CHAPTER FOUR
Discussion Questions
1. What differences in the retail environment
may justify the fact that the fast-moving consumer goods supply chain in India
has far more distributors than in the United States?
India is a land of shopkeepers selling to
over a billion consumers. India is becomingly increasingly Westernized, but it
will be quite a while (if not forever) before shopkeepers are supplanted by
large retailers. The sheer volume of small store owners requires a large number
of distributors to service them. The younger generation in India, particularly
the IT rich areas of Bangalore and Chennai, have far higher disposable income
than the older generation and the rest of the country. These young workers have
very different retail habits and are causing changes in India’s shopping and
supply chain needs. Poor infrastructure, although not entirely a retail
concern, is another reason why India may need far more distributors than in the
U.S.
2. A specialty chemical company is considering
expanding its operations into Brazil, where five companies dominate the
consumption of specialty chemicals. What sort of distribution network should
this company utilize?
If the expansion into Brazil is merely a
sales operation, then distributor storage with last mile delivery is the best
network design. If the expanded operations include manufacturing capabilities,
then manufacturer storage with direct shipping is a strong possibility. Given
the nature of the product, package carrier delivery is not an option and retail
storage with customer pickup is out of the question since this is a B2B
scenario. In-transit merge would be an option only if the manufacturer
established a network of plants in Brazil, perhaps focused factories relatively
close to each customer.
The chemical company has only five
customers to serve; it would not require too large an investment in logistical
infrastructure to effectively serve all five without intervention by a
distributor. Their short supply chain would be easier to coordinate due to the
stable demands and information sharing that is possible in a B2B scenario.
3. A distributor has heard that one of the
major manufacturers from which it buys is considering going direct to the
consumer. What can the distributor do about this? What advantages can it offer
the manufacturer that the manufacturer is unlikely to be able to reproduce?
The two supply network designs that the
distributor can propose to counter the manufacturer’s proposal are the
distributor storage with package carrier delivery and the distributor storage
with last mile delivery. Both of these counter-proposals offer higher order
visibility for the customer while having simpler information infrastructure
than with manufacturer storage. The response time for both is excellent, and
the customer experience is also superior to the direct model. If the
manufacturer is trying to provide excellent customer service, the increased
costs in transportation and potentially higher levels of inventory may be
acceptable tradeoffs.
4. What types of distribution networks are
typically best suited for commodity items?
Commodity items are available from many
sources and customers expect them to be delivered quickly; if a supply chain
can’t be responsive, the customers will move on to the next source. A distribution
network designed for retail storage with customer pickup achieves quick
response for high demand, low variety products. Other commodity products can be
effectively distributed using distributor storage with last-mile delivery,
which is also suited for high demand, quick response products.
5. What type of networks are best suited to
highly differentiated products?
The networks that are best suited to highly
differentiated products are the manufacturer storage with direct shipping and
the manufacturer storage with in-transit merge. Both approaches have the
ability to aggregate inventories and postpone product customization, which
would help support a wider variety of products.
6. In the future, do you see the value added
by distributors decreasing, increasing, or staying about the same?
It is doubtful that value added by
distributors will decrease over time; the nature of competition in all areas
would suggest that distributors that add less value would be winnowed out. It
is more likely that distributors will be asked to do more or may volunteer to
do so as a means of differentiating themselves from the competition.
7. Why has e-business been more successful in
the PC industry compared to the grocery industry? In the future, how valuable
is e-business likely to be in the PC industry?
The PC industry is selling a highly
customized product that is purchased on a per-household basis, less routinely
than the commodity products that make up groceries. A company like Dell can
leverage the Internet as a marketing and distribution tool to advertise new
capabilities and options before bricks and mortar retailers can. Dell also
removes whatever intimidation (or frustration) factor might be experienced by
conversing with in-store sales representatives. Computers have a very high
value to shipping cost ratio, so the increased shipping costs when compared to
a traditional store are negligible. Groceries have a much lower ratio; although
in-store shoppers are incurring costs to pick up their groceries, those costs
are hidden in comparison to the delivery charge on an itemized bill from
Peapod.
E-business will continue to be a valuable
tool in the PC industry; none of the advantages currently being enjoyed by Dell
and Gateway are likely to change significantly.
8. Is e-business likely to be more beneficial
in the early part or the mature part of a product’s life cycle? Why?
