Zen and the Art of SCM
Transcript of Zen and the Art of SCM
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
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!