CHAPTER 1

1. Consider the purchase of a can of soda at a convenience store. Describe the various stages in the supply chain and the different flows involved.

When a customer purchases a can of soda at a convenience store, his purchase represents the end of a supply chains delivery of an item and the beginning of information regarding his purchase flowing in the opposite direction. The supply chain stages include customers, retailers, wholesalers/distributors, manufacturers, and component/raw material suppliers. A customers purchase moves product towards the customer and dollars and information towards the retailer. The retailer places an order from the wholesaler/distributor to replenish stock, thereby moving information back up the supply chain while moving product down the supply chain. As the order is filled, the retailer will move dollars back up the supply chain. The wholesaler/distributor transmits information and dollars to the manufacturer who produces product and ships it down the supply chain to the wholesaler. Finally or initially, depending on your perspective! the manufacturer moves orders information! and dollars towards suppliers in e"change for material flow into their

production processes. 2. Why should a firm like Dell take into account total supply chain profitability when making decisions?

#ell reali$es that their ultimate success lies with the success of their supply chain and its ability to generate supply chain surplus. %f #ell was to view supply chain operations as a $ero sum game, they would lose their competitive edge as their suppliers businesses struggled. #ells profit gained at the e"pense of their supply chain partners would be short lived. &ust as a physical chain is only as strong as its weakest link, the supply chain can be successful only if all members cooperate and focus on a global optimum rather than many local optima. 3. What are some strategic planning and operational decisions that must be made by an apparel retailer like he !ap?

As The 'ap plans supply chain strategy it must first consider the marketing functions pricing plans in order to structure a supply chain consistent with these plans. (trategic considerations such as the capacity of each supplier and assembly operations, sourcing decisions and how logistics are to be handled are all part of the design. The supply chain must also settle on communication channels and fre)uencies. (upply chain planning takes the strategic decisions as a given and seeks to e"ploit efficiencies in the chain to ma"imi$e supply chain surplus. The entire chain should collaborate in forecasting and planning production to achieve a global optimum. The forecasts should take into account planned promotions and known seasonal fluctuations in demand. The operational decision takes the plans as a given and makes day*to*day decisions to process customer orders, allocate resources to certain customers, trigger orders from supply chain members, and deliver product. ". Consider the supply chain involved when a customer purchases a book at a bookstore. #dentify cycles in this supply chain and the location of the

push$pull boundary.

All supply chain processes can be broken down into four process cycles that connect the five stages of the supply chain+ the customer order cycle, the replenishment cycle, the manufacturing cycle, and the procurement cycle. The customer order cycle connects the customer with the retailer+ this connection is made as the book, perhaps (upply ,hain -anagement by ,hopra and -eindl, is selected and paid for by the customer. The replenishment cycle connects the retailer and the distributor and is triggered by the retailers need to fill the empty shelf space with another copy of this tome. The manufacturing cycle connects the distributor and the manufacturer. As demand for the book is reali$ed and distributors empty their warehouses, they signal the manufacturer to print another million copies to fill their empty warehouses. Finally, the procurement cycle connects the manufacturer and the supplier. The manufacturer re)uires raw material inputs of paper, ink, etc., to begin the assembly process for another batch of (upply ,hain -anagement. The push/pull boundary e"ists where demand switches from reactive pull! to speculative push! production. For most bookstore supply chains the push/pull boundary is between the customer order cycle and the replenishment cycle. The customer order pulls the book from the book store shelf but the initial production of the book was triggered by a build order that moved materials along the supply chain to the retail outlet. %. Consider the supply chain involved when a customer orders a book from &ma'on. #dentify the push$pull boundary and two processes each in the push

and pull phases. %n Ama$ons original operations design the push/pull boundary e"isted betwi"t the retailer Ama$on! and their distributor. Ama$on ordered product from the distributor and the customer order arrived. Today, Ama$on has si" warehouses where it stocks an inventory of items it is confident that will sell. %n this scenario, the push/pull boundary e"ists between the customer and the retailer. .rocesses in the pull phase are the order fulfillment, shipping, customer returns, and customer billing. .rocesses in the push phase are production, stock replenishments, shipping, and payment. (. #n what way do supply chain flows affect the success or failure of a firm like &ma'on? )ist two supply chain decisions that have a significant impact on

supply chain profitability. The success or failure of a company like Ama$on is decided by the effective function of its supply chain. The flow of products from publishers to distributors to customers must be rapid and reliable in order to satisfy customers. The flow of information back through the supply chain allows all members to coordinate efforts. The flow of money allows all supply chain members to maintain operations. (upply chain profitability is influenced by sourcing, promotion, and fulfillment decisions.

CHAPTER 2
1. *ow would you characteri'e the competitive strategy of a high+end department store chain such as ,ordstrom? What are the key customer needs that

,ordstrom aims to fill?

The /ordstrom web site states the following. 0ver the years, the /ordstrom family of employees built a thriving business on the principles of )uality, value, selection, and service. Today, /ordstrom is one of the nations leading fashion retailers, offering a wide variety of high*)uality apparel, shoes, and accessories for men, women, and children at stores across the country. We remain committed to the simple idea our company was founded on, earning our customers trust one at a time. /ordstrom fills customer needs for high )uality fashion merchandise and outstanding levels of customer service. .rice is no ob1ect for the typical /ordstrom shopper. 2. Where would you place the demand faced by ,ordstrom on the implied demand uncertainty spectrum? Why?

