IEEM341
Global Supply Chain Management
Fall 03
Comments for Assignment I
I. Discussion Question (Full mark: 10 points)
Consider the purchase of a can of soda at a convenience store. Describe the
various stages in the supply chain and the different flows involved.
Comments:
There are 5 basic stages and 3 main flows in the supply chain:
Suppliers
Manufacturers
Wholesalers
Retailers
End-customers
Financial Flow
Material Flow
Information Flow
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Problem 4 (5 points)
The supply chain of purchasing a book at bookstore has involved 5 types of parties.
They are suppliers, manufacturer, distributor, retailer, and customer.
There are several major players in supplier-layer including timber supplier, paper
supplier, packing company, chemical supplier, plastic manufacturer, book publishing
company/ author (only providing book initiative format and contents) and ink supplier.
Then they will transport all raw materials for producing and printing a book to book
printing manufacturer according to order and production schedule. In this stage,
procurement cycle exists among parties of suppliers and manufacturer. Since parties,
suppliers and manufacturer, also can’t expect the actually demand of end customer
while they are executing such activities, it would be defined as push process.
After finishing the books printing, they will be transferred to next party --- third party/
retailer’s internal distributor or wholesaler (book publishing companies e.g. SCMP
Book Publishing Company 博益出版集團). These parties will consolidate the books
depending on each order shipment that is made by retailers/ end customers. In order to
fulfill the objective of manufacturer, orders filled on-time with minimum keeping
costs, they must precisely decide their production plan and sequence according to
forecasting demand data. Manufacturing cycle occurs at the interface of manufacturer
and distributor. Since this book industry, the cycle is only triggered by replenishment
orders from a retailer or distributor or by forecasting customer demand and current
product availability in manufacturer’s warehouse. Thus, it is referred to as a push
process.
In some cases, lots of pallet/carton-packed books will be delivered to retailers’ stores
once wholesaler receiving their replenishment orders. In fact, retailer will also devise
replenishment or ordering policy that triggers an order from end customer. The main
purpose is to maximize profitability by enjoying the benefits of economic of scale,
balancing products availability, and the cost of holding inventory. All of above are
also the details processes in a replenishment cycle, which merely exists in the
interface between retailer and distributor. In this stage, the exact data of demand of
end customers still is uncertain during order making. The ordered quantities of books
are that depend on forecasting, so it would be defined as a push process.
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End customers place order to retailer through different market channels such as web
or brick-stone store. In some cases, it will skip a layer of retailer as the end customers
directly place order to wholesaler, then the whole supply chain merely contains
procurement cycle, replenishment and manufacturing cycle and customer cycle.(Refer
to Figure 1) Therefore, customer cycle happen in between the interface of retailer and
customer, or wholesaler and customer. However, all practices are similar and
customers initiate this cycle. Since all of their executions directly react to customer
demand, it is pull process.
Customer
Customer
Customer Cycle
Retailer
Wholesaler
Manufacturer
Supplier
Replenishment
Cycle
Pull Process
Customer Order
Arrival
Manufacturing
Cycle
Customer Cycle
Wholesaler
Replenishment &
Manufacturing
Cycle
Procurement
Cycle
Push Process
Manufacturer
Supplier
Procurement
Cycle
Figure 1
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Problem 1 (4 points)
In order to increase the responsiveness of supply chain in a retailing grocery company,
inventory is one of major factors which have a huge impact on this area performance.
There are several considerations:
Cycle Inventory: it is one of critical factors to affect the service quality and
performance that keeping a certain suitable amount of inventory to meet demand of
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customers during the order cycle. With achieving the target of high responsiveness
performance, retailer should keep a high inventory level of various types of groceries
and make sure that they are enough to serve all customers during the cycle period.
Therefore, lots size of shipment, either production or purchase, should be high. It also
can enjoy the benefits of economic of scale in production, transportation and
purchasing process. However, there are some drawbacks. It may significantly increase
the inventory cost such as holding cost and lower the inventory performance to be
inefficient operation due to keep a huge storage or large inventory facilities
investments, etc. In most of cases, these costs will directly transfer to the customers,
who are willing to bear a high price with enjoying a high service quality level (never
out of stock).
Safety Inventory: in sometimes, sales demand would be fluctuating, which is out of
expectation. The reasons of this irregular demand increase may be in a result of such
cases as SARS out-breaking. Customers were bulk purchase of various kinds of cans.
Therefore, a high safety inventory level is a determining factor to maintain the high
service level. They should execute this policy to avoid loss sales of customers.
However, since some of unsold products have a shorter life cycle or closer to expiry
date, it must be sold with discount. So, it should make a balance between loss of
marginal profits in this case and loss sale in product storage to the market.
Seasonal Inventory: this demand increase is predictable in some peak seasonal
selling such as New Year or Christmas. Inventory manager/ purchaser should store
some quantity of various types of groceries in non-peak period. It can avoid that food
and cans producers’ production schedule, speed or capacity could not be easily adjust
or reliable to match this large demand.
