Chapter 4


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Chapter 4

  1. 1. E-Commerce and Supply Chain Management (SCM) Chapter 4
  2. 2. Chapter Outline <ul><li>Supply chains </li></ul><ul><ul><li>What is a supply chain? </li></ul></ul><ul><ul><li>Objectives of supply chain management </li></ul></ul><ul><ul><li>Information sharing in the supply chain </li></ul></ul><ul><ul><li>IMPORTANT: See Figures 4-1 and 4-2, pages 102-103. </li></ul></ul><ul><li>Inventory management in the supply chain </li></ul><ul><ul><li>Retailers and distributors </li></ul></ul><ul><ul><li>Manufacturers </li></ul></ul>
  3. 3. Chapter Outline (2) <ul><li>Operations issues for online retailers </li></ul><ul><ul><li>Inventory management </li></ul></ul><ul><ul><li>Shipping </li></ul></ul><ul><ul><li>Customer returns </li></ul></ul><ul><li>Make/buy decisions for goods and services </li></ul>
  4. 4. Supply Chains <ul><li>A supply chain is the network of activities that deliver a product/service to the customer </li></ul><ul><ul><li>Sourcing (purchasing) of raw materials, parts, goods for sale, or service inventories </li></ul></ul><ul><ul><li>Order entry </li></ul></ul><ul><ul><li>Operations planning </li></ul></ul><ul><ul><li>Transformation process (manufacturing or services) </li></ul></ul><ul><ul><li>Quality management </li></ul></ul><ul><ul><li>Logistics: </li></ul></ul><ul><ul><ul><li>Transportation (traffic) </li></ul></ul></ul><ul><ul><ul><li>Distribution (delivering the product to the customer) </li></ul></ul></ul>
  5. 5. Supply Chain Management (SCM) <ul><li>Supply Chain Management is the business function that coordinates the movement of materials and information through the supply chain </li></ul><ul><li>Objectives of supply chain management </li></ul><ul><ul><li>Minimize the cost of materials and material movement </li></ul></ul><ul><ul><li>Minimize inventory investment </li></ul></ul><ul><ul><li>Ensure timely delivery of materials at every level of the supply chain and to customers </li></ul></ul><ul><ul><li>Ensure quality of materials used in manufacturing or services </li></ul></ul>
  6. 6. Information Sharing in the Supply Chain <ul><li>Demand: sales forecasts, booked orders, and/or actual sales </li></ul><ul><li>Custom orders </li></ul><ul><li>Production plans </li></ul><ul><li>Product availability </li></ul><ul><li>Shipping schedules: items, quantities, delivery dates </li></ul><ul><li>Shipments </li></ul><ul><li>Suppliers' data on raw material quality </li></ul>
  7. 7. Reducing Inventory Costs Retailers and Distributors <ul><li>Objective: have right inventory in stock when needed, while reducing inventory and transportation costs. </li></ul><ul><li>Channel assembly: Distributors or retailers assemble computers to order, with the manufacturer's brand name </li></ul><ul><ul><li>Used for products with modular design </li></ul></ul><ul><ul><li>Retailer or distributor can offer more product choices, for a given inventory cost </li></ul></ul><ul><ul><li>Short delay for customer </li></ul></ul>
  8. 8. Reducing Inventory Costs Brick-and-mortar Stores <ul><li>Objective: have right inventory in stock when needed, while reducing inventory and transportation costs. </li></ul><ul><li>Retailers collect point-of-sale data at the cash register. </li></ul><ul><li>Retailer has 2 options </li></ul><ul><ul><li>Use point-of-sale date to forecast future sales and transmit order to manufacturer. </li></ul></ul><ul><ul><li>Automatic replenishment: retailer transmits point-of-sale data to manufacturers, who ships what is needed. </li></ul></ul><ul><li>To reduce transportation costs, manufacturer usually ships multiple items in one truckload. </li></ul>
  9. 9. Operations Issues in Online Sales <ul><li>Inventory management </li></ul><ul><li>Delivery </li></ul><ul><li>Managing customer returns </li></ul>
  10. 10. Operations Issues in Online Sales Inventory Management <ul><li>Objective: get the right inventory to the customer promptly, while reducing inventory and transportation costs. </li></ul><ul><li>Amazon's inventory policy </li></ul><ul><ul><li>Amazon stocks popular items and ships them directly to customers </li></ul></ul><ul><ul><li>Drop shipping: For less popular items, Amazon transmits order to manufacturer, publisher, or distributor – who ships order to customer. Amazon pays the manufacturer, publisher, or distributor. </li></ul></ul>
  11. 11. Operations Issues in Online Sales Delivery <ul><li>Objective: Deliver promptly, while minimizing delivery costs </li></ul><ul><li>Brick-and-mortar stores (like Sears) can ship items to stores for customer pickup. </li></ul><ul><li>Other online merchants ship via a package delivery service (like UPS) or U.S. postal service </li></ul><ul><li>Online merchants use package delivery services for most shipments to other countries. </li></ul><ul><li>Customers usually pay a standard shipping cost – different for U. S. and other countries </li></ul>
  12. 12. Operations Issues in Online Sales Customer Returns <ul><li>Objective: minimize the cost of customer returns and reduce &quot;hassles&quot; for customers </li></ul><ul><ul><li>25% of Internet orders result in a customer return </li></ul></ul><ul><ul><li>Problems in returning goods are the 2 nd biggest reason that consumers don't buy online </li></ul></ul><ul><li>Variety of approaches used to return goods: postal service, contract package delivery service, brick-and-mortar store </li></ul><ul><li>Online retailer must process returned items </li></ul><ul><li>Online retailer must ship a replacement item or issue credit to customer </li></ul><ul><li>Policy issue: who pays for return shipping? </li></ul>
  13. 13. Reducing Inventory Costs Manufacturers <ul><li>Just-in-Time </li></ul><ul><ul><li>Manufacturer makes finished goods and ships them the same day </li></ul></ul><ul><ul><li>Suppliers delivery parts and raw materials when they are needed </li></ul></ul><ul><li>Vendor-managed inventory: supplier owns the parts inventory at the customer's plant until the customer uses those parts. </li></ul>
  14. 14. Make/Buy Decisions <ul><li>Make/buy decisions apply to both goods (including parts) and services </li></ul><ul><li>Does your firm have the ability to produce the good or service? </li></ul><ul><ul><li>If not, is it technically feasible to develop that ability? </li></ul></ul><ul><ul><li>Is this a wise use of the firm's human and financial resources? </li></ul></ul>
  15. 15. Make/Buy Decisions (2) <ul><li>Does your firm have the capacity to make the good or service? </li></ul><ul><ul><li>If not, can your company afford to invest in capacity? </li></ul></ul><ul><ul><ul><li>Is that the best use of the firm's money? </li></ul></ul></ul>
  16. 16. Make/Buy Decisions (3) <ul><li>Firms usually do not outsource (buy) </li></ul><ul><ul><li>Activities where they have a better technology than suppliers </li></ul></ul><ul><ul><li>Activities that are part of a core competency </li></ul></ul><ul><ul><ul><li>Do not weaken a core competency </li></ul></ul></ul><ul><ul><li>Production that requires proprietary technology the firm wants to protect </li></ul></ul>
  17. 17. Make/Buy Decisions (4) <ul><li>Who can do a better job: you or a supplier? </li></ul><ul><ul><li>Costs </li></ul></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Timely delivery </li></ul></ul><ul><ul><li>Product or part designs </li></ul></ul><ul><li>Is there a supplier who can meet your firm's requirements in the above areas? </li></ul>