Aerospace Industry is characterized by high material costs (about 65-80%).

Manufacturing systems
and regulatory compliance are considered to be very complex, coupled with the limited number suppliers
due to the high barriers to entry. Moreover, the aircraft manufacturers have to do whatever it takes to win
the order long before the commencement of production.

There are two things Boeing and Airbus have in common, utilization of lean manufacturing
system and strategic sourcing concept. However, the overall implementation of strategic
sourcing is a bit different between the two companies.

Boeing and Airbus Supply Chain Strategy

Boeing wants to encourage more flight frequency and direct route using a smaller capacity
aircraft. Then they decide to outsource many things such as the design, testing and production
of key components to key industrial partners and try to reduce number of components that go to
assembly. The ultimate goal is to finish the final production process within 3 days.


















































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































Airbus takes a bit different marketing approach. They want to utilize high capacity airplane to
help airlines drive the operating cost down. They decide to selectively outsource the production
of parts and keep the design and production of key components in-house.

Supply Chain of fashion industry involves a time based competition. Many customers have the
unique product needs but a competition is very fierce because of the low barriers of entry. Many
new players try to offer specialized products to customers all the time. This section features the
supply chain case studies of H&M, Benetton, Zara and Adidas.

- H&M aims to be the price leader in the fashion market.In order to materialize its vision, H&M
tries to eliminate the middlemen in various stages of supply chain and consolidate the buying
volumes. Product design is also the central part of its strategies. They don't try to follow the high
fashion designs but try to adopt the street trends which are easier to produce. At the end of the
day, they can bring products to market within 2-3 weeks.

- Benetton, in contrast, chooses to have a full control of its production but allow its licensees to
operate the stores so they can focus on production and quality control. The reason is that they
would like to create the worldwide brand awareness.

For fast moving products, they use the production facilities in Europe. Asian suppliers will
perform production for standardized products.

- Zara is very famous for its time based strategy. In order to launch a new product within 15
days, Zara uses a small lot production. A new product will be tested in pilot stores. If product
sales is good, a larger batch will be ordered. Otherwise, remaining products will be removed
from the shelves and sold as mark-down in other stores. This creates the perception among
consumers that Zara's products are unique and you have to take it while stock lasts.

Vertical integration contributes to the success of Zara, they own the majority of its production
facilities and stores (this is the reason why Quick Response can be effectively implemented). Its
automated distribution centers are strategically located between the center of populations so
products are delivered to stores quickly.

Zara also works with Air France, KLM Cargo and Emirates Air in order that they
can coordinate directly with the airlines to make the outbound shipments to its stores and bring
back some raw materials and semi-finished materials with return legs.

The last supply chain case study in the fashion retailing industry is Adidas. In order to cope with
changing customers' demand, they decide to undertake Mass Customization strategy. The
whole idea is to develop, market and deliver the product variety that most customers will find
what they want.

The first steps towards mass customization is to strategically offer the product choices. Too few
variations will disappoint a customer but too many variations will simply postpone a buying
decision.

After that, Adidas asks the same key suppliers to produce custom components in order to
achieve the economy of scale.

In order to compensate a long waiting time, Adidas uses air freight or courier service. The
reason why they can do this is that customized products are sold directly to customers so they
have the higher profit margin to compensate the higher transportation cost.

Supply chain strategy of the fashion retailing industry is summarized as below,

Supply Chain Strategy in Fashion Retailing Industry

FMCG industry is typically the products sold to customers at a low cost and will be completely
consumed within 1 year. The nature of this industry is the short product life cycle, low profit
margin, high competition and demand fluctuation. This section will present the case studies of
P&G, Unilever and Coca-Cola respectively.

Forecasting and new product introduction has always been the issues for many FMCG
companies, P&G is no exception. To cope with this, P&G conducts a merchandise testing at the
pilot stores to determine the customer's response to new product before the launch. The result
is that the forecast accuracy is improved because a demand planner has an additional source
data to make a better decision. Moreover, products can be shipped to stores in-time then lost
sales is minimal.

- Unilever also feels that the competition in FMCG industry has significantly increased. They
have to launch the new products on regular basis but the forecasting of new product is difficult.
So they create a better classification of new products (base, relaunch, repack, new) using a
regression model to identify potential forecast errors for each type of new product.

- Coca-Cola doesn't really have many stock keep units when compared with other companies in
the same industry. However, products go to over 2.4 million delivery points through over 430
distribution centers. Managing transportation at this scale is the absolute challenge.

In order to streamline the delivery, Coca-Cola implemented a vehicle routing software. The
reason is that is the software vendor has a very good relationship with Coca-Cola's legacy ERP
software vendor. Moreover, the vendor has a solid connection with the university who can help
to develop the algorithm that fits in with the business' needs. The result is that transportation
planners at each distribution center can use the new tool to reduce travelling time/distance on
daily basis.

