09/03/2021 Supply Chain Management Case Study: the Executive’s Guide

Supply Chain Management Case

Study: the Executive’s Guide
By Supplychainopz

Professionals in supply chain management use various methods to determine how

to improve the performance of supply chain operations. Analysis of case study is
certainly one of the most popular methods for people from business management
background. In order to accelerate the learning, this article has gathered 20+ most
sought-after supply chain case studies, analyzed/categorized them by industry and
the findings are presented.

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09/03/2021 Supply Chain Management Case Study: the Executive’s Guide

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09/03/2021 Supply Chain Management Case Study: the Executive’s Guide

Aerospace Industry is characterized by high material costs (about 65-80%).

Manufacturing systems and regulatory compliance are considered to be very
complex, coupled with the limited number suppliers due to the high barriers to
entry. Moreover, the aircraft manufacturers have to do whatever it takes to win the
order long before the commencement of production. 

There are two things Boeing and Airbus have in common, utilization of lean

manufacturing system and strategic sourcing concept. However, the overall
implementation of strategic sourcing is a bit different between the two companies.

Boeing and Airbus Supply Chain Strategy

Boeing wants to encourage more flight frequency and direct route using a smaller
capacity aircraft. Then they decide to outsource many things such as the design,
testing and production of key components to key industrial partners and try to
reduce number of components that go to assembly. The ultimate goal is to finish
the final production process within 3 days.

Airbus takes a bit different marketing approach. They want to utilize high
capacity airplane to help airlines drive the operating cost down. They decide to
selectively outsource the production of parts and keep the design and production
of key components in-house.

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Supply Chain of fashion industry involves a time based competition. Many

customers have the unique product needs but a competition is very fierce because
of the low barriers of entry. Many new players try to offer specialized products to
customers all the time. This section features the supply chain case studies of
H&M, Benetton, Zara and Adidas.

– H&M aims to be the price leader in the fashion market.In order to materialize its
vision, H&M tries to eliminate the middlemen in various stages of supply chain
and consolidate the buying volumes. Product design is also the central part of its
strategies. They don’t try to follow the high fashion designs but try to adopt the
street trends which are easier to produce. At the end of the day, they can bring
products to market within 2-3 weeks.

– Benetton, in contrast, chooses to have a full control of its production but allow
its licensees to operate the stores so they can focus on production and quality
control. The reason is that they would like to create the worldwide brand
awareness.

For fast moving products, they use the production facilities in Europe. Asian
suppliers will perform production for standardized products.

– Zara is very famous for its time based strategy. In order to launch a new product
within 15 days, Zara uses a small lot production. A new product will be tested in
pilot stores. If product sales is good, a larger batch will be ordered. Otherwise,
remaining products will be removed from the shelves and sold as mark-down in
other stores. This creates the perception among consumers that Zara’s products
are unique and you have to take it while stock lasts.

Vertical integration contributes to the success of Zara, they own the majority of its
production facilities and stores (this is the reason why Quick Response can be
effectively implemented). Its automated distribution centers are strategically
located between the center of populations so products are delivered to stores
quickly.

Zara also works with Air France, KLM Cargo and Emirates Air in order that they
can coordinate directly with the airlines to make the outbound shipments to its
stores and bring back some raw materials and semi-finished materials with return

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legs.

The last supply chain case study in the fashion retailing industry is Adidas. In
order to cope with changing customers’ demand, they decide to undertake Mass
Customization strategy. The whole idea is to develop, market and deliver the
product variety that most customers will find what they want.

The first steps towards mass customization is to strategically offer the product
choices. Too few variations will disappoint a customer but too many variations
will simply postpone a buying decision.

After that, Adidas asks the same key suppliers to produce custom components in
order to achieve the economy of scale.

In order to compensate a long waiting time, Adidas uses air freight or courier
service. The reason why they can do this is that customized products are sold
directly to customers so they have the higher profit margin to compensate the
higher transportation cost.

Supply chain strategy of the fashion retailing industry is summarized as below,

Supply Chain Strategy in Fashion Retailing Industry

FMCG industry is typically the products sold to customers at a low cost and will
be completely consumed within 1 year. The nature of this industry is the short
product life cycle, low profit margin, high competition and demand fluctuation.
This section will present the case studies of P&G, Unilever and Coca-
Cola respectively.

Forecasting and new product introduction has always been the issues for many
FMCG companies, P&G is no exception. To cope with this, P&G conducts a
merchandise testing at the pilot stores to determine the customer’s response to
new product before the launch. The result is that the forecast accuracy is
improved because a demand planner has an additional source data to make a
better decision. Moreover, products can be shipped to stores in-time then lost
sales is minimal.

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– Unilever also feels that the competition in FMCG industry has significantly

increased. They have to launch the new products on regular basis but the
forecasting of new product is difficult. So they create a better classification of new
products (base, relaunch, repack, new) using a regression model to identify
potential forecast errors for each type of new product.

– Coca-Cola doesn’t really have many stock keep units when compared with other
companies in the same industry. However, products go to over 2.4 million
delivery points through over 430 distribution centers. Managing transportation at
this scale is the absolute challenge.

