Conformance to RequirementsMarket Mediation:Ability to offer what the customer wants and needs福Costs associated withthe market mediation occurwhenthereare differences between supply anddemandSupply>demand =>inventory coststhroughout thesupplychain.Demand>Supply=>lostsalesandpossiblymarketshare.FunctionalItemsProduct demandis predictableMarket mediation not a majorissueFashion items or other high-variability itemsNature of demand can create large costs due to lostsalesorexcessinventoryRequiresresponsive supplychains11-6
11-6 Conformance to Requirements ⚫ Market Mediation: ⚫ Ability to offer what the customer wants and needs ⚫ Costs associated with the market mediation occur when there are differences between supply and demand. ⚫ Supply>demand => inventory costs throughout the supply chain ⚫ Demand>Supply=> lost sales and possibly market share. ⚫ Functional Items ⚫ Product demand is predictable ⚫ Market mediation not a major issue. ⚫ Fashion items or other high-variability items ⚫ Nature of demand can create large costs due to lost sales or excess inventory. ⚫ Requires responsive supply chains
Zara's SCM StrategyItkeeps half of its production inhouse instead ofoutsourcingasis commonIt intentionally leavesextra capacity inits warehousesItmanufacturesand produces insmall batches ratherthantrytoachieveeconomies of scaleIt manages all design, warehousing,distribution andlogistics itself instead of usingthirdpartiesIt holds its retail stores to a rigid timetable forplacingordersandreceivingstock.Itputspricetagsonitemsbeforetheyareshipped ratherthanat each store.It leaves large empty areas in the stores and tolerateseven encourages stock-outs11-7
11-7 Zara’s SCM Strategy ⚫ It keeps half of its production in house instead of outsourcing as is common ⚫ It intentionally leaves extra capacity in its warehouses ⚫ It manufactures and produces in small batches rather than try to achieve economies of scale ⚫ It manages all design, warehousing, distribution and logistics itself instead of using third parties ⚫ It holds its retail stores to a rigid timetable for placing orders and receiving stock. ⚫ It puts price tags on items before they are shipped rather than at each store. ⚫ It leaves large empty areas in the stores and tolerates, even encourages stock-outs
Conformance to ReguirementsBuilt on Three PrinciplesClosingthecommunicationloopSupply chain isorganized so it can track material andproduct inreal timebutalso closetheinformationloopbothforharddataand anecdotalSticking toa rhythm acrossthesupply chainCompany is willingto spendmoney on anything thatwill make itssupply chainfastand responsiveLeveraging capitalassets toincreasesupplychainflexibilityCompany usestheinvestment inproductionanddistribution facilities tomake the supply chainresponsive to newandchanging demand patterns11-8
11-8 Conformance to Requirements Built on Three Principles ⚫ Closing the communication loop ⚫ Supply chain is organized so it can track material and product in real time but also close the information loop both for hard data and anecdotal. ⚫ Sticking to a rhythm across the supply chain ⚫ Company is willing to spend money on anything that will make its supply chain fast and responsive. ⚫ Leveraging capital assets to increase supply chain flexibility ⚫ Company uses the investment in production and distribution facilities to make the supply chain responsive to new and changing demand patterns
Product SelectionProliferation of productoptionsLargervariety means greaterproblemswith:Managing suppliesPredictingdemandThree successful trends:Specializing in offering one type of product(Starbucks/Subway)Mega-stores that allow one-stop shopping for a largevarietyofproducts(Wal-Mart/Target)Mega-stores that specialize in one product area(HomeDepot/OfficeMax/Staples)11-9
11-9 Product Selection ⚫ Proliferation of product options ⚫ Larger variety means greater problems with: ⚫ Managing supplies ⚫ Predicting demand ⚫ Three successful trends: ⚫ Specializing in offering one type of product (Starbucks/Subway) ⚫ Mega-stores that allow one-stop shopping for a large variety of products (Wal-Mart/Target) ⚫ Mega-stores that specialize in one product area (Home Depot/Office Max/Staples)
Similar Trends on the InternetSome sites offer a variety of productsOthersspecializeonlyinaspecific lineofproductsCombinevirtual withphysicalstores.Dellwithitsphysicalstorestocompete withAppleLong-TailPhenomenonLackof physical orlocal restrictionsallows retailers tofocusand makerevenue on theless popular items intheircataloguesOnline sites offertitles/items not carried by traditionalretailers11-10
11-10 Similar Trends on the Internet ⚫ Some sites offer a variety of products ⚫ Others specialize only in a specific line of products ⚫ Combine virtual with physical stores ⚫ Dell with its physical stores to compete with Apple ⚫ Long-Tail Phenomenon ⚫ Lack of physical or local restrictions allows retailers to focus and make revenue on the less popular items in their catalogues ⚫ Online sites offer titles/items not carried by traditional retailers