed for easy unloading
many maufacturers pay transportation expenses, some retailers negotiate with their vendors to absorb this expense
these retailers believe they can lower their net merchandise cost and better control merchandise flow if they negotiate directly with trucking companies and consolidate shipments from many vendors
2) Receiving and Checking using UPC and Radio Frequency Identification (RFID)
the process of recording the receipt of merchandise as it arrives at a distribution center
the process of going through the goods upon receipt to make sure they arrived undamaged and that the merchandise ordered was the merchandise received–advanced shipping notice and radio frequency id tags help with this
ASN- advanced shipping notice
tells the distribution center what should be in each carton
UPC label or radio frequency id tag on the shipping carton
identifies the carton’s contents and it is scanned and automatically counted as it is being received and check
tiny computer chips that automatically transmit to a special scanner all the info about a container’s contents or individual products. they act as tracking devices, signalling their presence over a radio frequency when they pass within a few yards of a special scanner.
value of the RFID
it eliminates the need to handle items individually by enabling distribution centers and stores to receive whole truckloads of merchandise without having to check in each carton
3) Storing and Cross-Docking
after the merchandise is received and checked, it is either stored or cross-docked.
When merchandise is stored the cartons are transported by a conveyor system and forklift trucks to racks that go from the distribution center’s floor to its ceiling. Then when merchandise is needed in the stores, a forklift driver goes to the rack and picks up the carton and places it on the conveyor system that routes the carton to the loading dock of a truck going to the store
merchandise cartons that are cross-docked are prepackaged by the vendor for a specific store. The UPC labels on the carton indicate the store to which it is to be sent. Because the merchandise is ready for sale, it is placed on a conveyor system that routes it from the unloading dock at which it was received to the loading dock for the truck going to the specific store. The cartons are routed on the conveyor system automatically by sensors that read the UPC label on the cartons
cross-docked or stored?
merchandise sales rate and degree of perishability or fashionability determine whether cartons are cross-docked or stored
4) Getting Merchandise Floor Ready
for some merchandise, additional tasks are undertaken in the distribution center to make the merchandise floor ready
floor ready merchandise
merchandise that is ready to be placed on the selling floor. getting merchandise floor ready entails ticketing, marking, and for some apparel placing garments on hangers
ticketing and marking
refers to affixing price and identification labels to the merchandise. it’s more efficient for a retailer to perform these activities at a distribution center than in its stores–in a distribution center the area can be set aside and a process implemented to efficiently add labels and put apparel on hangers. getting merchandise ready in stores can block aisles and divert sales people’s attention from customers
5) Preparing to Ship Merchandise to a Store
beginning of day: computer system in the distribution center generates a list of items to be shipped to each store on that day. For each item, a pick tickets and shipping label is generated. the forklift driver picks up the number of cartons from the storage area indicated on the pick ticket, places the UPC shipping labels on the cartons that indicate the stores to which the items are to be shipped, puts the cartons on the conveyor system where they are automatically routed to the loading dock for the truck going to the stores
a document or display on a screen in a forklift truck indicating how much of each item to get from specific storage areas
6) Shipping Merchandise to Stores
most dist centers run 50-100 outbound trucks in a day. The centers use sophisticated routing ands scheduling computer systems that consider the locations of the stores, road conditions, and transportation operating constraints to develop the most efficient routes possible
Inventory Management through Just-In-Time Systems
customers demand specific SKUs and they want to be able to buy them when needed. At the same time firms can’t afford to carry more than they really need of an SKU because it is very expensive. to reconcile this many firms adopted just-in-time inventory systems
Just-In-Time (JIT) Inventory Systems
(AKA: Quick Response (QR) ) in retailing, are inventory management systems designed to deliver less merchandise on a more frequent basis than traditional inventory systems. the firm gets the merchandise just in time for it to be used in the manufacture of another product (case of parts or components), or for sale when the customer wants it. JIT systems lower inventory investments but product availability actually increases.
Benefits of a JIT system
1) reduced lead time 2) increased product availability 3) lower inventory investment
1) reduced lead time
by eliminating the need for paper transaction by mail, overnight deliveries or faxes, the EDI in the JIT system reduces lead time
the amount of time between the recognition that an order needs to be placed and the arrival of the needed merchandise at the seller’s store, ready for sale–the vendor’s computer acquires the data automatically, no manual data entry is required on the recipient’s end–eliminates vendor recording errors. Shorter the lead time, easier for the retailer to forecast its demand–reduces the need for inventory
2) increased product availability and 3) lower inventory investment
with JIT, the ability to satisfy demand can actually increase while inventory decreases. b/c the firm can make purchase commitments or produce merchandise closer to the time of sale, its own inventory investment is reduced. firms also need less inventory because theyre getting less merchandise in each order, but they receive shipments more often. inventory is also reduced because firms aren’t forecasting sales as fare into the future as normal. more frequent shipments–able to satisfy customer demand
Costs of JIT
the logistics function becomes much more complicated with more frequent deliveries. smaller orders with a greater order frequency–smaller orders are more expensive to transport and more difficult to coordinate.