Lean manufacturing concept has been implemented widely in the automotive industry so the
case studies about lean manufacturing is very readily available. Due to the increasing
competition in the automobile industry, car manufacturers have to launch a new model to the
market more frequently. This section will show you how BMW manages a long term planning,
how Ford applies lean concept to the new product development and how Hyundai manages the
production planning and control.

- BMW uses a 12-year planning horizon and divides it into an annual period. After that, they will
make an annual sales forecast for the whole planning horizon. After the demand is obtained,
they divide sales into 8 market and then select the appropriate production sites for each market,
considering overall capacity constraints and total cost. As you may notice, this kind of a long
range planning has to be done strategically.

- Ford calls its product development system as "work streams" which include the body
development, engine development, prototyping and launch process . The cross-functional team
are the experts and their roles are to identify key processes, people, technology necessary for
the development of new prototype.

Each work stream team is responsible to develop timeline of each process. Detailed plan
is usually presented on A3 sized paper. They clearly identifying current issues they are facing
with supporting data, drawings and pictures. On weekly basis, they organize a
big group meeting of all work stream team to discuss the coordination issues.

- Hyundai deploys a centralized planning system covering both production and sales activities
across the facilities and functional areas. They develop a 6-month master production plan and a
weekly and a daily production schedule for each month in advance. During a short term
planning (less than one month), they pay much attention to the coordination between
purchasing, production and sales. Providing a long term planning data to its suppliers help to
stabilize production of its part makers a lot.

Life cycle of technology products is getting shorter and shorter every day. Unlike FMCG, the
launch of a new product in the hi-tech industry requires the investment in research and
development quite extensively. Then, a poor planning will result in a massive loss. This section
will cover JIT and outsourcing by Apple Inc, Supply Chain Risk Management by Cisco System,
Technology Roadmap by Intel, Supply Chain Network Model by HP, Mass Customization by
Dell and Quality Management by Sam Sung.

Steve Jobs invited the Tim Cook to help to improve Apple's Supply Chain in 1998. Jobs told
Cook that he visited many manufacturing companies in Japan and he would like Cook to
implement the JIT system for Apple. Jobs believed that Apple' supply chain was too complex
then both of them reduced the number of product availability and created 4 products segment,
reduced on hand inventory and moved the assembling activities to Asia so they could focus on
developing the breathtaking products that people wanted to buy.

- Cisco Systems would like to be the brand of customer choice so they implement a very
comprehensive supply chain risk management program by applying basic risk mitigation
strategies, establishing appropriate metrics, monitoring potential supply chain disruptions on
24/7 basis and activate an incident management team when the level of disruption is significant.

- Intel's new product development is done by the process called Technology Roadmap.
Basically, it's the shared expectations among Intel, its customers and suppliers for the future
product lineup.

The first step to prepare the roadmap is to identify the expectations among semiconductor
companies and suppliers. Then they identify key technological requirements needed to fulfill the
expectations. The final step is to propose the plan to a final meeting to discuss about the
feasibility of project. Some concerning parties such as downstream firms may try to alter some
aspects of the roadmap. Technology Roadmap allows Intel to share its vision to its ecosystem
and to utilize new technology from its suppliers.
- HP's case study is pretty unique. They face with a basic question, where to produce, localize
and distribute products. Its simple supply chain network model is presented below,


From this example, only 3 possible locations result in 5 different way to design the supply chain.
In reality, HP has more production facilities than the example above so there are so many
scenarios to work with. How should HP decide which kind of a supply chain network
configuration they should take to reduce cost and increase service to customer? The answer is
that they use the multi-echelon inventory model to solve the problem.

- Dell is one of the classic supply chain case studies of all time. Many industries try to imitate
Dell's success. The key ingredients of Dell's supply chain are the partnership with suppliers, part
modularity, vendor managed inventory program, demand management and mass
customization. Also, you can find the simplified process map of Dell's order-to-cash process as
below,

Dell's Order-to-Cash Process

- Sam Sung has proven to be the force to be reckoned with in the hi-tech industry. The secret
behind its supply chain success is the use of Six Sigma approach. They studied how General
Electric (GE), DuPont and Honeywell implemented six sigma. After that, they have created their
own implementation methodology called DMAEV (define, measure, analyze, enable, verify).
They use the global level KPI to ensure that each player in the same supply chain is measured
the same way. Also, they utilize SCOR Model as the standard process. Any process changes
will be reflected through an advance planning system (APS).

The last industry covered here is the general merchandise retailing industry. The critical
success factor of this industry is to understand the drivers of consumer demand. Four case
studies will be presented, namely, 7-11, Tesco, Walmart, Amazon and Zappos.

