SUPPLY CHAIN

MANAGEMENT (Assigment
2)
Problem 1:
Discuss the advantages of a
push-based supply chain. What
about a pull-basedsupply chain?
Answer:
Advantages of a Push Based
Supply Chain:
a) Products with low demand
rate can be stocked.
b) Production and Distribution
decisions based on long term
forecasts.
Advantages of Pull Based
Supply Chain:
a) Production and
Distribution demand are
coordinated with true
customer demand
ratherthan forecasted demand.
b) Firm does not hold any
inventory and only responds to
certain orders
c) Reduced lead times
through the ability to better
anticipate the incoming
orders
fromthe retailers.
d) Reduce inventory levels.
e) Less variability in the system.
f) Reduced inventory at the
manufacturer to due to the
reduction in variability.
SUPPLY CHAIN
MANAGEMENT (Assigment
2)
Problem 1:
Discuss the advantages of a
push-based supply chain. What
about a pull-basedsupply chain?
Answer:
Advantages of a Push Based
Supply Chain:
a) Products with low demand
rate can be stocked.
b) Production and Distribution
decisions based on long term
forecasts.
Advantages of Pull Based
Supply Chain:
a) Production and
Distribution demand are
coordinated with true
customer demand
ratherthan forecasted demand.
b) Firm does not hold any
inventory and only responds to
certain orders
c) Reduced lead times
through the ability to better
anticipate the incoming
orders
fromthe retailers.
d) Reduce inventory levels.
e) Less variability in the system.
f) Reduced inventory at the
manufacturer to due to the
reduction in variability.
SUPPLY CHAIN
MANAGEMENT (Assigment
2)
Problem 1:
 Discuss the advantages of a
push-based supply chain. What
about a pull-basedsupply chain?
Answer:
Advantages of a Push Based
Supply Chain:
a) Products with low demand
rate can be stocked.
b) Production and Distribution
decisions based on long term
forecasts.
Advantages of Pull Based
Supply Chain:
a) Production and
Distribution demand are
coordinated with true
customer demand
ratherthan forecasted demand.
b) Firm does not hold any
inventory and only responds to
certain orders
c) Reduced lead times
through the ability to better
anticipate the incoming
orders
fromthe retailers.
d) Reduce inventory levels.
e) Less variability in the system.
f) Reduced inventory at the
manufacturer to due to the
reduction in variability.
CHAPTER 6: STRATEGIC ALLIANCES
Problem 1: Consider a manager developing a logistics strategy. Discuss specific situations for
which the best approach would be to

a. Employ internal logistics expertise.

b. Acquire a company with this expertise.
c. Develop a strategy, and then employ specific suppliers to carry out well-defined portions of
the strategy.
d. Develop the strategy with a third-party logistics provider.

Answer:

Answer (a): Employ internal logistics Expertise: The internal logistic expertise may be
applied to a firm which has the core strength in the particular feature. If the manager thinks that
he has the core strengths in his firm then he can go for internal logistics expertise. Consider a
company for whom logistics is a core competency, and that has sufficient resources to implement
the strategy.

Answer (b): Acquire a company with this expertise: When the particular firm does not have
enough knowledge in a particular field then they can seek the help of another company which
has better expertise in the field. Consider a company whose products are perishable, and for
which environmental conditions must be tightly controlled during warehousing and
transportation. (For instance, a biotechnology or a pharmaceutical company.) In this case, the
company may not want to give up control of products during logistics operations in order to
ensure their quality, and it may choose to acquire a logistics company with appropriate expertise.

Answer (c): Develop a strategy and then employ specific suppliers to carry out well defined
portions of strategy: When a new firm is developed and the company wants to excel in a
particular field without seeking the help of other firms. Consider a company that has internal
logistics expertise, and that is trying to expand its operations into new markets. If the company is
already resource-constrained, it may make sense to develop the strategy in-house, but delegate
specific operations to third-party logistics providers.
Answer (d): Develop the strategy with a third party logistics provider: This strategy can be
followed for firms which invest a low value in certain fields and those fields can be improved or
organized by third party logistics provider. Consider a new company that established its
manufacturing operations recently, and is struggling to ramp-up its output. In this case, it may
make sense for this company to focus on design, manufacturing and sales operations of its
products and outsource all activities related to transportation and warehousing of raw materials,
and distribution of finished goods.

