Supply-chain-management by sunil chopra,,,,CHAPTER 5

CHAPTER 5

Discussion Questions

1. How do the location and size of warehouses affect the performance of a firm such as Amazon.com? What factors should Amazon.com take into account when making this decision?

The location and size of Amazon’s warehouses have a direct bearing on how responsive and efficient they can be. At one time Amazon ran their on-line bookstore out of one warehouse in Seattle; this warehouse was small by today’s standards and was unable to keep up with peak demand. Amazon has since added other geographically distributed warehouses that hold the items with steadier demand. The dispersion of warehouses allows Amazon to ship from closer to the customers and the stocking of items with more even demand allows for a higher service level at a reasonable cost.

Amazon should consider what regions are underserved by the current network of warehouses and where it is most economical to locate the next warehouse, effectively balancing their efficiency and responsiveness with their strategy.

2. How do import duties and exchange rates affect the location decision in a supply chain?

Tariffs refer to any duties that must be paid when products are moved across international, state, or city boundaries. If a tariff is excessive, it provides a strong disincentive to do business across borders with entities in that area. The classic workaround to a high tariff is adding a location inside the area. Some regions have developed trade agreements that limit or eliminate the tariff on goods.

Exchange rates specify how much one currency is worth in terms of another. As one currency gains against another, it may be beneficial to add shift production to the area using the devalued currency. This makes the goods more affordable for the population. Companies with flexible production capabilities can shift some production from area to area depending on the buying power of local markets.

3. What are different roles played by production facilities within a global network?

The different strategic roles for facilities in a global network are as follows:

• Offshore facility: low-cost facility for export production. This is strictly a low-cost producer for an export market
• Source facility: low-cost facility for global production. This facility is also viewed as a low-cost provider, but provides output for the entire global network.
• Server facility: regional production facility This facility supplies the market in the country where it is located
• Contributor facility: regional production facility with development skills. This facility serves the market where it is located but is also responsible for customization that increases salability in that country.
• Outpost facility: regional production facility built to gain local skills. This facility plays the role of a server facility but more importantly, it obtains access to knowledge or skills that exist in that region.
• Lead facility: facility that leads in development and process technologies. This facility creates new processes, technologies and products for the entire network.

4. Amazon.com has built new warehouses as it has grown. How does this change affect various cost and response times in the Amazon.com supply chain?

Logistics and facility costs incurred within a supply chain change as the number of facilities, their location, and capacity allocation is changed. As Amazon has added warehouses, their logistics, inventory and facility costs have changed. An increased number of warehouses increases that fixed cost but can be exploited to reduce transportation costs. These potentially fall if the warehouses are spread throughout a distribution area, which increases responsiveness at a similar cost or maintains responsiveness at a reduced cost. Inventory costs also change with an increased number of warehouses; Amazon is holding more total inventory and can take advantage of pooling to reduce quantities of some items.

5. McMaster-Carr sells maintenance, repair, and operations equipment from five warehouses in the United States. WW Grainger sells products from more than 350 retail locations, supported by several warehouses. In both cases, customers place orders using the Web or on the phone. Discuss the pros and cons of the two strategies.

WW Grainger has the more responsive network; a customer with a critical repair need can drive to a local retail location to pick up the necessary part. McMaster Carr’s network is less responsive; critical supplies would be scheduled for overnight delivery in all likelihood. WW Grainger has the greater facility cost since it has more locations, although the retail facilities provide a presence that doubles as a marketing tool not enjoyed by McMaster Carr. McMaster Carr’s facility expense is much lower and their network model shifts the transportation cost more fully to the customer. A WW Grainger customer travels the last mile to pick up an order, but Grainger must ship from their warehouse to the retail locations.

6. Consider a firm such as Dell, with very few production facilities worldwide. List the pros and cons of this approach and why it may or may not be suitable for the computer industry.

The advantage for Dell’s network design is lower facility costs; they can locate in just enough countries to avoid tariffs and mitigate some of their exchange rate and demand risk. The disadvantage for Dell is the lack of responsiveness this adds to their system. A customer has no expectation of zero flow time, so they know as they enter the transaction that they must wait for their PC. Shipping from one of the production facilities adds to the delay, which is highly visible on Dell’s or the package carrier’s web site. The shipping costs might also be a concern for some customers, but the value to shipping cost ratio is so high that these costs seem like small potatoes in comparison to the total invoice.

7. Consider a firm such as Ford, with more than 150 facilities worldwide. List the pros and cons of having many facilities and why it may or may not be suitable for the automobile industry.

