chapter 1- basic concepts of retail buying
TRANSCRIPT
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Supply Chain Management
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The way materials flow through differentorganizations from the raw material supplier tothe finished goods consumer.
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Flow of products and services from:Raw materials manufacturersIntermediate products manufacturersEnd product manufacturersWholesalers and distributors andRetailers
Connected by transportation and storageactivitiesIntegrated through information, planning, andintegration activities
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Supply
Chain forMilk
Products
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Supply Chain
A Supply Chain consists of all the partiesinvolved, directly or indirectly in fulfilling acustomer request for goods or services.
Each party is involved in various functionsinvolved in receiving and fulfilling acustomers request
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2-8
New
Product
Development
Marketing
and
Sales
Operations Distribution Service
Finance, Accounting, Information Technology, Human Resources
e a ue a n: n agebetween Supply Chain and
Other Functions
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Production: refers to the capacity of a supply
chain to make and store products.Key Production Decision Responsiveness VSEfficiency
Factories and Facilities with Excess Or
Limited capacities?Focuses on:
Customer & market demand
Resource Management
Internal sourcing (what and which plants)Outsourcing to capable suppliers
Capacity Management
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Inventory is spread throughout the supplychain and includes everything from rawmaterial to work in process to finished goodsthat are held by the manufacturers,distributors, and retailers in a supply chain.
How Much Inventory and Where to Store It?
Reasons for holding inventory:Cycle InventoryThis is the amount ofinventory needed to satisfy demand for theproduct in the period between purchases of theproduct.
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Safety Inventorythat is held as a bufferagainst uncertainty.
Seasonal InventoryThis is inventory that isbuilt up in anticipation of predictable increasesin demand that occur at certain times of the
year
Analysis of fluctuations in demand
Identification of optimal storage locations insupport of customer demand
Identification of optimal storage locations insupport of customer demand
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Location: refers to Strategic placement ofproduction plants, distribution and stockingfacilities
It is the geographical positioning /siting ofsupply chain facilities
Factors that relate to a given locationincluding the cost of facilities, the cost of labor,
skills available in the workforce, infrastructureconditions, taxes and tariffs, and proximity tosuppliers and customers.
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Transportation: refers to movement ofeverything from raw material to finished goodsbetween different facilities in a supply chain
In transportation the trade-off between
responsiveness and efficiency is manifested inthe choice of transport mode.
Ship which is very cost efficient but also theslowest mode of transport
Rail which is also very cost efficient but can beslow. This mode is also restricted to usebetween locations that are served by rail lines
Airplanes are a very fast mode of transport and
are very responsive.
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Pipelines can be very efficient but are restrictedto commodities that are liquids or gases suchas water, oil, and natural gas
Trucks are a relatively quick and very flexible
mode of transport. Trucks can go almostanywhere.
Electronic Transport is the fastest mode oftransport and it is very flexible and cost
efficient. However, it can only be used formovement of certain types of products such asdata, and products composed of data such asmusic, pictures, and text.
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Timely and accurate information holds thepromise of better coordination and betterdecision making.
Information is used for two purposes in anysupply chain:
1. Coordinating daily activities related to thefunctioning of the other four supply chaindrivers: production; inventory; location; and
transportation.2. Forecasting and planning/Decision Makingto anticipate and meet future demands.
Obtaining, linking and leveraging information
across the Supply Chain
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1. Producers
Raw materials, Intermediary Products, Finishedgoods
2. Distributors: are companies that takeinventory in bulk from producers and delivera bundle of related product lines tocustomers
A distributor is typically an organization thattakes ownership of significant inventories ofproducts that they buy from producers andsell to consumers
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A distributor can also be an organization thatonly brokers a product between the producerand the customer and never takes ownership of
that product
Distributors buffer the producers fromfluctuations in product demand by stocking
inventory.
Perform Sales work and at times
Marketing/promotion / After Sales Services
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3. Wholesalers: stock a range of products fromseveral producers. The role of the wholesaleris to sell onto retailers. Wholesalers usuallyspecialize in particular products.
4.Franchises: are independent businesses thatoperate a branded product (usually a service)in exchange for a license fee and a share ofsales.