Problem 2: Why is the third-party logistics industry growing so rapidly?

Answer:
1. The main reason for firms switching to third party logistic is to increase the core
competency of the particular firm
2. The firm can increase its technological flexibilities as technology change occurs in the
logistic process
3. The firm can expand geographically very easily

Logistics is a complex set of tasks that requires vast resources, analytical expertise, related
software and a significant amount of investment in information technology which goes out of
date very rapidly. Thus, unless logistics is a core competency of the company and it has
resources to dedicate to it, it is difficult to design and implement effective logistics operations.
Therefore, companies are increasingly willing to outsource logistics operations to third parties
who have the analytical expertise, necessary software and sufficient resources to keep their
information systems up-to-date. In addition, since these third party logistics providers have
several (or many) customers, they have sufficient economies of scale to make the necessary
capital investments to operate an advanced logistics system

Problem 3: In this chapter, we discuss three types of retailer supplier partnerships: quick
response, continuous replenishment, and vendor-managed inventory (VMI). For each type,
discuss situations where that type would be preferred over the other two. For instance, compare
quick response to continuous replenishment: under what conditions is one preferred over the
other?

Answer:

Quick response strategy Continuous replenishment Vendor-managed inventory

Customer prepares the
purchase order
It is aimed mainly at reducing
order response time, and
achieving greater accuracy in
shipping the correct goods in
correct quantities, by
employing computerized
equipment such as barcodes
and EDI to speed up flow of
Vendor manages the inventory
based on agreed levels of
inventory
Vendor managed inventory
(VMI) arrangement in which
either the vendor continuously
monitors a customer's
inventory or customer supplies
current inventory data, so that
the vendor can make timely
shipments to maintain the
Vendor manages the inventory
without customer involvement
in preparing purchase order
Inventory replenishment
arrangement whereby the
supplier either monitors the
customer's inventory with own
employees or receives stock
information from the customer.
The vendor then refills the
stock automatically, without
 information. Its other customer's inventory at agreed the customer initiating
objectives include reduction in upon levels. purchase orders.
operating expenses, out-of-
stock situations, and forced
mark-downs (discounts).

Quick response: In a quick response system, the retailer determines the order quantities and
replenishment times, while suppliers analyze POS data to improve their forecasting and
production scheduling. This system could be preferred when the retailer-supplier relationship is
new, and trust between the two parties has not been fully developed yet. In this strategy, the
retailer has complete control on its inventory, but helps suppliers improve operations by
providing POS data. Additionally, this type of partnership could be preferred if financial and
personnel resources to develop a more integrated relationship are not available.
Continuous replenishment: In a continuous replenishment system, vendors receive POS data
and use these data to prepare shipments at previously agreed-upon intervals to maintain specific
levels of inventory. This type of partnership is a system between quick response and VMI,
because suppliers and buyers together agree on target inventory and service levels. It involves
less risk for retailers than VMI, and typically leads to a more stable and long-term relationship
between suppliers and retailers than quick response does.
In a vendor-managed inventory system, suppliers decide on the appropriate inventory level for
each product and the appropriate inventory policies to maintain these levels. The retailers give
the vendors full authority to manage inventory replenishment. This system is more integrated
than the previous two systems, and requires a high level of trust between the supplier and the
buyer. If implemented properly, VMI can lead to more overall system savings than the other two
types of partnerships. However, VMI requires more commitment, and initially, significant
investment in information infrastructure, time and personnel.
Problem 4: Consider the quick response partnership. Suppose the retailer places an order at the
beginning of each month but transfers POS data to the supplier every week. What is the impact
of the manufacturer’s weekly production capacity on the benefit from information sharing? That
is, under what situations is information sharing most beneficial: high weekly production capacity
or low capacity? How should the supplier use the weekly demand data received from the
retailer?

