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Electronic Business
&
Supply Chain
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Management
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More understanding of EB & SCM
• Definition
• a s e pro em
• Demonstration of a simple case
• Example of the power of IT in
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• …and what about E-tailing?
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The horizontal part is the
Supply Chain
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What’s the problem?• In traditional supply chains, inventories build up
at the interface between functions
• within an organization:
• and between organizations:
Purchasing Production Sales
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Suppliers Firm Customers
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What are the $$$?
• Obvious Carrying Costs
• - -
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Costs
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Supply Chain Strategies• Traditionally, firms manage internal
supply chain and focus on immediatesupp iers an customers.
• Now increasing focus further downstreamand upstream in the supply chain.
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Why?
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Demand distortions
• Empirical fact: demand variations amplifyu stream in the su l chain.
Manf. Distributor Retailer Wholesaler
Product flow Information flow
(through orders)
• Demand information is distorted: hence,
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every entity in the supply chain stockpiles too
much product.
…enter:
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The Bullwhip EffectDemand swings/ variations amplify upstream in the supply chain.
Demand at the Distribution Centre level
Demand at the Factory Warehouse
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Demand at the Retail level
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The Need for Supply Chain
Management stems from the
Businesses do not
compete; their
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Supply Chains do.
MMBA507 T1/11INFO101
Let’s look at an actualexam le of an
extraordinarily
effective and successful
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upp y a nStrategy:
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a - art tores, nc. s t e wor s argest reta er, w t
(USbn)$419 in sales in 2011. The company employs 2.25
million associates worldwide through nearly 9000 stores in
the United States and in Argentina, Brazil, Canada, China,
Costa Rica, El Salvador, Germany, Guatemala, Honduras,
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, , , , ,
United Kingdom and Continental and Eastern
Europe. More than 200 million customers per week visitWal-Mart stores worldwide.
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Lets look at the $$$...
Hans Lehmann12Source: Walmart 2011Annual Report
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Source: Walmart 2011Annual Report;
Thanassoulis, UK Supermarket profitability, 2009
Consistently
1% better than
UK SM’s
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Stock Turn
11.5 p.a.
Hans Lehmann14Source: Walmart 2011Annual Report
Store Turnover
46.7$m
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WALMART‘s Core Competence:
•
• Negative Working Capital
• Shop Operations
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Good Discount Retailing;
...what else??
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WALMART‘s CoreCapabilities
• Network of Distribution Centers &“Cross Dockin ”
• Dedicated Truck Fleet
• Decentralised, “Pull-type”merchandising management
• Em lo ee Motivation
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‘Enabled Processes’
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...how do youena e
processes???
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Mapping Capabilities: Inventory replenishmentat WALMARTStalk et al. HBR 3-4, 1992
Crossdocking
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WALMART before major EB‘process enabling’ initiatives:
Demand flow
Supplier Distributor Retail store Consumer
household
WALMART Value Chain
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38 days 40 days 26 days
Product flow
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MMBA507 T1/11INFO101
WALMART’s ‘enabling’ results:
Timely, accurate, paperless information flow
Supplier Distributor Retail store Consumer
household
38 days 40 days 26 days Before
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Smooth, continual, largely automated
product flow matched to consumption
11 days 28 days 4 daysSavings
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So what’s that inventoryreduction worth?• The Walmart Su l Chain would
save because they would have to buyless stock.
• Let’s assume that they buy their stuffwith a bank loan
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• Let’s further assume they manage toget an overdraft interest of 10%:
• How much would they save?
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Using 2011 figures:
• Gross profit margin: 24.7%
ergo: cost of sales: $315,471m
• Inventories: $36,318mSales/day: $419bn/365=$1.15bn
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ergo: . ays wort o
inventorySource: Walmart 2011Annual Report
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So what’s that worth in $$$s?Cost ofSales $315,471m
Cost ofSales p.d. $864m
Interest p.d.@ 10% $86.4m
Suppliers saved 11 days $951m
Distr.Centre
saved28 days $2,420m
Stores saved 4 days $346m
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WalMartsaved $2,766bn
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So what’s that worth in $$$s?
Cost ofSales $307,024m
Cost ofSales p.d. $841.16m
Interest p.d.@ 10% $84.1m
Suppliers saved 11 days $925m
Distr.Centre
saved28 days $2,355m
Stores saved 4 days $336m
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WalMart
saved $2,691bn
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Role of Information Technology?• Obvious glue for the ‘enabled’ processes
•
• Enabling closer co-operation
• Transform collaboration
• In manufacturing and logistics
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And what about the SC
for E-tailers?
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So: how haseen
doing since its IPO
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http://finance.yahoo.com/q?s=AMZN
http://www.wikinvest.com/stock/Amazon.com_%28AMZN%29/Data/Market_Capitalization/2012/Q1
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How Amazon Fulfills OrdersThe Problem
• When Amazon.com was launched in 1995, the
business model was virtual retailing—no
warehouse, no inventory, no shipments
• The idea was to take orders and receivepayments electronically and then let others fill
the orders
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• However, it soon became clear, that while thismodel may be appropriate for a smallcompany, it does not work for “The earth’s
Largest E-tailer”
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How Amazon Fulfills Orders
The Solution• Amazon.com decided to change its business model and
an e s own nven ory; u
• Maintaining inventory and shipping costs money andtakes time:
• The company spent $3.5 billion to build world-class
warehouses around the US and the world to become a
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ea er n ware ouse management, ware ouse
automation, packaging, and inventory management
• The actual shipment of products to customers is
outsourced to UPS and/or the local Postal Service
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Materials Handling - Generation 1
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…still unchanged!
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•http://www.buzzfeed.com/mjs538/what-it-looks-like-inside-amazoncom
MMBA507 T1/11ELCM311 T2/2010
The stuff to remember:• B2B-EB technology is the glue in the
Supply Chain; and
• It’s Supply Chains that compete – notsingle companies; also:
• Web-enabled organisation and processes, connected with IT, are fast
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ecom ng s an ar opera ng prac cefor businesses; but
• Learning curve is still steep