The Future of Furniture
High Definition Retailing
Workshop
Supply Chain Management
Dr. Bjarne Berg
Lenoir-Rhyne College
Agenda
Background and history
Supply Chain Management Alternatives
Software Integration of Supply Chain Initiatives
Lessons Learned
Resources
Wrap up
2
Background and history
In the “old days”, waiting for something was the norm:
In 1888, Richard Sears first used a printed mailer to advertise watches
and jewelry. Delivery times was between 4 and 26 weeks.
In 1992, the delivery times (most items) in Sears catalog were 1-7 days
In 1993, Sears stopped publishing the
general catalog (customers said
delivery times were too long).
2007, Why are customers waiting for
furniture 2-16 weeks? Will they
continue to accept that?
3
What is Supply Chain?
• A Supply Chain is the alignment of firms that bring
products or services to market
• A Supply Chain consists of all stages involved,
directly or indirectly, in fulfilling a customer
request. This includes manufacturers, suppliers,
transporters, warehouses, retailers, and customers
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A Supply Chain is an alignment of firms that bring products to market
1. Request for Quote
3. Purchase Order
4. P. O. Confirmation
2. Quotation
6. Ship Order
/ Instr.
13. Payment Order
14. Remittance
Buyer
Bank
Bank
16. Proof of
Delivery
Supplier
12. Export
Documents
15. Import
Documents
Air Freight
Terminal
at Origin
Terminal at
Destination
5. Shipper Order/Instr.
+ Invoice
+ Packing List
Surface Carriers
7a. Ship Instr. Cycle
Freight Forwarder
Capture
Gate Movement
Terminal at
Destination
Freight Forwarder
8. Gate-in/
Gate-out
8. Gate-out/
Gate-in
10. Bay Plan
9. Bay Plan
Ocean Carrier
Capture
Gate Movement
(Gate-out/in)
Terminal
at Origin
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The Supply Chain and the Bullwhip effect
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Source: SCM Group
A Supply Chain Management: Information is the key to success
Production
What, how,
and when to
produce
Inventory
How much to
make and how
much to store
Information
The basis for
making
decisions
Transportation
How and when to
move the product
Location
Where best to do
what activity
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SCM: Efficiency Vs. Responsiveness
Responsiveness
Efficiency
These two directions are mutually conflicting goals and it is important to
determine where your strategy lies within these conflicting goals
Goal
Driver
Production
Inventory
Location
Transportation
Information
Responsiveness
Efficiency
-Excess Capacity
-Flexible Manufacturing
-Many small factories
-Little excess capacity
-Narrow focus
-Few central plants
-High Inventory levels
-Wide range of items
-Low inventory levels
-Fewer items
-Many locations close to customer
-Few central locations serving wide
areas
-Frequent shipments
-Fast and flexible mode
-Shipments are few and large
-Slow and cheaper modes
-Collect and share timely, accurate
data
-Cost of information drops while other
costs rise
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How Does the Furniture Industry Stack up Against Other Industries?
Sector
Fine
Mango
Costume
Footwear
Leathergoods
Furniture
Housewares
Holiday
Production Cycle Ave PCT Volume Value % with Level of
levels
d
Time (PCT)
(weeks) (Units) (Pesos)
Subcon Subcon
5
4
6
5
6
6
6
6
1 to 2 weeks
2 to 4 weeks
4 to 6 weeks
2 to 4 weeks
4 to 6 weeks
5 to 6 weeks
4 to 7 weeks
8 weeks
1.5
3
5
3
5
5
5.5
8
Low
High
High
Med
Med
Low
Med
High
High
Low
Low
Med
Med
High
Med
Med
10
0
95
33
82
90
80
95
few
No
high
few
high
high
high
high
(Source: Dennis T. Beng Hui, 2005)
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Agenda
Background and history
Supply Chain Management Alternatives
Software Integration of Supply Chain Initiatives
Lessons Learned
Resources
Wrap up
10
Supply Chain Management Alternatives
In a changing environment with increased lead times in the supply
chain, there are three alternative strategies a company can employ.
