1. Supply Chain Integration1

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 Effect20

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)25

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