Determining Optimal Level of Product Availability Optimal Matching of Supply and Demand (III) 【本著作除另有註明外，採取創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版授權釋出】創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版 第九單元 ： Determining Optimal Level of Product Availability 1 蔣明晃教授

Levers for Increasing Supply Chain Profitability ►D►Decreasing the costs of overstocking and understocking ►R►Reducing the demand uncertainty 》I》I mproved forecasting to lower uncertainty 》Q》Q uick response: reduce lead time to increase number of orders per season 》P》P ostponement of product differentiation 》T》T ailored sourcing Microsoft 。 2

BENETTON Benetton 3

BENETTON Benetton 將毛衣的製造程序重新設計，將 原本先染色再編織的程序，改成先將毛線 編織成毛衣，等透過市場調查掌握市場流 行顏色後，才開始進行染色程序。如此， Benetton 公司可以避免大量顏色落伍的存 貨，每年因而節省數百萬美元的成本。 Benetton 4

BENETTON 72hr 12day Microsoft 。 5

ZARA zara.com Microsoft 。 6

What’s Quick Response? ►A widely used strategy 》 By general merchandise, soft-lines retailers and manufacturers 》 To reduce retail out-of-stocks, forced markdown, merchandising system and operating costs 》 Suppliers and retailers work together to respond more rapidly to consumer needs 》 By sharing POS information to jointly forecast future demand for replenishable items, and to continuously monitor trends to detect opportunities for new items 》 Spread through the supply chain and seamlessly linked at each stage by electronic data interchange ►A partnership strategy ►A JIT strategy 7

What’s Quick Response? ►A widely used strategy 》 By general merchandise, soft-lines retailers and manufacturers 》 To reduce retail out-of-stocks, forced markdown, merchandising system and operating costs 》 Suppliers and retailers work together to respond more rapidly to consumer needs 》 By sharing POS information to jointly forecast future demand for replenishable items, and to continuously monitor trends to detect opportunities for new items 》 Spread through the supply chain and seamlessly linked at each stage by electronic data interchange ►A partnership strategy ►A JIT strategy ►A widely used strategy ►A partnership strategy ►A JIT strategy 8

Basic Elements of QR Time horizons Information Supplier/ Manufacturer relationships Supplier/ Manufacturer relationships Philosophical/ Cultural change Philosophical/ Cultural change Logistics Manufacturing Operations Manufacturing Operations Time horizons Information Supplier/ Manufacturer relationships Philosophical/ Cultural change Logistics Manufacturing Operations 9

Example: US Textile and Apparel Industry in 1986 Fiber Fabric Apparel Consumer Retail Synthetics (75%) highly concentrated 》 Ten firms provide more than 90% of market More fragmented 》 6,000 firms 》 12 firms provide 1/4 of market Extremely fragmented 》 15,000 firms (70% employ fewer than 50 people) Increasing concentration Major categories: 》 Department stores 》 Mass merchandisers 》 Mail order 》 Chains 》 Specialty stores Increasing sophistication Expectation of variety/change Wide choice of retail outlets Fiber Fabric Apparel Consumer Retail 10

The Inefficiencies ►L►Long supply chain ►P►Problems of long supply chain ►1► overall loss - $25 billion 》 From raw material to consumer purchase was 66 weeks 》 11weeks in-plant time 》 40 weeks in warehouse or transit 》 15 weeks in store 》 Expensive to finance 》 Too much or too little product was produced and distributed 11

Expected Results through QR Fig QR system Weeks Fiber, Fabric, Apparel, and Retail Inventories (Working Weeks) Average Cost per Unit

Example: Benetton ►B►Benetton deliver knitted goods in the hottest new colors seemingly overnight. 》I》I t knitted the sweaters in neutral yarn and then dyed them to meet market demand. 》P》P utting in place fast and sophisticated retailer reporting systems. ►K►Key technologies 》B》B ar code systems 》C》C omputer networks 》A》A utomated distribution center 》E》E DI or Internet-based EC 》C》C IM Microsoft 。 13

ECR is a Global Industry Strategy in which Retailers and Suppliers Work Together to Deliver Better Consumer Satisfaction and Value. ECR(Efficient Consumer Response) Wikipedia 14

The Response ►Awaken the industry ►Targeting the common goals ►The total supply chain would achieve major gains in both efficiency and effectiveness 》 Focus on the entire supply chain rather than separate functions within it 》 Serve the consumer with the right products at the right time, and the right price 15

A strategy in which distributors and suppliers are working closely together to maximize grocery consumer satisfaction and minimize cost. Timely, accurate, paperless information flow Smooth, continual product flow matched to consumption Supplier Distributor Retail store Consumer household Consumer household What is Efficient Consumer Response? 16

