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![Compound
Italy
Florida*
China
Mexico*
Mold
Canada*
Bosnia
China
Mexico*
Brazil*
Assemble
Denver 3rd
party
distributor
Package &
Label
Denver
Color
Pellets
Size & Style
blanks
Small
retailer
Large
Retailer
Europe
Warehouse
/ distribute
Denver
Style &
size
molds
Bosnia
China
Mexico*
Brazil*
Bosnia
China
Mexico*
Brazil*
Bosnia
China
Mexico*
Brazil*
Labeled,
packaged
Croc
Complete
Croc
Large
Retailer
Asia
Large
Retailer
South
America
Croc’s Global Production strategy
[2]
[1]
[3]
[4]
[5]
[1] Maintain Florida plant for “Made in USA label
[2] Take advantage of tariffs, e.g., Canada to Isreal
[3] Maintain higher service component of warehousing and labeling for small retailers
[4] Minimize geographic transport by producing in region, including warehousing
[5] Move style and size molds between facilities to maximize production
[6] Use China for large volume, long-term orders from pre-season orders
[6]
*Owned by Crocs vs. outsourced](https://image.slidesharecdn.com/maximizingscmsurplus-250130102701-b6941d17/85/Maximising-Supply-Chain-Management-surplus-ppt-15-320.jpg)
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Maximising Supply Chain Management surplus.ppt
- 1.
- 2. Outline • Today – Somemore supply chain examples – Start Chapter 2 • Thursday – Chapters 2 and 3
- 3. Maximizing supply chainsurplus Manufacturer Distributor Retailer Customer $10 $5 $1 Distributor profit = 600*($5-$1) = $2,400 Supply chain profit = $1,800 + $2,400 = $4,200 Retailer Order Prob. Demand 1000 800 600 400 200 0.2 1000 5000 4000 3000 2000 1000 0.2 800 3000 4000 3000 2000 1000 0.2 600 1000 2000 3000 2000 1000 0.2 400 -1000 0 1000 2000 1000 0.2 200 -3000 -2000 -1000 0 1000 Expected Profits 1000 1600 1800 1600 1000
- 4. Retailer Order Prob. Demand1000 800 600 400 200 0.2 1000 9000 7200 5400 3600 1800 0.2 800 7000 7200 5400 3600 1800 0.2 600 5000 5200 5400 3600 1800 0.2 400 3000 3200 3400 3600 1800 0.2 200 1000 1200 1400 1600 1800 Expected Profits 5000 4800 4200 3200 1800 Maximizing supply chain surplus Manufacturer Distributor Retailer Customer $10 $1 Supply chain profit = $5,000
- 5. Celestial Seasonings • Theherbs were originally harvested by hand in the Rocky Mountains • Currently, herbs and leafs come from growers around the world – “We’ve been working to establish sustainable harvests and fair wages for more than 30 years” What advantages does selling tea over the Internet provide? What are advantages of having one production facility? What are disadvantages of having one production facility?
- 6. ProBuild • The nation’slargest supplier of building materials to national builders, local contractors and do-it-yourselfers • 550+ facilities nationwide – Lumber yards, millwork shops, distribution centers What are advantages of having multiple facilities? Why is inventory management so important?
- 7. ProBuild • Housing outlook –Unemployment at 10.2% – Foreclosures still rising • ProBuild – Sales declined over 20% in 2009 Why did ProBuild added hundreds of salespeople in 2009?
- 8. Mortgage • “A mortgageis the transfer of an interest in property to a lender as a security for a debt, usually a loan of money” What went wrong in the mortgage supply chain? Is there lead time the mortgage supply chain? Is the mortgage supply chain easier to automate than a manufacturing supply chain? Source: http://www.wikipedia.org
- 9. Interceptor Body Armor •The interceptor body armor system consists of a vest made of Kevlar that has a front and back insert for a ceramic protective plate – March, 2003 Start of the invasion of Iraq – April, 2003 Congress approves to buy 300,000 interceptor body armor vests – October, 2003 Nearly one-quarter of the 130,000 U.S. troops in Iraq still had not been an interceptor body armor vest – 8 months after combat operations were declared over, all personnel in Iraq had an interceptor body armor vest "Body Armor Saves Lives in Iraq; Pentagon Criticized for Undersupply of Protective Vests,"Washington Post . 4 Dec, 2003 What went wrong?
