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Supply Chain Integration

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Presentation on theme: "Supply Chain Integration"— Presentation transcript:

1 Supply Chain Integration

2 Outline external integration vertical integration
Wal-Mart and Procter & Gamble TSMC and ASE vertical integration 2

3 Supply Integration professionally managing suppliers and developing close working relationships with different internal groups internal and external integration internal: cross-functional teams 3

4 Wal-Mart statistic taken around 1979 23 years later
Company A: 1891 stores, average revenue US$7.25 mill per store, total revenue ~ US$13.7 billion Company B: 229 stores, each store earning about half as that of Company A, total revenue ~ US$ 0.83 billion statistic taken around 1979 23 years later Company A filed for Chapter 11 Company B became one of the most successful companies in the world Company A: K Mart; Company B: Wal-Mart main reason: Wal-Mart has one of the best skills in supply management 4

5 Vendor-managed Inventory
 A Form of External Integration 5

6 Vendor-managed Inventory#1
a supplier (a manufacturer or a distributor) monitors a buyer’s inventory and places replenishment orders for the buy quantity, quality, frequency, and timing popularized by Wal-Mart and Procter & Gamble in the late 1980’s #1 Material for VMI from: Michael Grean, and Michael J. Shaw (from web) Supply-Chain Integration through Information Sharing: Channel Partnership between Wal-Mart and Procter & Gamble 6

7 Sam Walton #2 and Wal-Mart
1945: franchisee of a Ben Franklin variety store in Newport, Arkansas 1951: Walton’s Five and Dime in Bentonville, Arkansas 1962, July 2: first Wal-Mart store in nearby Rogers trend of discount stores K Mart by S.S. Kresge (800 variety franchise stores) Woolco by F.W. Woolworth Target chain by Dayton Hudson #2 Some material for Sam Walton from: Sam Walton (1992) Made in America: My Story 7

8 Sam Walton and Wal-Mart
basic idea of discount store low supply price by economizes of scale cheap household consumables (e.g., toothpaste, pain killers, soap, shampoo, etc.) to attract customers other goods at 30% mark up (in comparison to 40% to 45% in variety stores) 8

9 Sam Walton and Wal-Mart
Wal-Mart in infancy in small towns of country side, cheap rental, simple decoration cheap price, good promotion, eliminating middleman, hard bargainer without any system manual system with no inventory control no categorization of goods no accounting system no fixed suppliers simple price setting mechanism 9

10 Sam Walton and Wal-Mart
Wal-Mart in development adopting new ideas and technology computer course for Sam Walton in 1966 by late 80’s, one of the most powerful and data intensive computer systems in the world first distribution center around 1967 centralized order to distribution centers in 1968 bar code, cross-stocking, vendor-managed inventory 10

11 Growth of Wal-Mart 2011 1990 1980 1978 1976 1974 1972 1970 110K 1.4 m 9 1960 Profit (US $) Revenue (US $) # of stores year 32 31 m 1.2 m 51 78 m 78 168 m 125 340 m 195 678 m 267 1.2 b 1528 26 b 1 b 8970 b 15.36 b 11

12 Procter & Gamble (P&G) founded 1837 1980: revenue US$10B
2013 revenue US$84.17B profit US$14.48B founded 1837 1980: revenue US$10B 2011: revenue US$82.6B; profit US$ 11.80B; 24 brands with revenue over US$ 1B 12

13 Relationship Between WalMart & P&G in Mid to Late 80’s
poor adversarial relationship 12 different product divisions of P&G interacting independently with Wal-Mart on day-to-day transactions fragmented information 1985: dropping the “Vendor of Year” award to P&G by Sam Walton because of repeated redirected calls to CEO of P&G business between the two companies in 1988: $375 m 13

14 Change of Relationship
a new VP, Lou Pritchett , in Sales and Customer Development of P&G canoe trip with Sam Walton two-day retreat between P&G and Wal-Mart senior management to change the supplier-retailer relationship 14

15 Mission Statement “The mission of the Wal-Mart/P&G Business team is to achieve the long-term business objectives of both companies by building a total system partnership that leads our respective companies and industries to better serve our mutual customer  the consumer.” 15