Answer:

4. Information sharing in this case is most beneficial if the production capacity of the
supplier is tight. The supplier can use the weekly POS data to forecast the order size that will
arrive at the beginning of next month, to adjust its production schedule accordingly given the
tight capacity, and to reduce the risk of not being able to meet the demand.

5. As production capacity increases, the optimal policy would postpone production as much
as possible and take advantage of all information available prior to the time of production
start. Similarly, if the production capacity is limited, then information is not very beneficial
because the production quantity is mainly determined by capacity, not realized demand.
 Percentage cost savings due to information sharing increases as production capacity
increases. This is true in both finite and infinite time horizon models. Non-stationary demand
may have a substantial impact on both the benefits from information sharing and the optimal
timing of information sharing. For instance, if the demand rate is increasing, the benefit from
information sharing is not as high as that of decreasing demand rate (Simchi-Levi & Zhao,
2004).

Problem 5: Discuss the various possibilities for inventory ownership policies in a VMI
arrangement. What are the advantages and disadvantages of each of these policies?

Answer:

6. Initial VMI schemes in which ownership of goods transferred to the retailer, goods
delivered benefited suppliers by giving them complete control of their system.
Additionally, it also provided an incentive to the suppliers to ship as much inventory to
the retailer as permit ted under the contract. This was an important disadvantage of these
contracts because the overall system profit was not necessarily maximized.
7. The more recently developed consignment schemes have clear inventory and managerial
cost reductions for the retailer since the supplier owns the goods until they are sold.
However, this strategy still allows the supplier to manage its operations more efficiently
because it makes all the production and distribution decisions. Note that inventory
holding and personnel costs at the supplier increase and these issues must be addressed in
the supply contract by sharing cost savings of the retailer with the supplier.
8. In general, both of these types of inventory ownership policies require significant
information sharing and large technology investments. Also, note that in these policies
the retailer does not have any control on its inventory any more, and trust issues must be
resolved completely for this type of partnership to work out.

Problem 6: Recall Example 8-13, the story of Spartan Stores’ failed VMI effort. Discuss how
Spartan might have done things differently in order to help the program succeed.

Answer:

Some of the following steps could have been taken to prevent the failure of the program:

9. In a VMI system, trust issues should be resolved at the very beginning during contract
negotiations. Additionally, communication channels must be open at all times to discuss
any additional concerns that may arise. Clearly, these issues were not addressed in
sufficient detail at Spartan.
10. Spartan could have specified a test period for its suppliers, and after the test period the
program could have been discontinued with unsuccessful suppliers.
11. Spartan could have collaborated with its suppliers to determine agreed-upon forecasts and
help them resolve forecasting issues due to promotions.
12. The retailer-supplier partnership could have started with a continuous replenishment
system which is less risky than a vendor-managed inventory system. Then, the VMI
system could have been established based on this experience.
CASE STUDY: ADS
1. Why are ADS’s customers’ customers moving towards VMI arrangements? ADS’s customers’
customers (i. e.

etailers) are moving towards the VMI arrangement so that the likelihood of being out of stock is
reduced and the inventory level in the supply chain is also reduced. This will be achieved
because through VMI the retailers could provide a continuously updated point-of-sale (POS) to
the record companies. By then, the decisions that will be made by the record companies like how
much of each album, CD, and cassette title is delivered and when each delivery is made will be
more accurate because the records company’s data is updated.

