Right Supply Chain

How the following products are sold?

Rice

How the following products are sold?

Fish
Rice

How the following products are sold?

Rice

Fish

Electronic Goods

How the following products are sold?

Rice

Fish

Electronic Goods

Where do you buy your garments

Where do you buy your garments?

Where do you buy your Mobile Phone?

37.040

35.100

20.340

26.000

18.650
17.070

16.240

Sales in Millions

14.102

8.737

8.367

Not in Scale

8.398

7.367

6.890

5.208
4.363
3.793

2.315
1.703
1.190

iPhone 4S (16 GB); Withdrawn: Sep 10, 2013

0.270

0.717
iPhone OS 1.0
(16GB)

iPhone OS 3.0 (16, 32 GB)

iPhone OS 2.0 (16,GB)

iPhone OS 1.0 (8GB)

iPhone 4 (32 , 64 GB)

iPhone 4 (16, 32 GB)

iPhone OS 2.0 (8GB)

iPhone OS 3.0 (8GB Black)

Dec, 2012

Sep, 2012

Jun, 2012

Mar, 2012

Dec, 2011

Sep, 2011

Jun, 2011

Mar, 2011

Dec, 2010

Sep, 2010

Jun, 20010

Mar, 2010

Dec, 2009

Sep, 2009

Jun, 2009

Mar, 2009

Dec, 2008

Sep, 2008

Jun, 2008

Mar, 2008

Dec, 2007

iPhone 4 (8GB) Withdrawn: Sep 10, 2013

Sep, 2007

Jun, 2007

iPhone OS
1.0 (4GB)

Apples Key Suppliers

Supplier Name

Location

Part or Service Supplied

Samsung

Singapore

CPU and Video chips

Infineon

Singapore

Baseband Communications

Primax Electronics

Taiwan

Digital Camera Module

Foxconn International

Taiwan

Internal Circuitry

Entery Industrial

Taiwan

Connectors

Cambridge Silicon

Taiwan

Bluetooth

Umicron Technology

Taiwan

Circuit Board

Catcher Technology

Taiwan

Casings

Broadcomm

US

Touch Screen Controls

Marvell

US

802.11 Specific Parts

Foxconn

China

Assembly and Inventory

Achieving Strategic Fit

Strategic fit:
Consistency between customer priorities of competitive strategy and supply chain capabilities
specified by the supply chain strategy
Competitive and supply chain strategies have the same goals

A company may fail because of a lack of strategic fit or because its processes and
resources do not provide the capabilities to execute the desired strategy

Example of strategic fit -- Dell

How is Strategic Fit Achieved?

Step 1: Understanding the customer and supply chain
uncertainty
Step 2: Understanding the supply chain
Step 3: Achieving strategic fit

Step 1: Understanding the Customer and

Supply Chain Uncertainty
Identify the needs of the customer segment being served
Quantity of product needed in each lot
Response time customers will tolerate
Variety of products needed
Service level required
Price of the product
Desired rate of innovation in the product

Step 1: Understanding the Customer

and Supply Chain Uncertainty
Overall attribute of customer demand

Demand uncertainty: uncertainty of customer demand for a product

Implied demand uncertainty:
resulting uncertainty for the supply chain given the portion of the demand

the supply chain must handle and attributes the customer desires

2-14

Achieving Strategic Fit

Understanding the Customer

Lot size
Response time
Service level
Product variety
Price
Innovation

Implied
Demand
Uncertainty

Impact of Customer Needs on Implied

Demand Uncertainty
Customer Need

Causes implied demand uncertainty to increase

because

Range of quantity increases

Wider range of quantity implies greater variance in

demand

Lead time decreases

Less time to react to orders

Variety of products required increases

Demand per product becomes more disaggregated

Number of channels increases

Total customer demand is now disaggregated over

more channels

Rate of innovation increases

New products tend to have more uncertain demand

Required service level increases

Firm now has to handle unusual surges in demand

Correlation Between Implied Demand Uncertainty

and Other Attributes
Attribute
Product margin

Low Implied
Uncertainty
Low

High Implied
Uncertainty
High

Avg. forecast error

10%

40%-100%

Avg. stockout rate

1%-2%

10%-40%

Avg. forced season- 0%

end markdown

10%-25%

Levels of Implied Demand Uncertainty

Predictable
supply and
demand

Predictable supply and uncertain

demand or uncertain supply and
predictable demand or somewhat
uncertain supply and demand

