E-Commerce and Supply Chain Management (SCM) Chapter 4

Management 326 Operations and Strategy Designing an Operations System Improving an Operations System (Just-in-Time) Operations and Strategy Designing an Operations System Managing an Operations System Inventory Management for Independent Demand Supply Chain Management

Chapter Outline Supply chains and supply chain management Information sharing in the supply chain Tactics for reducing inventory costs in the supply chain Point-of-sale data & automatic replenishment Vendor-managed inventory Postponement Drop shipping Operations management issues in online sales

Why Supply Chain Management is Important Supply chain management impacts Costs and inventory investment Customer service Product availability and delivery Product or service quality (through choice of suppliers) Product design

Lessons from the Dairy Products Supply Chain Figure 4-2, page 103 Companies often have several tiers of suppliers. Your company's Tier 1 suppliers are the firms that your company buys from. A company has more control over Tier 1 suppliers than over Tier 2 & Tier 3 suppliers

Supply Chains A supply chain is the network of activities that deliver a product/service to the customer Sourcing (purchasing) of raw materials, parts, goods for sale, or service inventories Order entry Operations planning Transformation process (manufacturing or services) Quality management Logistics: Transportation (traffic) Distribution (delivering the product to customers)

Lessons from the Jeans Supply Chain (not shown in textbook) A company's supply chain affects its performance and competitiveness. If a problem arises, a company is likely to blame the Tier 1 supplier. Consumers will blame the retailer or the manufacturer. Information technology is used to coordinate supply chain activities, both within each company and between companies

Supply Chain Management (SCM) Supply Chain Management is the business function that coordinates the movement of materials and information through the supply chain Your suppliers should help your firm achieve its competitive objectives

Objectives of Supply Chain Management Minimize the cost of materials and material movement Minimize inventory investment Ensure timely delivery of materials at every level of the supply chain and to customers (product availability) Ensure quality of materials used in manufacturing or services If needed, get product design help or other services from suppliers.

Information Sharing in the Supply Chain Figure 4.1, page 102 The objective of information sharing is to match demand and supply. (What will be available when, and from whom?) Demand: actual sales, sales forecasts, booked orders, custom orders Product availability: current inventory, production plans, shipping schedules, shipments Quality: suppliers' data on quality

Tactics for Reducing Inventory Costs (1) Point-of-sale Data (POS) Retailers collects point-of-sale data at the cash register and updates inventory by SKU (stock keeping unit) in real time. SKU's are marked with bar codes or radio frequency ID (RFID) tags. Retailer has options: Use point-of-sale data to forecast future sales and transmit order to manufacturer. Automatic replenishment: retailer transmits point-of-sale data to manufacturers, who determines the retailer's current needs and ships what is needed. Vendor-managed inventory (next slide)

Tactics for Reducing Inventory Costs (2) Vendor-Managed Inventory (VMI) in Retailing VMI in retailing: The supplier electronically accesses the retailer's database for sales information for the supplier's products. Supplier ships what is needed. (automatic replenishment) Supplier is responsible for updating the customer's database when goods are shipped. Supplier is responsible for anticipating customer's future needs Pioneered by Wal-Mart (Retail Link software)

Tactics for Reducing Inventory Costs (3) Vendor-Managed Inventory in Manufacturing Supplier Warehouse Wabco Aircraft Brake Factory Parts Wabco Assembly Line VMI in manufacturing: supplier maintains a parts inventory at the customer's plant. When the customer needs parts, a supplier employee transfers the parts to the production area. Then the supplier bills the customer for the parts.

Tactics for Reducing Inventory Costs (4) Postponement Produce a generic product. Complete a final product variant when you have an order or can accurately estimate trends. Benetton has suppliers make white sweaters and then dye them just before they are shipped to Benetton stores. Postponement often requires re-designing the product or doing process steps in a different order.

Tactics for Reducing Inventory Costs (5) Drop Shipping When a customer orders from Company A, some or all of the order may be shipped by Company A's suppliers. Order & payment Amazon distribution center Customer orders from Amazon Frequently ordered items Ordered item Order Supplier who sells a less frequently ordered item makes a drop shipment

Operations Issues in Online Sales Inventory management Packing orders for shipment Delivery Customer returns

Operations Issues in Online Sales Packing Orders for Shipment Items are identified by bar codes or radio frequency ID (RFID) Warehouse workers put ordered items in crates Sorter sends each item to the correct, bar-coded box for the customer who ordered it Packing slip is printed Boxes are packed, taped, weighed Boxes are put on trucks for shipment to customers

Operations Issues in Online Sales Delivery Objective: Deliver when promised, while minimizing delivery costs Brick-and-mortar stores (like Sears) can ship items to stores for customer pickup. Other online merchants ship via a package delivery service (like UPS) or U.S. postal service Online merchants use package delivery services for most shipments to other countries. Customers usually pay a standard shipping cost – different for U. S. and other countries

Operations Issues in Online Sales Customer Returns Objective: minimize the cost of customer returns and reduce "hassles" for customers 25% of Internet orders result in a customer return Problems in returning goods are the 2nd biggest reason that consumers don't buy online Customer usually pays for return shipping Variety of approaches used to return goods: postal service, contract package delivery service, brick-and-mortar store

Operations Issues in Online Sales Customer Returns (2) Online retailer must ship a replacement item or issue credit to customer Online retailer must process returned items Return defective items to supplier for a credit Good items can often be repackaged, priced, and resold.