2. How will this impact ADS’s business? How can ADS management take advantage of this
situation? 

This VMI arrangement will have a huge impact on ADS so the ADS management have to take
this advantage in VIM arrangement because VIM arrangement provide more details and be
updating POS from each record company, so through this advantage ADS could enhance the cost
of (transportation, maintenance and inventory holding) and deliver the product on time, as reflect
of that ADS will have a good relationship between buyers and suppliers, also it will be update
with information system
3. How should ADS manage logistics? 
The ADS should manage logistics by hiring a third party logistics to manage the logistics in their
supply chain because by doing this step the ADS could now focus on their competency of
cassette duplication. Also, the direct shipping to the stores would increase of shipping cost for
ADS because of that hiring a third-party logistic is a good decision for the company because the
product distribution will be more efficient, also will be manage effectively by third part to each
store
4. Why are the large national retailers moving toward a direct shipment model? So that the
product would get into the specific stores where it is needed on time and with the right quantity.
Also, direct shipment model is important in a business to reduce the lead time especially for a
company whose nature is already changing due to the changing technology.
CASE STUDY: THE SMITH GROUP

1.What is the advantage to the Smith group of implementing the Kanban system described in the
case?

One of the main advantages that I think of after reading the case, is the cost effectiveness of
implementing Kanban that works similar to the VMI tool at Smith Group. Also, there is not
much need to constantly monitor the data transfer electronically between the Simith’s
distributors and its plants.

The other advantage is that Kanban system also provides a real time demand-supply figure based
on the customer’s cards, which further triggers production to meet the appropriate demand. In
this way, Smith Group is able to minimise inventory holding costs and this also benefits its
distributors.

2. Explain how the card system implies that inventory is managed on a basestock level.

As explained above, the card system accurately depicts how many items have been sold by the
distributors, and depending on these cards that come back through the delivery trucks to the
plants, Smith Group can forecast the possible demand for its products, that triggers production
accordingly. This way, an accurate demand-supply equation is maintained with minimum hand
tool products being lying in the inventory, thus minimising inventory holding costs and operating
at base-stock level i.e to produce only as much as required.

3. How might the system allow the Smith group to switch to a make-to-order environment?

Similarly, depending on the demand that is analysed from the item cards returned, Smith Group
can also switch to produce their items only when a purchase card is issued. This means that
production only starts if a demand for their item is raised and not otherwise. This is quite close to
the Kanban system, but the only difference here is that Smith Group doesn’t need to wait for the
cards to come in bulk, it must start production as and when the demand for items is raised by the
distributors.

4. What is risk of Kamban system for the Smith group?

Inventory may be fall below reorderpoint due to the increase in leadtime

Sudden change in customer demand

Focus might vary

5. If the Kanban system is going to allow the Smith group to reduce its inventory, what is the
impact on the distributor? What are the distributors going to do with the extra space?

The effect of Kanban system on the distributor is benefited. Since suppliers has to manage its
own inventory, it will be more concerned about managing if effectively. Hence, this will reduce
the chances of Stock out for the distributor and hence the Service level can be improved by the
distributor.
CHAPTER 7: SUPPLY CHAIN INTEGRATION
Problem 1: Discuss the advantages of a push-based supply chain. What about a pull-
based supply chain?
 Advantages of a Push Based Supply Chain:
a) Products with low demand rate can be stocked.
b) Production and Distribution decisions based on long term forecasts. As the forecast
will provide a good indication of what to produce and keep in inventory, and also for
products with high importance of economies of scale in reducing costs.
 Advantages of Pull Based Supply Chain:
a) Production and Distribution demand are coordinated with true customer
demand rather than forecasted demand.
b) Firm does not hold any inventory and only responds to certain orders.  Toyota Motors
Manufacturing is frequently used as an example of pull production, yet do not typically
produce to order. They follow the "supermarket model" where limited inventory is kept
on hand and is replenished as it is consumed.
c) Reduced lead times through the ability to better anticipate the incoming
orders from the retailers.
d) Reduce inventory levels.
e) Less variability in the system.
f) Reduced inventory at the manufacturer to due to the reduction in variability.
Problem 2.
What is an example of a product
with a primarily push-based
supply chain? A product with a
primarily pull-based supply
chain?
Answer:
Push Supply Chain: Imagine
a clothing manufacturer
designs and produces a
new type
ofraincoat. If the
manufacturer employs a
push strategy to promote
the raincoat, it
wouldcontact wholesalers to
generate interest in the product.
If a wholesale company
believes
it canconvince retail stores
within its network to stock the
raincoats, it would buy some.
Themanufacturer takes payment
and leaves the promotional
chain. The wholesaler then tries
tosell the coats to retailers at a
slight markup.
Pull Supply Chain: A
perfect example of an
almost ideal pull supply
chain is the
Dell business model. Michael
Dell started manufacturing
computers out of his dorm room
while incollege. The difference
between him and his
competitors is that he did not
own a
storefront ora manufacturing
plant. He had to keep his
inventory down to a minimum,
if any
at all, anddid not have room for
parts storage, no matter how
small the components may have
been. Tocounter these
constraints, Dell created the
ultimate business model:
customers built
their computer s specifications
on the internet, and using those
specifications, the computer‟
was built. Not a single spare
part was left over, and Dell had
no inventory, as each computer
wasshipped out the door as soon
as it was manufactured.
Problem 2. What is an example of a product with a primarily push-based supply
chain? A product with a primarily pull-based supply chain?
Answer:
Push Supply Chain: Imagine a clothing manufacturer designs and produces
a new type of raincoat. If the manufacturer employs a push strategy to
promote the raincoat, it would contact wholesalers to generate interest in the product.
If a wholesale company believes it can convince retail stores within its network to stock
the raincoats, it would buy some. The manufacturer takes payment and leaves the
promotional chain. The wholesaler then tries to sell the coats to retailers at a slight
markup.

