SUPPLY CHAIN MANAGEMENT EXAM
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chapter3Iyerppts.pptxManaging Supply Chains: Concepts, Tools, Applications Chapter 3: Competition
These powerpoints are a companion to the book: Managing Supply Chains: Concepts, Tools and Applications by Ananth. V . Iyer, Hercher Publishing Inc., ISBN 978-1-939297-01-3
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Outline
Supply Chain Metrics of competition
The Impact of alternate metrics on the supply chain
Inventory levels under competition
Advance Order Quantities under competition
Summary
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Supply Chain Metrics of Competition (Section 3.2)
Time based competition
Focus on lead time
Quick response
Premium for fast delivery
Resilience
Focus on quick recovery from setbacks
Backup capacity, processes
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Supply Chain Metrics of Competition (Section 3.2)
AAA Supply Chain (Agility, Adaptability, Alignment)
Adjust to changes in demand or supply
Adapt to products, technologies etc
Adjust incentives, coordination
Environmental Responsibility
Focus on Impact across the product lifecycle
Closed Loop supply chain thinking
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Supply Chain Metrics of Competition (Section 3.2)
Variety
Compete on variety – features vs SKUs
V4 – velocity, variability, visibility, variety
Cost
Total landed cost
Cost of product vs cost of ownership
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Supply Chain Impact of Metrics
Supply Chain
Manufacturer Retailer Customer
(c,Lm) -> (c1t,Lmt)-> (markup α,h)-> (cct,Lc)
Given these parameters, the supply chain organization adapts to accommodate different metrics
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Minimize Purchase Cost
Customer cost = α(c+cmt)+cct
Customer Lead time = Lm+Lmt
Customer inventory to cover lead time of Lct
No inventory carried by the retailer or manufacturer
Make to order system
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Min Supply Lead Time
If the manufacturer carries inventory, then
The retailer carries Lmt periods of demands as inventory
If the manufacturer does NOT carry any inventory, then
The retailer carries Lm+Lmt periods of demands as inventory
Customers get demands satisfied on arrival at the retailer, but carry Lct periods of demands as inventory
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Total Delivered Cost
If the manufacturer pools demands from many retailers, then consolidation benefits or risk pooling stabilizes overall demand, thus permitting lower cost, longer lead time suppliers.
If retail demand sizes differ, then more stable larger retailers may benefit from lower cost longer lead times, while more variable demand smaller retailers may benefit from lower lead times albeit higher costs
Choose the location of inventory and lead time to optimize overall costs
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Optimal Variety
Optimizing design attributes to reduce buyer costs (80% product costs fixed at design stage)
Higher variety in the grocery industry may attract choice sensitive customers
Long tail demand satisfaction by ecommerce retailers may enable higher margins
Simplifying choice may enable improved features (Apple, Toyota)
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Environmental Impact
Cradle-to-grave costs, Earth’s Balance Sheet perspective
Closed loop supply chains may permit lower prices and competitive products (disposable cameras)
Zero landfill supply chains may enable competitiveness of products produced
Charging for disposal may reduce overall costs (tires)
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Supply Chain Leadership
Category captains, supply chain champions role
Category wide data access enables improved product lines and customer focus
Understanding customers not served provides insights
Retailer private label sales regulates prices and margins
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Global Supply Chain
Supply chain to serve customers at global locations
Produce closer to demand locations to incur local costs and thus reduce risk
Optimize global tax costs of deliveries
Lower response lead time, Just-in-Time deliveries
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Impact of Competing Supply Chains
Consider two competing retailers
Customers whose demands are not satisfied by one retailer go to the other
Inventory decisions have to cover own demands and spillover demands
How will this impact inventory decisions ?
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Table 3.6
In equilibrium, both retailers carry 50 units of inventory
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Advance Orders and Competition
Advance orders – discounts to incent early demand revelation, thus enabling better inventory management
Consider two competing supply chains, each with one retailer and a customer base
Advance orders by retailers attract demand from other supply chain’s customers
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Expected Profits
| Decisions | Retailer 1 | Retailer 2 |
| No Advance Order Discounts | 2.4 | 2.88 |
| Retailer 1 offers Advance Order discounts | 2.545 | 2.396 |
| Retailer 1 offers Advance Order discounts | 1.996 | 2.94 |
| Retailer 1 and Retailer 2 offer Advance Order Discounts | 2.178 | 2.52 |
Results suggest a prisoner’s dilemma outcome of competition across retailers
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Chapter Summary
Competitive metrics may vary: Time, Variety, Cost, Environmental Impact, resilience
Alternate metrics impact location of inventories and roles
Competing supply chains impact inventories, expected profits and impact of competition
Competition may result in lower profits with no ability to avoid this effect (prisoner’s dilemma)
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