Research Assignment 1

Supply Chain Management vs. Logistics Management

Definition of Supply Chain Management (SCM)

It is the system of organization, people, technology, activities, information and resource involved in moving a product and service from supplier to customer. The supply chain includes various parties such as suppliers, manufacturers, warehouse, retailers and customers. All functional area including marketing, operation, distribution, customer service, etc. are involved in fulfilling a customer’s requisition within the company. The management of flow of product through the chain is to maximize the total supply chain profitability, ensuring the final customers receive the right product in right condition.

Definition of Logistics Management

It is a process of planning, implementing and controlling procedure for the effective transportation and storage of good. By providing service and gathering information from point of origin to point of sale, well-implemented logistic management has the purpose to satisfy customer need. It includes inbound, outbound, internal and external movement of good.

Difference between Supply Chain Management and Logistics Management

Generally, Logistic Management is integrated into and a part of Supply Chain Management since SCM covers the whole logistic process as well as other value-added chain. Undoubtedly, Logistic Management has played an important role in supply chain. It includes the management of flow of goods, information and resources to meet customers want at low cost. However, SCM is a wider concept than Logistic Management. It not only involves the inbound/outbound flow of products, but also demand/ supply planning, sale forecasting, procurement process, distribution and customer relationship management etc. which make the supply chain become more smooth and effective. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. Therefore, Supply chain management involves coordinating and integrating Logistics Management within the companies.

Business Examples (The Procter & Gamble Company case )

The Procter & Gamble Company (P&G) is a well-known multinational consumer goods company around the world. It has comprehensive brand products in various categories like family and childcare, beauty and personal care, healthcare, fabric and homecare, snacks and coffee and pet care. Therefore, the need for effective and smooth supply chain management system is very important to P&G Company to sustain its competitiveness within the industry. There are several measures done by the company to improve its supply chain.

Ø  Logistic Management

Since there are over 300 brands and operating in more than 80 countries, P&G has to develop the good logistic network for outbound and inbound of goods to local and foreign region effectively. Since the product sold are diversified, Company need to purchase the raw material from different suppliers around the world. Therefore, it is important for P&G to find a suitable location for its purchase division and distribution center to reduce the cost incurred in moving the products and raw material.  Thus, P&G set up six sourcing center at different regional—Cincinnati in the US, Geneva in Switzerland, Frankfurt in Germany, Guangzhou in China, Singapore and Caracas in Venezuela, in order to smooth the logistic network

Ø  IT initiative

In order to collect the accurate and real time information from the customers, P&G has developed an online system called “Web Order Management” to let the retailers not only to connect with P&G anytime but also access P&G’s promotions, inventory, scheduling information  so as to  easily replenish stocks. The system is based on real time basis to allow the company to measure the stock level, sale and delivery time so that it can prevent the product from out of stock. Besides the “Web Order Management”, other various initiatives like using multifunctional resources, joint scorecards and sophisticated technology were undertaken in collaboration with retailers.

Ø  Redesign of Supply Chain

Using the old supply chain system, P&G realized that 48% of times their products were unavailable on the shelf when the customers wanted it. Therefore, it cause loss and affect the image of the company. Under the leadership of Keith Harrison, P&G redefine its supply chain strategy. P&G decided to have a connection between actual sales and the supply chain process. Therefore there is a shift in viewing supply chain management from forecast driven to actual demand driven. Using its own developed IT system, P&G started its supply chain from store shelves and moved back to its suppliers. This operating strategy was called Consumer Driven Supply Network (CDSN)

Producer-driven value chains VS buyer-driven value chains

Definition of Value Chain

A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.

A research on Global Commodity Chains (GCCs) has developed a key difference between value chains, buyer-driven and producer driven.

 Definition of Buyer-driven value chain

Buyer-driven chains turns out relatively simple products, such as apparel, house wares, and toys. Innovation in product design and marketing methods rather than manufacturing processes, firms can outsource the production instead of manufacturing themselves. Therefore they can lower the cost. Besides, in buyer-driven value chain, the buyers usually have a huge bargaining power because of the keen competition in the same industry or similar products. Buyers can easily find a substitution. So the cost is the main concern of the manufacturers. They have the pressure to decrease the selling price.

The product life-cycle is short compared with the products from producer-driven value chain because of its low costs and the changing environment. The typical industries in this value chain are apparel, toys, etc..

