Zen and the Art of Supply Chain Management

Today’s Agenda

What is Supply Chain Management (SCM)?

Goals of SCM Perdue Farms Case Study Questions Real World Activities Conclusion

What is supply chain management?

“Cross functional inter-enterprise system them uses information technology to help support and manage the links between some of a companies key business processes and those of its suppliers, customers, and business partners”

Goal of SCM

Create a fast, efficient, low cost network of business relationships

Get a product from concept to market

Perdue Farms

Supplier of agricultural products Made critical investments in SCM

infrastructure to make sure products arrive fresh

“Getting the turkey from farm to table is a race against time”

Key Factors of Successful SCM

Demand Forecasting Accurate Realistic

Collaboration with business partners Internal (Marketing, Production) External (Suppliers, Distributors)

Cohesive network IT Systems Infrastructure

Case Study Question #1

Factors under firm’s control

Supplier relationships Logistics Systems Information Systems

Accuracy Consistency Reliability/Stability

Case Study Question #1

Factors out of firm’s control

Regulations Weather Natural Disasters Government Intervention Competitor Action Inflation/Deflation

Case Study Question #1

The Gift Card Effect

Increasing use of gift cards poses a unique problem to SCM: Know there will eventually redemption

and total dollar amount But don’t know when, where, or what will

be redeemed Causes issue with demand planning

and supply chain management 20% redeemed week after Christmas 80% redeemed January and February

Case Study Question #2

Gift Card Strategy

Strategy 1: Require online activation and offer discount to online products. Customer can have the item they want shipped

to the store of their choosing No need to carry excessive inventory in store

Strategy 2: Use information from holiday season and compare against dollar amount for a rough estimate of demand post-holiday season Offers some rough demand planning based Realistic and accurate

Case Study Question #2

The Gift Card Strategy

http://www.dimpledough.com/corporatecard

http://www.retailsolutionsonline.com/article.mvc/DimpleDough-Releases-Total-Corporate-Gift-0001?VNETCOOKIE=NO

Strategy Example

Holiday Season Spending Patterns Total of $100 spent at XYZ Inc.▪ $30 on TVs▪ $40 on Candy▪ $25 on Dog Food▪ $5 on DVDs

After holiday season spending pattern should mirror holiday season spending pattern

We know $100 was purchased as gift cards Mixture of smaller and larger goods

Case Study Question #2

“Smart companies substitute information for inventory”

The more information that is available, the more precise a firm can be in managing inventory Location Level Category/SKU Level

Information on category demand, inventory turnover, and lead times can be invaluable

Effectively using data can minimize inventory levels (and free up cash!)Case Study Question #3

Substituting Information for Inventory: Example

Store A turns over its TV inventory every 3 days, while Store B turns over its TV inventory ever 12 days Look for trends in sales to determine proper

inventory levels Monitor for possible changes in trend

Supplier X lead time for orders in 120 days, while Supplier Y lead time for orders in 90 days but is more costly. Both suppliers supply the same product Use Supplier X to satisfy base demand Use Supplier Y to satisfy peaks in demand

Case Study Question #3

Holiday Season SCM Problems

Best Buy – “Bullwhip Effect” Reduced demand forecast for Electronics

Reduced demand for Blue Ray Players Reduced demand for semiconductors Reduction of small business/manufacturing workforce by 75%

http://online.wsj.com/article/SB124260855682928885.html

Real World Activity #1

Holiday Season SCM Problems Continued

Sony PS3 SCM Failure Sony launched 400k units of PS3 in USA on

November 2006. Despite there was a lack of availability of the

Blu-Ray components for its Blu-Ray drive, this feature was a added value.

The Demand was higher than expected January 2007, 1,000,000 consoles were

shipped to USA

http://mba.tuck.dartmouth.edu/digital/Research/AcademicPublications/GameConsoles.pdf

How do you do your holiday shopping?

Holiday Purchasing Practices

Darcy Last minute, not concerned with price at very last minute

Heli Well thought out in advance

Kim Value shopper, goes wherever the sale is

Hermela Last minute value shopper, tough decisions made

Drew Partly skilled and thought out planning, last minute and haphazard

Real World Activity #2

5 consumers with very different purchasing styles , makes it hard to plan!

Diverse planning practices exist in the same company!