- 7/11 is another popular case study in supply chain management. The integration of information
technology between stores and its distribution centers play the important role. Since the size of
7/11 store is pretty small, it's crucial that a store manager knows what kind of products should
be displayed on shelves to maximize the revenue. This is achieved through the monitoring of
sales data every morning. Sales data enables the company to create the right product mix and
the new products on regular basis.

7/11 also uses something called combined delivery system aka cross docking. The products are
categorized by the temperature (frozen, chilled, room temperature and warm foods). Each truck
routes to multiple stores during off-peak time to avoid the traffic congestion and reduce the
problems with loading/unloading at stores.

- Tesco is one of the prominent retail stores in Europe. Since UK is relatively small when
compared with the United States, centralized control of distribution operations and warehouse
makes it easier to manage. They use the bigger trucks (with special compartments for multi-
temperature products) and make a less frequent delivery to reduce transportation cost.
Definitely, they use a computerized systems and electronic data interchange to connect the
stores and the central processing system.

- Wal-Mart's "Every Day Low Prices" is the strategy mentioned in many textbooks. The idea is to
try not to make the promotions that make the demand plunges and surges aka bullwhip effect.

Wal-Mart has less than 100 distribution centers in total and each one serves a particular market.
To make a decision about new DC location, Walmart uses 2 main factors, namely, the demand
in the proposed DC area and the outbound logistics cost from DC to stores. Cost of inbound
logistics is not taken into account.

There are 3 types of the replenishment process in Wal-Mart supply chain network as below,

Wal-Mart Replenishment Process

In contrary to general belief, Wal-mart doesn't use cross-docking that often. About 20% of
orders are direct-to-store (for example, dog food products). Another 80% of orders are handled
by both warehouse and cross dock system.

Wal-Mart has one of the largest private fleet in the United States. The delivery is made 50% by
common carriers and 50% by private fleet. Private fleet is used to perform the backhauls (picks
up cargoes from vendors to replenish DCs + sends returned products to vendors). Short-hauls
(less than one working day drive) is also done by the a private fleet. For long-hauls, the
common carriers will be used.

There are 2 main information system deployed by Wal-Mart. "Retail Link" is the communication
system developed in-house to store data, share data and help with the shipment routing
assignments.

Another system is called "Inforem" for the automation of a replenishment process. Inforem
was originally developed by IBM and has been modified extensively by Wal-Mart. Inforem uses
various factors such as POS data, current stock level and so on to suggest the order quantity
many times a week.

Level of collaboration between Wal-Mart and vendors is different from one vendor to the other.
Some vendors can participate in VMI program but the level of information sharing is also
different. VMI program at Wal-Mart is not 100% on consignment basis.

- Amazon has a very grand business strategy to "offer customers low prices, convenience, and
a wide selection of merchandise". Due to the lack of actual store front, the locations of
warehouse facilities are strategically important to the company. Amazon makes a facility
locations decision based on the distance to demand areas and tax implications.

With 170 million items of physical products in the virtual stores, the back end of order
processing and fulfillment is a bit complicated. Anyway, a simplified version of the order-to-cash
process are illustrated as below,

Amazon's Order-to-Cash Process
Upon receipt of the orders, Amazon assign the orders to an appropriate DC with the lowest
outbound logistics cost.

In Amazon's warehouse, there are 5 types of storage areas. Library Prime Storage is the area
dedicated for book/magazine. Case Flow Prime Storage is for the products with a broken case
and high demand. Pallet Prime Storage is for the products with a full case and high demand.
Random Storage is for the smaller items with a moderate demand and Reserve Storage will be
used for the low demand/irregular shaped products.

Amazon uses an propitiatory warehouse management system to make the putaway decision
and order picking decision.

After the orders are picked and packed, Amazon ships the orders using common carriers so
they can obtain the economy of scale. Orders will arrive at UPS facility near a delivery point and
UPS will perform the last mile delivery to customers.

Amazon is known to use Sales and Operations Planning (S&OP) to handle the sales forecast.
Anyway, this must be S&OP process at product family/category level.

To compete with other online retailers, Zappos pays much attention to the way they provide the
services to customers. In stead of focusing on the call center productivity, Zappos encourages
its staff to spend times over the phone with customers as long as they can so they can fully
understand the customer's requirements. They also upgrade the delivery from 3 days to 1 day
delivery in order to exceed customer expectation.

All case study demonstrates that supply chain management is truly the strategic initiatives, not
merely a cost cutting technique. Leading companies have a very strong customer focus
because almost all of initiatives are something to fill the needs of customers.

Relationship management is the unsung hero in supply chain management. It's
the prerequisite to the success of every supply chain. And at the end of the day, it comes down
to the quality of supply chain people who analyze, improve and control supply chain operations.