5. Agents: sell the products and services ofproducers in return for a commission (apercentage of the sales revenues)
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6. Retailers operate outlets that trade directlywith household customers. Retailers can beclassified in several ways:
Type of goods being sold( e.g. clothes, grocery,furniture) Type of service (e.g. self-service, counter-service)
Size (e.g. corner shop; superstore) Location (e.g. rural, city-centre, out-of-town) Brand (e.g. nationwide retail brands; local
one-shop name)
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7. Customers or consumers are anyorganization that purchases and uses aproduct
A customer organization may purchase aproduct in order to incorporate it into anotherproduct that they in turn sell to other
customersA customer may be the final end user of aproduct who buys the product in order toconsume it.
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8. Service Providers are the organizations that
provide services to other participants whichmay include:
Logistic Providers which provide transportationand warehousing services
Financial Service providers such as Banks,collection agents, credit companies
Other service providers such as MarketingResearch companies, Advertising agencies,engineers , legal consultants, HR consultantsetc
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The design and management ofseamless,
value-added process across organizationalboundaries to in order to minimize total systemcost and satisfy end customers
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Reliability
Responsiveness
Flexibility
Cost
Asset Management
Quality
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Increased Sales: Faster to Market Improved Quality Pricing Flexibility
InnovationLower Total Cost: Acquisition Cost Processing Cost Quality Cost Downtime Cost Risk Cost Cycle Time Cost Conversion Cost Non-value Added Cost Supply Chain Cost Post Ownership Cost
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Return onInvestments
10.0%
Total assets$4,000,000
Sales
$5,000,000
Divided by
Profitmargin
8%
Asset turnoverrate1.25
Multiply
Cash$300,000
Accountreceivable$300,000
Inventories$500,000
Assets
Labor
$700,000
Materials$2,300,000
Overhead
$800,000Operatingcostelements
($515,000)
($3,685,000)($2,185,000)(10.3%)
(1.26)
($3,975,000)
($1,075,000)
($475,000)
(13.0%)
What if wedecreasematerials costby 5%?(or $115,000)
Sales$5,000,000
Net income$400,000
Divided by
Fixed assets$2,900,000
Current assets$1,100,000
Plus
Other costs$800,000
Sales
$5,000,000
Cost ofGoods Sold$3,800,000
Minus
Plus
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If the same profit increase were to be generatedby increasing sales, what sales increase would
be required?At the existing 8% profit margin, the followingcalculation provides the answer
Profit increase = new sales X .08
$115,000 = new sales X .08
new sales = $1,437,500
therefore..
($1,437,500 / $5,000,000) X 100 = 28.8%or a sales increase of 28.8% is required tomatch the profit increase generated by a 5%reduction in materials cost
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Decision Phases of a SupplyChain
Supply chain strategy or design Supply chain planning
Supply chain operation
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Push/Pull View of SupplyChains
Processes are divided into two categories,pull or push
Procurement,Manufacturing and
Replenishment cycles
Customer Order
Cycle
Customer
Order Arrives
PUSH PROCESSES:
executed in anticipation
of a customer order
PULL PROCESSES:
executed in response to acustomer order
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Push/Pull View ofSupply Chain Processes
Supply chain processes fall into one of twocategories depending on the timing of theirexecution relative to customer demand
Pull: execution is initiated in response to acustomer order (reactive)
Push: execution is initiated in anticipation ofcustomer orders (speculative)
Push/pull boundary separates pushprocesses from pull processes
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Push/Pull View ofSupply Chain Processes
Useful in considering strategic decisionsrelating to supply chain designmore globalview of how supply chain processes relate to
customer orders Can combine the push/pull and cycle views
L.L. Bean (Figure 1.6)
Dell (Figures 1.7)
The relative proportion of push and pullprocesses can have an impact on supplychain performance
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Examples of Supply Chains
Gateway
Zara
WW Grainger and McMaster-Carr: MRO
suppliers* Toyota
Amazon.com
How do these supply chains differ in terms oftheir design? Where are the push/pullinterfaces? How does the location of theseinterfaces affect their design?