Automakers often use a multiplant strategy to create server facilities. These server facilities provide product for the market where they are located, thereby taking advantage of tax incentives, local content requirements, tariff barriers, and high logistics costs. This can be a good strategy if market demand exists for your product; when demand drops, the producer is left with expensive excess capacity. If the facilities are flexible, production of popular models can continue to prepare product for export. If facilities are inflexible or all sales are flat, then the producer must bear the cost or shed assets.

Excel Problems

1.   The following network describes the hourly volume of traffic that can flow between various communities in Dover County. Assume traffic can flow in both directions between each community at the same rate. What is the maximum flow of cars between Communities 1 and 6 in one hour?

                Formulate this problem as a linear programming problem.

            Answers:

            Maximize: X₆₁

            Subject to:

            Balance of flow constraints:

            Node 1: X₆₁-X₁₂-X₁₃ = 0

            Node 2: X₁₂-X₂₄-X₂₅ = 0

            Node 3: X₁₃-X₃₄-X₃₅ = 0

            Node 4: X₂₄+X₃₄-X₄₆ = 0

            Node 5: X₂₅+X₃₅-X₅₆ = 0

            Node 6: X₄₆+X₅₆-X₆₁ = 0

            Arc capacity constraints:

            0 ≥ X₁₂ ≤ 500

            0 ≥ X₁₃ ≤ 400

            0 ≥ X₂₄ ≤ 600

            0 ≥ X₃₄ ≤ 400

            0 ≥ X₂₅ ≤ 200

            0 ≥ X₃₅ ≤ 600

            0 ≥ X₄₆ ≤ 100

            0 ≥ X₅₆ ≤ 500

            0 ≥ X₁₆ ≤ 100,000

2.         Refer to problem 1 and its associated Excel solution shown below.

               

What values would you enter in the Solver Parameter dialog box for the Excel

spreadsheet model?

Set Target Cell:

By Changing Cells:

Subject to the Constraints:

Answers:

Set Target Cell: B21

By Changing Cells: B4:G9

Subject to the Constraints: B25:B30 = D25:D30; B4:G9 ≤ B14:G19

3.         Refer to problem 2 and its associated Excel spreadsheet model.

            a. What equation should be entered in cell H4?

            b. What equation should be entered in cell B10?

            c. What equation should be entered in cell B25?

Answers:

            a. =SUM(B4:G4)

            b. =SUM(B4:B9)

            c. =B10 – H4  

4.         Bob Jenkins needs to drive from City 1 to City 7 and would like to find the shortest route between the two. The road system with the distance in miles between cities is shown in the network below. What cities should he travel through to minimize his distance?

Refer to the following Excel spreadsheet model.

What values would you enter in the Solver Parameter dialog box for the Excel

spreadsheet model?

Set Target Cell:

By Changing Cells:

Subject to the Constraints:

Answers:

Set Target Cell: B23

By Changing Cells: B4:H10

Subject to the Constraints: B27:B33 = D27:D33

5.         Refer to problem 4 and its associated Excel spreadsheet model.

            a. What equation should be entered in cell B23?

            b. What equation should be entered in cell B27?

            c. What equation should be entered in cell I4?

Answers:

            a. = SUMPRODUCT(B4:H10,B15,H21)

            b. = B11 – I4

            c. = SUM(B4:H4)

Supply-chain-management by sunil chopra,,,,CHAPTER FOUR

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.

Supply-chain-management by sunil chopra,,,,CHAPTER THREE

CHAPTER THREE

Discussion Questions

1. How 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 SKUs and/or maintains a greater quantity of each SKU. A greater quantity of each SKU 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 frequent orders so that freshness is ensured and a stockout situation won’t exist 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. How 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. Slower modes of transportation reduce cost, but could be a reasonable approach if suppliers are co-located with the assembly operations. If the supply chain is designed in such a way, and assembly operations are located with proximity to markets, then the supply chain can be run cheaply without holding too much inventory in transit.

3. How 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 flexible can respond quickly to market demands by retooling to produce different models or products, whereas a dedicated facility cannot. Locating a facility close to the market will increase responsiveness at the cost of decreased economies of scale that might be achieved with a centralized location. A facility that is under capacity will be less responsive than a facility that is appropriately sized or has excess capacity.

4. How could an industrial supplies distributor use information to increase its responsiveness?

Information is a cross-functional driver and consists of data and analysis concerning facilities, inventory, transportation, costs, prices, and customers throughout the supply chain. Information 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. Information that is gathered farther down the supply chain can be transmitted instantaneously and accurately to the supplies distributor. Instead of waiting for a human to call or FAX an order, the distributor can replenish inventory to the necessary levels or provide what is needed to fill the order as it is realized.

