Examples of Sp Successes and Failures 1223886747102610 8

7/23/2019 Examples of Sp Successes and Failures 1223886747102610 8

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Strategic Partnering:Strategic Partnering:Types of SPTypes of SP

• Quick Response:

– Vendors receive POS data from retailers, and usethis information to synchronize production andinventory activities at the supplier.

– The retailer still prepares individual orders, ut thePOS data is used y the supplier to improveforecasting and scheduling.

– !"ample: Milliken and Company: The lead time

from order receipt at #illi$en’s te"tile plants to finalclothing receipt at several of the department storesinvolved %as reduced from eighteen %ee$s do%n tothree %ee$s.



• Continuous Replenishment: Vendors receivePOS data and use it to prepare shipments atpreviously agreed upon intervals to maintainagreed to levels of inventory.

– &al'#art, (mart

• Advanced Continuous Replenishment: Suppliers may gradually decrease inventorylevels at the retailer’s store or distriution

center as long as service levels are met.)nventory levels are thus continuouslyimproved in a structured %ay.– (mart




• Vendor Managed Inventory *V#)+:)T-

–V#) Proects at -illard -epartmentStores, ./. Penney, and &al'#art havesho%n sales increases of 01 to 02percent, and 31 percent inventory

turnover improvements.




4dvantages of SP4dvantages of SP

• -ecrease re5uired inventorylevels

• )mprove service levels• -ecrease %or$ duplication

• )mprove forecasts



4dvantages of SP4dvantages of SP

• Fully utilize system knowledge

–/onsider the partnership et%een &hite'6all 7oins *&'7+, %ho ma$es over'

the'counter drugs such as 4dvil, and(mart. &'7 initially disagreed %ith(mart aout forecasts, and in this case,it turned out that &'7 forecasts %ere

more accurate ecause they have amuch more e"tensive $no%ledge of theirproducts than (mart does.



-isadvantages of SP-isadvantages of SP

• !"pensive advanced technology isre5uired.

• Supplier8retailer trust must edeveloped.

• Supplier responsiility increases.

• !penses at the supplier o"tenincrease#–$hy% &ow can this 'e addressed%



/onceptual !volution of/onceptual !volution of)nventory #anagement)nventory #anagement

Owner Managed

Inventory Direct Selling

Consignment

SellingVMI

Continuous

Replenishment



Vendor Managed InventoryVendor Managed Inventory

(VMI)(VMI)VMI is essentially an integratedVMI is essentially an integrated

approach where'y the inventoryapproach where'y the inventory

at the distri'utor*retailerat the distri'utor*retailer(downstream) is monitored and(downstream) is monitored and

managed 'y themanaged 'y the

manu"acturer*vendor (upstream)manu"acturer*vendor (upstream)



VMI rationale +#VMI rationale +#,y pushing the decision making,y pushing the decision making

responsi'ility "urther up the supplyresponsi'ility "urther up the supplychain- the manu"acturer*vendor will 'echain- the manu"acturer*vendor will 'e

in a 'etter position to support thein a 'etter position to support theo'.ectives o" the entire integratedo'.ectives o" the entire integrated

supply chain resulting in sustaina'lesupply chain resulting in sustaina'lecompetitive advantagecompetitive advantage



V#) includes 9V#) includes 9

• -etermining appropriate order5uantities

• #anaging proper product mi"es

• /onfiguring appropriate safety stoc$



Typical enefits toTypical enefits to#anufacturers#anufacturers

• ;o%er inventory investments *ra%and finished+

• etter scheduling and planning

• etter mar$et information

• /loser customer ties and preferred

status



Typical enefits to 7etailersTypical enefits to 7etailers

• <e%er stoc$'out %ith higherinventory turnover

• etter mar$et information

• #ore optimal product mi"

• ;ess inventory in channels *transfer

costs+• ;o%er administrative replenishment

costs



V#) Success <actorsV#) Success <actors

• Top management commitment

• <ocus on effort

• Trust and partnership et%een supplychain sta$eholders

• 6ighly effective computer8informationsystems *!-), ar coding, Scanning+

• /ompetent manufacturers and the ailityto forecast

• &illing sta$eholders partners and patience



lectronic /atalectronic /ataInterchange /IInterchange /I

computer to computercomputer to computere!change o" 'usinesse!change o" 'usiness

transaction in a standardtransaction in a standard"ormat"ormat



!-) enefits 9!-) enefits 9

• =uic$ access to information

• 7educed laor and material costsassociated %ith handling paper'ased

usiness transaction• etter communication

• )ncreases productivity

• )mproved tracing and e"pediting• )mproved illing

• etter customer service



O%nership of inventoryO%nership of inventory

• )nitially, o%nership transferred to retailer uponreceipt of goods

• >o%, V#) is ased on consignment

relationship in %hich manufacturer o%nsgoods until sold

• 7etailer enefit: lo%er inventory cost

• #anufacturers enefits: etter control

• Supply chain enefit: system'%ide costreduction



7e5uirements for !ffective SP7e5uirements for !ffective SP

• 4dvanced information systems

• Top management commitment

– )nformation must e shared

– Po%er and responsiility %ithin an organizationmight change *for e"ample, contact %ith customerss%itches from sales and mar$eting to logistics+

