You are on page 1of 16

MMBA507 T1/11

Electronic Business & Supply Chain Management


Hans Lehmann 1

MMBA507 T1/11

More understanding of EB & SCM

Definition Wh t is What i the th problem? bl ? Demonstration of a simple case Example of the power of IT in SCM: WALMART and what about E-tailing?
Hans Lehmann 2

MMBA507 T1/11

The horizontal part is the

Supply Chain

Hans Lehmann

MMBA507 T1/11

Whats the problem?


In traditional supply chains, inventories build up at the interface between functions within an organization:

Purchasing

Production

Sales

and between organizations: g

Suppliers
Hans Lehmann

Firm

Customers
4

MMBA507 T1/11

What are the $$$?

Two types of Costs: Obvious Carrying Costs Not Not-so-obvious so obvious Carrying Costs
Hans Lehmann 5

MMBA507 T1/11

Supply Chain Strategies


Traditionally, firms manage internal supply chain and focus on immediate suppliers l and d customers. Now increasing focus further downstream and upstream in the supply chain.

Why?
Hans Lehmann 6

MMBA507 T1/11

Demand distortions
Empirical fact: demand variations amplify upstream p in the supply pp y chain. Manf. Wholesaler Distributor
Information flow (through orders)

Retailer

Product flow

Demand information is distorted: hence, every entity in the supply chain stockpiles too much product.

enter:
Hans Lehmann 7

MMBA507 T1/11

The Bullwhip Effect


Demand swings/ variations amplify upstream in the supply chain.

Demand at the Factory Warehouse Demand at the Distribution Centre level Demand at the Retail level
Hans Lehmann 8

MMBA507 T1/11

The Need for Supply Chain Management stems from the Realisation that

Businesses do not compete; their Supply Chains do.


Hans Lehmann 9

MMBA507 T1/11 INFO101

Lets look at an actual p of an example extraordinarily effective and successful S Supply l Chain Ch i Strategy:
Hans Lehmann 10

MMBA507 T1/11

Wal-Mart W l M t Stores, St I Inc. i is th the worlds ld l largest t retailer, t il with ith (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, Japan Mexico, Japan, Mexico Nicaragua, Nicaragua Puerto Rico, Rico South Korea, Korea the United Kingdom and Continental and Eastern Europe. More than 200 million customers per week visit Wal-Mart stores worldwide.
Hans Lehmann 11

MMBA507 T1/11

Lets look at the $$$...

Hans Lehmann

Source: Walmart 2011Annual Report

12

MMBA507 T1/11

Consistently 1% better than UK SMs


Hans Lehmann Source: Walmart 2011Annual Report; Thanassoulis, UK Supermarket profitability, 2009 13

MMBA507 T1/11

Stock Turn

11.5 p.a.

Store Turnover

46.7$m
Hans Lehmann

Source: Walmart 2011Annual Report

14

MMBA507 T1/11

WALMARTs Core Competence:

Right Merchandise Negative Working Capital Shop Operations Good Discount Retailing;

...what else??
Hans Lehmann 15 MMBA507 T1/11

WALMARTs Core Capabilities

Network of Distribution Centers & g Cross Docking Dedicated Truck Fleet Decentralised, Pull-type merchandising management p y Motivation Employee

Enabled Processes
Hans Lehmann 16

MMBA507 T1/11

...how do you enable bl processes???


Crossdocking
Mapping Capabilities: Inventory replenishment at WALMART Stalk et al. HBR 3-4, 1992

Hans Lehmann

17 17

MMBA507 T1/11 INFO101

WALMART before major EB process enabling initiatives:


Demand flow
WALMART Value Chain

Supplier

Distributor Retail store 40 days Product flow

Consumer household

38 days

26 days

Hans Lehmann

18 18

MMBA507 T1/11 INFO101

WALMARTs enabling results:


Timely, accurate, paperless information flow Consumer household

Supplier
Before

Distributor Retail store


40 days

38 days

26 days

After 27 days

12 days

22 days

Savings 11 days

28 days

4 days

Smooth, continual, largely automated product flow matched to consumption


Hans Lehmann 19

MMBA507 T1/11

So whats that inventory reduction worth?


The eW Walmart Supply Supp y C Chain wou would d save because they would have to buy less stock. Lets assume that they buy their stuff with a bank loan Lets further assume they manage to get an overdraft interest of 10%: How much would they save?
Hans Lehmann 20 20

10

MMBA507 T1/11

Using 2011 figures:


Gross profit margin: 24.7% ergo: cost of sales: $315,471m Inventories: $36,318m Sales/day: $419bn/365=$1.15bn ergo: 31.6 31 6 days d worth h of f inventory
Source: Walmart 2011Annual Report
Hans Lehmann 21

MMBA507 T1/11

So whats that worth in $$$s?


Cost of Sales $315,471m Cost of Sales p.d. $864m Interest p.d. @ 10% $86.4m

Suppliers saved Distr.Centre saved Stores saved

11 days 28 days 4 days

$951m $2,420m $346m

WalMart saved
Hans Lehmann

$2,766bn
22 22

11

MMBA507 T1/11

So whats that worth in $$$s?


Cost of Sales $307,024m Cost of Sales p.d. $841.16m Interest p.d. @ 10% $84.1m

Suppliers saved Distr.Centre saved Stores saved

11 days 28 days 4 days

$925m $2,355m $336m

WalMart saved
Hans Lehmann

$2,691bn
23 23

MMBA507 T1/11

Role of Information Technology? Obvious glue for the enabled processes but will develop into much more : Enabling closer co-operation Transform collaboration In manufacturing and logistics

Hans Lehmann

And what about the SC for E-tailers?

24

12

MMBA507 T1/11

Hans Lehmann

25

MMBA507 T1/11

Hans Lehmann

26

13

MMBA507 T1/11

So: how has AMAZON been b doing since its IPO in 1997?
http://finance.yahoo.com/q?s=AMZN http://www.wikinvest.com/stock/Amazon.com_%28AMZN%29/Data/Market_Capitalization/2012/Q1
27 Hans Lehmann

MMBA507 T1/11

How Amazon Fulfills Orders


The Problem When Amazon.com was launched in 1995, the business model was virtual retailingno warehouse, no inventory, no shipments The idea was to take orders and receive payments electronically and then let others fill the orders However, it soon became clear, that while this model may be appropriate for a small company, it does not work for The earths Largest E-tailer
Hans Lehmann 28

14

MMBA507 T1/11

How Amazon Fulfills Orders


The Solution Amazon.com decided to change its business model and h dl it handle its own inventory; i t but b t Maintaining inventory and shipping costs money and takes time: The company spent $3.5 billion to build world-class warehouses around the US and the world to become a l d in leader i warehouse h management, t warehouse h automation, packaging, and inventory management The actual shipment of products to customers is outsourced to UPS and/or the local Postal Service
Hans Lehmann 29

MMBA507 T1/11

Materials Handling - Generation 1

Hans Lehmann

30

15

MMBA507 T1/11

still unchanged!

Hans Lehmann

http://www.buzzfeed.com/mjs538/what-it-looks-like-inside-amazoncom

31

MMBA507 T1/11 ELCM311 T2/2010

The stuff to remember: B2B-EB technology is the glue in the Supply Chain; and Its Supply Chains that compete not single companies; also: Web-enabled organisation and processes, connected with IT, are fast becoming standard operating practice for businesses; but Learning curve is still steep
32

Hans Lehmann

16