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- 12. Interceptor Body Armor •Production – October, 2002 Production capacity 3,000 plates per month – October, 2003 Production capacity 25,000 plates per month Where should the production facilities be located?
- 13. Crocs • Crocs shoesare made from Croslite – Extremely light – Does not skid – Odor resistant – Easy to wash • The founders wanted to name the shoes something that captured the amphibious nature – “Alligator” had already been taken
- 14. General Map ofCroc’s Basic supply, production and distribution processes Compound Mold Assemble Package & Label Chem Pellets Dye Accessories Sports protectors Color Pellets Size & Style blanks Complete Croc Labeled, packaged Croc Small retailer Large Retailer Distribution Dow Chem & others Glue etc Grommets Jibbitz Leather Pre-booked orders Production Orders (plus %) In-season orders Warehouse and distribute Various Suppliers Mold producers Style & size molds
- 15. Compound Italy Florida* China Mexico* Mold Canada* Bosnia China Mexico* Brazil* Assemble Denver 3rd party distributor Package & Label Denver Color Pellets Size& Style blanks Small retailer Large Retailer Europe Warehouse / distribute Denver Style & size molds Bosnia China Mexico* Brazil* Bosnia China Mexico* Brazil* Bosnia China Mexico* Brazil* Labeled, packaged Croc Complete Croc Large Retailer Asia Large Retailer South America Croc’s Global Production strategy [2] [1] [3] [4] [5] [1] Maintain Florida plant for “Made in USA label [2] Take advantage of tariffs, e.g., Canada to Isreal [3] Maintain higher service component of warehousing and labeling for small retailers [4] Minimize geographic transport by producing in region, including warehousing [5] Move style and size molds between facilities to maximize production [6] Use China for large volume, long-term orders from pre-season orders [6] *Owned by Crocs vs. outsourced
- 16. Crocs • Revolutionized theshoe industry supply chain model – First shoe sold in 2003 (Revenue 1.2 million) – Flip flop sandal introduced in 2006 (Revenue 355 million) – Diversify in other products 2008 (Revenue 860 million) What are advantages of having multiple production facilities? What are advantages of short lead times? What are advantages of excess capacity? How does Crocs plan for demand?
- 17. Netflix • World’s largestonline movie rental service Where is Netflix’s inventory?
- 18. Netflix What are thedifferences between Netflix and Blockbuster
- 19. Netflix • Netflix versusBlockbuster store Where should the distribution centers be located? No. of locations No. of employees No. of titles No. DVDs available Blockbuster Inc. Netflix 8,000+ Stores 16 DCs 89,000 381 1,000-8,000 per location 13,500 100s per location 3.3 million How does Netflix plan for demand? Who are Netflix’s competitors?
- 20. Study of SupplyChain Management • Successful supply chain management requires decisions on the flow of information, product, and funds that fall into three decision phases – Supply chain strategy or design – Supply chain planning – Supply chain operation
- 21. Decision Phases ina Supply Chain TYPICAL DECISIONS Strategic Tactical TYPE TIME FRAME •Supply chain network design (How many plants? Location and capacities of plants and warehouses?) •Supply chain strategies (Sell direct or through retailers? Outsource or in-house? Focus on cost or customer service?) •Product mix at each plant years •Workforce & Production planning •Inventory policies (safety stock level) •Which locations supply which markets •Transportation strategies 3 mo.- 1year Operational •Production scheduling •Decisions regarding individual orders •Place replenishment orders daily
- 22. Achieving Strategic Fit Whatis a strategy in general?
