Transcript CHAPTER 8
CHAPTER 11 SUPPLY CHAIN STRATEGY SUPPLY CHAIN STRATEGY • Supply Chain Process • Distribution Functions • Distribution Strategy • Channels of Distribution • Vertical Marketing Systems • Wholesaling Strategy SUPPLY CHAIN PROCESS RAW MATERIALS & COMPONENT PARTS MANUFACTURING/ASSEMBLY CHANNELS OF DISTRIBUTION CONSUMERS/USERS GLOBAL SUPPLY CHAIN EXAMPLES • Penny’s shirts • Vegpro Kenya • Whirlpool REPLACEMENT SHIRT PROCESS Saturday Customer buys a new shirt in a Penny’s store in Atlanta Monday Hong Kong computer operator processes order Wednesday Worker in Taiwan ships shirt to the Penny’s store KENYAN PRODUCE BUSINESS MODEL Kenyan produce shipped daily to Europe 300 tons Days from harvest until arrival to Europe 2 days Average days in U.S. for U.S produce to arrive in stores 7 days WHIRLPOOL SUPPLY CHAIN STRATEGY • Replaced 41 outdated sites with 10 regional distribution centers • Segregated slow-moving goods from fastmoving goods • Combined ordering and delivering function DISTRIBUTION FUNCTIONS • Transportation – moving products • Assorting/sorting – buying/breaking bulk • Storage – storing products • Inventory – physical count of products TRANSPORTATION SELECTION + (STRONG) Mode Speed – (WEAK) Cost Access Rail Trucking + Air + - Water - + - INTERMODAL TRANSPORTTION CHOICES • Rail • Trucking • Water SHIPPING CONTAINER OF WINE Bottled Wine 9,900 Liters Plastic Bags 24,000 Liters ASSORTING AND SORTING Manufacturer Assorting Stage Buys in Bulk Wholesaler Sorting Stage Breaks Bulk Retailer STORAGE MANAGEMENT • Warehouses • Shipping containers • Port of Houston GEICO U.S. AUTO INSURANCE MARKET 1995 2.5% 2013 9.7% INVENTORY MANAGEMENT • Just-in-time • Safety stock • Inventory theft NEED FOR INVENTORY • Time lag from supplier to final buyer • Uncertainty in supply and demand • Economy of scale in cheaper unit cost of inventory INVENTORY IS WORKING CAPITAL THAT IS NOT EARNING ANY MONEY COMPANY INVENTORY STRATEGY Company Products % of Total Products % of Total Sales % of Out-of Stock Goal A 20% 80% 1% B 60% 15% 5% C 20% 100% 5% 100% 20% DISTRIBUTION STRATEGY • Intensive Distribution • Selective Distribution • Exclusive Distribution DISTRIBUTION CHOICES FOR MANUFACTURERS • Control Power struggle between the manufacturer and intermediaries • Coverage Coverage strategy for the manufacturer • Cost Cost of distribution MANUFACTURER DISTRIBUTION Strategy Cost Control Coverage Intensive Distribution Weak Weak Strong Strong Strong Weak Selective Distribution Exclusive Distribution INTENSIVE DISTRIBUTION • Pepsi Cola • Cigarettes • M&Ms SELECTIVE DISTRIBUTION • Furniture • Shoes • Clothes EXCLUSIVE DISTRIBUTION • Tiffany • Rolex • Cheesecake Factory HUB AND SPOKE DISTRIBUTION STRATEGY HUB • United Airlines • Walmart Stores CHANNELS OF DISTRIBUTION • Consumer Channels • Business Channels CONSUMER CHANNELS No Intermediary Man/Retailer One Intermediary Man Two Intermediaries Man Wholesaler Consumer Retailer Retailer Consumer Consumer BUSINESS CHANNELS No Intermediary Man One Intermediary Man Two Intermediaries Man Selling Agent User Industrial Distributor Industrial Distributor User User AUTOMOBILE INSURANCE CHANNELS AETNA STATE FARM Independent Agents State Farm Agents Consumer Consumer GEICO Consumer GEICO SHARE OF U.S. AUTOMOBILE INSURANCE 1995 2.5% 2012 9.7% BERKSHIRE HATHAWAY FLOAT Year Billion 1990 2 2000 28 2012 73 VERTICAL MARKETING SYSTEMS • Corporate VMS - Ownership • Administered VMS - Size and Power • Contractual VMS - Franchise/ Contract VERTICAL MARKETING SYSTEM CONFLICTS Types of VMS Conflicts Corporate VMS Ownership – no conflict Administrative VMS Coke vs. Costco Contractual VMS Dr. Pepper vs. Dublin Dr. Pepper CORPORATE VMS EXAMPLES • Kroger • James Avery ADMINISTERED VMS EXAMPLES • General Electric • Costco • Sony CONTRACTUAL VMS EXAMPLES • Toyota • Burger King • Dr Pepper WHOLESALING STRATEGY • Merchant Wholesalers - Take title - Independently owned • Agents Wholesalers - Do not take title - Independently owned MERCHANT WHOLESALERS • Full-service - offers complete wholesaling service • Limited-service - offers specialized wholesaling service FULL-SERVICE WHOLESALER EXAMPLES • Sysco • Cardinal Health Grocers Supply • Li and Fung THREE MAJOR DRUG WHOLESALERS (with 95% market share) • Cardinal Health • AmerisourceBergen • McKesson LIMITED-SERVICE WHOLESALER EXAMPLES Types Description Drop Shipper No physical possession Rack Jobber Provides and stocks racks DROP SHIPPING EXAMPLES • Coal broker • eBay • Infomercial products ADVANTAGES OF DROP SHIPPING • No upfront inventory purchase • Positive cash flow cycle • Business can operate out of home RACK JOBBER EXAMPLES • Toys • Paper backs • Music CDs AGENT WHOLESALERS • Manufacturing Agents • Selling Agents • International Agents MANUFACTURING AGENT EXAMPLES • Electrical products • Furniture • Apparel SELLING AGENT EXAMPLES • Textiles • Chemicals • Industrial Equipment TRENDS IN WHOLESALING • Expanding in global distribution • Reduction of small wholesalers • Major cost efficiencies