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

2. 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

3. 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

4. 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

5. 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

6. 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)

7. 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

8. 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

9. 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.

10. 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

11. 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)

12. 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)

13. 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.

14. 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.

15. 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

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

17. 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

18. 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

19. 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

20. 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.