E-business is more likely to be more
beneficial in the early part of a product’s life cycle. E-business strengths
include flexible pricing, promotions, and product portfolios and greater speed
in disseminating product information. Later in the life cycle, a product is
likely to be a commodity, which doesn’t play to the strengths of this channel.
9. Consider the sale of home improvement
products at Home Depot or a chain of hardware stores such as True Value. Who
can extract the greatest benefit from going online? Why?
Both entities and other hardware companies
like Ace are already on-line. An article titled “Home Depot’s Self-Improvement
– Company Business and Marketing” by Eric Young in The Industry Standard, September 11, 2000, indicates that Home
Depot is the last major player to go on-line, but brings the deepest pockets.
Those of us that have stood in line with the contractors realize that many of
Home Depot’s items are ill-suited to a web enterprise and the clientele is
equally ill-suited. Contractor sales are such a significant portion of Home
Depot’s sales in comparison with the mix at True-Value, that it is likely that
True-Value will ultimately benefit more from an e-commerce division.
The article goes on to say,
“Each chain is employing a slightly
different e-commerce strategy. Whereas Home Depot wants its site to replicate
its merchandise mix, True Value limits the number of items it offers online.
For example, at True Value, Net shoppers won't find products most people need
in a hurry, such as toilet-tank fix-it kits. "You're not going to wait
three days to have it shipped so you can stop the water from dripping into your
neighbor's apartment," says Neil Hastie, CIO at TrueValue.com.
Ace Hardware, meanwhile, thinks bigger is
better. Its site offers almost everything in its stores, plus about 15,000
additional products. Ace's supplementary online offerings are a windfall from
its investment in OurHouse.com, a Web-based home improvement site that handles
Ace's online sales. The two companies split online revenues. Ace joined forces
with OurHouse to get a leg up in e-commerce. "We didn't want to be left in
the starting gate," says Ken Nichols, a retail operations vice president
for Ace.
Waiting in the wings is Lowe's, the
nation's second-largest home improvement chain. Like Home Depot, Lowe's wants
to expand its online presence but is approaching e-commerce slowly. Beginning
in October, the retailer will offer a wide selection in a limited number of
categories, such as hand tools and appliances. Lowe's will deliver Net orders
directly to buyers or to the store closest to the customer, again like Home
Depot.
Meanwhile, Internet-only retailers are
scrambling to win over customers, vowing to compete against offline chains in
price and selection. CornerHardware, for example, says it currently has 125,000
products available -- three times the number available at an average Home Depot
store.
The pure Internet players acknowledge that
they don't have the brand recognition of Home Depot. But they hope to build
their brands before Home Depot and the other brick-and-mortar stores establish
a strong online presence. Still, it's not clear that any are benefiting from
first-mover advantage. Already two Net pure-plays -- Hardware.com and
HomeWarehouse.com -- have gone under.”
10.
Amazon.com
sells books, music, electronics, software, toys, and home improvement products
online. In which product category does e-business offer the greatest advantage
compared to a retail store chain? In which product category does e-business
offer the smallest advantage (or a potential cost disadvantage) compared to a
retail store chain? Why?
Amazon’s greatest e-business advantage
comes from book sales; they are able to list millions of book titles that a
physical store cannot possibly carry on their shelves. Cost advantages for
Amazon are few and far between; the item price to shipping cost ratio for
books, music, and software is not as high as most consumers would prefer.
Amazon certainly has no cost advantage with music and software. Both are
readily sold over the Internet; it would behoove Amazon to partner with another
Seattle-area company to make this the norm. Electronics, hardware, and even toys
are products that most consumers would like to experience before making a
selection. Any cost advantage Amazon might have in these sectors may be
overshadowed by an inability to hold the item on-line.
11.
Why
should an e-business such as Amazon.com build more warehouses as its sales
volume grows?
Amazon initially tried to run their entire
book business with no warehousing facilities, instead relying on other
distributors to carry their entire inventory. Next, Amazon ran their business
out of a single warehouse in Seattle and discovered it wasn’t feasible; the
trade-off of responsiveness and cost was causing excessive delays in getting
products to customers. Now Amazon uses a hybrid of these two systems, carrying
items that it knows will sell in its own warehouses and letting others carry
items that have greater demand uncertainty. As Amazon’s business grows, it
should continue to establish warehouses to spread its facilities closer to
pockets of new customers, thus achieving better levels of responsiveness while
still maintaining its cost advantage.
No comments:
Post a Comment