Pull Supply Chain: A perfect example of an almost ideal pull supply

chain is the Dell business model. Michael Dell started manufacturing computers out of
his dorm room while in college. The difference between him and his competitors is that
he did not own a store front or a manufacturing plant. He had to keep his inventory down
to a minimum, if any at all, and did not have room for parts storage, no matter how small
the components may have been. To counter these constraints, Dell created the ultimate
business model: customers built their computer s specifications on the internet, and using
those specifications, the computer‟ was built. Not a single spare part was left over, and
Dell had no inventory, as each computer was shipped out the door as soon as it was
manufactured.
Problem 3: what are the advantages of moving the push-based boundary earlier in a
supply chain? what about later?
By moving the push-pull boundary earlier, lead times and variability in the system are
decreased and service levels are improved due to increased ability to match supply and
demand. Also, inventory levels are decreased because there is little or no inventory in the
pull portion of the supply chain. Postpone or delayed differentiation in product design.
 
By moving the push-pull boundary later, costs can be reduced by taking advantage of
economies of scale. Furthermore, inventory levels may decrease due to risk pooling effects
and reduced safety stocks, if, for example, the push-pull boundary is moved later by
delaying product differentiation. On time delivery of products and reduces Bull Whip
effect due to the reduction in variability at the earlier stages.

Problem 4. Amazon.com, Peapod, Dell, and many furniture manufacturers use

push–pull supply chain strategies. Describe how each of these companies takes
advantage of the risk-pooling concept.
Answer:

13. Amazon.com switched from a pure pull to a push-pull supply chain strategy after
its sales reached a significant volume. It established regional warehouses in order
to aggregate demand across large geographical areas, and increase service levels.
These regional ware-houses form the boundary between the push and pull portions
of the supply chain.
14. Dell follows the push-pull strategy in their supply chain; i.e. Dell practices the
push strategy in the beginning i.e. producing all the individual parts required for a
system. Later it practices the pull strategy by assembling the parts for distribution
and sales according to the customer’s needs. Since the marketing is done by Pull
strategy it reduces the risk pooling. Computer components are standardized, and
the demand for these components is determined by the finished goods that
consume them. Thus, Dell achieves significant economies of scale and risk
pooling by using a push-strategy in its supply chain up until the assembly
operation.

15. Peapod and Amazon who deal with online purchases give away eventual
discounts for purchases to be made online. By this way the risk pooling can be
avoided. Similar to Amazon.com, Peapod moved from a pure pull to a push-pull
strategy by establishing warehouses in order to aggregate demand over
geographical areas, and increase service levels.