%mplied demand uncertainty is demand uncertainty due to the portion of demand that the supply chain is targeting, not the entire demand. A high*end department store chain such as /ordstrom falls on the high end of the implied demand uncertainty scale. The fashion items that /ordstrom stocks have e"tremely high product margin, high forecast errors and stockout rates, and once the season is over, these items are sold at deep discounts at their /ordstrom 2ack outlet stores. 3. What level of responsiveness would be most appropriate for ,ordstrom-s supply chain? What should the supply chain be able to do particularly well?

(upply chain responsiveness takes many forms, including the ability to respond to a wide range of )uantities, meet short lead times, handle a large variety of products, build innovative products, meet a high service level, and handle supply uncertainty. The /ordstrom supply chain must be highly responsive in the areas of handling highly innovative fashion products, customer response, and service level+ they are effective in supplying well*heeled customers with merchandise and their return policy is legendary in the .acific /orthwest. ". *ow can ,ordstrom e.pand the scope of the strategic fit across the supply chain?

(cope of strategic fit refers to the functions within the firm and stages across the supply chain that devise an integrated strategy with a shared ob1ective. 3y adopting an intercompany interfunctional scope strategy, /ordstrom will ma"imi$e supply chain surplus. /ordstrom can move in this direction by working with their suppliers as if they are actually owned by /ordstrom. 2ather than viewing the supply chain as a $ero*sum game of inventory cost minimi$ation and profit ma"imi$ation, /ordstrom must recogni$e that spreading the wealth and occasionally taking on more inventory than is optimal for them will result in improved customer service. The intercompany interfunctional scope of strategic fit re)uires more effort than the other approaches presented in this section+ /ordstrom must evaluate all aspects of their supply web. %. /econsider the previous four 0uestions for other companies such as &ma'on.com1 a supermarket chain1 and auto manufacturer1 and a discount retailer

such as Wal+2art. Ama$on.com focuses on cost and fle"ibility by providing books, music and a host of other household products at low prices. ,ustomers place orders online and e"pect to receive purchases in a number of days. ,ustomer orders are processed at central warehouses or are drop shipped from suppliers by mail or common carrier. For the most part, the implied demand uncertainty for Ama$on.com is low as they cast such a wide net. Ama$on.coms supply chain must be responsive in terms of fle"ibility+ they handle an incredibly diverse range of products. Ama$on.coms supply chain should be able to provide low prices wide variety and reasonable delivery schedules for its customers. %n every link of the supply chain, Ama$on.com must function on the cost*responsiveness efficient frontier in order to support its competitive strategy. A supermarket chain focuses on cost and )uality, with some specialty chains adding fle"ibility by carrying a broader range of products that may be targeted towards customers interested in organic products or ethnic cuisine. %mplied demand uncertainty for a supermarket chain tends to be low+ shoppers are typically repeat customers and have a constant demand level. The supermarket supply chain must be responsive by receiving produce )uickly to ensure freshness and have a high service level. (upermarket supply chains tend to be well*established and can improve strategic fit by emphasi$ing speed to maintain freshness, hence perceived )uality.

Auto manufacturers have e"tremely complicated supply chains that are increasingly focused on fle"ibility and lean operations. %mplied demand uncertainty for auto manufacturers varies considerably by target market and manufacturer. Automotive supply chains among the big three in the 4nited (tates have made great progress in the last decade and recogni$e that they must be responsive from a time and fle"ibility standpoint. Wal*-arts supply chain is obsessed with cost and is facilitated by a low implied demand uncertainty, their impressive logistics system and their management information systems. Their supply chain is able to respond )uickly to fill a wide variety of products to keep merchandise on Wal*-arts shelves. Wal*-arts level of coordination along the supply chain is e"cellent+ it would be difficult to point out areas where true intercompany interfunctional scope of strategic fit has not been achieved. The sole supply chain criticism that surfaces is an occasional report that suppliers feel as if supply chain surplus is not shared e)uitably.

(.

!ive arguments to support the statement that Wal+2art has achieved very good strategic fit between its competitive and supply chain strategies.

The best argument to support the statement that Wal*-art has achieved very good strategic fit is their success as a company. ,ompetition today is supply chain versus supply chain, not company versus company, so a companys partners in the supply chain often determine the companys success. Wal*-arts strategic focus on cost is evident in their competitive, product development, supply chain, and marketing strategy. Their marketing strategy of advertising every day low prices appeals to consumers and does not disrupt the supply chain by causing surges in demand. 5isiting one of their big bo" stores reveals low*priced merchandise, both national and store brands, stacked from floor to ceiling without elaborate displays or decoration. Wal*-arts logistics and information systems are famous for coordinating their entire supply chain and allowing it to meet customer needs at minimal cost. 3. What are some factors that influence implied uncertainty? *ow does the implied uncertainty differ between an integrated steel mill that measures

lead times in months and re0uires large orders and a steel service center that promises 2"+hour lead times and sells orders of any si'e? From a customer perspective, implied demand uncertainty increases when the customers range of )uantity re)uired increases, lead times decrease, variety of product increases, rate of innovation increases and re)uired service levels increase. We also see high implied uncertainty attributed with high product margins, forecast errors above 678, stockout rates above 978 and forced season*end markdowns. 0n the supply side we see increased supply uncertainty when the supply source has fre)uent breakdowns, unpredictable and low yields, poor )uality, limited supply capacity, and evolving production processes. For the steel mill that re)uires large orders and has lead times measured in months both the implied demand and supply uncertainty is less due to a better predictable capability and a better defined schedule for production. #ue to the increasing number of si$es and the shorter response time associated with the steel service center, implied uncertainty is high. 4. What is the difference in implied uncertainty faced by a convenience store chain such as 3+5leven1 a supermarket chain1 and a discount retailer such as

Costco? When customers go to a convenience store chain such as :*;leven, they go there for the convenience of a nearby store and are not necessarily looking for the lowest price. %mplied demand uncertainty would be high as customers are looking for a variety of products and convenience versus cost and demand levels are hard to predict.