Anatomy of Efficient Consumer Response A consumer purchases “Product A” from a supermarket. The transaction is recorded by the store’s scanner. The scanner forwards the transaction record to an in-store computer. The Product A manufacturer, whose computers interface with the retailer’s, notes the transaction and automatically reorders a replacement unit on a just-in-time basis. An automatic ordering system allows the product A supplier to match production to demand using product movement information and forecasting. Because production is tied directly into demand, retailers become increasingly freed from the need for excess inventory and warehousing of excess inventory, thus opening the door for increased cross-docking and direct store delivery shipments. The retailer’s in- store computer acknowledges receipt of the shipment and automatically issues a computer- generated payment or electronic fund transfer payment, eliminating the need for paper invoices and streamlining the accounting process. Microsoft 。 Codigofonte.net 網站 Microsoft 。 17

Efficient Consumer Response Process Manufacturing business strategy Manufacturing business strategy Replenishment Promotion Product introductions Store assortments Retail business strategy Retail business strategy Replenishment Promotion Product introductions Store assortments Open communication Change management Integrated EDI Continuous replenishment Computer-assisted ordering Flow-through distribution Activity-based costing Category management Flexible manufacturing Manufacturing business strategy Retail business strategy 18

ECR Strategies & Objectives StrategiesObjectives Efficient Store Assortment Optimize the productivity of inventories and store space at the consumer interface Efficient Replenishment Optimize time and cost in the replenishment system Efficient Promotion/Pricing Maximize the total system efficiency of trade and consumer promotion & pricing Efficient Product Introductions Maximize the effectiveness of new product development and introduction activities 19

ECR Components ►Logistics (Supply Side) 》 Continuous Replenishment 》 Cross Docking ►Category Management (Demand Side) 》 Understanding Consumer Needs 》 Decisions Made with Data 》 Category vs. Brand Focused 》 Total Systems Approach ►Enabling Technologies (Tools) 》 Electronic Fund Transfer (EFT) 》 Electronic Data Interchange (EDI) 》 Activity Based Costing (ABC) 》 Item Coding & Database Maintenance 20

Supplier warehouse 38 days Distribution warehouse (Forward buy 9 days, turn inventory 31 days) 40 days Retail store 26 days Supplier warehouse 27 days Distributor warehouse 12 days Retail store 22 days 104 days ECR DRY GROCERY CHAIN CURRENT DRY GROCERY CHAIN 61 days Packing line Packing line Consumer Purchase Consumer Purchase Packing line Packing line Consumer Purchase Consumer Purchase Example: Throughput Time Improvement of Dry Grocery 21

Stores P & G Plant P & G Headquarters Customer Headquarters Customer DistributionCenters Store Delivery Store Delivery Orders Direct store level shipment Demand and Inventory Demand and Inventory Ordering info Orders Example: P&G’s CRP Process Dedicated Carriers and Prescheduled Appointments Dedicated Carriers and Prescheduled Appointments Demand and Inventory Demand and Inventory Shipping info. Ordering info Wikipedia Codigofonte.net 網站 臺灣大學 郭瑞祥老師 22

ECR Requirements ►T►Think Total Supply Chain 》M》M ulti-Function, Multi-Echelon Cooperation ►C►Convert Efficiencies to Customer Value 》D》D rive True Efficiency and Recognize Inefficiency ►E►Emphasize on Consumer 》W》W ork Together to Create Demand ►C►Change Business Processes 》I》I dentify What’s Wrong Today ►T►Trust 》T》T o be Partners 》S》S hare Data 23

Barriers ►L►Lack of Trust ►L►Lack of Fairness - Open Trading ►N►No Information Sharing ►L►Lack of Resource Commitment ►L►Lack of Industry Standards ►C►Culture (Negotiation Environment) ►M►Measurement/Rewards 24

Quick Response: Multiple Orders per Season ►O►Ordering shawls at a department store 》S》S elling season = 14 weeks 》O》O riginal replenishment lead time = 15 weeks 》R》R educed replenishment lead time = 6 weeks 》C》C ost per handbag = $40 》S》S ale price = $150 》D》D isposal price = $30 》H》H olding cost = $2 per week ►E►Expected weekly demand = 20 ►S►SD of weekly demand = 15 Microsoft 。 25

Quick Response: Multiple Orders per Season ►O►Ordering shawls at a department store 》S》S elling season = 14 weeks 》O》O riginal replenishment lead time = 15 weeks 》R》R educed replenishment lead time = 6 weeks 》C》C ost per handbag = $40 》S》S ale price = $150 》D》D isposal price = $30 》H》H olding cost = $2 per week ►E►Expected weekly demand = 20 ►S►SD of weekly demand = 15 Microsoft 。 26