16. Furniture is a highly customized product, but its handling and distribution are complex
due to its bulkiness. Therefore, the production phase is a pull system based
on realized demand while transportation of furniture is implemented based
on fixed delivery schedules in order to achieve economies of scale and risk pooling.

Problem 5: Explain Amazon’s strategy for slow-moving, low-volume products and

fast-moving, high-volume items.

High-volume, fast-moving products, whose demand can be accurately matched with supply
based on long-term forecasts, are stocked in stores. Low-volume, slow-moving products are
stocked centrally for online purchasing. The low-volume products have highly uncertain demand
levels, and therefore require high levels of safety stock. Centralized stocking reduces uncertainty
by aggregating demand across geographical locations and thus reduces inventory.
The Amazon retailer uses a push strategy for high volume, fast-moving products and a push-pull
strategy for low volume, slow-moving products. For example, low volume products such as book
or CD have a low sale turnover so these are not kept in distribution center. To reduce the cost,
the order arrived and customer demand occurs at book and CD product sales until customer
demand Yabe, rather than raising the cost of inventory piled up in warehouses because the Pull-
Based strategy is advantageous.
 Demand
uncertainty

Pull H Computer/ Laptops Furniture

Electronic
From Amazon so when Pull equipment Clothingpay profits Amazon.com, gradually increasing
strategy, consistently
Camera Door and
demand and, accordingly, was guilty of multiple window decorators
warehouses. Push way to accumulate as many
Kitchen equipment Wallpapers
books are to be kept in the warehouse. Yet Pull manner while order will take. In other words, the
high turnover rate Books Grocery
produced by the individual order book sales when demand is increased with
CD/DVD Ice creams
longer lead time to meet the bullwhip effect. To run the residual activity, Pull approach based
Music and Video
Push
Amazon.com, Internet when using Aerated
Lthe Games
Drinks
the Push-Pull strategy depending on the Amazon
distribution center in order to meet the demands of the many books sales, demand Economies
forecasting
of scale
and inventory holding L is cost savings and effectiveness in terms of an
H appropriate strategy can be
called.
Pull Push nonperishable products, such
A cross-docking strategy is appropriate for suppliers of fast moving
as beer, rice, and shampoo, with high overall sales volumes, but relatively low demands at
individual stores. In this case, cross-docking helps to coordinate shipments of fully loaded trucks.
On the other hand, perishable products for which lead times are critical, e.g., dairy products like
milk and yogurt, are best suited to a direct shipment strategy. Also, if individual stores require
full truckloads of certain products, then using a warehouse does not reduce transportation costs,
so the supplier can ship directly to the stores.
For slow moving products, such as household appliances, the discount store can benefit from
warehousing in order to reduce the total safety stock in the system, and to decrease transportation
costs.
Problem 6: Discuss some additional examples of each of the four categories in Figure 6-9.

Problem 7: Is it possible for the appropriate supply chain (push, pull, or push–pull) to
change during a product’s life cycle? If not, explain why? If it is possible, what are some
specific examples of products for which the appropriate supply chain changed?
In both catalog and on-line selling, the customer picks a product from a catalog, and the
sale happens directly from the merchant to the customer. In this sense, e-
fulfillment is not a new concept. However, there are some important differences between
these two fulfillment strategies:
1. In a catalog, search capabilities are limited, and searching is time consuming. In online
selling, it is much easier to direct the customer to the relevant page of the website
according to the customer needs.
2. The amount of information that can be included in a paper catalog is limited. In online
selling, more information about a product can be provided easily
upondemand.
3. Catalog selling is not interactive. Therefore, it is harder to match supply and
demand. In other words, in on-line selling it is easier for a customer to determine whether
a certain product fits the requirements. For instance, the My Virtual Model TM
feature on landsend.com allows a customer to create a 3-D model ofhis/her
body, and then to try on items on the web site. Similarly, My Personal Shopper
on landsend.com can suggest selected items to a customer after a few questions about
his/her preferences.
Problem 8. Is e-fulfillment a new concept? What is the difference between on-line and
catalog selling? Consider, for instance, Land’s End, a company that has both channels.