A supermarket chain focuses on cost and )uality, with some specialty chains adding fle"ibility by carrying a broader range of products that may be targeted towards customers interested in organic products or ethnic cuisine. %mplied demand uncertainty for a supermarket chain tends to be low+ shoppers are typically repeat customers and have a constant demand level. The supermarket supply chain must be responsive by receiving produce )uickly to ensure freshness and have a high service level. (upermarket supply chains tend to be well*established and can improve strategic fit by emphasi$ing speed to maintain freshness, hence perceived )uality. <ow price is very important to customers of discount retailers such as ,ostco. This customer is willing to tolerate less variety and even purchase very large package si$es as long as the price is low. ,ustomer demand can be more predictable and supply side needs are large and fairly stable. 6. What are some problems that can arise when each stage of a supply chain focuses solely on its own profits when making decisions? #dentify some

actions that can help a retailer and a manufacturer work together to e.pand the scope of strategic fit. =igh inventories, poor )uality, low customer service, increased returns are 1ust a number of problems that occur when each stage of a supply chain focuses solely on its own profits. The trucking company re)uires full truck loads for delivery forcing the retailer to carry more inventory than wanted or needed. The supplier offers discounts to their buyers to ma"imi$e production but forcing the buyers to purchase in larger )uantities than desired. companies to minimi$e local costs and ma"imi$e their own profits. Today, retailers and manufacturers have the opportunity to plan promotions 1ointly such as Wal*-art and .A'. They can share sales information to determine customer This concept was very prevalent during the 9>?7s and 9>@7s as

trends. &oint product development opportunities are being e"plored throughout the supply chain between retailers, manufacturers and raw material suppliers.

CHAPTER 3
1. *ow could a grocery store use inventory to increase the responsiveness of the company-s supply chain?

The logistical driver of inventory encompasses all raw materials, work in process, and finished goods within a supply chain. A grocery store can be more responsive in the eyes of its customers if it offers a broader variety of (B4s and/or maintains a greater )uantity of each (B4. A greater )uantity of each (B4 is problematic for highly perishable items like produce, meat, fish, etc. For these items, a grocery store supply chain should be set up to permit fre)uent orders so that freshness is ensured and a stockout situation wont e"ist for a significant length of time. A grocery store supply chain should use historical demand patterns for seasonal items to relieve stress on all members and provide customers with product during peak demand periods. 2. *ow could an auto manufacturer use transportation to increase the efficiency of its supply chain?

Transportation, a logistical driver, entails moving inventory from point to point in the supply chain. The trade*off in transportation is between the cost of transportation and the speed at which product is transported. (lower modes of transportation reduce cost, but could be a reasonable approach if suppliers are co*located with the assembly operations. %f the supply chain is designed in such a way, and assembly operations are located with pro"imity to markets, then the supply chain can be run cheaply without holding too much inventory in transit. 3. *ow could a bicycle manufacturer increase responsiveness through its facilities?

Facilities, another logistical driver, are the actual physical locations in the supply chain network where product is stored, assembled, or fabricated. A facility that is designed to be fle"ible can respond )uickly to market demands by retooling to produce different models or products, whereas a dedicated facility cannot. <ocating a facility close to the

market will increase responsiveness at the cost of decreased economies of scale that might be achieved with a centrali$ed location. A facility that is under capacity will be less responsive than a facility that is appropriately si$ed or has e"cess capacity. ". *ow could an industrial supplies distributor use information to increase its responsiveness?

%nformation is a cross*functional driver and consists of data and analysis concerning facilities, inventory, transportation, costs, prices, and customers throughout the supply chain. %nformation serves as a connection among all members of the supply chain and operates within each member to facilitate internal operations. Accurate information can improve responsiveness by helping an industrial supplier better match supply and demand. %nformation that is gathered farther down the supply chain can be transmitted instantaneously and accurately to the supplies distributor. %nstead of waiting for a human to call or FAC an order, the distributor can replenish inventory to the necessary levels or provide what is needed to fill the order as it is reali$ed. %. 2otorola has gone from manufacturing all its cell phones in+house to almost completely outsourcing the manufacturing. What are the pros and cons of

the two approaches? (ourcing is the set of business processes re)uired to purchase foods and services. These decisions are crucial because they affect the level of efficiency and responsiveness that -otorola can achieve. The -otorola production system for their line of pagers was hailed as a breakthrough in mass customi$ation, so it was somewhat surprising when -otorola outsourced cell phones.. (ourcing decisions should be made based on the total supply chain surplus+ if a third party can help the chain achieve greater surplus, then the function is a prime candidate for outsourcing. -otorola was willing to give up some control and possibly some of its design talent and assembly e"pertise because it felt that the supplier could provide product of an appropriate level of )uality with the responsiveness necessary. .roducts and services that are outsourced are rarely brought back in*house and should never be tied too closely to the outsourcing partys core competency. (. *ow can a home delivery company like 7eapod use pricing of its delivery services to improve its profitability?