Definition of Producer-driven value chain

One of the differences between producer-driven value chain and buyer-driven one is that companies undertaking producer-driven value chain have more linkages with multinational firms. The core competencies of the firm in this kind are mainly Research & Development (R&D) and manufacturing. The firms invest huge amount of money into R&D to develop technologically sophisticated products that cannot be imitated or copied by others to increase entering barriers. The most common products are automobiles, computers and aircrafts.

Business Examples

Buyer-driven value chain

H&M, one of the famous global chain stores that is selling clothes with low price, performs a buyer-driven value chain. This company’s core competency focuses on the design, marketing and retail. As a marketing strategy, by cooperating with some famous designers and brands such as Jill Stuart, Stella McCartney and Maison Martin Margiela (MMM), H&M attracted a huge population to queue for their products. Besides, H&M has a set of external standards, such as environmental and organics. One of their product lines produces house wear with organic cotton.

Producer-driven value chain

The Boeing Company is an example that runs in the producer-driven value chain. She keeps on developing new aircrafts that are made of different materials. The most recent product is 787 Dreamliner, which is developed from 737, 747 and other older models of airplanes. Their focus is the operational performance of the aircrafts like the fuel consumptions, comfort of passengers, etc.. It is impossible to invent a new model of aircraft in a short period of time. On the other hand the aircraft products can be used at least 10 years. The product life cycle can be lengthier than the firms in buyer-driven value chain.

Vendor Managed Inventory (VMI) system

About VMI

VMI was a continuous replenishment program whereby the vendor created the purchase orders based on the demand at the store or warehouse level. It could be viewed as a backward replenishment tool whereby the vendor did the demand creation and fulfillment based on real-time front-line sales information. Reduced inventory and shorter replenishment cycles were the primary benefits offered by a VMI program.

The main key to make VMI possible is to share risk. The vendor (suppliers) will repurchase the unsold products from the buyers (retailers) in order the demand forecasting is vary from the actual demand. Vendor and retailer having the same goal of increasing customer satisfaction are in a partner relationship that shares POS data. This allows a close working condition which the retailer's inventory can be regarded as the manufacturer's inventory. Vendor can make the manufacture planning according to the customer information from retailers and in a real time base. It has been reported that sales greatly increased through this VMI method. It has been reported that sales greatly increased and the inventory cost significantly dropped through this VMI method.

For manufacturers, VMI means downstream integration with the distribution industry. For the distribution industry, VMI means an opportunity to move their core business competence close to customers by outsourcing purchase and inventory management to vendors.

VMI will be more effective when the vendor can forecast demand more accurately than the retailer. Also, consumables procurement like raw materials and accessories are more likely to be the areas of potential VMI application because the prediction of demand is very important to the manufacturer to maintain a sustainable supply. However, the emphasis is on the relationship, and the computer system has to be advanced enough to automate the demand analysis speedily as time is a fatal in VMI system. The sales tax and other procedural complexities may need to be simplified if there is to be a smooth flow of material and information between partners. VMI is the main stream of logistics

Business Examples

Wal-Mart and P&G have had a VMI program together for over ten years. It allows both parties control the inventory and production planning of disposable diapers. Wal-Mart gave P&G preferred shelf space to store its inventory. VMI program has successfully helped decrease Wal-Mart's operating costs and rose P&G's market share. The inventory turns is doubled.

.

Made-to-Measure

About Made-to-measure

Made to measure typically refers to clothing that is sewn from a standard-sized base pattern.

Made-to-Measure Technologies for Online Clothing Store

Human body modeling and simulation is key technology enabling the support of automated garment sizing and size selection. Since the advent of 3D image capture technology, there has been a great deal of interest in the application of this technology to the measurement of the human body.

The online clothing store Web server consists of several databases and an online database retrieval application module for retrieving data.

Business Example (NIKEiD)

NIKEiD gives you the chance to express your own style by personalizing select Nike apparel, footwear or gear.

You can customize products with a range of different colors, materials and even a Personalized iD (PiD). Customizable options vary by product. If you are on a team, NIKEiD is also a great way to choose specific color combinations for your team's gear.

In addition, NIKEiD provides fit enhancement by offering independent sizing on selected shoe styles. The customer’s creation is made to order, and in most cases will arrive within four weeks.