Answer: e-fulfilment is the process of delivering the products; right to the customer’s door step
rather than bulk transport of products to retailers. This ensures shorter lead time and good
customer satisfaction. Online selling is done by selling items online direct to the customer, the
customer browses for the item that he needs and can purchase it any time. Catalog selling is done
by distributors who sell their products to the retailers based on the catalog of items that the
particular retailer wants to sell based on demand forecast.

Problem 9. Explain how demand for a product like televisions can be shaped? How does
this compare to the ways in which demand for a product like canned soup can be shaped?

Answer:

Televisions, in a very global and technology based environment, the Television had become a
commodity comparable to rice, best thing is television don’t expire. Mass Media, Politics,
Health, Sports, Emergency Management and Education can now be done using the Television
almost all household, commercial and work place has one. Manufacturers are now fighting for
the most advanced technology available to produce the most economical and wide platform. The
television does not choose race, color or location it basically became a requirement. The need of
man for Entertainment and Information is what fuels the continuous development of technology
that satisfies the customer. Canned soup is a kind of food that is used for eating. It is different
from Television. It is a product for healthy. To get profit from buying soup. They must find the
way to make a best soup that the customers are really needed to buy it and eat for their health.

Question 10. Other than the examples listed in Section 6.5, what are some more examples
of failed Internet supply chain strategies? Successful Internet supply chain strategies?
A cross-docking strategy is appropriate for suppliers of fast moving nonperishable
products, such as beer, rice, and shampoo, with high overall sales volumes, but
relatively low demands at individual stores. In this case, cross-docking helps
to coordinate shipments of fully loaded trucks. On the other hand, perishable products for
which lead times are critical, e.g., dairy products like milk and yogurt, are best suited to a
direct shipment strategy. Also, if individual stores require full truckloads of certain
products, then using a warehouse does not reduce transportation costs, so the supplier can
ship directly to the stores. For slow moving products, such as household appliances, the
discount store can benefit from warehousing in order to reduce the total safety stock in
the system, and to decrease transportation costs.
*CASE STUDY
CASE 1: DELL INC: IMPROVING THE FLEXIBILITY OF THE DESKTOP PC
SUPPLY CHAIN
Case Question 1: Why does L5 incur higher manufacturing and logistics costs than L6?
What are some of the costs that are incurred in L5 but not in L6? Are there any costs that
apply to only L6 but not L5?

L6 L5
17. Integrated offshore & 22. Integrated inside a Dell facility
outside a Dell facility 23. Chassis shipped on water
18. Integrated motherboard- 24. Motherboards shipped by air
inside chassis shipped on 25. Increased motherboard air-freighting
water costs
19. Labor savings rd
26. 3 -party integration cost in US
20. MB air-freighting costs are
27. Separate logistical costs for chassis and
eliminated
motherboards
21. Reduced motherboard
packaging costs

Root causes of increasing L5 manufacturing

•Dell’s inability to provide motherboards in a timely fashion to CMs
A. Chipset Supplier decommit or supply issues.
 Creates a disruption in the desktop PC supply chain.
 Accounted for more than 60% of L5 manufacturing
B. Quality/engineering issues
 Leads to dysfunctional or problematic motherboards
 Create additional demand for motherboards.
C. Dell forecast accuracy
 Due to faulty forecast, Dell needs to source its extra chipsets or risk not meeting
 the customer demand
 Long Lead Time in chipset makes things difficult for the supplier.
D. New Pdt Introduction
 Actual demand for new PC pdt is volatile, so need to air freight extra
motherboards
Cost incurred in L5
–Motherboard packaging cost
–Motherboard air freight/expedite cost
–Chassis and motherboard US transportation cost
–Local/regional integration cost
–Motherboard rework cost at DELL
Cost incurred in L6: China assembler’s cost
Case Question 2: Which of the six proposed manufacturing solutions should Dell
implement, based on the survey result? Why? What are the pros and cons of this
recommendation?