Salt at a
supermarket

An existing
automobile
model

Highly uncertain
supply and demand

A new
communication
device

Figure 2.2: The Implied Uncertainty (Demand and Supply)

Spectrum

2-18

Step 2: Understanding the Supply Chain

How does the firm best meet demand?
Dimension describing the supply chain is supply chain responsiveness

Supply chain responsiveness -- ability to

respond to wide ranges of quantities demanded

meet short lead times
handle a large variety of products
build highly innovative products
meet a very high service level

Step 2: Understanding the Supply Chain

There is a cost to achieving responsiveness
Supply chain efficiency: cost of making and delivering the product to
the customer
Increasing responsiveness results in higher costs that lower
efficiency

Understanding the Supply Chain: CostResponsiveness Efficient Frontier

Responsiveness
High

Low
High

Low

Cost

Responsiveness Spectrum
Highly
efficient

Integrated
steel mill

Somewhat
efficient

Hanes
apparel

Somewhat
responsive

Most
automotive
production

Highly
responsive

Dell

Achieving Strategic Fit Shown on the

Uncertainty/Responsiveness Map
Responsive
supply chain

Responsiveness
spectrum

Efficient supply
chain
Certain
demand

Implied
uncertainty
spectrum

Uncertain
demand

Step 3: Achieving Strategic Fit

All functions in the value chain must support the competitive
strategy to achieve strategic fit

Two extremes: Efficient supply chains and responsive supply chains

Two key points
there is no right supply chain strategy independent of competitive strategy
there is a right supply chain strategy for a given competitive strategy

Comparison of Efficient and Responsive Supply Chains

Efficient

Responsive

Primary goal

Lowest cost

Quick response

Product design strategy

Min product cost

Modularity to allow
postponement

Pricing strategy

Lower margins

Higher margins

Mfg strategy

High utilization

Capacity flexibility

Inventory strategy

Minimize inventory

Buffer inventory

Lead time strategy

Reduce but not at expense

of greater cost

Aggressively reduce even if

costs are significant

Supplier selection strategy

Cost and low quality

Speed, flexibility, quality

Transportation strategy

Greater reliance on low cost

modes

Greater reliance on
responsive (fast) modes

Other Issues Affecting Strategic Fit

Multiple products and customer segments
Product life cycle
Competitive changes over time

Multiple Products and Customer Segments

Firms sell different products to different customer segments (with different implied demand
uncertainty)

The supply chain has to be able to balance efficiency and responsiveness given its portfolio of
products and customer segments

Two approaches:

Different supply chains

Tailor supply chain to best meet the needs of each products demand

2-27

Product Life Cycle

The demand characteristics of a product and the needs of a customer segment
change as a product goes through its life cycle
Supply chain strategy must evolve throughout the life cycle

Early: uncertain demand, high margins (time is important), product availability is

most important, cost is secondary
Late: predictable demand, lower margins, price is important

Competitive Changes Over Time

Competitive pressures can change over time

More competitors may result in an increased emphasis on variety at a

reasonable price
The Internet makes it easier to offer a wide variety of products
The supply chain must change to meet these changing competitive conditions

Expanding Strategic Scope

Scope of strategic fit

The functions and stages within a supply chain that devise an integrated strategy with a
shared objective

One extreme: each function at each stage develops its own strategy
Other extreme: all functions in all stages devise a strategy jointly

Five categories:

Intracompany intraoperation scope

Intracompany intrafunctional scope
Intracompany interfunctional scope
Intercompany interfunctional scope
Flexible interfunctional scope

Different Scopes of Strategic Fit Across a

Supply Chain
Suppliers

Manufacturer Distributor

Retailer

Customer

Competitive
Strategy
Product
Development
Strategy
Supply Chain
Strategy
Marketing
Strategy

Intercompany
Interfunctional

Intracompany
Interfunctional
at Distributor

Intracompany
Intrafunctional
at Distributor
Intracompany
Intraoperation
at Distributor

Retailing in India

Retailing in India a Glance

Grocery products

Sabji Mandi

Bakery Shop

Electronic Shop

Apparel Industry

Source: International Labor Organization, Wages and working hours in the textiles, clothing, leather, and footwear industries,
Available at http://www.ilo.org/wcmsp5/groups/public/@ed_dialogue/@sector/documents/publication/wcms_300463.pdf (Retrieved on April 16, 2016).