5. Motorola 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?

Sourcing is the set of business processes required to purchase foods and services. These decisions are crucial because they affect the level of efficiency and responsiveness that Motorola can achieve. The Motorola production system for their line of pagers was hailed as a breakthrough in mass customization, so it was somewhat surprising when Motorola outsourced cell phones.. Sourcing 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. Motorola was willing to give up some control and possibly some of its design talent and assembly expertise because it felt that the supplier could provide product of an appropriate level of quality with the responsiveness necessary. Products and services that are outsourced are rarely brought back in-house and should never be tied too closely to the outsourcing party’s core competency.

6. How can a home delivery company like Peapod use pricing of its delivery services to improve its profitability?

Pricing is the process by which a firm decides how much to charge customers for its goods and services. Pricing affects the customer segments that choose to buy the product as well as the customer’s expectations. Peapod 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 example, by establishing a minimum order amount of $50 and charging $10 to deliver an order under $75, Peapod provides an incentive for a customer to pile on additional items to save on per unit shipping. An order over $100 incurs a delivery fee of $7, which is the lowest delivery charge for a residential customer.

Peapod also varies delivery charges by time of day; evening delivery times on weekdays and morning deliveries on Sunday within narrow windows cost an extra dollar, wider delivery windows are $1 less. The delivery latitude allows Peapod’s delivery drivers to schedule more efficiently thereby increasing profitability.

7. What are some industries in which products have proliferated and life cycles have shortened? How has the supply chains in these industries adapted?

The authors cite the example of running shoes increasing from five styles in the early 70s to almost 300 by the late 90s. Other products that have seen an explosion in variety include personal electronics, beverages, snack and prepared foods, entertainment, tires, and personal services.

Supply chains have leveraged information systems, recognized the need to collaborate on product and process design, and supply chain execution. The supply chain stance has shifted towards a partnership orientation from a focus on price negotiations.

8. How can the full set of logistical and cross-functional drivers be used to create strategic fit for a PC 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 PC manufacturer that wants to deliver product both quickly and efficiently can make cost and time trade-offs among these drivers to achieve their goals. These trade offs across drivers afford more flexibility but require constant vigilance as the trade-offs within each driver change. In addition, some drivers may be altered more easily, e.g., order quantity and transportation media, than other drivers, e.g., location and sourcing.

The trade-offs within each driver are summarized in the table:

Driver	More Responsive	More Efficient
Facilities	Multiple Plants Flexible Plants	Single Plant Dedicated Plant
Inventory	Higher Inventory	Lower Inventory
Transportation	Higher Speed	Lower Speed
Information	Accurate Real Time Transmission	Less Accurate Batched Transmission
Sourcing	Responsive supplier	Efficient supplier
Pricing	Differential Pricing	Everyday Low Pricing

Supply-chain-management by sunil chopra,,,,CHAPTER TWO

CHAPTER TWO

Discussion Questions

1. How would you characterize the competitive strategy of a high-end department store chain such as Nordstrom? What are the key customer needs that Nordstrom aims to fill?

The Nordstrom web site states the following. Over the years, the Nordstrom family of employees built a thriving business on the principles of quality, value, selection, and service. Today, Nordstrom is one of the nation’s leading fashion retailers, offering a wide variety of high-quality 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.

Nordstrom fills customer needs for high quality fashion merchandise and outstanding levels of customer service. Price is no object for the typical Nordstrom shopper.

2. Where would you place the demand faced by Nordstrom on the implied demand uncertainty spectrum? Why?

Implied 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 Nordstrom falls on the high end of the implied demand uncertainty scale. The fashion items that Nordstrom stocks have extremely high product margin, high forecast errors and stockout rates, and once the season is over, these items are sold at deep discounts at their Nordstrom Rack outlet stores.

3. What level of responsiveness would be most appropriate for Nordstrom’s supply chain? What should the supply chain be able to do particularly well?

Supply chain responsiveness takes many forms, including the ability to respond to a wide range of quantities, meet short lead times, handle a large variety of products, build innovative products, meet a high service level, and handle supply uncertainty. The Nordstrom 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 Pacific Northwest.

4. How can Nordstrom expand the scope of the strategic fit across the supply chain?

Scope of strategic fit refers to the functions within the firm and stages across the supply chain that devise an integrated strategy with a shared objective. By adopting an intercompany interfunctional scope strategy, Nordstrom will maximize supply chain surplus. Nordstrom can move in this direction by working with their suppliers as if they are actually owned by Nordstrom. Rather than viewing the supply chain as a zero-sum game of inventory cost minimization and profit maximization, Nordstrom must recognize 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 requires more effort than the other approaches presented in this section; Nordstrom must evaluate all aspects of their supply web.

