What is the right supply chain for your product?

Harvard Business Review March-April 1997 v75 n2 p.105(12) Presented by Stephen Lackey November 16, 2004

Efficient production

Soup is a price-sensitive functional good. Whats wrong with gaining market share by cutting prices sometimes?

Price cutting distorts sales, demand Manufacturing has to support peak demands to avoid shortages, and underproduction the rest of the time Distorted peak demands mean more expensive running costs and raises base prices of goods. Is this efficient?

Can there be innovation in canned soup?

Consumers

demand new flavors once in

a while New packaging may improve sales

Ready-to-eat Pull-top

gourmet soups

cans Cup at hand drinkable cup of soup

Making Innovative soup

ELP strategies

flatten demand to match capacity with sales Lower costs /prices raise weekly sales New flavors / products gradually rolled into replenishment stream Slow moving flavors gradually rolled back minimal added inventory costs

Innovations scaled gradually

Balance between innovative and functional mean higher overall profits and lower costs

Are skis functional?

Sport

Obermeyer like fashion goods?

High

peak demand Short product lifespans High product diversity High markup
Does

it matter how low costs are if you dont make the sale?

Innovative skis
Fast

supply most important Locally rational cost savings kill profits

USPS

Mail instead of FedEx? Saving $15 bucks costs company $25K per day EDI replenishment reduces lost sales

What are automobiles?

JIT manufacturing shaves inventories down to hours instead of days or weeks.

Missed shipments mean factory shuts down Factories build remotely on cheap land nobody else wants. Who cares?

Car dealerships built on small, expensive lots convenient to buyers

Thousands of variations possible Impulse buyers move on rather than wait 8 weeks for customized car from factory Cars sit on lots for average of 3 months Car companies dont make money until car is sold.

Where they fall

Functional Efficient (Match) Campbell Soup
(Mismatch) Automobiles before Henry Ford? Suburban houses?

Innovative (Mismatch) Big 3 Auto

(Match) Sport Obermeyer National Bicycle

Responsive

Questions?

[passing around print of microfilm] ELP seems obvious. But arent sales and loss leader strategies addictive?

Think of streaming next quarter sales to this quarter. Where does it end?

Is it obvious to pick responsive or efficient supply chain characteristics? Do you always have to decide? Can you have both?