E-Commerce and

Supply Chain Management

(SCM)

Management 326
Operations
and
Operations
Strategy

Improving
Designin
Managing
an
g
an
Operations
an
Operations
System
Operation
System
(Just-in-Time)
s
System Inventory Management
for Independent Demand

Supply Chain
Management

Chapter Outline

Supply chains and supply chain management

Information sharing in the supply chain
Tactics for reducing inventory costs in the
supply chain
Point-of-sale data & automatic
replenishment
Vendor-managed inventory
Postponement
Drop shipping
Operations management issues in online sales

Why Supply Chain Management

is Important

Supply chain management

impacts

Costs and inventory investment

Customer service

Product availability and delivery

Product or service quality (through

choice of suppliers)
Product design

Lessons from the

Dairy Products Supply Chain
Figure 4-2, page 103

Companies often have several tiers of

suppliers.

Your company's Tier 1 suppliers are the

firms that your company buys from.
A company has more control over Tier 1
suppliers than over Tier 2 & Tier 3
suppliers

Supply Chains

A supply chain is the network of activities that deliver a

product/service to the customer
Sourcing (purchasing) of raw materials, parts, goods
for sale, or service inventories
Order entry
Operations planning
Transformation process (manufacturing or services)
Quality management
Logistics:

Transportation (traffic)

Distribution (delivering the product to customers)

Lessons from the Jeans Supply

Chain
(not shown in textbook)

A company's supply chain affects its

performance and competitiveness.

If a problem arises, a company is likely to

blame the Tier 1 supplier. Consumers will
blame the retailer or the manufacturer.

Information technology is used to

coordinate supply chain activities,
both within each company and
between companies

Supply Chain Management

(SCM)

Supply Chain Management is the business

function that coordinates the movement of
materials and information through the supply
chain
Your suppliers should help your firm achieve its
competitive objectives

Objectives of
Supply Chain Management

Minimize the cost of materials and material

movement
Minimize inventory investment
Ensure timely delivery of materials at every
level of the supply chain and to customers
(product availability)
Ensure quality of materials used in
manufacturing or services
If needed, get product design help or other
services from suppliers.

Information Sharing in the Supply

Chain
Figure 4.1, page 102

The objective of information sharing is to

match demand and supply. (What will be
available when, and from whom?)

Demand: actual sales, sales forecasts, booked orders,

custom orders
Product availability: current inventory, production
plans, shipping schedules, shipments
Quality: suppliers' data on quality

Tactics for Reducing Inventory Costs

(1)
Point-of-sale Data (POS)

Retailers collects point-of-sale data at the cash

register and updates inventory by SKU (stock
keeping unit) in real time. SKU's are marked with bar
codes or radio frequency ID (RFID) tags. Retailer has
options:
Use point-of-sale data to forecast future sales and
transmit order to manufacturer.
Automatic replenishment: retailer transmits pointof-sale data to manufacturers, who determines the
retailer's current needs and ships what is needed.
Vendor-managed inventory (next slide)

Tactics for Reducing Inventory Costs

(2)
Vendor-Managed Inventory (VMI) in
Retailing

VMI in retailing: The supplier electronically

accesses the retailer's database for sales
information for the supplier's products.
Supplier ships what is needed. (automatic
replenishment)
Supplier is responsible for updating the
customer's database when goods are
shipped.
Supplier is responsible for anticipating
customer's future needs
Pioneered by Wal-Mart (Retail Link software)

Tactics for Reducing Inventory Costs

(3)
Vendor-Managed Inventory in
Manufacturing
Wabco Aircraft Supplier Warehouse
Part
Brake Factory
s
Wabco Assembly Line

VMI in manufacturing: supplier maintains a parts

inventory at the customer's plant.
When the customer needs parts, a supplier
employee transfers the parts to the production area.
Then the supplier bills the customer for the parts.

Tactics for Reducing Inventory Costs

(4)
Postponement

Produce a generic product. Complete a

final product variant when you have an
order or can accurately estimate trends.

Benetton has suppliers make white

sweaters and then dye them just before
they are shipped to Benetton stores.

Postponement often requires redesigning the product or doing process

steps in a different order.

Tactics for Reducing Inventory Costs

(5) Drop Shipping
When a customer orders from Company A, some or
all of the order may be shipped by Company A's
suppliers.
Customer orders Order &
Amazon
payment
from Amazon
Ordered
item

Frequently ordered
items

distribution
center

Order

Supplier who sells a

less frequently ordered
item
makes a drop shipment

Operations Issues in Online

Sales

Inventory management
Packing orders for shipment
Delivery
Customer returns

Operations Issues in Online

Sales
Packing Orders for Shipment

Items are identified by bar codes or radio

frequency ID (RFID)
Warehouse workers put ordered items in crates
Sorter sends each item to the correct, barcoded box for the customer who ordered it
Packing slip is printed
Boxes are packed, taped, weighed
Boxes are put on trucks for shipment to
customers

Operations Issues in Online

Sales
Delivery

Objective: Deliver when promised, while

minimizing delivery costs
Brick-and-mortar stores (like Sears) can ship
items to stores for customer pickup.
Other online merchants ship via a package
delivery service (like UPS) or U.S. postal service
Online merchants use package delivery
services for most shipments to other countries.
Customers usually pay a standard shipping cost
different for U. S. and other countries

Operations Issues in Online

Sales
Customer Returns

Objective: minimize the cost of customer

returns and reduce "hassles" for customers

25% of Internet orders result in a customer return

Problems in returning goods are the 2 nd biggest
reason that consumers don't buy online

Customer usually pays for return shipping

Variety of approaches used to return goods:
postal service, contract package delivery
service, brick-and-mortar store

Operations Issues in Online

Sales
Customer Returns (2)

Online retailer must ship a replacement

item or issue credit to customer
Online retailer must process returned
items
Return defective items to supplier for
a credit
Good items can often be repackaged,
priced, and resold.