Strategies: supply chain management – logistics, e-commerce, global sourcing Flashcards
What is supply chain management?
All businesses need suppliers. Supplies are an essential input into operations processes. Supply chain management (SCM) involves integrating and managing the flow of supplies throughout the inputs; transformation processes (throughput and value adding) and outputs to best meet the needs of customers.
Supply Chain Management Goals could include:
Strategic- long term; warehouse number and size, location, future partnerships with suppliers
Tactical- medium term; sourcing raw materials, scheduling and sequencing, transportation
Operational- short term; orders, deliveries, stock take, communication with suppliers
What is the process of supply chain management?
The supply chain for a product can be determined by starting with the final product and then tracing backwards through all processes that add value, all the way to inputs. This process demonstrates that the supply chain includes production processes, suppliers of raw materials, energy, labour, distribution and all sources. This type of analysis of supply, which is a ‘top-down’ or systems approach, is necessary when creating strategies for supply chain management. There are three key aspects to supply chain management. In order of processing, these are-
Inputs
- Sourcing - domestic - global
- E-commerce
- Raw Materials
- Other inputs - energy
Transformation process
- throughout
Value adding
Outputs
- Finished or semi finished goods or services
- logistics
- distribution
What is logistics?
Logistics is a term broadly referring to distribution but also includes transportation; use of storage, warehousing and distribution centres; and materials handling and packaging.
What is distribution/
Distribution refers to the ways of getting the goods or services to the customer. There are different forms of physical distribution that a business may use, including:
Producer - wholesaler - retailer - consumer
producer - consumer
producer - global agent - domestic offshore - retailer - consumer
What is transportation?
This aspect of logistics is concerned with the physical movement of inventories. There are various modes of transportation that can be used and each has its own strengths and weaknesses. The type of product and the cost of transportation will determine the mode of transportation selected. Some products, due to their nature, can only be transported by particular modes (for example coal and crude oil), whereas for other products there is a variety of choices. Businesses will consider mode, cost, travel time etc.
If the shipment is only half full they get other suppliers to fill it full - a cost effective strategy
What is storage?
Storage involves finding a secure place to hold stock until it is required. Storage on inventory is necessary when there are numerous outlets through which stock is sold and when demand is variable and needs a responsive supply chain.
Where is warehousing
Warehousing is the use of a facility for the storage, protection and, later, distribution of stock. Warehouses are a place for holding inventories and therefore particular costs are associated with warehousing including the cost of:
the premises
insurance and security for the stock
stacking and moving the stock
carrying excess stock or redundant stock if not sold
shrinkage costs and losses from theft or reasons not accounted for
stock subject to damage (e.g. water damage) if not correctly stored
What is distribution centres?
A distribution centre is slightly different to a warehouse in that it is not intended for long term storage. Rather, distribution centres are strategically located so as to minimise the time it takes to supply stock to retail outlets. The use of distribution centres is an important operations strategy and requires managers to balance the cost of such centres with the time saved in logistics.
Materials handling and packaging
Materials handling is an important aspect of the movement and storage of goods, and therefore particular standards and methods of operating need to be applied. This is because some products require particular skills, care or attention when being moved e.g. delicate glassware. Similarly, some goods can be dangerous (such as chemicals and fuels) and their transportation and storage can carry particular hazards. The government has regulations that require dangerous goods be stored and handled in particular ways, and it also requires packaging to be of a particular standard and to carry warnings.
Ikea case study
The management of IKEA’s logistics on a global scale is a mammoth task that is managed by a single (separate) company; IKEA Supply.
Due to the sheer vastness of logistics tasks to complete, IKEA Supply outsources some logistics procedures to supply chain specialist ‘Maersk’ for Europe to North America distribution and to ‘APL’ for Europe to Asia distribution.
Goods are distributed from the 33 different distribution centres with most located in Europe. Goods are transported by road, rail, river barge and sea with no (or minimal) air freight utilised.
Generally, distribution is 75% road, 15% rail, 2% ocean and 8% combination of all.
● IKEA Tempe has 9805 m2 self-serve warehouse with 15 300 individual storage spaces
● In self-serve warehouse 470 pallets are delivered each night
● Self-serve is responsible for ‘end-caps’ in warehouse – preview of what is in each aisle (also used as additional storage)
● Warehouse works closely with logistics, products come from:
o Supplier directly (this reduces costs of transport and fuel)
o Low-flow warehouse in China
o High-flow warehouse in Marsden Park, Sydney (seasonal stock, ready to go)
Do-it-yourself assembly - Most IKEA furniture is designed and sold in pieces for the customer to assemble. The pieces are placed into convenient and efficient, flat packages for low-cost transport because they take up less room in trucks, maximizing the number of products that can be shipped.
The unique packaging also takes up less space in warehouse bins and reserve racks, allowing for more room to stock additional items for order fulfillment. What the company saves in fuel and stocking costs is passed on to customers.