Sourcing: the nature of this business industry is special. It involves a sale of large
different types and quantity of products. In order to ensure that kind of products are
enough to supply to the market, source of products should be from a portfolio of
suppliers. However, it must relatively increase complication of the operation in
dealing with many foods and cans wholesalers. They should write a set of criteria in
selecting these suppliers, which is based on specific nature of industry, for example,
high performance of health and hygiene of the foods handling procedures. They
should periodically monitor and evaluate the performance of suppliers by mutually
agreed service contract or some reports like key performance index.
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Problem 2 (3 points)
In the auto manufacturing supply chain, it can increase an efficiency performance by
transportation. There are several factors should be considered.
Mode of transport: in order to efficiently transport the cargoes, they should feasibly
choose some cheaper modes of transport such as rail and ship. It is also suitable to the
nature of the products, which is not easy being defective during the delivery. It can
enjoy the benefits of economic of scale with large lots size of shipments in transport.
However, it also considers the speed of shipments, flexibility and delivery time, that
should be met to operation schedule.
Route and Network Selection: In order to lower the transportation cost (being more
efficient) to deliver cargoes to final destination, it may not choose some direct path
and high cost of intermediated points/hub facilities. The route may involve
multi-mode of transport combination.
In-house/Outsource: In most of cases, manufacturer is self-financed running
transport operation which may not be lower cost as well as some transportation or
delivery companies with same level of service performance. Since it is not their core
business, they have not expertise knowledge in dealing such technical operating
problems and put more resource investment on these facilities. Therefore, out-source
this part of operations is one of best solutions to efficiently run their business.
Problem 3 (3 points)
Bicycle manufacturer can gain benefits by making good strategies in using facilities
and increase the performance of responsiveness in their supply chain. There are
several considerations.
Location: manufacturer should decentralize locating their facilities in different
regions/ areas. They can gain the benefits of closer to the market places and directly
and quickly response needs or demand of the market. It will relatively increase the
service quality to their customers.
Capacity: in fact, a large amount of excess capacity allows facilities to be very
flexible and to respond wide swings in demands placed on its intended facilities’
functions. It can fulfill the sudden demand of these resources such as irregular
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demand period.
Operations Methodology: since the manufacturer is only producing bicycle. The
type of product provided is very narrow. It is suitable for product-focus policy and
tends to more expertise in that functional methodology. The facilities can perform
many different functions. It also increases both efficiency and responsiveness
performance with providing high quality of service because of their expertise and
running low operation cost. This is win-win situation.
Warehousing Method: with considering, bicycle, this business industry nature, it is
most suitable for operating job lot storage methodology. It allows that different types
of products to perform a particular job or satisfy a particular customer are stored
together. Although it requires more space but create a more efficient picking and
packing environment with few chances to make mistakes. It can highly increase the
service performance.
Problem 4 (5 points)
In an industrial supplies distributor’s supply chain, it can increase responsiveness
performance by information. However, this decision is highly replying on the supply
chain structure and the market segment. It is deeply considered by several factors.
Pull versus Pull: replenishment cycle exists in the interface between retailer and
distributor. In this stage, the exact data of demand of end customers still is uncertain
during order making. The ordered quantities of industrial supplies products are that
depend on forecasting, so it would be defined as a push process. It requires
information in the form of elaborate Material Requirements Planning (MRP) systems
to make a delivery schedule. It can timely response to market with providing high
service quality level.
Coordination and Information Sharing: there are many parties involve in a supply
chain, they should keep cooperation many each others such as sharing daily sales
orders, and marketing trend analysis & research. The distributors can order suitable
quantity of inventory and do well in inventory management, it can more ensure to
fulfill all customers’ needs with maintaining high quality service as well as offering a
lower operation costs. It would be a benefit for all parties.
Forecasting and Aggregate Planning: rich information can make distributor that
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they have a good performance in order quantity by more exactly of forecasting the
market demand. For examples of this information are future sales and market
conditions. Then, they can do well planning transforming forecasts into plans such as
increasing suitable fleets of trucks.
Pricing and Revenue Management: Information of product availability and market
demand is a valuable asset in a supply chain especially in deciding a good pricing
strategy. There is high competition within distribution industry, most of them will use
price cutting as a tool to capture a larger market shares. It will minimize their
marginal profits. Therefore, if there is a better performance of own business supply
chain with low operating cost, relatively, it will increase the competitive power with
offering a lower selling price, using differential pricing strategy, and gaining a larger
profits margin.
Enabling Technologies: distributors can use some technologies, for example, EDI,
Internet, ERP and Supply Chain Management Software, to have a management of
their supply chain. Distributor can use a common shared platform to exchange the real
time data to each player within the supply chain. It will significantly reduce the paper
works, exactly manipulate the data in preparing documents, and usefully formulate
business strategy.
~ The End ~
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