Short Case Study On Value Chain Management
Professionals in supply chain management use various methods to determine how to improve the performance of supply chain operations. Analysis of case study is certainly one of the most popular methods for people from business management background. In order to accelerate the learning, this article has gathered 20+ most sought-after supply chain case studies, analyzed/categorized them by industry and the findings are presented.
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,
Case Study: SCHNEIDER SUPPLY CHAIN MANAGEMENT (SCM) AND A NATIONAL FUELS VALUE CHAIN
One of the nation’s largest fuel-producing companies looked to salvage the transportation and inventory management within five of their major channels of trade, which collectively transport an average of more than 1.5 billion gallons of product with 47 carriers and a private fleet. The fuels value chain has nearly 700 retail, aviation, commercial, ethanol and asphalt stations – resulting in an average of more than 190,000 moves annually.
In the retail channel of trade on the East Coast, the company operated with several carriers and a private fleet. The decentralized operations ran seven disparate operating systems, and run-outs of fuel were prevalent, causing broker dissatisfaction with delivery performance and lost revenue. The company was subject to customer penalties within the commercial channel of trade due to supply interruption and lack of on-time deliveries within customer-specified windows based on the lift time and the invoice requirements. And time critical inbound shipments were needed to keep terminals in supply for proper product mix.
From a data perspective, the company didn’t have load-level business intelligence to control their operations. Further complicating the situation: resource constraints coupled with messy data made it difficult for the company to catch cost-saving opportunities in areas of optimization, transit time and accessorial trends.
Complex and intermixed systems caused inaccurate and inefficient invoice payment. Since it lacked the data infrastructure to match invoices to actual load execution, the company paid summary invoices as presented – without challenging inconsistent rates or incorrect services.
A drastic continuous improvement intiative was needed to remedy the deficiencies in its supply chain in order to reduce cost, improve reliability, elevate carrier performance and streamline the payment process.
The fuel value chain looked to Schneider’s SCM team to stabilize retail station inventory levels, prevent run-outs, bring control to their invoicing and provide load-level business intelligence through Schneider’s load tendering, load monitoring, carrier management, information management and carrier payment resolution. The partnership put Schneider in charge of simplifying a network of more than 190,000 moves a year and 1.5 billion gallons of product delivered. With Schneider focusing on solving the problem areas, the customer would be able to concentrate on their core competencies of demand forecasting, replenishment planning, internal supply and HSSE oversight.
Schneider’s involvement enabled the company to evolve their organizational structure by reforming the front and back offices. Schneider’s 24/7 coverage allowed the customer to simplify their scheduling center’s framework to staff Monday through Friday, covering a modest 50 hours per week. In addition, Schneider’s ability to flex staffing levels and prioritize resources also has demonstrated effective business continuity in crisis management.
Elevating carrier execution was driven by Schneider’s design and implementation of a carrier scorecard to improve delivery within a tendered window, accessorial cost trends and process adherence.
Schneider also identified a four-part strategy to create a smoother carrier network:
Improve terminal efficiencies, thereby reducing loading time and demurrage
Optimize carrier load to ensure that loads meet minimum volume requirements
Automate carrier invoice validation
Streamline order-to-cash processing with continuous improvement initiatives
To enable third-party fuel suppliers and to add load-level validation to the company’s order- to-cash cycle, Schneider created a solution to match Bill of Lading information against the actual load delivery information.
Lastly, Schneider automated the invoicing process and aligned the invoices on a load-level basis to allow consistency through the order-to-cash cycle as well as provide a definitive record of appropriate charges for transportation services.
Partnering with Schneider and evolving their fuel delivery model helped the company realize $10.5 million of savings in years one through four. An additional $1.5 million in savings was achieved in year five. Freight payment, right-sizing, fuel offers and commercial options, system outsourcing and upgrades, simplification in the front and back offices, and driver cost transparency all improved.
The company consolidated their operating systems into one, down from seven. Their carrier base was initially reduced 36%, from 47 to 30. Roughly four years later as the business experienced diversification the base expanded again, aiding in the negotiation of lower prices.
Schneider’s carrier strategy to restructure the fuel carrier network was a success. In two years, Schneider’s solution to reduce loading time and optimize carrier loads identified an additional $2.3 million in transportation costs, process improvement initiatives and loading facility efficiencies.
Inventory management improved as Schneider helped establish a consistent retail-site inventory reliability of greater than 99% through management of inbound site calls, collaboration with dedicated carriers and load-level information management, effectively avoiding run-outs.
The fuel delivery company’s unchecked summary invoices were soon a thing of the past, with Schneider SCM’s Information Management making it easier for them to capture line item costs and improve efficiencies in both budgeting and pricing.
The numbers prove Schneider’s solution worked, and now the customer has visibility to detailed network opportunities – something they never had the luxury of experiencing before working with Schneider. Perhaps even more exciting are the long-term benefits of Schneider’s solution, with the success having been recognized by other business units as delivering results beyond all expectations.
Published November 2016