Combine retail and warehouse logistics - Every IKEA store has a warehouse on the premises. On the main showroom floor, customers can browse for items. They then obtain the products themselves from the floor pallet location with racking as high as the typical person could reach, where furniture can be purchased and taken home. Additional products are stored in reserve racks above these locations.
Inventory is let down to the lower slots at night (forklifts and pallet jacks are not used during store hours for safety reasons). About one-third of the lower level is comprised of a warehouse off-limits to customers. This space contains items too bulky for customers to load without help from the staff. Since IKEA wants as much self-service as possible, it works to minimize the number of items in this bulk storage area.
Cost-per-touch inventory tactic - Having customers select the furniture and retrieve the packages themselves is an inventory management tactic called ‘cost-per-touch’. As a rule of thumb, companies find that the more hands touch the product, the more costs are associated with it.
For example, imagine when someone selects a piece of furniture to buy. The item is then ordered, shipped from the manufacturer, moved from the delivery truck into storage in the warehouse, moved from the warehouse to the customer’s vehicle, or delivered by the furniture retailer to the customer’s home. Every time the product is shipped moved and loaded, it costs money. The fewer times someone moves or touches the item, the fewer costs are associated with it. IKEA saves costs with this guiding principle to minimize touches because it doesn’t have to pay the customer to retrieve the furniture and take it home.
In-store logistics management - IKEA also relies on something rare and unique concerning its logistical management of reordering products – it employs in-store logistics personnel to handle inventory management at its stores. According to Steve Banker, ARC Advisory Group and Logistics Viewpoints (professionals and consultants on logistical and supply chain operations), there is an in-store logistics manager responsible for the ordering process and a store goods manager responsible for material handling logistics at all IKEA stores.
The duties of the logistics personnel are to monitor and record deliveries, carefully check delivery notices, sort and separate the goods, and get them off to the correct sales area or designated overstock locations. Overall, they ensure an efficient flow of goods within IKEA stores, which is essential to maintaining high sales and enhancing customer loyalty.
What is e-commerce
E-commerce involves the buying and selling of goods and services via the internet. With reference to supply chain management, e-commerce is relevant to particular forms of sourcing. The impact of e-commerce may be explained with reference to the business and its sourcing, and the customer and their orders that are received electronically.
Business Sourcing Consumer
Many businesses these days have their supply chain managed through electronic ordering. E-procurement, or the use of on-line systems to manage supply, allows suppliers direct access to the business’s level of supplies. When stock falls to a predetermined point, the supplier will supply even without a formal request from the buyer. This process is enabled by what is called business-to-business arrangement (B2B), allowing the supplier to assess the needs of the buyer and meet them in a timely manner.
The increasing use of e-commerce by consumers also has an effect on the supply chain. Businesses may opt to sell directly to consumers in transactions called business-to-consumer — B2C. A business that sells direct to consumers via the internet must be able to manage supplies that are affected by this diversity of ordering options. In this case, it should be clear that stock levels must be managed well and information exchanged frequently so that accurate stock levels can be presented to prospective customers.
Ikea case study e-commerce
In the midst of a digital revolution, IKEA has been extremely slow to act on the consumers desire to shop from home. IKEA released their website in 1997 and have only recently (last 5-10 years) decided to integrate a multichannel retail approach (i.e., sell via e-commerce, as well as in store). E-Commerce eliminates the IKEA customer experience where the purpose of the store layout and additional inclusions (e.g., restaurant is to ‘entertain’ customers) encourages customers to increase time in store and purchases made.
Sourcing including global sourcing
Sourcing refers to the purchasing of inputs for the transformation processes. Sources or inputs are drawn
from a range of suppliers. When determining which sources to use (choosing a supplier), a business will need to do each of the following.
Assess consumer demand so that the volume of inputs required is known.
Determine the quality of inputs that match the quality of the products the business is selling
Assess how responsive (flexible) and timely the supplier is with respect to changes in demand.
Evaluate the cost of supplies/inputs from the supplier against other suppliers
Trends in SCM:
Supplier rationalisation – involves assessing the number of suppliers in order to reduce the number
of suppliers to the least amount
Backwards vertical integration – purchasing through mergers or acquisitions of suppliers (meaning
the supplier is then owned by the business) (e.g., Messina Gelato purchasing a successful
strawberry farm)
Cost minimisation – particularly the use of offshore suppliers, through access to low-cost resources,
inputs and labour
Responsive supply chain – a ‘lean’ organisation is one that minimises waste, seeks to continually
lower costs, improve processes and increase speed. In the supply chain, a lean approach requires only ordering as necessary to reduce storage costs.
Global Sourcing
is a broad term that refers to businesses purchasing supplies or services without being constrained by location. In the supply chain management activity, global sourcing means buying or sourcing from wherever the suppliers are that best meet the sourcing requirements. Advantages include- cost and expertise, new technologies and resources. However, disadvantages are- relocation, increased cost of logistics and managing different legal regulations across nations