5. Reconsider the previous four questions for other companies such as Amazon.com, a supermarket chain, and auto manufacturer, and a discount retailer such as Wal-Mart.

Amazon.com focuses on cost and flexibility by providing books, music and a host of other household products at low prices.  Customers place orders online and expect to receive purchases in a number of days.  Customer 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 Amazon.com is low as they cast such a wide net.  Amazon.com’s supply chain must be responsive in terms of flexibility; they handle an incredibly diverse range of products. Amazon.com’s supply chain should be able to provide low prices wide variety and reasonable delivery schedules for its customers.  In every link of the supply chain, Amazon.com must function on the cost-responsiveness efficient frontier in order to support its competitive strategy.

A supermarket chain focuses on cost and quality, with some specialty chains adding flexibility by carrying a broader range of products that may be targeted towards customers interested in organic products or ethnic cuisine. Implied 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 quickly to ensure freshness and have a high service level. Supermarket supply chains tend to be well-established and can improve strategic fit by emphasizing speed to maintain freshness, hence perceived quality.

Auto manufacturers have extremely complicated supply chains that are increasingly focused on flexibility and lean operations. Implied demand uncertainty for auto manufacturers varies considerably by target market and manufacturer. Automotive supply chains among the big three in the United States have made great progress in the last decade and recognize that they must be responsive from a time and flexibility standpoint.

Wal-Mart’s 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 quickly to fill a wide variety of products to keep merchandise on Wal-Mart’s shelves. Wal-Mart’s level of coordination along the supply chain is excellent; 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 equitably.

6. Give arguments to support the statement that Wal-Mart has achieved very good strategic fit between its competitive and supply chain strategies.

The best argument to support the statement that Wal-Mart has achieved very good strategic fit is their success as a company. Competition today is supply chain versus supply chain, not company versus company, so a company’s partners in the supply chain often determine the company’s success. Wal-Mart’s 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. Visiting one of their big box stores reveals low-priced merchandise, both national and store brands, stacked from floor to ceiling without elaborate displays or decoration. Wal-Mart’s logistics and information systems are famous for coordinating their entire supply chain and allowing it to meet customer needs at minimal cost.

7. What are some factors that influence implied uncertainty?  How does the implied uncertainty differ between an integrated steel mill that measures lead times in months and requires large orders and a steel service center that promises 24-hour lead times and sells orders of any size?

From a customer perspective, implied demand uncertainty increases when the customer’s range of quantity required increases, lead times decrease, variety of product increases, rate of innovation increases and required service levels increase.  We also see high implied uncertainty attributed with high product margins, forecast errors above 40%, stockout rates above 10% and forced season-end markdowns.  On the supply side we see increased supply uncertainty when the supply source has frequent breakdowns, unpredictable and low yields, poor quality, limited supply capacity, and evolving production processes.

For the steel mill that requires 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.  Due to the increasing number of sizes and the shorter response time associated with the steel service center, implied uncertainty is high.

8. What is the difference in implied uncertainty faced by a convenience store chain such as 7-Eleven, a supermarket chain, and a discount retailer such as Costco?

When customers go to a convenience store chain such as 7-Eleven, they go there for the convenience of a nearby store and are not necessarily looking for the lowest price.  Implied 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 quality, with some specialty chains adding flexibility by carrying a broader range of products that may be targeted towards customers interested in organic products or ethnic cuisine. Implied 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 quickly to ensure freshness and have a high service level. Supermarket supply chains tend to be well-established and can improve strategic fit by emphasizing speed to maintain freshness, hence perceived quality.

Low price is very important to customers of discount retailers such as Costco.  This customer is willing to tolerate less variety and even purchase very large package sizes as long as the price is low.  Customer demand can be more predictable and supply side needs are large and fairly stable.

9. What are some problems that can arise when each stage of a supply chain focuses solely on its own profits when making decisions?  Identify some actions that can help a retailer and a manufacturer work together to expand the scope of strategic fit.

High inventories, poor quality, low customer service, increased returns are just a number of problems that occur when each stage of a supply chain focuses solely on its own profits.  The trucking company requires full truck loads for delivery forcing the retailer to carry more inventory than wanted or needed.  The supplier offers discounts to their buyers to maximize production but forcing the buyers to purchase in larger quantities than desired.  This concept was very prevalent during the 1950s and 1960s as companies to minimize local costs and maximize their own profits.

Today, retailers and manufacturers have the opportunity to plan promotions jointly such as Wal-Mart and P&G.  They can share sales information to determine customer trends.  Joint product development opportunities are being explored throughout the supply chain between retailers, manufacturers and raw material suppliers.