.ricing is the process by which a firm decides how much to charge customers for its goods and services. .ricing affects the customer segments that choose to buy the product as well as the customers e"pectations. .eapod can use everyday low pricing of its products to ensure stability in the supply chain, but can influence demand by varying the delivery charges. For e"ample, by establishing a minimum order amount of D?7 and charging D97 to deliver an order under D:?, .eapod provides an incentive for a customer to pile on additional items to save on per unit shipping. An order over D977 incurs a delivery fee of D:, which is the lowest delivery charge for a residential customer. .eapod also varies delivery charges by time of day+ evening delivery times on weekdays and morning deliveries on (unday within narrow windows cost an e"tra dollar, wider delivery windows are D9 less. The delivery latitude allows .eapods delivery drivers to schedule more efficiently thereby increasing profitability. 3. What are some industries in which products have proliferated and life cycles have shortened? *ow has the supply chains in these industries adapted?

The authors cite the e"ample of running shoes increasing from five styles in the early :7s to almost E77 by the late >7s. 0ther products that have seen an e"plosion in variety include personal electronics, beverages, snack and prepared foods, entertainment, tires, and personal services. (upply chains have leveraged information systems, recogni$ed the need to collaborate on product and process design, and supply chain e"ecution. The supply chain stance has shifted towards a partnership orientation from a focus on price negotiations. 4. *ow can the full set of logistical and cross+functional drivers be used to create strategic fit for a 7C manufacturer targeting both time sensitive and

price conscious customers?

The logistical drivers, facilities, inventory, and transportation, and the cross*functional drivers, information, sourcing, and pricing, must be used in concert to achieve the appropriate balance of efficiency and responsiveness for the supply chain to be successful. A ., manufacturer that wants to deliver product both )uickly and efficiently can make cost and time trade*offs among these drivers to achieve their goals. These trade offs across drivers afford more fle"ibility but re)uire constant vigilance as the trade*offs within each driver change. %n addition, some drivers may be altered more easily, e.g., order )uantity and transportation media, than other drivers, e.g., location and sourcing. The trade*offs within each driver are summari$ed in the tableF #river Facilities -ore 2esponsive -ultiple .lants Fle"ible .lants %nventory Transportation %nformation =igher %nventory =igher (peed Accurate 2eal Time Transmission (ourcing .ricing 6. 2esponsive supplier #ifferential .ricing -ore ;fficient (ingle .lant #edicated .lant <ower %nventory <ower (peed <ess Accurate 3atched Transmission ;fficient supplier ;veryday <ow .ricing

& convenience store chain attempts to be responsive and provide customers what they need1 when they need it1 where they need it. What are some

different ways that a convenience store supply chain can be responsive? What are some risks in each case? A convenience store can be more responsive by doing e"actly what (even*;leven &apan is doing+ many locations, rapid replenishment, appropriate technology deployment, and an e)ually responsive supplier vertical integration for many of their (B4s!. The risks associated with this system are the costs coupled with demand uncertainty. %f demand patterns change dramatically, or the customer base changes, then (even*;leven is left with an operation that is not needed. %n (even*;leven &apans case, multiple operations might be shuttered if an apartment building or large employer shuts down or relocates.

18.

9even+5leven-s supply chain strategy in :apan can be described as attempting to micro+match supply and demand using rapid replenishment. What are

some risks associated with this choice? -icro*matching supply and demand using rapid replenishment assumes that each store will repeat the same demand pattern on a daily basis. The tour bus phenomenon, where a group of unanticipated customers comes to the store and buys all of a type of product will cause difficulty for regular customers. #uring such an event, the store will likely stock out and customers may visit the ne"t (even*;leven site down the block to make their purchases. (ome of this demand may permanently shift, causing a local ripple+ the replenishment may be e"cessive at one site and insufficient at an ad1acent site for the ne"t cycle.

Another possible issue would result from delays in transportation+ although deliveries are scheduled for off*peak hours, a disruption in traffic flow will result in low service levels for the ne"t wave of demand. 11. What has 9even+5leven done in its choice of facility location1 inventory management1 transportation1 and information infrastructure to develop

capabilities that support its supply chain strategy in :apan? (even*;leven &apan has chosen to operate a highly responsive operation and has chosen a supply chain design that supports this strategy. Their facility location choices are to saturate an area with stores, thereby making it easy for customers to shop and their own delivery trucks to move from store to store to replenish inventory. (even*;levens inventory system is run on an information system that transmits directly to the supplier and distribution center+ goods are produced using a pull system to replace what has been sold during that delivery period. The transportation system is fle"ible to ma"imi$e responsiveness while also achieving efficiency. 12. 9even+5leven does not allow direct store delivery in :apan but has all products flow though its distribution center. What benefit does 9even+5leven