These include:
1. Create Marketplaces
2. Consolidation of retail operations
3. Vertical SCM integration
In the next section we will see how each of these strategies
can work in a retail furniture operation
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Supply Chain Management Alternatives
As the lead times increases from ordermanufacturing delivery,
there are increasing pressures on an industry on transitioning
from Make-to-Order (MTO) over to a Make-to-Stock (MTS) model.
The challenges with a MTS model are that there are inherent risks
to obsolete inventory, high inventory costs, and often low
production runs of each models due to changing preferences.
The cost aspects of a MTS model is also too high for a mid-sized
retail operation. Therefore, we tend to find marketplaces emerging
in these industries.
Long supply chains leads to opportunities
for marketplaces
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Supply Chain Management Alternatives – Traditional
In a traditional local marketplace, the factory may delivery directly to
the stores in a region or state.
Benefits: Low inventory, personal contact from manufacturer to retail
store (allows for quick customization of products)
Drawback: Manufacturing facilities has to be relatively close to retail
operations
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Supply Chain Management Alternatives - Traditional
In a traditional extended marketplace, the factory may delivery to
distribution centers in an extended area
Benefits: Shortens lead-time from store order to delivery and is a
scaleable distribution system.
Drawback: Factory is distanced from customers, inventory is higher and
customized orders take longer time to delivery. Also, the demand cycle
is longer and chances of obsolete inventory increases.
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Supply Chain Management Alternatives – Overseas
In an international marketplace, the supply chain get very long. To control costs,
companies must either increase sales volume or being able to forecast demand in
advance of the customer orders. Due to long lead times, this is a system that works
well in a MTO model.
Benefits: Access to low costs materials and low costs labor
Drawback: Long lead times and long times to deliver customized orders. Also, over
time there is a shift in power to the manufacturer (i.e. Datsun Vs. Nissan).
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Supply Chain Management Alternatives - Marketplaces
Company A
The exchange
Company B
Some well known examples of exchanges are Amazon (books); Travelocity (travel);
AlliedElectronics (microchips); Dell (customized computers); LL Bean (clothing).
In a Exchange marketplace, the retail channel is owned by either the marketplace, or
the exchange. However, the exchange cannot engage in retail operations, while also
selling to other retail networks. The classic model here is a wholesaler.
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Supply Chain Management Alternatives - Marketplaces
Company A
The exchange
Company B
In this SCM model, the power is at the exchange level. Suppliers and retailers are
dependent on an efficient marketplace. The exchange keeps most of the inventory, and
the turnover rates are high. Due to scale, the exchange can also keep relatively low
demand items on hand as well (products that company A and B cannot to afford to carry).
There are two hybrid models for this Supply Chain:
1. Finished goods and/or Raw materials
2. Work in Progress (components)
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Supply Chain Management Alternatives - Marketplaces
Company A
The exchange
Company B
The most efficient exchange model is a hybrid, where components are traded through
the exchange (i.e. sofa and chair frames; standardized components), while the local
companies finishes the customization locally
This decreases the lead times, while shortening the effective supply chain from
customer to customization.
Today, this is done in a variety of industries, such as automotive breaks, small
engines, microprocessors, memory, displays, roof frames, and much more
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Supply Chain Management Alternatives - Marketplaces
Company A
The exchange
Company B
In the 1990s the introduction of exchanges created revolutions in many industries
such as travel, computers, book sellers, automotive, energy, candy (M&M), small
appliances (i.e. Whirlpool and Maytag).
The winners in all these ‘revolutions’ were companies that adapted fast (Amazon,
Barns & Noble,CVS, Advanced Motorparts, eBay). While the losers where those who
tried to held on to old SCM models (travel agents, K-Mart, Delphi automotive, local
pharmacies and many more).