JIT systems require
firm and its vendors to cooperate, share data, and develop systems like EDI and CPFR
Managing the Supply Chain
supply chains are composed of various entities that are buying, such as retailers or wholesalers; selling, such as manufacturers or wholesalers; or helping facilitate the exchange, such as transportation companies. each member of the supply chain performs a specialized role. if a supply chain is to run efficiently, the participating members must cooperate. open, honest communication is a key to supply chain relationships. common goals sustain the relationship. with a common goal both firms have the incentive to cooperate because they know that by doing so each can achieve that goal.
supply chain or channel conflict
supply chain members may have conflicting goals. When supply chain members are not in agreement about their goals, roles or rewards, supply chain or channel conflict results
there are 2 non-mutually exclusive ways to manage a supply chain:
coordinate the channel using a vertical marketing system, or develop strong relationships with supply chain partners
Managing Supply Chains through vertical marketing systems
supply chains that are more closely aligned, whether by contract or by ownership, share common goals and therefore are less prone to conflict
independent or conventional supply chain
in this supply chain, the several independent members–a manufacturer, a wholesaler, and a retailer–each attempt to satisfy their own objectives and maximize their own profits, often at the expense of other members. none of the participants have any control over the others
vertical marketing system
a supply chain in which the members act as a unified system. There are 3 types of vertical marketing systems, each with increasing levels of formalization and control. The more formal the vertical marketing system, the less likely conflict will ensue.
1) Administered Vertical Marketing System
there is no common ownership and no contractual relationships, but the dominant channel member controls the channel relationship. If either party doesn’t like the way the relationship is going, it can simply walk away.
2) Contractual Vertical Marketing System
independent firms at different levels of the supply chain join together through contracts to obtain economies of scale and coordination and to reduce conflict. most common type: franchising
a contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a retail outlet using a name and format developed and supported by the franchisor. in the contract, the franchisee pays a lump sum plus a royalty on all sales in return for the right to operate a business in a certain location. they must operate in accordance with the procedures prescribed by the franchisor. all outlets must provide the same quality of services and products. advertising, product development, and system development are all done by the franchisor efficiently, with costs shared by all franchisees.
3) Corporate Vertical Marketing System
Zara has complete control over the most fashion-sensitive items, so Zara manufactures these items itself and contracts out its less fashionable items to other manufacturers. The portion of its supply chain that Zara owns and controls is called a corporate vertical marketing system. Because Zara’s parent company owns the manufacturing plants, warehouse facilities, retail outlets, and design studios, it can dictate the priorities and objectives of that supply chain and thus conflict is lessened.
Managing Supply Chain Through Strategic Relationships
more to managing supply chains than simply exercising power over other members in an administered system or establishing a contractual or corporate vertical marketing system. There is a human side
strategic relationship (partnering relationship)
more often than not, firms seek this relationship which the supply chain members are committed to maintaining the relationship over the long term and investing in opportunities that are mutually beneficial. Administered supply chain- no contracts or ownership–both parties benefit because the size of the profit pie increased, so both buyer and seller increase their sales and profits. these strategic relationships are created to uncover and exploit joint opportunities so member depend on and trust each other heavily, share goals and agree on how to accomplish those goals, etc.
successful strategic relationship require
trust, open communication, common goals, credible commitments
holds a strategic relationship together. When vendors and buyers trust each other, they are more willing to share relevant ideas, clarify goals and problems, and communicate efficiently. info shared between the parties becomes increasingly comprehensive, accurate and timely. the radio frequency id tags wouldn’t be possible without trust.
the belief that a partner is honest (ie reliable, stands by its word, sincere, fulfills obligations,) and benevolent (concerned about the other party’s welfare).
open, honest communication is key to developing successful relationships because supply chain members need to understand what is driving each other’s business, their roles, strategies, and any problems that arise
supply chain members must have common goals for a successful relationship to develop. gives members an incentive to pool their strengths and abilities and exploit potential opportunities together.
successful relationships develop because both parties make credible commitments to, or tangible investments in, the relationship. Commitments involve spending money to improve the products or services provided to the customer, not just a verbal commitment.
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