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Construction and Management of a Supply Chain for an e-commerce
website in Grocery Industry
Project for Group4
Group member: Li Yan, Tan Hee Liang,
Weng Yongmei, Zhang Cheng
Page Page 22
Design the Website and the supply chain The nature of our website in the supply chain
– We are a pure virtual EC website selling groceries– A retailer in the supply chain, we have suppliers upstream,
corporate buyers & end users downstream– We hold our own inventory but we don’t have any physical
store – Our mission is to provide customers with the most
economical yet the widest choice of quality grocery items in a fast, cost-efficient and effective way
The nature of demand for our products– Customers decide what we carry– Grocery products are functional products– Stable, predictable demand and long life cycles – The supply chain for this functional products should be
physically efficient and responsive to the market
Page Page 33
Design the Website and the supply chain
Supplier analysis– Multiple choice, manufacturers and wholesalers to get the
most original price– Continuous Replenishment Inventory control with us– IOIS to share inventory data, sales data, so we can
cooperate very effectively and efficiently with each other. – With CRP and IOIS we also can simplify order process and
reduce order process time Customer analysis
– Corporate buyers: B2B, regular and in relatively small number, most of the profit are from them
– Individual end users: B2C– Customer strategy can be different
Page Page 44
Design the Website and the supply chain
Service level– Delivery-to-doorstep service – Emergency delivery– Stock-out rate is about 1%– Goods return service
Design of the website (from management point of view)– Management department– Procurement and sourcing department– Order processing department– Technical support department– Information source department
Page Page 55
Design the Website and the supply chain Design of the website (from technology point of
view)– Order-taking component– Goods returning component– Supplier component– Validation component– Billing and invoicing component– Electronic notification component– Managers component
Supply chain strategy– Automation, low inventory, effective products promotion, good
customer service, free information sharing, 3rd party logistics
Page Page 66
ReferencesReferences
1. CS5262 IT and Supply Chain Management Notes2. Robert B. Handfield, Ernest L. Nichols, Jr.
Introduction to Supply Chain Management3. Marshall L. Fisher What is the right supply chain for
your product? In Harvard Business Review, March-April 1997 pp105-116
4. Donald A. Hicks, Next Generation Supply Chain Strategic Planning Technology and Application, http://hicks.ASCET.com
5. H.E.Butt Grocery Company: A Leader in ECR Implementation
Overall Supplier PolicyOverall Supplier PolicyMultiple sourcing VS. Single Sourcing Advantages: 1.Avoid the risk of relying on a single supplier 2.Freedom to choose the best from all suppliers 3.Greater bargaining power Disadvantages: 1.Communication and relation is complicated 2.More training to suppliers needed 3.Not easy to keep the loyalty with the suppliers Local Sourcing mixed with Global Sourcing Advantages of local sourcing: 1.Better cooperation with suppliers 2.Easier delivery and less delivery cost 3.Emergency orders are easily met Advantages of global sourcing: 1.More variety of products to choose from 2.Lower prices generated from difference in labor cost and material cost between overseas market and local market
Page Page 88
Requirements & Standards Requirements & Standards for suppliers for suppliers
The Supplier Agreement Inter-Organizational Information System (IOIS) Lead-time Requirements Suppliers’ ATP Record Required Timely Delivery Industry Knowledge and Integrity
Page Page 99
Understanding Bullwhip EffectUnderstanding Bullwhip Effect Definition Bad Effects:
– excessive inventory investment
– insufficient or excessive capacities
– stock outs and backlogs(lost revenues)
– poor customer service Causes:
– demand forecast update
– order batches
– price fluctuation
– shortage gaming Customer Retailer Supplier Manufacturer
Page Page 1010
Counteractions for Counteractions for Bullwhip Effect Bullwhip Effect
Ordering Policies – CRP or VMI for products with little variation in demand – Normal ordering for products which vary greatly in demand– Emergency orders
Counteractions for Bullwhip Effect– Avoid multiple demand forecast updates by information sharing– Break the order batches– Stabilize the prices– Eliminating gaming in shortage situation