• #utual trust

– )nformation sharing– #anagement of the entire supply chain

– )nitial loss of revenues



)mportant SP )ssues)mportant SP )ssues

• )nventory o%nership:

–7etailer o%ns inventory

–Supplier o%ns the goods until they aresold *consignment+

• &hy %ould a firm do this?

• Performance measures: <ill rate,

inventory level, inventory turns



)mportant SP )ssues)mportant SP )ssues

• /onfidentiality

• /ommunication and cooperation

–&hen <irst rands started partnering %ith(mart, (mart often claimed that itssupplier %as not living up to its agreementto $eep t%o %ee$s of inventory at alltimes. )t turned out that this %as due tothe fact that the t%o companies employeddifferent forecasting methods.



Steps in SP )mplementationSteps in SP )mplementation

• /ontractual negotiations– O%nership

– /redit terms

– Ordering decisions– Performance measures

• -evelop or integrate information systems

• -evelop effective forecasting techni5ues

• -evelop a tactical decision support tool toassist in coordinating inventorymanagement and transportation policies



#ain /haracteristics of SP#ain /haracteristics of SP

CriteriaTypes

DecisionMaker

InventoryOwnership

New SkillsEmployed by vendors

Quick

esponse

etailer etailer !orecastin" Skills

Continuouseplenishment

Contractually #"reedto $evels

Either %arty

!orecastin" &Inventory Control

#dvanced

Continuous

eplenishment

Contractually a"reed

to & Continuously

Improved $evels

Either

%arty

!orecastin" &

Inventory Control

'MI 'endor Either %arty

etailMana"ement



!"amples of SP Successes!"amples of SP Successesand <ailuresand <ailures

• &estern Pulishing'@olden oo$s:– &estern Pulishing is using V#) for its @olden oo$s line

of children’s oo$s at several retailers.

– POS data automatically triggers re'orders %heninventory falls elo% a reorder point.

– This inventory is delivered either to a distriution center,or in many cases, directly to the store.

– O%nership of the oo$s shifts to the retailer oncedeliveries have een made.

– )n the case of Toys 7 As, the company has evenmanaged the entire oo$ section for the retailer,including inventory from suppliers other than &esternPulishing.

– !"tra sales, increased costs to &estern




• V< /orporation’s #ar$et 7esponse System:– The V< /orporation, %hich has many %ell $no%n

rand names *including &rangler, ;ee, @iraud,and many others+, egan its V#) program in BCDC.

– /urrently, aout E1 percent of its production ishandled using some type of automaticreplenishment scheme.

– This is particularly notale ecause the programencompasses 321 different retailers, E1,111 store

locations, and more than B2 million replenishmentlevels.

– V<’s program is considered one of the mostsuccessful in the apparel industry.




• Spartan Stores–Spartan Stores, a grocery chain, shut do%n its

V#) effort aout one year after its inception.

–One prolem %as that uyers %ere notspending any less time on reorders than theydid efore

–This %as ecause they didn’t trust thesuppliers enough to e ale to stop carefully

monitoring the inventories and deliveries ofthe V#) items, and intervening at the slightesthint of troule.




• Spartan Stores *continued+–Suppliers didn’t do much to allay these

fears. The prolems %ere not %ith the

suppliers’ forecastsF instead, they %eredue to the suppliers’ inaility to deal %ithpromotions, %hich are a $ey part of thegrocery usiness.

–Since they %ere unale to appropriatelyaccount for promotions, delivery levels%ere often unacceptaly lo% during theseperiods of pea$ demand.



-istriutor )ntegration-istriutor )ntegration

• Parts are shared across the distriutor net%or$• Specialized service re5uests are steered to

appropriate dealers or distriutors.• &hat is re5uired?

– Trust– Pledges– @uarantees from the manufacturer– 4dvanced information systems

• -isadvantages– )ncentives for dealers – are they giving a%ay competitive

advantages?– S$ills and responsiilities are ta$en from some

dealers8distriutors.

• !"amples ' /aterpillar, O$uma

Documents

Examples of Sp Successes and Failures 1223886747102610 8