principes of suppy chain management

7/29/2019 Principes of Suppy Chain Management

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Principles of supply chain management

Q1A. From the retailers perspective, what are the dangers of understoacking a videogame during the holiday season?

1. A. From the retailers perspective one of the dangers of under stocking a videogameduring the holiday season are loss of earnings from the sae of the videogame if that

videogame was in stock and available to the customer. Another danger of under stocking

a videogame during the holiday season is that consumers may lose interest in the productwhich will result in a loss of saes for manufacturer and retailer. As George Harrison,

senior vice president of marketing for Nintendo America says If it goes out of stock for a

while, customers tend to lose interest in it.

Another danger is the loss of customer satisfaction that the videogame was unavailable atthe time they wanted to purchase it and with that potential loss of a customers future

business as the customer takes his business to a competitor who has made the videogame

available to their customers. Today in the FCMG (Fast moving consumer goods)

environment consumers have a range of choice and with that range of choice brings thevery real possibility of consumers taking their custom to a competitor if a business cannot

provide them with the product they want at the right time.

Q1B. What are the dangers of overstocking?

1B. One of the dangers of overstocking a product is the issue of tying up capital in stock

which could have been put to better use. This capital that has been tied up in stock could

have possibly been used to invest in capital equipment or to purchase another range of

products that could have been sod at a higher profit margin. Also in the FMCG industrysome products have a short shelf life and many products can be superseded by a better

product which will result in a company needing to reduce their price in order to se theproduct and in turn reducing their profit margin.At worse the products could become obsolete and may need to be scrapped which will

result in a loss. This will affect stock turnover which could have a negative impact on a

prospective investors decision to invest in the company. If the investor looked at thehigh cost of stock held which could possibly not be sod and the low stock turnover this

would imply bad management practices and as such may affect their decision to invest in

the company.


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Q1C. How do direct shipments like those described for Nintendos products hep retailersdeal with these dangers?

A1C. One of the ways these direct shipments hep retailers is firstly by having theproducts there at the right time which means that there will be no loss of customer

satisfaction because they can purchase the product when they wish to.

It also minimises stakeouts because the products will be available quicker than normallypossible reducing the time a product is received by a retailer by up to 6 weeks.

Overstocking of a product is aso kept to a minimum due to these direct shipments as ony

the exact amount of a product is delivered as requested.

These direct shipments can virtually guarantee future earning as any stockout costs andinventory costs are kept to a minimum thus ensuring a good profit margin.

Q1D. Are the retailers simply trading inventory costs for transportation costs? Explain.

A1D.In my opinion I do not believe that retailers are trading inventory costs for

transportation costs. In the retail environment the cost of holding inventory can be quitehigh while transportation costs are significantly lower at 2% of the sales price. Also the

actual cost of holding stock in a warehouse or stores is greatly reduced by these direct

shipments being delivered to direct to the retail store and being almost instantaneouslysod and turned into a profit.

This reducing of storage space needed means that the associated costs of a large storage

facility such as staff, light heat and capita equipment can also be reduced thus saving an

additional outgoing cost. These direct to retail shipments also minimise overstocking aproduct because due to these direct shipments only the exact amount of a product that is

forecasted to sell large quantities are delivered as requested.

This in turn reduces the associated costs of overstocking such as the minimisation ofobsolescence, pilferage and damage or deterioration. These costs savings can be of a

great benefit to a company and can offset any additional transportation costs incurred.


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Q2A. In addition to supporting tighter delivery schedules how ese are ogistics serviceproviders supporting their customers?

In addition to supporting tighter delivery schedules logistics service providers are alsosupporting their customers in a multitude of different ways. One of these logistics service

providers such as UPS and Fedex who not ony delivering packages on a tight schedule

but they are also handing customs or packing goods exactly how the retailers request. Forexample UPS go as far as to inspect goods for retailers and put clothes on hangers before

delivering to retail outlets.

Schneider national inc are an American transport company that in the words of vice

president of marketing Tom Nightingale see themselves as a roing warehousedelivering goods to retai store as they are needed. Schneiders strength as a retail goods

carrier has been that its shipments can change destination without having to be reloaded

on different equipment due to them uses the same equipment to oad goods on trains or

tracks.Another ogistics service provider who is going the extra mie for its customers is crowey

ogistics service who in addition to providing the above service aso offers a competeproject management service incuding subcontractor vetting, selection and management,

web-enabled material tracking, comprehensive marine transportation for single pallet up

to a 6,000-ton module, and beach/job site landing design. The group also provides heavylift discharge and delivery, inland transportation and logistics and air freight services.


