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sl3003ch17

sl3003ch17

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03/08/2011

 
369
17
Supply ChainManagement —Applications
Douglas Burke 
In the previous chapter we presented many of the details necessary for effectiveSCM. In this chapter we present four pointed case studies that give the reader aview of what is currently being done to improve SCM. All the case studies are basedon documented research; however, the names of the actual businesses have beenchanged. In some instances, the case studies presented are a compilation of numerousexamples from a specific field or industry.The first case study is centered in the retail industry, which was the first torecognize the importance of improving SCM to gain market share and businessadvantages. This case highlights one company’s innovative approach to inventorymanagement. This well-known retail chain took advantage of today’s informationtechnology to establish a “pull-through” supply chain, resulting in dramatic reduc-tions in inventory and improved customer satisfaction.The second case study focuses on how a truck-manufacturing firm used localpartnering to improve its SCM and gain business advantages. This case follows theevolution of what started as a simple partnering agreement but ended as a synergisticcoupling of two good companies, leading to results far in excess of what any onecompany could obtain alone. You will see the importance of trust and shared benefitsin this type of simple partnering agreement.The third case study focuses on the grocery industry. This case shows howadvanced partnering agreements can span the entire supply chain and benefit morethat just a few firms in the network. This case points out some different aspects of SCM because of the short shelf life of products, the need for short lead times, andclose promotional management to smooth variations in demand.The final case demonstrates the supply chain improvement effort of a computer-manufacturing firm, moving from the initial data analysis for determining areas of improvement through the implementation of the improvements. What is importantabout this case is the use of interdisciplinary teams that had to be cross functionalto accomplish the established goals. You will also see how SCM improvement effortsmust fit into a company’s strategic plan.
17.1OPTIMUM REORDER CASE STUDY
Working with a number of customers from the consumer retail industry, Company Adeveloped an effective and industry-recognized three-step supply chain improvement
© 2002 by CRC Press LLC
 
370
The Manufacturing Handbook of Best Practices
system. This technique, appropriately named the
constant refill program
(CRP), wasadopted as the company
s vision for responding to the growing need for faster, moreaccurate stock replenishment while maintaining a high level of customer satisfaction.Company A continues to claim that CRP has changed the long-established relation-ships between customer and supplier. By implementing CRP, Company A has sim-pli
ed and streamlined the reorder process, reaping improvements in ef 
ciency andeffectiveness. Additionally, the improved order response process eliminated steps thatwere not adding value to the customer, reducing costs and cycle times.The CRP process begins with orders received from the customer distributioncenters via EDI (electronic data interchange) along with Company A
s inventory andreceipts. To obtain optimum reorder quantities, these orders are accumulated andtransmitted to the customer headquarters site, which represents the pull-throughdemand. Then the demand is compared with the inventory to calculate the optimumreorder quantities. After making summary analyses and adjustments due to promo-tions and other pricing activities, the headquarters group routes the actual ordersback to the distribution centers and Company A
s headquarters.Orders speci
c to individual plants are then sent from Company A to theindividual manufacturing sites to start the production process. After the neededproducts have been manufactured, dedicated carriers with dedicated delivery sched-ules move the newly manufactured goods to the customer distribution centers. Thenewly manufactured goods and the on-hand inventory are then sent to stores forspeci
c customers. In this system, inventories are controlled by keeping the stocksin the distribution centers at minimal levels and shifting dependence to the
exibilityof the manufacturing systems at Company A plants to meet most of the store needs.Clearly, the actual process is more detailed than this. However, all the functionsthat make the system work are represented. The total effect is a system in whichboth the customer and Company A bene
t from a lower cost, speedier process, andthe ultimate consumer gets a more diverse product mix at a lower price. CompanyA-documented customer bene
ts include
Reduced customer-owned inventories and better utilization of distributioncenter space
Greater than 65% reduction in customer warehouse inventory
Elimination of paperwork and reduction of administrative costs by usingelectronic interchanges
Improvement of store service levels to over 99% on speci
c products byproviding the correct inventory quantity and mix to the customer
A tripling of inventory turns, with a one-time cash-
ow increase of almost$0.25 million resulting from lower working capital tied up in warehouseinventory.Company A recorded these bene
ts:
A greater than four-point increase in market share
An almost 30% increase in orders
An average of 8% vehicle utilization improvement
© 2002 by CRC Press LLC
 
Supply Chain Management
Applications
371
A decrease of over 50% on returns and refusals
An average 30% reduction in damaged goods
Improved customer service and satisfactionBy implementing this program, Company A now takes the incoming point of sales (POS) transaction data and determines what needs to be shipped even beforean actual order is created by the customer. Substantial advantages are gained inplanning and scheduling by this capability. For example, products such as diaperstypically suffer from wide variations in scheduling. Customer needs depended onthe particular type of diaper being consumed: regulars, absorbent, or super-absorbentgrade. Under CRP, manufacturing
uctuations have been signi
cantly reducedbecause the plant knows which types are being pulled out of the system. By havingCompany A and its customers involved in the CRP process, they both can offer theultimate customer lower retail prices by passing through system savings. Additionaladvantages are improved product freshness, reduced out-of-stock situations, anddecreased package damage.Recently a large computer-manufacturing
rm purchased Company A
s system.This con
rms that the CRP system is one of the leading-edge practices that willhelp to drive supply chain improvement to reality. We expect that other
rms willdevelop this type of system and that it will be expanded to the upstream side,including the suppliers of the materials needed to make the products. Clearly, theopportunity for system improvements has started to be practical. System improve-ment requires that the companies involved are able to recognize the types of enhance-ments that can be worked out by cooperative efforts between suppliers and producers.The same methods can be used between suppliers and manufacturers as are usedbetween manufacturers and stores.Company A is now working to introduce the next version of its supply chainimprovement process
termed
smooth logistics
 
and developing tomorrow
ssolutions for today
s SCM problems.
17.2BASIC PARTNERING CASE STUDY
The next time you are on the road, take note of the number of large tractor-trailerspulling their loads across the United States. A large manufacturer of the tough anddurable machines that pull these trailers formed an alliance with a large supplier of tires. The supplier (let
s call it the Tire Company) provides an excellent example of how to make a true partnering effort successful. This is a true case study and presentsa successful business endeavor for both parties.Following a corporate spinoff, the truck manufacturer made a strategic decisionthat developing a partnering concept could offer special business advantages whenevaluated against its traditional supplier relationships. Management
rst performeda serious internal review of existing procedures and supplier relationships. Theresults were eye opening but not surprising, as you can see below:
The dominant purchasing strategy was price buying.
The procurement base was fragmented.
© 2002 by CRC Press LLC

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