Page Page 1111
ReferencesReferences Robert B. Handfield and Ernest L. Nichols, Jr., Introduction
to Supply Chain 1999 Jayashankar M. Swaminathan and Norman M. Sadeh and
Stephen F. Smith Effect of Sharing Capacity Information 1997
Hau L. Lee and Paddy Padmanabhan and Seungjin Whang The Paralyzing Curse of the Bullwhip Effect in a Supply Chain 1995
Troy J. Strader and Fu-Ren Lin and Michael J. Shaw Business-to-Business Electronic Commerce and Convergent Assembly Supply Chain 1999
Efraim Truban, Jae Lee, David King and H. Michael Chung Electronic Commerce A Managerial Perspective 1999
Page Page 1212
Customer service
Customer Service Strategy – Customer Characteristics
Purchaing BehaviorContact Charater
Contact MethodInformation Recording
Loyalty Program
Bulk, low purchasing rate
One-to-OneFace-to-face, phone,
fax, email, EDIVery Detailed Often
End-user Normal UserSmall volume, low purchasing rate
One-to-ManyWebsite, phone, fax,
emailGeneral Rare
Loyal MemberSmall volume, high
purchasing rateOne-to-Many
Website, phone, fax, email
Detailed Often
Corporation
Customer Type
Page Page 1313
Customer service
– Customer Management
– Service Strategy Service Performance Index
– Response Time
– Service Level
– Cycle Time
– Inventory Turnover
Page Page 1414
Logistics process
Third-party logistics
Cross-docking
Warehouse management
Emergency Force
Page Page 1616
Information Management Information Management Strategy
– Information Sharing – Mixed Decentralized and Centralized Information
Management
Page Page 1717
ReferencesReferences Ronam McIvor, “A practical framework for understanding the outsourcing
process”, Supply Chain Management: An International Journal”, Volume 5. Number1. 2000 pp.22-36
Theodore P. Stank and Thomas F. Goldsby, “A framework for transportation decision making in an integrated supply chain”, Supply Chain Management: An International Journal”, Volume 5. Number2. 2000 pp.71-77
Remkp I.van Hoek, “Postponement and the reconfiguration challenge for food supply chains”, Supply chain Management, Volume4. Number1. 1999. pp.18-34
Tome Davis, “Effective Supply Chain Management”, Sloan Management Review/Summer 1993
Jules Abend and Penny Gill, “Retail,E-Tail”, Supply chain management review, May/June 2000
Dow Bauknight and Douglas J.Bade, “Fourth Party Logistics—Breakthrough Performance in supply chain outsourcing”, Supply Chain Management Review Global Supplement, Winter 1999.
Page Page 1818
Order fulfillment
Traditional retailer– Minimal differentiation of service level
– Most orders are large and infrequent
– Demand is stable and consistent
– Delivery locations are concentrated and standard e-tailer
– More differentiation of service level
– Most orders are small and frequent
– Demand spikes are sporadic and consistent
– Delivery locations are highly dispersed
Page Page 1919
Order fulfillment
Improve backend processes– infrastructure eg EDI, Internet, Extranet
– integration of processes such as order fulfillment, warehouse management and distribution processes
Improve customer service– Availability to Promise
– Realistic expectation Get help from 3rd party logistics provided
– Inventory management, warehouse management and fulfillment
Page Page 2020
Order fulfillment
Different distribution models– Own warehouse and distribution (Amazon.com )
– Own warehouse and 3rd party distribution (Toysmart.com )
– Pure-play. Supplier has own distribution network (Garden.com)
– 3rd party logistics (Fogdog Sports)
– Multi-channel (eWorldofSport.com)
Page Page 2121
Order fulfillment Comparison of e-tailers
Garden Toysmart Furniture
Perishability Yes No No
Product focus Plants Toys Furnishings anddecors
Size of order Moderate Small Bulky
Order pattern A few peakperiods
Peak duringChristmasperiod
Constant
Inventoryturnover rate
Moderate Fast Slow
Warehousemanagement
Supplier-managed.
Manage ownwarehouse.
Supplier-managed.
Distributionchannel
Supplier-managed.
Outsource to 3rd
party.Supplier-managed.
Page Page 2222
ReferencesReferences Convenience is king,PricewaterhouseCoopers, 24 Jan 2000 E-retailers learn delivery lesson,David Orenstein
Computerworld, 03 Jan 2000 Integration for online customer retention
PricewaterhouseCoopers, 2000 Internet retailers,Mark Emond,e-com advisor, vol.2 no.3, 2000 Battle for holiday 2000 dot com retailers focus on order
fulfillment to survive Giftware Business News Watch, 2000 The emergence of third-party logistics
PricewaterhouseCoopers, 2000 Stand (pick) and deliver,Constantine Von Hoffman
CIO Magazine, 15 Apr 2000