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SUPPLY CHAIN MANAGEMENT

HBR ON SCM

KISHORE THOMAS JOHN ASST. PROFESSOR
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THE TRIPLE A’s OF SCM • Agility: Reacting speedily to sudden changes in demand and supply • Adaptability: Adapting over time as market structures and strategies evolve • Alignment: Aligning the interests of the firm in the supply network so that supply chain performance is optimized and profits maximized. 2 .

Kyocera.THE PERILS OF EFFICIENCY • High speed. and during lean periods. 3 . low cost supply chains are unable to respond to unexpected changes in demand or supply • Eg. Sharp. So companies often sell at discounted rates. Minolta. Sanyo. Akai. During promotions. Fujitsu. Fashion Industry. Stores in the US. excess inventory. stock-outs can rise to 15%. • Eg. JVC.(30% at Dept.Eg. TDK. NEC & NTT. etc.) • This can erode brand equity and anger loyal customers who bought at full price.

lost on pricing. Mango. Zara. Intel Processors in the 1990s Compaq always behind others in launching new gen models. quickly spot trends.Fashion Brands of Europe  Agile designers.reworking costs. Excellent distribution and market pulse 4 .EXAMPLES •    •      Lucent’s Electronic Switching Systems Division in Oklahoma.Emergence of Asia as a market. Long design cycle because of tight supply chain Lost mind share to early adopters.Supply chain collapsed. • H&M. assembly and testing. lost market share Compaq couldn’t take advantage of component prices falls in market Vendors: Compaq couldn’t adjust to Engg. 1980s.poor response. Modifications. Centralize procurement. lost market When vendors shifted to Asia. and order fulfillment. 1990s.

5 . Ericsson lost business for months. Dockworkers Strike 2002.steered consumer demand away and redirected sales efforts. Nokia managers changed designs and contacted backup suppliers in US and Japan.changed PC configurations overnight.Earthquake in Taiwan. SARS Epidemic 2003 • Sep 1999. Philips factory fire in New Mexico.US computer industry hit. Dell was only exception. Lost launch of new product. 5 days delay only. Weeks and Months of delays. • Mar 2000. RF Chips for Ericsson and Nokia.DISASTERS & CALAMITIES • Sep ’11 2001.

 Canon could adjust production only if HP gave 6 months heads up.  Division of responsibilities.  An example of poor agility of Supply Chain.  HP’s demand forecasting systems worked only to 3-4 months  Supply chain couldn’t cope with fluctuations in demand. 6 .HP was stuck with huge surplus of printer engines  Write off.  HP Made PCBs. Canon used its W Virginia and Japan Factory.joint R&D.WHY AGILE? • HP-Canon Printer Pact 1995: Launching ink-jets. and huge losses for HP.  At end of life cycle. Canon made the Printer Engines.  HP used its Idaho US and Italy factories.

and outsourced later.but Lucent ultimately shut down its factory in Taiwan in 2002. cheap and customizable quickly. However. Indonesia.  With Economies of Scale. India and Taiwan markets.WHY ADAPTIBLE? • Lucent in 1990s. Making inroads into Asia       Overhauled its supply chain Set up new plants in Taiwan and China Inexpensive. Recaptured China. it does not end here…  Lucent did not consider small and medium size competitors. local competitors could produce at a fraction of cost  Competitors of lucent outsourced. Compete with Siemens and Alcatel It stopped its manufacturing and shipping from US. 7 .

 When demand fell soon after.  Even after US Economy slowed down. Cisco’s supply chain was considered infallible. 8 .  Contract manufacturers accumulated inventory without forecasting demand for products.WHY ALIGNMENT? • In 2001.5 billion worth of Inventory. Cisco wrote of $ 2. automate work flow and develop remote solutions. contractors produced and stored inventory at the same pace. Cisco had to scrap the inventory.  In the 1990s.  Most of Cisco’s manufacturing was outsourced.  Different firms in same supply chain can have different interests.  There was misalignment between Cisco’s interests and those of its contract manufacturers.  Cisco was the first to introduce internet to communicate to suppliers and customers.

HP set up facilities in Spain and Singapore to cater to Europe and Asia. Printer Manufacturing technologies had matured. By 1990s. Vancouver remained R&D hub. When demand grew in other markets. So HP outsourced its production to vendors completely. Biggest printer market was the US then. Thus it controlled its costs and remained the leader in the market.HP AGAIN… • • • • Started its printer business in 1980s Both R&D and Manufacturing in Vancouver. but Singapore became the largest production facility. • • • • 9 .