derive from this policy? When is direct store delivery more appropriate? The benefit of delivery through its own distribution center is total control of the system, aggregation of demand and minimal disruption at the retail outlets. %f several suppliers tried to make two or three deliveries every day, it would detract from the store managers ability to provide customer service. ;ach of these suppliers would likely prefer their own way of doing things, their own inventory system, truck si$e, etc., which would make things more difficult for the (even*;leven system. The demand and production data would have to be shared rather than residing on (even*;levens system from cradle to grave. For items that cannot be prepared )uickly, pull production may not provide the responsiveness that (even*;leven desires. %n this case, the #, concept allows pooling of inventory which increases their overall service level while minimi$ing total system inventory of those items. #irect store delivery might be more appropriate if the items being delivered do not need bulk broken at a #,, have special handling re)uirements lottery tickets, newspapers, or alcoholic beverages!, or the supplier has a system that is consonant with (even*;levens perhaps a regular bread run that has an information system that integrates with (even*;levens!. 13. What do you think about the 3dream concept for 9even+5leven in :apan? ;rom a supply chain perspective1 is it likely to be more successful in :apan or

the <nited 9tates? Why? The :dream concept allows e*commerce sites to use (even*;leven stores as drop*off and collection points for &apanese e*commerce customers. %t has been e"tremely successful+ a recent survey revealed that >G percent of the customers of one e*commerce company preferred to have their items shipped this way. %t seems likely that this concept would work only for high density urban areas+ % can see it being established in congested, less*safe urban areas for a service like package delivery. (uburban customers in the 4( would likely find it incredibly inconvenient and avoid it unless home delivery was not possible and the alternative was to pick up a package for e"ample, one that must be signed for! at the local carriers office. 1". 9even+5leven is attempting to duplicate the supply chain structure that has succeeded in :apan in the <nited 9tates with the introduction of CDCs.

What are the pros and cons of this approach? =eep in mind that stores are also replenished by wholesalers and D9D by manufacturers.

The supply chain structure for the 4( market can be close, but it can never be e"actly as it is in &apan, and will probably not operate as smoothly as in &apan. (ome of this is attributable to the culture and the corporate culture. 2egardless of how like*minded supply chain partners claim to be, it would be e"tremely difficult to duplicate the collective spirit that permeates (even*;leven &apan. The disadvantages of this system is that (even*;leven in the 4.(. would probably have to run two system depending on whether the area could be treated as a dense urban location or a suburban or rural outpost. The cost of running the (even*;leven &apan system in middle*America would be prohibitive. The 4.(. consumer in that region has too many alternatives that have G6 hour operations and are within a short drive. /onetheless, the &apanese approach has been e"tremely successful and has shown considerable advantages over the current systems in the 4.(. through financial and operational metrics. As the case points out, (even*;levens performance in the 4.(. has been abysmal+ clearly more of the same strategy and operations will result in continued failure. .erhaps a hybrid system can be applied in select markets to test the systems efficacy in the 4.(. 1%. he <nited 9tates has food service distributors that also replenish convenience stores. What are the pros and cons to having a distributor replenish

convenience stores versus a company like 9even+5leven managing its own distribution function? The advantage of someone else replenishing stores is primarily cost+ less transportation, material handling, and labor costs for your own system. #epending on how supply and reordering operations are designed, it might be possible for the distributors to perform the aggregation/demand smoothing function with minimal intervention by the individual (even*;leven franchise. The disadvantage of the outsourced replenishment service is an overall loss of control, an increased number of deliveries to each store, and the difficulty of integrating information flows across disparate systems.

CHAPTER 14
1. What are some ways that a firm such as Wal+2art benefits from good sourcing decisions?

The bottom line is that good sourcing decisions improve profits for the firm and total supply chain surplus. The authors list of benefits derived from effective sourcing decisions includesF 3etter economies of scale can be achieved if orders within a firm are aggregated. -ore efficient procurement transactions can significantly reduce the overall cost of purchasing. #esign collaboration can result in products that are easier to manufacture and distribute, resulting in lower overall costs. 'ood procurement processes can facilitate coordination with the supplier and improve forecasting and planning lowering inventories and improving the match of supply and demand!. Appropriate supplier contracts can allow for the sharing of risk, resulting in higher profits for both the supplier and the buyer. Firms can achieve a lower purchase price by increasing competition through the use of auctions.

2.

What factors lead Wal+2art to own its trucks although many retailers outsource all their transportation? Wal*-art is able to run its own fleet of trucks because it can ship T< throughout its supply chain. Wal*-arts shipment si$es are large and the company achieves aggregation across the many retail stores it owns. %f Wal*-art elected to go with a carrier, they might be able to match Wal*-arts costs, but Wal*-art would cede control to the carrier.

3.

*ow can a supplier with a lower price end up costing the buyer more than a supplier with a higher price? <ower price can be achieved by sacrificing product )uality, product reliability, and process control, which ultimately will cost the outsourcer more than the total variable cost saved. The cost of coordination is often underestimated+ the outsourcer offloads relatively low*skilled labor but increases the burden on mid and upper management in controlling the production. A firm may also lose customer/supplier contact that causes them to miss opportunities that may have been recogni$ed with a more direct relationship.

".

5.plain why1 for the same inventory level1 a revenue+sharing contract results in lower sales effort from the retailer than if the retailer has paid for the product and is responsible for all remaining inventory. The retailer puts forth a lower sales effort because they are paid less on a per unit basis to sell items under a revenue sharing contract than under a buyback or a classic retail contract. The manufacturer and retailer agree to share a fraction of the retailers revenue after agreeing on a low wholesale price. The low wholesale price triggers a larger order from the retailer, and this can increase supply chain surplus if all product is sold. What happens in practice is that the retailer has a smaller upside under the revenue sharing arrangement and loses the incentive to push merchandise.

