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$s.
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• Continuous Replenishment: Vendors receivePOS data and use it to prepare shipments atpreviously agreed upon intervals to maintainagreed to levels of inventory.
– &al'#art, (mart
• Advanced Continuous Replenishment: Suppliers may gradually decrease inventorylevels at the retailer’s store or distriution
center as long as service levels are met.)nventory levels are thus continuouslyimproved in a structured %ay.– (mart
Strategic Partnering:Strategic Partnering:Types of SPTypes of SP
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• Vendor Managed Inventory *V#)+:)T-
–V#) Proects at -illard -epartmentStores, ./. Penney, and &al'#art havesho%n sales increases of 01 to 02percent, and 31 percent inventory
turnover improvements.
Strategic Partnering:Strategic Partnering:Types of SPTypes of SP
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4dvantages of SP4dvantages of SP
• -ecrease re5uired inventorylevels
• )mprove service levels• -ecrease %or$ duplication
• )mprove forecasts
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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 $no%ledge of theirproducts than (mart does.
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-isadvantages of SP-isadvantages of SP
• !"pensive advanced technology isre5uired.
• Supplier8retailer trust must edeveloped.
• Supplier responsiility increases.
• !penses at the supplier o"tenincrease#–$hy% &ow can this 'e addressed%
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/onceptual !volution of/onceptual !volution of)nventory #anagement)nventory #anagement
Owner Managed
Inventory Direct Selling
Consignment
SellingVMI
Continuous
Replenishment
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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)
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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
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V#) includes 9V#) includes 9
• -etermining appropriate order5uantities
• #anaging proper product mi"es
• /onfiguring appropriate safety stoc$
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Typical enefits toTypical enefits to#anufacturers#anufacturers
• ;o%er inventory investments *ra%and finished+
• etter scheduling and planning
• etter mar$et information
• /loser customer ties and preferred
status
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Typical enefits to 7etailersTypical enefits to 7etailers
• <e%er stoc$'out %ith higherinventory turnover
• etter mar$et information
• #ore optimal product mi"
• ;ess inventory in channels *transfer
costs+• ;o%er administrative replenishment
costs
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V#) Success <actorsV#) Success <actors
• Top management commitment
• <ocus on effort
• Trust and partnership et%een supplychain sta$eholders
• 6ighly effective computer8informationsystems *!-), ar coding, Scanning+
• /ompetent manufacturers and the ailityto forecast
• &illing sta$eholders partners and patience
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lectronic /atalectronic /ataInterchange /IInterchange /I
computer to computercomputer to computere!change o" 'usinesse!change o" 'usiness
transaction in a standardtransaction in a standard"ormat"ormat
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!-) enefits 9!-) enefits 9
• =uic$ 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
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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
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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
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)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
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)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.
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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
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#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 $evels
Either
%arty
!orecastin" &
Inventory Control
'MI 'endor Either %arty
etailMana"ement
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!"amples of SP Successes!"amples of SP Successesand <ailuresand <ailures
• &estern Pulishing'@olden oo$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
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!"amples of SP Successes!"amples of SP Successesand <ailuresand <ailures
• 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.
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!"amples of SP Successes!"amples of SP Successesand <ailuresand <ailures
• 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.
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!"amples of SP Successes!"amples of SP Successesand <ailuresand <ailures
• 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.
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-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