In order to streamline the delivery, Coca-Cola implemented a vehicle routing

software. The reason is that is the software vendor has a very good relationship
with Coca-Cola’s legacy ERP software vendor. Moreover, the vendor has a solid
connection with the university who can help to develop the algorithm that fits in
with the business’ needs. The result is that transportation planners at each
distribution center can use the new tool to reduce travelling time/distance on daily
basis.

Lean manufacturing concept has been implemented widely in the automotive

industry so the case studies about lean manufacturing is very readily available.
Due to the increasing competition in the automobile industry, car manufacturers
have to launch a new model to the market more frequently. This section will show
you how BMW manages a long term planning, how Ford applies lean concept to
the new product development and how Hyundai manages the production planning
and control.

– BMW uses a 12-year planning horizon and divides it into an annual period.

After that, they will make an annual sales forecast for the whole planning horizon.
After the demand is obtained, they divide sales into 8 market and then select the
appropriate production sites for each market, considering overall capacity
constraints and total cost. As you may notice, this kind of a long range planning
has to be done strategically.

– Ford calls its product development system as “work streams” which include the
body development, engine development, prototyping and launch process . The
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cross-functional team are the experts and their roles are to identify key processes,
people, technology necessary for the development of new prototype.

Each work stream team is responsible to develop timeline of each process.

Detailed plan is usually presented on A3 sized paper. They
clearly identifying current issues they are facing with supporting data, drawings
and pictures. On weekly basis, they organize a big group meeting of all work
stream team to discuss the coordination issues.

– Hyundai deploys a centralized planning system covering both production and

sales activities across the facilities and functional areas. They develop a 6-month
master production plan and a weekly and a daily production schedule for each
month in advance. During a short term planning (less than one month), they pay
much attention to the coordination between purchasing, production and sales.
Providing a long term planning data to its suppliers help to stabilize production of
its part makers a lot.

Life cycle of technology products is getting shorter and shorter every day. Unlike
FMCG, the launch of a new product in the hi-tech industry requires the
investment in research and development quite extensively. Then, a poor planning
will result in a massive loss. This section will cover JIT and outsourcing by Apple
Inc, Supply Chain Risk Management by Cisco System, Technology Roadmap by
Intel, Supply Chain Network Model by HP, Mass Customization by Dell and
Quality Management by Sam Sung.

Steve Jobs invited the Tim Cook to help to improve Apple’s Supply Chain in
1998. Jobs told Cook that he visited many manufacturing companies in Japan and
he would like Cook to implement the JIT system for Apple. Jobs believed that
Apple’ supply chain was too complex then both of them reduced the number of
product availability and created 4 products segment, reduced on hand inventory
and moved the assembling activities to Asia so they could focus on developing
the breathtaking products that people wanted to buy.

– Cisco Systems would like to be the brand of customer choice so they implement

a very comprehensive supply chain risk management program by applying basic
risk mitigation strategies, establishing appropriate metrics, monitoring potential
supply chain disruptions on 24/7 basis and activate an incident management team
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when the level of disruption is significant.

– Intel‘s new product development is done by the process called Technology

Roadmap. Basically, it’s the shared expectations among Intel, its customers and
suppliers for the future product lineup.

The first step to prepare the roadmap is to identify the expectations among
semiconductor companies and suppliers. Then they identify key technological
requirements needed to fulfill the expectations. The final step is to propose the
plan to a final meeting to discuss about the feasibility of project. Some concerning
parties such as downstream firms may try to alter some aspects of the roadmap.
Technology Roadmap allows Intel to share its vision to its ecosystem and to
utilize new technology from its suppliers.
– HP‘s case study is pretty unique. They face with a basic question, where to
produce, localize and distribute products. Its simple supply chain network model
is presented below,

From this example, only 3 possible locations result in 5 different way to design
the supply chain. In reality, HP has more production facilities than the example
above so there are so many scenarios to work with. How should HP decide which
kind of a supply chain network configuration they should take to reduce cost and
increase service to customer? The answer is that they use the multi-echelon
inventory model to solve the problem.

– Dell is one of the classic supply chain case studies of all time. Many industries
try to imitate Dell’s success. The key ingredients of Dell’s supply chain are the
partnership with suppliers, part modularity, vendor managed inventory program,
demand management and mass customization. Also, you can find the simplified
process map of Dell’s order-to-cash process as below,

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Dell’s Order-to-Cash Process

– Sam Sung has proven to be the force to be reckoned with in the hi-tech industry.
The secret behind its supply chain success is the use of Six Sigma approach. They
studied how General Electric (GE), DuPont and Honeywell implemented six
sigma. After that, they have created their own implementation methodology called
DMAEV (define, measure, analyze, enable, verify). They use the global level KPI
to ensure that each player in the same supply chain is measured the same way.
Also, they utilize SCOR Model as the standard process. Any process changes will
be reflected through an advance planning system (APS).