Apparel Industry What they sale?

Mens Clothing

Womens Clothing

Kids Wear

Sports Wear

Apparel Industry What they sale?

Mens Clothing

Womens Clothing

Kids Wear

Sports Wear

Its (career in fashion) a very competitive world where peaceful creatives

and energetic planners have to work together to keep up with fast changing
styles and trends for an audience who are spoilt for choice.

- The Hindu, Education Plus, April 18, 2016

Inditex Group Brand Portfolio

Brand

No. of Shops

Year of Creation

Target Market

Zara

2,143

1975

Men, Women and Children

Pull and Bear

922

1991

Casual laid back clothing and accessories for the young

Massimo Dutti

729

1995 (acquired)

High end clothing and accessories for cosmopolitan men

and women

Bershka

1,032

1998

Blends urban styles and modern fashion for young

women and men

Stradivarious

937

1999 (acquired)

Casual and feminine clothes for young women

Oysho

598

2001

Lingerie, casual outerwear, loungewear and original

accessories

Zara Home

481

2003

Home goods and decoration objects

Uterque

71

2008

High-quality fashion accessories at attractive prices

Source: wikipedia.com

Inditex Group Brand Portfolio

Source: wikipedia.com

Market Positioning

Competitors
Supply Chain Design
Zara

Owns both Production and Retail Store

H&M

Owned Retail Stores but Outsourced Production

Gap

Owned Retail Stores but Outsourced Production

Benetton

Owns Production but Retailing through Franchisee

Comparison - Financials
GAP

H&M

Benetton (2010)

Zara

Sales

14.00Bn

150.1Bn SEK
(16.511Bn)

2.053Bn

20.9Bn

Operating Income

1.35Bn

22.17Bn SEK
(2.44Bn)

789Mn

3.68Bn

Net Income

0.82Bn

17.14Bn SEK
(1.89Bn)

176Mn

2.88Bn

Stock Price

21.19

31.91

NA

28.77

Merchandizing
Product variety target market fashion conscious customers location store design and
ambience

Design high fashion content

Shelf space management products move out in two weeks

Pricing - Clearance price revenue share 15-20% - competitor 40%

Prime locations Champs Elysees

Prime locations Regent Street London

Prime locations Mariahilfer Strasse Wien

Prime locations

th
5

Avenue, New York

Vertical Integration Vs Outsourcing

How much of the supply chain you should own?
Zara benefits by having
shorter replenishment lead time

Frequent replenishment
Control on cost

Control on quality

Climate of Scarcity and Opportunity

Consequences of Variety and Shorter Batch Sizes

Variety leads to more uncertainty in demand and hence, more problems in matching demand with supply
Shorter batch sizes leads to higher production and distribution costs

Shorter lead time permits forecasting demand closer to the season hence, reduces forecast error

Frequent replenishment allows matching demand with supply at a finer level

Smaller batches allow the supply to be adjusted to

accommodate changes in demand
Batch: 800-unit
2,400

Forecast demand

Batch: 400-unit
Volume (Units/week)

2,000
Actual demand

1,600
1,200

800
400

Time

Twice a Week Shipment and Lower Inventory

Bullwhip Effect

Shorter Product Development Time

Product Development Cycle

Unit cost curve

Unit cost (total cost / volume)

(a)

6
Nominal
capacity limit

4
2
0

2
4
3
Volume in thousands of units

Unit cost curve

Unit cost (total cost/volume)

(b)

8
6
Diseconomies
of scale kick in

2
0

2
4
3
Volume in thousands of units