%.

;or a manufacturer that sells to many retailers1 why does a 0uantity fle.ibility contract result in less information distortion than a buy+back contract? A buy*back contract allows a retailer to return unsold inventory to the supplier+ the contract will stipulate the ma"imum amount returnable and the reimbursement amount the retailer will receive. A buy*back contract provides an incentive for the retailer to place a larger order and make product more available and can increase total supply chain surplus. A downside of buy*back contracts is information distortion, i.e., the supply chain is aware of the retailers orders and not the actual customer demand until the sales period has ended. This problem is e"acerbated by a situation involving multiple retailers each of which holds inventory. A )uantity fle"ibility contract permits the retailer to change the )uantity ordered after observing demand+ the contracts are similar to buy*back contracts e"cept no returns are re)uired. With a )uantity fle"ibility contract, retailers specify only the range within which they will purchase, well before actual demand arises. The supplier can aggregate inventory across all retailers and build a lower level of surplus inventory. (ince retailers order closer to the point of sale when demand is more visible and less uncertain+ the uncertainty is aggregated by a supplier that en1oys lower information distortion.

(.

2ost firms offer their sales force monetary incentives based on e.ceeding a specified target. What are some pros and cons of this approach? *ow would you modify these contracts to rectify some of the problems? Two incentive oriented contracts discussed in the chapter are the two*part tariff and the threshold contract. The two*part tariff increases sales agent effort by allowing the retailer to ac)uire product at cost and letting the dealers margin be the supply chain margin. Threshold contracts establish greater rewards for the retailer as total sales reach successively higher brackets. These incentives can increase supply chain profits but can also be gamed to ma"imi$e retailer/agent bonuses without

10

benefiting the manufacturer. (ales can be postponed from one sales period to the ne"t by slow*playing customers, post*dating paperwork, and minimi$ing efforts. The sales that would have occurred in period 9 are delayed to period G, during which sales efforts are ma"imi$ed+ for the same level of sales, the agent has an increased commission, but the manufacturer reali$es a lower profit. This gamesmanship also causes information distortion at the producer. These problems can be avoided by modifying the contracts with a rolling hori$on. 2ather than creating a high bonus period over a fi"ed period of time, reduced bonuses can be offered continuously over a shorter time period. The rolling periods have many Hlast weeksI built in and lead to a more constant level of effort from the retail sites. 3. &n auto manufacturer sources both office supplies and subsystems such as seats. What1 if any1 difference in sourcing strategy would you recommend for the two types of products? For an auto manufacturer, seats are considered direct materials components used to make finished goods! while office supplies are indirect materials goods used to support the operation of a firm!. The procurement process for direct materials should be designed to ensure that components are available in the right place, in the right )uantity, and at the right time. (ources should be carefully selected to ensure that )uality and responsiveness are acceptable and that a long*term relationship is possible. The primary goal of the procurement process should be to make production plans and current levels of component inventory at the manufacturer visible to the supplier and should have alerts built into it if mismatches between supply and demand are detected. The procurement process for indirect materials should be on reducing the transaction cost of each order. These items are not critical and can be purchased in bulk with an eye towards aggregation and cost savings. (tockout costs are low in comparison with direct materials so sourcing decisions are not as critical. 4. *ow can design collaboration with suppliers help a 7C manufacturer improve performance? #esign collaboration with suppliers can help a firm reduce cost, improve )uality, and decrease time to market. These performance metrics are increasingly influenced by suppliers since between ?7 and :7 percent of the spending at a manufacturer is through procurement. ,osts can be reduced by designing the product for postponement and mass customi$ation. %f the products design permits the use of standardi$ed parts or modules, the manufacturer can save on inventory holding costs and training for assembly and repair labor. ,osts are also reduced by increasing attention to design for manufacturability. Juality is increased by applying robust design techni)ues, certifying suppliers, and conducting failure modes and effects analysis. (uppliers that are specialists in a re)uired component can bring to bear the design skills that will improve finished goods )uality. Time to market can be decreased by bringing suppliers into the design team from the early stages of product design. An engineering drawing reference database can eliminate the necessity for designing new parts which reduces overall design time.

CHAPTER 16
1. What processes within each macro process are best suited to being enabled by # ? What processes are least suited?