The last industry covered here is the general merchandise retailing industry. The
critical success factor of this industry is to understand the drivers of consumer
demand. Four case studies will be presented, namely, 7-11, Tesco, Walmart,
Amazon and Zappos.

– 7/11 is another popular case study in supply chain management. The integration
of information technology between stores and its distribution centers play the
important role. Since the size of 7/11 store is pretty small, it’s crucial that a store
manager knows what kind of products should be displayed on shelves to
maximize the revenue. This is achieved through the monitoring of sales data
every morning. Sales data enables the company to create the right product mix
and the new products on regular basis.

7/11 also uses something called combined delivery system aka cross docking. The
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products are categorized by the temperature (frozen, chilled, room temperature

and warm foods). Each truck routes to multiple stores during off-peak time to
avoid the traffic congestion and reduce the problems with loading/unloading at
stores.

– Tesco is one of the prominent retail stores  in Europe. Since UK is relatively
small when compared with the United States, centralized control of distribution
operations and warehouse makes it easier to manage. They use the bigger trucks
(with special compartments for multi-temperature products) and make a less
frequent delivery to reduce transportation cost. Definitely, they use a
computerized systems and electronic data interchange to connect the stores and
the central processing system.

– Wal-Mart‘s “Every Day Low Prices” is the strategy mentioned in many

textbooks. The idea is to try not to make the promotions that make the demand
plunges and surges aka bullwhip effect.

Wal-Mart has less than 100 distribution centers in total and each one serves a
particular market. To make a decision about new DC location, Walmart uses 2
main factors, namely, the demand in the proposed DC area and the outbound
logistics cost from DC to stores. Cost of inbound logistics is not taken into
account.

There are 3 types of the replenishment process in Wal-Mart supply chain network
as below,

Wal-Mart Replenishment Process

In contrary to general belief, Wal-mart doesn’t use cross-docking that often.

About 20% of orders are direct-to-store (for example, dog food products).
Another 80% of orders are handled by both warehouse and cross dock system.

Wal-Mart has one of the largest private fleet in the United States. The delivery is
made 50% by common carriers and 50% by private fleet. Private fleet is used to
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perform the backhauls (picks up cargoes from vendors to replenish DCs + sends
returned products to vendors). Short-hauls (less than one working day drive) is
also done by the a private fleet. For long-hauls, the common carriers will be used.

There are 2 main information system deployed by Wal-Mart. “Retail Link” is the
communication system developed in-house to store data, share data and help with
the shipment routing assignments.

Another system is called “Inforem” for the automation of a replenishment

process. Inforem was originally developed by IBM and has been modified
extensively by Wal-Mart. Inforem uses various factors such as POS data, current
stock level and so on to suggest the order quantity many times a week.

Level of collaboration between Wal-Mart and vendors is different from one

vendor to the other. Some vendors can participate in VMI program but the level of
information sharing is also different. VMI program at Wal-Mart is not 100% on
consignment basis.

– Amazon has a very grand business strategy to “offer customers low prices,

convenience, and a wide selection of merchandise“. Due to the lack of actual store
front, the locations of warehouse facilities are strategically important to the
company. Amazon makes a facility locations decision based on the distance to
demand areas and tax implications.

With 170 million items of physical products in the virtual stores, the back end of
order processing and fulfillment is a bit complicated. Anyway, a simplified
version of the order-to-cash process are illustrated as below,

Amazon’s Order-to-Cash Process

Upon receipt of the orders, Amazon assign the orders to an appropriate DC with
the lowest outbound logistics cost.

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In Amazon’s warehouse, there are 5 types of storage areas. Library Prime Storage
is the area dedicated for book/magazine. Case Flow Prime Storage is for the
products with a broken case and high demand. Pallet Prime Storage is for the
products with a full case and high demand. Random Storage is for the smaller
items with a moderate demand and Reserve Storage will be used for the low
demand/irregular shaped products.

Amazon uses an propitiatory warehouse management system to make the putaway

decision and order picking decision.

After the orders are picked and packed, Amazon ships the orders using common
carriers so they can obtain the economy of scale. Orders will arrive at UPS facility
near a delivery point and UPS will perform the last mile delivery to customers.

Amazon is known to use Sales and Operations Planning (S&OP) to handle the
sales forecast. Anyway, this must be S&OP process at product family/category
level.

To compete with other online retailers, Zappos pays much attention to the way

they provide the services to customers. In stead of focusing on the call center
productivity, Zappos encourages its staff to spend times over the phone with
customers as long as they can so they can fully understand the customer’s
requirements. They also upgrade the delivery from 3 days to 1 day delivery in
order to exceed customer expectation.

All case study demonstrates that supply chain management is truly the strategic
initiatives, not merely a cost cutting technique. Leading companies have a very
strong customer focus because almost all of initiatives are something to fill the
needs of customers.

Relationship management is the unsung hero in supply chain management. It’s

the prerequisite to the success of every supply chain. And at the end of the day, it
comes down to the quality of supply chain people who analyze, improve and
control supply chain operations. – See more at:
http://www.supplychainopz.com/2014/04/supply-chain-management-case-
study.html#sthash.MrnrGsyY.dpuf

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