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Q2B.In your opinion is this good for the ong term competitive position of the ogisticsproviders? Why or why not?

A2B. In my opinion this is not good for the ong term competitive position of theogistics providers due to the increased costs of maintaining a competitive edge over a

riva. A company coud incur a great amount of expense in trying to compete with each

other and the costs associated with trying to provide these extra services such asincreased staff eves and new integrated IT systems, coud outweigh the voume of

expected customers who wish to avai of this service. This woud mean a potential oss of

expected profit and arge employment osses.

Aso smaer ogistics service providers coud find it even more difficut to compete againstthe arger corporations such as UPS and Fedex due to these extra costs.

In my own company I recenty reviewd a ogistics company due to a request from a

customer for paets of goods to be shipped to the united kingdom. The ogistics company

coud provide a reasonably priced paet service to the united kingdom in a good timescaeand they aso provided a web tracking service that woud aow our accounts departments to

print off PODs for any potential customer invoice querys. When I enquired aboutdeiverys to mainand Europe and to the United states I was tod that they did not provide

this service because the arger companies such as Fedex and UPS coud provide a more

cost effective service than they coud to these other destinations. This company had beeneffectivey priced out of the market due to the increased costs and the competitive pricing

of the arge monopoy of ogistics service providers. This has been happening to many sma

ogistics service providers who cannot compete with the arger and more powerful ogistics

companies.This in my opinion is detrimenta to competition as whie smear comies find it imposibe to

compete, the arge companies try to maintain a competitive edge over their competitors by

spending arge amounts of money on customer orientated processes that makes itimpossible for sma companies with sma budgets to compete.


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Q3A. What role will information systems pay as retailers seek to reduce inventories by

receiving smaller more frequent and accurate shipments?

A3A. Information technology systems are set to pay a pivito roe as retaiers seek to reduce

inventories by receiving smear more frequent and accurate shipments. Aier, manufacturer

and ogistics service provider wi have to be inked in rea time ib order to hep a aong thesuppy chain to know what a reati needs as soon as possible. Information techhnology

systems such as the IT system used by Andrew Krainin, co-founder and senior vice

president of marketing at Sameday.com which helps retailers and b2b companies improve

their distribution networks to support rapid deliveries expains that in-store inventories aredifficult to pin down on a real-time basis. Inventory is sitting in customers shopping

carts. Items get stolen and sales are recorded with the wrong SKUs. Even if they have an

integrated point-of-sale system, its not going to be 99% accurate, This is an issue that

wi require aborious effort in improving for the future requirements of a aong the suppychain.

Q3B. What are the implications for the manufacturers and ogistics providers who serve

the retaiers?

A3A. There wi be a need for more accurate forecasting from the panning departments of

retaiers and manufacturers and I believe the suppy chain wi be given an even more

prominent roe as it interacts more with customers and the ogistics service providers. It wi

mean better communication wi be needed between everybody in the suppy chain andpurchasing wi aso be given a more prominent roe as costs rise, manufacturing and

ogistics service providers wi have to work to tight schedule whie manufacturers must

make sma batches and ship the products exacty how the customer requires. This wirequire strategic purchasing and a constanty improved suppy chain in order to compete

against competitors.

There wi have to bemore fexibiity from manufacturers and ogistics service providers anda customer orientated attitude wi be needed by a invoved in the suppy chain.

Q4. Currenty Nintendo is abe to pass on some of the costs of the faster shipment to the

retaiers. In the ong term what do you think wi happen?

Q.4. In my opinion ife cyce costing wi pay a arge roe on the descision for retaiers to

contineue to pay these additiona premiums. Ife cye costing is defined by the CharteredInstitute of Management Accountants (CIMA) as the practice of obtaining over their

ifetime the best use of the physica assets at the owest cost to the entity. If it is feasible

for suppiers not to pay premium and if they think that it wi ony mean a oss of a handfulof customers they may decide against paying the extra costs associated with faster

shipments. One example woud be the saes of the Nintendo DS at Christmas 2007. The

Nintendo DS proved to be an incredibly fast seing items, often with ques of a mie ong

outside shops to buy one. As a resut the shops sod out fast and many customers were not


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abe to get a DS for Christmas. I aso tried to obtain one for a Christmas present and I coud

not find one in any shops. But in some instances retaiers promised me that it woud be in

stock the week before Christmas other retaiers who I am assuming didnt wish to pay forthe addidtiona cost of shipping tod me that it woud not be avaiabe in their shops unti

March 2008. It is cear that when both of these different reatiers employed ife cyce costing

they both came to two very different concusions and ony time wit e which retaier hasmade the right choice for their profitability.

principes of suppy chain management

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