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The macro processes in a supply chain are customer relationship management ,2-!, internal supply chain management %(,-!, and supplier relationship management (2-!. Taken collectively, these macro processes span the entire supply chain. ,2- processes focus on the downstream interactions between the enterprise and its customers. The key processes under ,2- are marketing, selling, and order management, and of these three, the creative sub*processes of the marketing and selling processes are least suited to %T enablement. The best suited processes for %T enablement are pricing and profitability calculations, sales force automation, and order configuration and tracking. Within order management, virtually all processes reap the benefits of information technology. %(,- processes focus on internal operations within the enterprise and include strategic planning, demand planning, supply planning, fulfillment, and field service. The use of %T to facilitate %(,- sub*processes is presented in glowing terms in separate chapters in this te"t. =uge gains in efficiency and responsiveness have been achieved via the application of %T to all aspects of %(,-. (2- processes focus on upstream interaction between the enterprise and its suppliers and includes the sub*processes of design collaboration, sourcing, negotiating, buying, and supply collaboration. The authors indicate in chapter 96 that sourcing*related %T has had the most ups and downs of any supply chain software sector, with the primary problems being loss of fle"ibility and the re)uirement of collaboration. ;lectronic marketplaces once flourished but have since withered. This is not to say that %T does not play a role in (2- processes+ in fact, all areas are supported by %T software. 2. What are the key advantages that best+of+breed software companies provide? The competitive arena in ,2-, %(,-, and (2- can be parsed into best*of*breed winners, ;2. players, and best*of*breed startups. 3est of breed companies provide a valuable service to all sectors by defining functionality and providing market leadership. For the ,2- macro process, (iebel was the sole remaining best of breed provider as the book went to press, but it has since been ac)uired by 0racle as predicted by the authors. The %(,- and (2- macro process sectors have had best of breed providers that have long since yielded market leadership to ;2. vendors. 3. What are the key advantages that large software companies1 such as the 5/7 players1 provide? ;2.s popularity in the 9>>7s drove the most successful companies to become the largest enterprise software companies. Their si$e provides a wealth of resources and collective e"perience that can be brought to bear on a clients issues. The ma1or advantage that ;2. players have relative to best*of*breed providers is the inherent ability to integrate across the three macro processes of ,2-, %(,-, and (2-, often through the transaction management foundation. ". What types of industries would be most likely to choose a best of breed approach to their # single large integrated solution? ;stablished firms that have strong ,%0 leadership and see the supply chain as encompassing the entirety of the three macro processes would probably be more inclined to select a large integrated solution. Well*respected ,%0 leadership would be essential in promoting and managing such a pro1ect. A firm that is mature in this supply chain is fertile ground for an integrated solution. Firms that have recently merged or integrated vertically may have a more self*centered perspective on the supply chain and might skew towards a best*of*breed approach. These firms might start their %T enablement with a focus on %(,- and then seek to work either end of the supply chain with an (2- or ,2- best*of*breed systems? What types would be more likely to choose a

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implementation. Firms closer to either end of the supply chain+ e.g., an e"tractor of raw materials that sells to a few fabricators or a turnkey service operation that spends most of their efforts dealing with customers might choose a system tailored to their end of the supply chain. %. Discuss why the high tech industry has been the leader in adopting supply chain # systems.

The high tech industry has been the leader in adopting supply chain %T systems because of the mindset of the decision*makers in this sector. The high tech workforce tends to be early adopters of new technologies+ they understand there is a risk associated with adoption but are willing to assume the risk and proceed. =igh tech corporate cultures lend themselves to such ventures+ there is little resistance to change because survival in this sector depends on it. (. &re manufacturers better candidates for # enablement than service organi'ations? Why or why not?

From a supply chain perspective , manufacturers overall are better candidates for %T enablement than service organi$ations, although both can derive considerable benefit. The tangible, standard or modular! nature of the output affords manufacturing this advantage. /e"t on the spectrum are back office service processes which can be completely automated using information technology. These back office processes can be a component of either a manufacturing or service organi$ation or could be stand*alone organi$ation, e.g., medical transcription, claims processing, payment centers, etc. This is not to say that a pure service cannot reap the rewards of %T enablement+ .i"ar (tudios, .eapod, and .rudential %nsurance are three companies 1ust from the .s that owe a great deal of their success to information technology.

CHAPTER SEVENTEEN
1. What is the bullwhip effect and how does it relate to lack of coordination in a supply chain? The bullwhip effect refers to the fluctuation in orders along the length of the supply chain as orders move from retailers to wholesalers to manufacturers to suppliers. The bullwhip effect relates directly to the lack of coordination demand information flows! within the supply chain. ;ach supply chain member has a different idea of what demand is, and the demand estimates are grossly distorted and e"aggerated as the supply chain partner is distanced from the customer. 2. What is the impact of lack of coordination on the performance of a supply chain? The impact of lack of coordination is degradation of responsiveness and poor cost performance for all supply chain members. As the bullwhip effect rears its ugly head, supply chain partners find themselves with e"cessive inventory followed by stockouts and backorders. The fluctuations in inventory result in increased holding costs and lost sales, which in turn spike transportation and material handling costs. 4ltimately, the struggle with cost and responsiveness hurts the relationships among supply chain partners as they seek to e"plain their lack of performance. 3. #n what way can improper incentives lead to a lack of coordination in a supply chain? What countermeasures can be used to offset this effect? %ncentive obstacles occur in situations when different participants in the supply chain are motivated by self interest. %ncentives that focus only on the local impact of an action result in decisions being made that achieve a local optimum but can avoid a global supply chain! optimum. All supply chain partners must agree on global performance measures and structure rewards such that members are appropriately motivated.

