Professional Documents
Culture Documents
SCM Gateway
SCM Gateway
Gateway
Introduction
• Gateway is a direct sales manufacturer of PCs that was founded
in 1985 with no retail footprint
• Late 1990s: Introduced aggressive strategy of opening Gateway
retail stores throughout the United States
• Goal: Avoid carrying any finished-goods inventory at retail stores
• By January 2002, Gateway had approximately 280 retail stores in
the US
• But by April 2004, Gateway closed all its retail outlets and
reduced number of configurations offered to customers
• Gateway were now looking to sell its PCs through electronic
retailers
Problems
1. Why did Gateway choose not to carry any finished-product
inventory at its retail stores?
2. What factors did Gateway consider when deciding which
plants to close?
3. Why did Gateway decide not to carry any finished product
inventory at its retail stores?
4. Should a firm with an investment in retail stores carry any
finished goods inventory?
5. Is the Dell model of selling directly without retail stores
always less expensive than a supply chain with retail stores?
6. What are the supply chain implications of Gateway’s decision
to offer fewer configurations?
1. Why did Gateway choose not to carry any finished-
product inventory at its retail stores?
• Gateway had a strategy to avoid carrying finished goods inventory in retail
stores. This way customers had the opportunity to customize the
configurations they needed by working with the sales reps as well as having
the opportunity to try out any sample product within the store. The
company’s strategy aimed to design a supply chain that would match supply
and demand.
• The decision not to carry any finished-product inventory at its retail stores
was based on two factors:
• Allow for maximum flexibility in product configuration, and
• No need to keep inventory at the retail outlets.
• This flexibility in product configurations would allow the company to manage
shifts in customer demand, since the final product would only be configured
after the customer places the order.
• It would also allow the company to implement a Customer Relationship
Management strategy, since the company would know the specifics of the
customer’s needs and would be able to target a customer for future
products.
1a. Why did Apple choose to carry inventory at its retail
stores?
• Apple on the other hand aimed to satisfy the customer’s need for immediate
purchase, plus provide him/her with the experience of a finished product
• Advantages / Disadvantages of Gateway strategy:
– Easier to customize; potentially offer wide variety of products
– Higher delivery time, since the product has to be configured and
produced
– Lower inventory costs; Strategy that matches supply and demand
• Advantages / Disadvantages of Apple strategy:
– No delivery time, since the product is on the shelf
– Lower shipment costs, since the products can be bundled and shipped to
the retail store, from where they are picked up by the customer
– Limited product variety, since the products are already on the shelf
– Better customer service since the customer has the experience of trying
out the finished product, and can walk out of the store with a product in
hand.
1c. How does Gateway decide which production facility will
produce and ship a customer order?
• Given that the goal is to maximize the supply chain surplus (profitability), a
number of factors were taken in consideration in order to decide which
facility will produce and ship a customer order.
• The most important factor is the cost, including production and
transportation cost to the customer
• Other factors include availability of production capacity and know-how at a
specific facility, other orders in production to the specific customer or to
customers nearby, etc.
• Another strategy is to “allocate” product lines to specific facilities, and then
direct the orders to the facility “assigned” to the specific product. This way,
there is increased sophistication developed in each facility about a specific
product line, thus saving on production time, setup production costs,
inventory costs, and more
1b. What factors did Gateway consider when deciding
which plants to close?
• On the other hand, products that are best manufactured to order are products
with some or all of the following characteristics:
– Products that allow customization based on customers’ preferences and needs
– Products with highly uncertain or low demand demand within the market
– Products for which the customer can wait (e.g. furniture)
– Products with high storage and inventory cost
– Products with low inventory life
3. How does product variety affect the level of inventory a
retail store must carry?