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1 Supply Chain Integration. 2 Outline  external integration  Wal-Mart and Procter & Gamble  TSMC and ASE  vertical integration.

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Presentation on theme: "1 Supply Chain Integration. 2 Outline  external integration  Wal-Mart and Procter & Gamble  TSMC and ASE  vertical integration."— Presentation transcript:

1 1 Supply Chain Integration

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

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

4 4 Wal-Mart  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

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

6 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

7 7 Sam Walton Sam Walton #2 and Wal-Mart WalMart Sam Walton WalMart  Sam Walton  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

8 8 Sam Walton Sam Walton and Wal-Mart WalMart Sam Walton WalMart  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)

9 9 Sam Walton Sam Walton and Wal-Mart WalMart Sam Walton WalMart  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

10 10 Sam Walton Sam Walton and Wal-Mart WalMart Sam Walton WalMart  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

11 11 Growth of Wal-Mart 2011 1990 1980 1978 1976 1974 1972 1970 110K1.4 m91960 Profit (US $) Revenue (US $) # of storesyear 1.2 m31 m32 78 m51 15.36 b421.85 b8970 1 b26 b1528 1.2 b267 678 m195 340 m125 168 m78

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

13 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

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

15 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.”

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

17 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

18 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

19 19 Benefits  business between the two companies  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

20 20 Reduction of Bull-Whip Effect

21 21 Information Sharing  A Form of External Integration

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

23 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.

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

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

26 26 Four SPA #3 s #3 Some material for SPA and Uniqlo from: 2010 商業周刊 1181 期「拆解 3 大致勝秘訣」 H & M H & M (Sweden) Zara Zara (Spain) GAP GAP (USA) Uniqlo 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)

27 27 Supply Chain 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?

28 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 traders vertical integration from design to retailing through a brand held by a retailer  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

29 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

30 30 Uniqlo  different strategy from Zara  nameless, timeless design  same clothe possibly for different seasons, occasions, andsexes  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 emails  organized and feedback to relevant departments

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