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(ales force incentives also are responsible for counterproductive supply chain behavior. ,ommissions that are based on a single short time frame can be gamed by the sales force to ma"imi$e commission but these actions inadvertently increase demand variability and e"ert pressure on the supply chain. ,ommissions should be structured to provide incentives to consistently sell large volumes of product over a broad time frame to the sell*through point. ". What problems result if each stage of a supply chain views its demand as the orders placed by the downstream stage? *ow should firms within a supply chain communicate to facilitate coordination? %f each stage of a supply chain views its demand as the orders placed by their downstream counterpart, the bullwhip effect is reali$ed by the supply chain. ;ach member develops a forecast that is based on something other than the true customer demand and hilarity ensues. (upply chain members should share point*of*sale .0(! data so that all members are aware of the true customer demand for product. The beauty of data sharing re)uirements is that only aggregate .0( data must be shared to mitigate the bullwhip effect+ there is no need to share detailed .0( data. %. What factors lead to a batching of orders within a supply chain? *ow does this affect coordination? What actions can minimi'e large batches and improve coordination? 0rder batching is caused by a number of different factors. 0ne mechanism is the price structure of T< and <T< shipment )uantities+ there is incentive to wait a while to make sure that a T< shipment is achieved. A customers natural tendency to wait for a milestone, either real or perceived, can also cause batching. ,ustomers may wait until Friday, -onday, the last or first day of the month, etc., 1ust because thats when they always have or because that event reminds them to order. 0rder batching also occurs because customers are aware of an impending price reduction and want to take advantage of it. 3atching adversely affects supply chain coordination because the supply chain will be starved for flow, then overwhelmed with demand. A supply chain can reconfigure their transportation and distribution system to allow for shipments to multiple customers on a single truck to achieve T< )uantities. The chain can also assign or encourage! days for placing orders and move from lot*si$e based to volume based )uantity discounts or abandon discounts and promotions altogether!. (. *ow do trade promotions and price fluctuations affect coordination in a supply chain? What pricing and promotion policies can facilitate coordination? Trade promotions and price fluctuations make supply chain coordination more difficult. ,ustomers seek to purchase goods for less and engage in forward buying which creates spikes in demand that may e"ceed capacity. All parties would benefit if the supply chain used every day low pricing ;#<.! to mitigate forward buying and allow procurement, production, and logistics to function at a steadier pace. %f price incentives must be offered, the chain is better served by implementing a volume*based )uantity discount plan instead of a lot si$e based )uantity discount, i.e., providing incentives to purchase large )uantities over a long period of time, perhaps a year. 3. *ow is the building of strategic partnerships and trust valuable within a supply chain? ,ooperation and trust within the supply chain help improve performance for the following reasonsF When stages trust each other, they are more likely to take the other partys ob1ectives into consideration when making decisions, thereby facilitating win*win situations. Action*oriented managerial levers to achieve coordination become easier to implement and the supply chain becomes more agile. An increase in supply chain productivity results, either by elimination of duplicated effort or by allocating effort to the appropriate stage.

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#etailed sales and production information is shared+ this allows the supply chain to coordinate production and distribution decisions. 4. What issues must be considered when designing a supply chain relationship to improve the chances of developing cooperation and trust? The issues that supply chain partners must consider when designing their chain include assessing the value of the relationship, the operational roles and decision rights for each, the e"ecution of binding contracts, and establishment of conflict resolution mechanisms. The value of the relationship is assessed by identifying the mutual benefits that it provides and the costs and contributions of each party. The mi" of effort and benefit for all parties should be e)uitable. The roles and decision rights take into account the interdependence between the parties+ the nirvana of interdependence is reciprocal interdependence, where parties come together and e"change information and inputs in both directions. This re)uires more effort than se)uential interdependence but the payoff is increased supply chain surplus. -anagers can help promote trust by creating contracts that encourage negotiation as unplanned contingencies arise since complete information and consideration of all future contingencies is impossible. The primary contacts from each side are an important starting point in developing a healthy relationship. ;ffective contract*resolution mechanisms can significantly strengthen any supply chain relationship. (uch mechanisms allow parties the opportunity to communicate and work through their differences, in the process building greater trust. 6. What issues must be considered when managing a supply chain relationship to improve the chances of developing cooperation and trust? The following issues merit attention when management endeavors to improve the chances of success in supply chain partnershipF The presence of fle"ibility, trust, and commitment in both parties helps a supply chain relationship succeed. %n particular, commitment of top management on both sides is crucial for success. 'ood organi$ational arrangements, especially for information sharing and conflict resolution, improve chances for success. -echanisms that make the actions of each party and resulting outcomes visible help avoid conflicts and resolve disputes. The more fairly the stronger partner teats the weaker, vulnerable partner, the stronger the supply chain relationship tends to be. 18. What are the different C7;/ scenarios and how do they benefit supply chain partners? ,ollaborative planning, forecasting, and replenishment ,.F2! is defined as a business practice that combines the intelligence of multiple partners in the planning and fulfillment of customer demand. %n order to be successful, the two parties must have synchroni$ed their data and established standards for e"changing the information. The four scenarios that sellers and buyers can collaborate along includeF 2etail event collaboration K the identification of specific (B4s that will be involved in sales promotions and sharing of information regarding the timing, duration, pricing, advertising, and display tactics to be deployed. The benefit of retail event collaborations is a reduction in stockouts, e"cess inventory and unplanned logistics costs.

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#, replenishment collaboration K the forecasting of #, withdrawals or demand from the #, to the manufacturer is converted to a stream of orders that are locked in over a specified time hori$on. A successful #, replenishment collaboration reduces production costs at the manufacturer and inventory and stockouts at the retailer.

(tore replenishment collaboration K the forecasting of store*level orders that are committed over a specific time hori$on. (uch a collaboration results in greater visibility of sales for the manufacturer, improved replenishment accuracy and product availability, and reduced inventories.

,ollaborative assortment planning K the forecasting collaborative interpretation! of industry trends, macroeconomic factors, and customer tastes for seasonal goods. This forecast is converted into a planned purchase order at the style/color/si$e level that is used to produce sample products for a fashion event before final merchandising decisions are made. The manufacturer benefits from this collaboration by having more lead time to purchase raw materials and plan capacity.

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