BUSSPP 0200 1st Edition Lecture16 Outline of Last Lecture I. Promotion II. Example Outline of Current Lecture I. Introduction to supply chain management II. The Basic Supply Chain ModelIII. Having Estimated DemandIV. Manufacturer to End UserCurrent LectureI. Introduction to supply chain A. Has moved from an engineering focus to a business function 1. Area useful for cost reduction (if utilized efficiently) 2. Used as a way of driving business in general (provide competitive advantage) B. Many terms used to identify this area 1. Logistics: math modeling of supply chains, now just generally refers to supply chain mgmt 2. Distribution: concept of linking any two particular parts of a supply chain 3. Distribution System: distribution of entire chain from raw material to finished good II. Basic Supply Chain Model A. Raw material(s) - Intermediate goods - Finished product - Manufacturer - Possible Wholesaler - Possible Retailer - End User B. Goal of Supply Chain Management: right amount, right stuff, right place, right time, at the minimum possible cost C. Example: American Eagle (Retailer) These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.1. 60 SKUs of sweaters a. You want an XL, navy, crew neck sweater b. 2 situations: have it/don’t have it i. don’t have it: excess inventory of something else/lost sale 2. Right amount, right stuff, right place, right time, at the minimum possible cost D. Manufacturer: needs design, fabric, thread… E. Any delay ANYWHERE in the system can throw things off all the way down the line F. Retailer must estimate demand: 1. Eyeball method 2. Statistical – based on history (both apply statistical rules to historical data to estimate a prediction of the future) a. Econometric: Time series: yApril = xMarch ...xFebruary …xJanuary i. General flux/cyclicality, but increase over time b. Regression: build cross-section of variables assuming a relationship c. General linear model: Combination of Econometric and Regression methodsIII. Having estimated demand… A. Retailer looking at end user 1. More SKUs = more chance of missing the mark on accuracy a. Most estimates made 6-8 months in advance i. Damn near anything and everything can change. b. Reduced accuracy due to: i. more skus ii. More locations iii. Weather iv. Actual sales B. Overestimated: 1. Leftover inventory a. incurred excess expense i. storage space/labor/other resources 2.Clearance sales – decreases effective contribution margin a. Again, storage for sales next year b. Products go to secondary markets (TJMaxx, Marshalls, etc) c. Everyone now waits for sales, not purchasing at regular price C. Underestimated: 1. Loss of revenue 2. Customer reaction a. annoy/lose customer3. Rival may gain revenue 4. Repeat underestimation = loss of other customers a. reduction of brand value/brand equity 5. Empty shelves: paying for resources that aren’t needed **Right amount, right stuff, right place, right time, at the minimum possible costD. Effects of supply chain management 1. Bad estimations/mistakes higher up the chain = the more catastrophic the effect on the rest of the chain IV. Manufacturer to End User A. Manufacturer – End User B. Manufacturer – Retailer – End User C. Manufacturer – Whole Saler – Retailer – End User 1. B & C are most common (End user buys from retailer without knowledge of existence/non-existence of wholesaler) 2. So what kind of value does the intermediary (wholesaler/retailer) add for the customer? a. INFORMATION AVAILABLE THROUGH RETAILER i. returns more convenient through retailers 3. What value does the manufacturer receive from the intermediary? a. less customer volume b. receive more experienced end users purchasing directly 4. What value does a wholesaler add to a retailer? a. Cardinal/McKesson b. Less to deal with – potentially thousands of manufacturers for one retail store i. One truck shows up with everything c. Food/Restaurant business –
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