Quick Response: Multiple Orders per Season 》 The buyer’s forecast accuracy doesn’t improve for second order ►Two ordering policies: ►Two situations: 》 A single order must arrive at the beginning of the season to cover the entire season’s demand 》 Two orders are placed in the season, one arriving at the beginning of the season and the other arriving at the beginning of the eighth week 》 The buyer’s forecast accuracy does improve for second order 》 Reduced replenishment lead time = 6 weeks 27

Impact of Quick Response: Forecast doesn’t improve for second order (SD=15 ) Single Order Two Orders in Season Service Level Order Size Average Overstoc k Expect. Profit Initial Order OUL for 2 nd Order Average Total Order Ending Invent. Expect. Profit $23, $26, $24, $27, $24, $27, $24, $26, $24, $27, $25, $26,       

Observations ►It’s possible to provide the same level of product availability to the customer with less inventory if a second follow-up order is allowed ►The average overstock to be disposed of at the end of the sales season is less if two orders are allowed ►The profits are higher if second order is allowed 29

Leftover Inventory vs. Number of Order Cycles per Season Unsold Inventory at End of Season Number of Order Cycles per Season 30

Expected Profit vs. Number of Order Cycles per Season Expected Profit Number of Order Cycles per Season 31

Forecast Improves for Second Order (SD=3 instead of 15) Single OrderTwo Orders in Season Service Level Order Size Average Overstock Expect. Profit Initial Order OUL for 2 nd Order Average Total Order Ending Invent. Expect. Profit $23, $27, $24, $27, $24, $26, $24, $27, $24, $27, $24, $27,    3 32

Impact of Quick Response: Forecast doesn’t improve for second order (SD=15 ) Single Order Two Orders in Season Service Level Order Size Average Overstoc k Expect. Profit Initial Order OUL for 2 nd Order Average Total Order Ending Invent. Expect. Profit $23, $26, $24, $27, $24, $27, $24, $26, $24, $27, $25, $26,       

Forecast Improves for Second Order (SD=3 instead of 15) Single OrderTwo Orders in Season Service Level Order Size Average Overstock Expect. Profit Initial Order OUL for 2 nd Order Average Total Order Ending Invent. Expect. Profit $23, $27, $24, $27, $24, $26, $24, $27, $24, $27, $24, $27,    3 34

Notes ►Quick response is clearly advantageous to a retailer. ►But as the retailer order size drops, the manufacturer sells less to the retailer. Thus, the manufacturer make a lower profit in the short term if all else is unchanged. It seems to benefit retailer at the expense of the manufacturer. 35

►D►Delay the timing of the crucial processes in which end products assume their specific functionality, features, identities, or ‘personality’ ►C►Can be viewed as information strategy ►3►3 different kinds of postponement: Meaning of Postponement pull logistics form 36

►Delay the timing of the crucial processes in which end products assume their specific functionality, features, identities, or ‘personality’ ►Can be viewed as information strategy ►3 different kinds of postponement: pull Pull Postponement pull logistics form ►BTS vs BTO ►Decoupling point: the point from which the process switches from a build-to-stock mode to the build-to- order mode. ►Meaning of pull postponement: 》 Making the decoupling point earlier in the process. Microsoft 。 37

Pull Postponement:EX.1 Microsoft 。 Wikipedia 38

Pull Postponement:EX.2 Wikimedia commons Wikipedia flickr.com Like_the_Grand_ Canyon 39

頁碼作品授權條件作者 / 來源 2 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合約 及著作權法第 46 、 52 、 65 條合理使用。 Microsoft 服務合約 3 Benetton 。本作品轉載自網站 ( ) ，瀏覽日期 2012/1/11 。依據著作權法第 46 、 52 、 65 條合理使用。 ( 因網站商品隨時更 新，故此頁面無永久性網址。 ) 3 Benetton 。本作品轉載自網站 ( ) ，瀏覽日期 2012/1/11 。依據著作權法第 46 、 52 、 65 條合理使用。 ( 因網站商品隨時更 新，故此頁面無永久性網址。 ) 4 Benetton 。本作品轉載自網站 ( ) ，瀏覽日期 2012/1/11 。依據著作權法第 46 、 52 、 65 條合理使用。 ( 因網站商品隨時更 新，故此頁面無永久性網址。 ) 4 Benetton 。本作品轉載自網站 ( ) ，瀏覽日期 2012/1/11 。依據著作權法第 46 、 52 、 65 條合理使用。 ( 因網站商品隨時更 新，故此頁面無永久性網址。 ) 5 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合約 及著作權法第 46 、 52 、 65 條合理使用。 Microsoft 服務合約 6 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合約 及著作權法第 46 、 52 、 65 條合理使用。 Microsoft 服務合約 版權聲明 40

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