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SCM Alternatives - Consolidation of retail operations
Another alternative is to increase the retail operations sales market consolidation
(mergers), prices, and/or better sales channels (internet, stores, showrooms).
This allows the retail operations to have the capacity to keep a certain amount of
inventory (increased inventory turnover reduces overall costs).
The challenge is that capital is not as inexpensive as it once was, the industry is highly
fragmented and the risks to the execution are high. Also, benefits of scale can only be
achieved by standardization of products (are customer’s ready for less choice?)
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SCM Alternatives - Vertical integration
A retailer, or wholesaler can also create strategic alliances with suppliers where
inventory risk are shared.
1. This can be done by having the overseas vendor providing inventory
at distribution center (risks: who owns the distribution center?)
2. This can also be done by retailers having Vendor Managed Inventory (VMI), where the
retailer owns the space, but the vendor does not get paid until items are sold. This
shifts risks from retailer to manufacturer, but creates mutual dependencies.
3. Vertical integration can also take place when manufacturer acquire manufacturing
companies or facilities overseas and thereby own the supply chain.
In every industry in turmoil there are opportunities and
challenges; winners and losers
(i.e. NationsBank vs. Barnett Bank)
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Agenda
Background and history
Supply Chain Management Alternatives
Software Integration of Supply Chain Initiatives
Lessons Learned
Resources
Wrap up
22
Software Integration of Supply Chain Initiatives
SAP and Oracle has
ERP tools that allows
you to integrate the
supply chain in a
single location
Initially ERP systems
integrated data
within a company;
today it integrates
vendors, companies
and end customers.
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Software Integration of Supply Chain Initiatives
ERP systems removes
manual tracking systems and
can track all items from
purchase orders to final
delivery
ERP system also allows for
vendor evaluation and more
realistic delivery dates based
on actual history.
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Agenda
Background and history
Supply Chain Management Alternatives
Software Integration of Supply Chain Initiatives
Lessons Learned
Resources
Wrap up
25
Lessons Learned
1. Companies in industries that faces long supply chains and overseas
competition will do better by being proactive, instead of delaying making
changes.
2. Changes are drastic and change management is required (employee
and stakeholder satisfaction).
3. Avoid hybrid strategies. Be singleminded and concentrate resources.
4. Use a SCM tool and make sure your
partners (vendor/customer) do also.
5. You can only increasing volume by
reducing choice. Find out what
really matters (costs is ‘king’).
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Agenda
Background and history
Supply Chain Management Alternatives
Software Integration of Supply Chain Initiatives
Lessons Learned
Resources
Wrap up
27
7 Key Points to Take Away
1. You need a long-term strategy (design, not evolve! Hint: Nokia)
2. Only the really big players will make it without strategic alliances
3. Supply chain management is paramount in overseas transportation
4. You need one integrated supply chain management system
5. Standardization of components is critical for volume & reduced lead-times.
– can you make customers believe that you are mass customizing?
(hint: Lexus vs. Toyota).
6. In a retail setting, the company that owns the channels wins (hint: eBay,
Dell, Travelocity, Wal-Mart, Exxon Mobil, Shell, International Paper)
7. Customers says they want choices, but costs wins most of the time!
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Resources
Manufacturing planning and Control Systems for Supply Chain
Management: The Definitive Guide for Professionals by Thomas E
Vollmann , William Lee Berry , David Clay Whybark , F. Robert Jacobs ,
Thomas Vollmann , William Berry
Successful Strategies in Supply Chain Management by Chi-Kin Chan,
H. W. J. Lee
The Practice of Supply Chain Management: Where Theory and
Application Converge by Terry P. Harrison, Hau L. Lee, John J. Neale
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Agenda
Background and history
Supply Chain Management Alternatives
Software Integration of Supply Chain Initiatives
Lessons Learned
Resources
Wrap up
30
How to contact me:
Dr. Bjarne Berg
bergb@lrc.edu
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