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- 24. What is CompetitiveStrategy? • Competitive strategy – Defines, relative to competitors, a company’s set of customer needs that it seeks to satisfy through its products and services • Wal-Mart – Everyday low prices • Coors – The coldest tasting beer in the world, brewed with Rocky Mountain spring water • Dell – Custom-made computer systems at a reasonable cost Competitive strategy is defined based on how the customer prioritizes product cost, delivery time, variety, and quality
- 25. New Product Development Competitive Strategy • Toexecute a company’s competitive strategy, all functions that play a role must each develop its own strategy Marketing and Sales Operations Distribution Service Finance, Accounting, Information Technology
- 26. Strategy Corporate Strategy Competitive Strategy SupplyChain Strategy
- 27. What is StrategicFit? • Strategic fit – For any company to be successful, its supply chain strategy and competitive strategy must fit together • Wal-Mart – Everyday low prices – Owns its infrastructure and distribution network • Coors – The coldest tasting beer in the world, brewed with Rocky Mountain spring water – Refrigerated transport, main facility near Rocky Mountains • Dell – Custom-made computer systems at a reasonable cost – Online ordering, no middle-man
- 28. How is StrategicFit Achieved? 1. Understanding the customer and supply chain uncertainty 2. Understanding the supply chain capabilities 3. Achieving strategic fit
- 29. 1. Understanding theCustomer and Supply Chain Uncertainty • Understanding customer uncertainty – Demand varies along certain attributes • Quantity in each lot, response time, variety of products needed, convenience, price, innovation, etc – Implied demand uncertainty • Demand uncertainty due to the portion of demand that the supply chain is targeting, not the entire demand Customer need Causes implied demand uncertainty to… Range of quantity increases Response time decreases Variety of products increases Number of channels through which product may be aquired increases Rate of innovation increases Required service level increases Customer need Causes implied demand uncertainty to… Range of quantity increases Increase Response time decreases Increase Variety of products increases Increase Number of channels through which product may be aquired increases Increase Rate of innovation increases Increase Required service level increases Increase
- 30. 1. Understanding theCustomer and Supply Chain Uncertainty • Understanding supply uncertainty – Supply uncertainty is strongly affected by the life-cycle position of the product. New products being introduced have higher supply uncertainty than mature products Supply source capability Causes supply uncertainty to… Frequent breakdowns Unpredictable and low yields Poor quality Limited suppy capacity Infexible supply capacity Evolving production process Supply source capability Causes supply uncertainty to… Frequent breakdowns Increase Unpredictable and low yields Increase Poor quality Increase Limited suppy capacity Increase Infexible supply capacity Increase Evolving production process Increase
- 31. 1. Understanding theCustomer and Supply Chain Uncertainty Demand Uncertainty Low (Functional Product) High (Innovative Product) Low (Stable Process) Low (Functional Product) High (Evolving Process) Supply Basic Appeals, Grocery, Food, Most Commodities Fashion Appeals, Computers, Pop Music, Toys Some Power, Some Food Produce, Precious Metals M-commerce, Telecom, High-end Servers, Semiconductor Demand Uncertainty Low (Functional Product) High (Innovative Product) Low (Stable Process) Low (Functional Product) High (Evolving Process) Efficiency, Information Integration, Auto- Replenishment, VMI (Efficient SC) Build-to-Order, Flexible Mfg, Accurate Response, Postponement (Flexible SC) Buffer Inventory, Shared Resources, Multi- Sourcing, Info Sharing (Risk-Hedging SC) Supply Network, Postponement, Design Collaboration (Agile SC) Source: Hau Lee, “Aligning supply chain strategies with product uncertainties”, California Management Review, 44(3), 2002
- 32. 2. Understanding theSupply Chain Capabilities • Supply chain capabilities – Supply chain responsiveness • Respond to wide ranges of quantity demanded, short lead times, large variety, innovative products, high service level, etc – Supply chain efficiency/cost Highly efficient Highly responsive Somewhat responsive Somewhat efficient Integrated steel mills Hanes apparel Most automotive production Seven-Eleven Japan
- 33. 2. Understanding theSupply Chain Capabilities High Low Low High Responsiveness Cost
Editor's Notes
- #7 It is easier to build up capacity when a forecast ends up below reality, than it is to take it away when a forecast ends up above reality
- #8 The mortgage industry, which does not require the engineering, manufacture and integration of thousands of physical parts to produce a finished good, is simpler and ought to be easier to automate. The Internet has yet to eliminate any participants in the mortgage supply chain, but it will automate processes and strip out costs.