16 Process and Changes Integration common performance measure
cost reduction of the process data sharing to understand customers and drive sales 16

17 Process and Changes information systems complementary information
P&G: data from marketing research Wal-Mart: actual sales data new information systems of Wal-Mart (1988): track sales of all products in each store re-engineering of P&G systems: from product- to customer-oriented 17

18 Vendor-managed Inventory (Continuous Replenishment Process)
P&G information systems hold product information on status of products in store, warehouse, and outstanding orders determine frequency, quantity, and timing of shipping without explicitly orders placed by Wal-Mart Goods to Wal-Mart usually within 4 hours of orders staying for less than 24 hours interest earning later, VMI by major suppliers as requested by Wal-Mart 18

19 Benefits business between the two companies simplifying procedure
US$375M in 1988 over US$4B in early 2000’s identifying potential winners from marketing data by P&G and verifying actual winners and losers by POS from Wal-Mart simplifying procedure PO, invoices, advanced shipment notifications, financial payment, handled by EDI common goals between the two companies understanding and trust reduction of bull-whip effect 19

20 Reduction of Bull-Whip Effect

21  A Form of External Integration
Information Sharing  A Form of External Integration 21

22 Steps in IC Fabrication
IC design silicon preparation wafer fabrication test and sort assembly and packaging final testing 22

23 Information Sharing Between TSMC and ASE
Taiwan Semiconductor Manufacturing Company (TSMC台積電): the first and the largest dedicated semiconductor foundry Advanced Semiconductor Engineering Inc. (ASE日月光半導體 ): the world’s largest independent providers of semiconductor packaging and test services fabless IC designers requiring service of TSMC and ASE for IC production logical step: seamless information and transaction flows for the same customers and suppliers #4 Material from: Bang-Ning Hwang & Shih-Chi Chang & Hsiao-Cheng Yu and Che-Wei Chang (2008) Pioneering e-supply chain integration in semiconductor industry: a case study, International Journal of Advanced Manufacturing Technology, 36:825–832. 23

24 Challenges standardization of terms
standard protocol for information exchanges business process re-engineering process and data exchange integration business process and system integration 24

25 Vertical Integration of SPA (Specialty Store Retailer of Private Label Apparel)

26 #3 Some material for SPA and Uniqlo from: 2010商業周刊 1181期「拆解3大致勝秘訣」
Four SPA#3s H & M (Sweden) Zara (Spain) GAP (USA) Uniqlo (Japan) Revenue US$21.69B (2012) US$22.2B (2012) US$15.7B (2012) US$13.46B (2014) Profit US$ 2.31 b (2012) US$4.36B (2012) US$1.1B (2012) US$0.86B (2014) #3 Some material for SPA and Uniqlo from: 2010商業周刊 1181期「拆解3大致勝秘訣」 26

27 Supply Chain first-hand customer preference held by a retailer
wholesaler / distributor manufacturer supplier raw material supplier customer How to reduce lead time and cut cost in a supply chain? first-hand customer preference held by a retailer who is more powerful? who holds a brand? 27

28 Specialty Store Retailer of Private Label Apparel
some form of vertical integration being the norm when a brand requiring large volume, good quality, and low price integrator: traders or brand name holders SPA: vertical integration from design to retailing through a brand held by a retailer quick response to adjust production from customer preference 1970’s: 6 months from design to completion of production now, some takes 6 weeks or shorter 28

29 ZARA founded in 1975 lead time from design to store: two weeks
# of new products: 10,000 to 20,000 annually competitors: about 1000 to 4,000 characteristics not much in advisterisement main production in Spain 50% in Spain, 26% in the rest of Europe, 24% in Asia and Afraica products manufactured in Asia and Turkey: products of longer shelf life 29

30 Uniqlo different strategy from Zara
nameless, timeless design same clothe possibly for different seasons, occasions, and even sexes strategic alliance with one of the largest textile corporation joint R&D direct sourcing from primary material source strict internal standards stricter than international or trade standards experienced textile technicians stationing in subcontractor’s factories quick response over 1,000 feedbacks per day through call center, retail outlets, and s organized and feedback to relevant departments 30

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