• Mexico and Hungary was also near the biggest markets.MICROSOFT XBOX • In 2001. • So Xbox was made at facilities in Hungary and Mexico. Xbox had to be in the stores before December so that Microsoft targeted Christmas Shoppers. • When Sony started offering deep discounts. • In 2001. • In 2003. • It outsourced hardware production to Singapore based Flextronics.US. Europe • The product was launched in record time and became a stiff challenge to Playstation 2 of Sony. but design and engineering changes could be made quickly. Flextronics shifted the supply chain to China. So it was able to compete on price. 10 . Microsoft decided to enter the Video Game Market. • The above sites were expensive. Xbox took over 20% share in the Video Game Market from Playstation 2. • Speed was the crucial factor for a successful launch.

• Cisco switches the manufacture of products from one supply network to another when necessary.MULTIPLE SUPPLY CHAINS • Cisco has 3 different supply chains • For Standard. but customizes those products in major markets like the US. high volume Networking products are commissioned from China • For Wide Variety of mid-value items. Cisco uses vendors in low cost countries to build core products. low volume products. 11 . • For highly customized. Cisco uses vendors close to main markets: like Mexico for US and Eastern European Countries for Europe.CISCO .

GAP . lower scale of economies and transportation costs. 12 . • Banana Republic is Premium Clothing: Sourced from Italy to ensure quality • The use of 3 supply chains increases overheads.sourced from China for efficiency.chain in central America to ensure speed and flexibility. • Gap is for trendy buyers.MULTIPLE SUPPLY CHAINS • GAP has 3 brands: Old Navy. • The 3 supply chains can also serve as a back up in case of emergencies. Gap and Banana Republic • Old Navy is for cost conscious buyers. but it improved agility and adaptability.

13 . and dealers delivered them.TOYOTA PRIUS SUPPLY CHAIN • Toyota in 2000. • In 2002. But 25% of Prius were sold in North California and only 6% in Southeast. a new product and appealed to a different customer segment. • Dealers took orders and communicated via the internet. did not accurately know the market for Prius in the US. • Prius was a new technology. • Instead of giving stocks to dealers. Toyota’s on the road in north California and Southeast were 7% and 20%. then the model would have failed. Toyota decided to maintain inventory in a central stockyard. • If the older system was used. and Toyota shipped cars from the stockyards. • Inventory was thus carefully managed.

Cisco and 3com keep supplier hubs close to assembly plants. and hubs are replenished without waiting for orders. 14 . • VMI systems allow suppliers to track consumption of components. When the inventory costs starts rising. So the costs have passed from manufacturer to supplier/vendor. Solectron. • Vendors maintain just enough stock at the hubs to support manufacturers needs. the suppliers own components till it enters the manufacturing facility. reduce transportation costs and hubs can be used to support several manufacturers and derive scale benefits. • VMI has problems: here. the vendors would charge higher costs for their products.VENDOR MANAGED INVENTORY VMI • Many high tech companies like Flextronics.

• Store shelves are reconfigured thrice daily 15 . • $21 Billion convenience store chain in Japan.SEVEN ELEVEN OF JAPAN • SEJ is an adaptable. • It responds to quick changes in demand. agile and aligned Supply Chain. • Deliveries are scheduled within 10 minute margin. etc. else heavy penalties. suppliers and logistics providers.what is inventory turnover? • Gross profit margins of 30% and over 9000 stores. • Real time systems to take customer preferences and data on sales and customers. changes etc. is responded fast.not just cheap and fast deliveries. • Every store in connected with distribution centers. • Fluctuations in demand across stores. • Inventory turnover of 55.

16 .SCM MANUFACTURING MANTRAS • Commonality: It ensures that products share components • Postponement: It delays the step at which products become different • Standardization: Ensures that processes and components for different products are the same.

• The brand has been mismanaged in recent times. Brand House retail of Reid & Taylor clears the stock twice every year by discounts and offers.A BAD SUPPLY CHAIN EXAMPLE • Raymond’s apparel franchisee format. 17 . It is just re-tagged and sold the next year • The annual discounts offered by the company is not passed on to the customers. Discounts on purchases and not on sales. • In contrast. • No clearance of old stocks.

• Fiat’s sales are now going down from 1800 units a month to less than 900 per month • Fiat’s low distribution network and service network is eroding its business in India • Opel Motors experienced a similar problem in the past decade. 18 .FIAT AND TATA • TATA was responsible for the commercial and distribution activities of Fiat until May 2012. • Another example of an electronics giant was Grundig.