- #9 New vest weighs 16.4 pounds, while the old vest weighs 25.1 pounds The army planned to issue the IBA to US forces over an 8 year period between 2000 and 2007 Due to the effectiveness the Army decided to accelerate its fielding for Operation Iraqi Freedom (OIF) Shortage between Oct 2002 and Sep 2004 due to demand exceeded supply 8 months after combat operations were declared over, all personnel in Iraq had the IBA
- #12 Worldwide production limit still at 35,000 vests and 50,000 plates per month Production lead time is 3 months Lack of Kevlar (vests) DuPont Chemicals is the only domestic supplier producer of para-aramid fiber used in the vests. Twaron used as a replacement fiber (manufactured in the Netherlands) Honeywell was the only domestic producer of SpectraShield (plates) and had other competing commercial requirements for the materials. DOD under the Defense Protection Act, directed Honeywell to accelerate deliveries (allocate all supply to DOD at the expense of commercial orders) Distribution problems due to increased supply
- #13 Three friends from Boulder went sailing in the Caribbean. One brought a pair of foam clogs that he had bought in from a company in Canada The company headquartered in Colorado, but essentially distributing shoes made in Canada Crocs started in the US, then were launched worldwide for branding reasons Phenomenal growth: Revenue 2003=1.2million, 2006=355million, 2008=860million
- #14 Raw materials are relatively inexpensive purchased in pellet form from suppliers such as Dow Chemical Compounding process adds color and makes colored pellets Colored pellets are ready to be molded After parts are molded they must be assembled (gluing, stitching from 2006 onwards)
- #15 Phase 1: Taking over production Initially all compounding done in Italy, then molding and assembly in Canada, and distribution from Denver Phase 2: Global production using contract manufacturers Resistance from contract manufacturers outside China Phase 3: Bringing the global supply chain in-house Crocs acquired excess capacity (sometimes 2 to 3 times the expected capacity) Crocs early sales were to small retailers After Crocs initial success in small stores, large retailers approached the company (now they had a much stronger negotiating position) Molds would move frequently between locations Shifting production to reduce duty payments (from China had high tariff, from Mexico no tariff NAFTA, also no tariff from Mexico to Europe)
- #16 Traditional industry practice was for retail distributors to place bulk orders for each season’s inventory many months in advance, with little to no ability to adjust to changes during the selling season. Crocs could fill new orders within the season Flip flop sandal was introduced in 2006. Initial decision to make 250,000 pairs (far more than the pre-booked orders). Indications of success, so Crocs made more molds and molding machines. By the end of the season they had shipped nearyl 2.5 million pairs (10 times more). Much of the growth was made possible by a highly flexible supply chain allowing it to respond to unexpected high demand and fulfill new order within the selling season (unheard of in the shoe industry). It became a very popular supplier to shoe sellers “It is easier to build up capacity when a forecast ends up below reality, than it is to take it away when a forecast ends up above reality”
- #17 Originally, all returns were checked-in and shelved before the new demands were met Mornings -> returns Afternoons -> fulfillment 2% are unshipped. Consistently unused inventory is returned to the main DC in San Jose for longer term storage
- #19 Netflix has its imitators: Wal-Mart DVD rentals, Filmcaddy by Blockbuster’s, Rent My DVD, Number slate In June 2003 Netflix was granted a Patent on their business model for DVD rental Netflix has other competitors: Pay-per-view, premium cable, Video on Demand, TiVo Netflix does not reveal how allocations are made, but a customer study showed that customers with a lower rental rates get better customer service 80% of rental activity is generated from 2000 titles, and 97% of Netflix’s titles are rented in a month
- #20 Relating back to the importance of supply chain design, planning, and operation Each decision should be made to increase the supply chain surplus
- #21 Where is uncertainty the highest? Supply chain design, planning, and operation decisions play a significant role in the success or failure of a firm Supply chain strategy or design Supply chain planning Supply chain operation Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty Supply chain planning decisions use a fixed supply chain configuration to come up with an overall production plan Supply chain operation makes decisions about individual customer orders
- #22 Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its structure of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations.
- #23 Corporate strategy: mission statement Competitive strategy: developed by the marketing people
- #25 These are the core processes or functions that must be performed for a successful sale. Finance, accounting, information technology, and human resources support and facilitate the functioning of the value chain Supply chain strategy Specifies what the operations, distribution, and service functions, whether performed in-house or outsourced, should do particularly well Includes a specification of the broad structure of the supply chain Includes design decisions regarding inventory, transportation, operating facilities, and information flows
- #29 Understanding customer uncertainty: Demand varies along certain attributes Implied demand uncertainty is demand uncertainty due to the portion of demand that the supply chain is targeting, not the entire demand Demand uncertainty reflects the uncertainty of customer demand for a product