E-Commerce and Supply Chain Management

(SCM)

Chapter 4

Management 326

Operationsand

OperationsStrategy

Designing

anOperation

sSystem

Managingan

OperationsSystem

Improvingan

OperationsSystem

(Just-in-Time)

Inventory Managementfor Independent Demand

Supply Chain Management

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

Why Supply Chain Managementis 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

Lessons from theDairy 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

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)

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

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

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.

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

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)

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)

Tactics for Reducing Inventory Costs (3)

Vendor-Managed Inventory in Manufacturing

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.

Wabco Assembly Line

Supplier WarehouseWabco AircraftBrake Factory

Parts

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.

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.Customer ordersfrom Amazon

Order & payment

Amazon distributio

ncenter

Frequently ordered items

Supplier who sells a less frequently ordered

itemmakes a drop shipment

OrderOrdereditem

Operations Issues in Online Sales

Inventory management Packing orders for shipment Delivery Customer returns

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

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

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

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.