Option 3A: Integration at SLC/Hub

Advantages
1. Less Complex for Worldwide Procurement
2. Supplier quality engineering management is reduced
Disadvantages
3. Most Complex for Cost Accounting
4. Extra Production control & Inventory control headcounts are required.
Case Question 3: How easily sustainable is your recommendation for the previous question
if the chipset supply shortage further deteriorates?

It would be sustainable up to some point. Dell having its own factory can control the 3PI. Lead time
the integration will take place only after 5th week. 

Case Question 4: How good is the methodology employed by the BPI team to determine the
optimal manufacturing option for Dell? Are there more effective approaches?
Methodology of BPI team was GOOD
 Process smoothness & sustainability
 Cost per box
 Pdt Quality
 Capital Investment
 Material Handling
 Logistics
Some other effective approaches can be
 Push & Pull strategy
 Geographical Location of suppliers
Case Question 5: How can Dell effectively address the root causes contributing to the
increase of L5 manufacturing?

Answer:

 By providing motherboards in a timely fashion to CMs

 Ensuring that Chipset supplier dnt decommit or have other supply issues: Have
Multiple Suppliers, have some safety stock
 Reduce Quality/engineering issues: TQM, Benchmark Standard Operating
procedures
 Forecast Accurately to avoid demand fluctuations
 Plan demand in a better way for New Product introduction

CASE 2: THE GREAT INVENTORY CORRECTION

Case Question 1: How has Altera modified its strategy? Why?

Altera is shifting its supply chain strategy from a push based supply chain strategy to a push-pull
strategy in order to reduce inventories. Also, Altera is hoping that this new strategy will help them
better plan with respect to supply and demand. This increased clarity into the actual demand will
also help them to reduce the risk of their inventory becoming obsolete.

Case Question 2: Do you think Altera’s new strategy will be successful? What are some
advantages and disadvantages of the new strategy?
I think their new strategy will be successful, because their new strategy offsets some of the risk
associated with carrying too much inventory, since they only build finished products to customer
orders and build die banks to stock. The intent of this strategy was to improve visibility into
customer information, inventories and build plans, facilitate product development collaboration,
and improve Altera’s inventory management. This allows them to reduce safety stock levels and
inventory holding costs as well. Also, they will likely have more transparency into their supply
chain which will reduce variability and the lower the impact of the bullwhip effect. However, there
are some disadvantages to this new strategy as well. For instance, there may be less efficiencies
with respect to economies of scale

Case Q3: How do you anticipate Altera’s customers will react to this new strategy? What
are advantages and disadvantages for Altera’s customers?

Initially, Altera’s customers may be reluctant to some extent; however, once weighing the pros
and cons I feel that the customers will find it easier to manage. Some advantages and
disadvantages for Altera’s customers include:

Advantages: Close-tie collaboration (mutual benefits), Ability to better customize products to

the new market trend, Lead time to better plan production levels

Disadvantages: Strategic information disclosure, Limited organizational and financial abilities

and interest, longer lead time mature and customer.
Case Q4. What information does Flextronics have that its clients do not? Why?

How can Flextronics leverage this information? As orders poured in, Flextronics and other
electronics manufacturing services (EMS) companies could see the magnitude of the aggregated
supply they were producing. Couldn’t they have warned their clients? “In general, I don’t think
any of [the EMS companies] did that before,” says Pleshko. “I think that will happen going
forward. ” With that said, Flextronics provide a good track of historical data, business cycle and
product life cycles. Moreover, they have a good record of demand via aggregated supply that
Flextronics and other EMS companies were producing.

This benefits both their suppliers for vender managed inventory and their customers for better
knowledge of market demand.

Case Q5: How does IBM manage its suppliers in order to make its pull strategy more
effective?

IBM manages its supplier by means of material hubs that are located close to the suppliers’
facilities. They also provide visibility of inventory levels of IBM, limit the number of suppliers,
and enable e-business and EDI to save time and better collaborate with suppliers. Additionally,
to cope with the unexpected change in demand, IBM provides detailed forecasts for all levels of
the supply chain.