Supply Chain Management Strategies

Spring 2022
Professor Hellriegel
Final Exam

Name: ___Aakarshan Mundra_________________________________

Instructions:
Please use the blue books provided. Write your name on the cover and on page 1 so that your grade
can be recorded. Read each question carefully. The test consists of three essay questions (all
mandatory). The exam is open book, open notes. You have 3 hours to complete the exam. Please write
clearly and legibly.

Good Luck!

Question I __________ of 5

Question II __________ of 10

Question III __________ of 10

Total: __________ of 25
 Name – Aakarshan Mundra

I. Describe three to five key elements of a strong Supply Chain Strategy. How do they support
the overall strategy for a company? Use examples or case studies as needed to illustrate
your points.

Answer:

A strong supply chain strategy aligns with the overall company strategy. The area of focus

can be on service, cost, quality, agility or innovation or a combination of these. However, a

few key elements like Sourcing, Production, Inventory Management, Design and Network

Planning, Distribution, Operations and Sales, etc. become pertinent for the company to

successfully achieve its objectives. By virtue of these elements, the company can work

towards leveraging their strengths in the short term and building a competitive advantage

in the long run.

As we saw in the Bis Corporation case, the company was generating high profits but their

supply chain was not the most efficient one. Inbound truck utilization, inventory turns, and

service levels were not up to the mark and their distribution system was a single-tier

network and they needed to have a second tier network. Modifying their logistics network

design, and a better demand planning were necessary elements to pump in more agility in

the system.

In another case of CVS, customers got disappointed from their services. Customers who quit

in 2000 caused $2.5 billion loss of revenue, and increasing number of protests from the

customers affected the growth prospects. Automation errors during insurance checks, lack

of due-diligence in customer service operations and untrained employees seemed to be

some of the major causes of concern catalyzing customer attrition. Inventory management

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 and customer value were the key elements of the supply chain strategy which were

functioning inefficiently. In the case of SteelWorks, sales had dropped by 30%, expenses had

gone up by 25%, inventory levels were high and their safety stock level was below the

minimum stock level by 30% which led to higher inventory holding costs and maintenance

costs. Zara, despite having flexible and agile supply chain system, quality design and rapid

turnaround as their strengths, their competitive positioning was not improving despite

continuous expansion. Some stages of production were integrated within the company and

it posed a substantial risk due to dependence and leadsto inability to acquire economies of

scale.

Demand management are part of the supply chain too. One common failure is when sales

and marketing have no incentive to control inventory, they will overdrive the forecast to

guarantee availability and then the supply chain organization is left with the excess

inventory. Hence, identifying the areas of corporate strategy that are enabled by the supply

chain, and aligning supply chain performance metrics with the corporate strategy becomes

critical. Supply chains that are optimized for cost efficiency will look different than supply

chains that are optimized for flexibility and responsiveness. Therefore, structuring the

supply chain to optimize the strategic goals is extremely important.

II. Companies need to balance the different objectives of service, cost and inventory. Explain
how supply chain leaders can achieve each of these priorities through balance or make
trade-offs in some of the strategic areas discussed in this class. Also discuss ideas to
improve any one of these metrics without sacrificing the other two.

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Answer:

Identifying the goal of supply chain planning is crucial. Positioning products in

preparation for customer demand is part of Service. Providing signals for the quantities

needed to make or buy is part of Cost. And synchronizing different supply chain

functions, adjusting to changing requirements is part of Inventory. Because customer

demand is not perfectly stable, businesses must forecast demand in order to properly

position inventory and other resources. Forecasts are based on statistics, and they are

rarely 100% accurate, therefore, companies often carry an inventory buffer called safety

stock. Each stage in the supply chain will order on the previous stage. In the absence of

any other information or visibility, individual supply chain participants are second-

guessing what is happening with ordering patterns, and potentially over-reacting,

creating the bullwhip effect. Therefore, supply chain leaders must balance or trade-off

among these metrics to achieve success.

Leaders can use various strategies to do so. Collaborative Planning, Forecasting, and

Replenishment (CPFR) is one such business practice that combines the intelligence of

multiple trading partners who share their plans, forecasts, and delivery schedules with

one another in an effort to ensure a smooth flow of goods and services across a supply

chain, providing a plethora of benefits including: better customer service, lower

inventory costs, improved quality, reduced cycle time, and better production methods.

It can be difficult to balance these three in real life scenarios. Making more than

forecasted requirements may lead to excess inventory. Making less than forecasted may

lead to service issues. Demand Planning drives planning to meet customer needs. Supply
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Planning uses methods and calculations to determine buy, make and move orders. Sales

and Operations Planning provides oversight to make sense of plans. Some additional

and alternative supply planning strategies which helps to balance between the three;

Demand sensing which uses different data to help understand consumer and customer

behavior. Demand shaping influences demand to match available inventory or supply.

Level Loading and Requirements Smoothing follows a smoothed version of the

requirements signal. This approach is best used when the short term volatility is high,

and the long term volatility is low. Some factors to help these decisions can be

determining break points on maximum capacity, materials, etc. and analyzing scenarios

with different demand and supply assumptions. Another alternative to traditional supply

planning is Pull Based Replenishment which focuses on driving replenishment based on

consumption, not forecast. This is often used under specific conditions when the

demand is difficult to forecast and lead times are short, as in the fashion industry, for

instance.

Barilla case gives us a good overview of problems a company can face when these three

metrics are not balanced. For Barilla, the minimum and maximum order quantities were

not defined to the distributors, showing a lack of inventory handling. The company

faced scheduling difficulties, resulting in the increase of production and maintenance

cost. Transportation cost is also increased due to the number of trucks that were

required during high demand period. The accumulation of all these problems resulted in

high levels of finished goods inventory being held by the company. It was calculated that

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in a single week, there were stock outs of around 5.5% or even more than this. This all

led to customer dissatisfaction, low fulfillment rate and poor service level.

The Made to measure case we discussed in class is a good example of how one metric

can be resolved without compromising the other two. In the early 2000s, TAL Apparel

and JC Penney came into an arrangement wherein TAL would directly supply its shirts

manufactured to the JC Penney stores, eliminating warehouse inventory. The concept-

to-consumer cycle used to take two years which chiseled down to 45 days in some

cases. It helped JC Penney save approximately $30 million in average monthly inventory

expenses, inventory levels were reduced from a six-month supply to a seven-week

supply and led to savings of 15 percent of cost free on board (FOB). Through this

process, the retailer created a direct link with many of its private label merchandise

suppliers, allowing it to order merchandise as needed in response to demand, instead of

at regular, pre-established intervals.

There can be certain circumstances where one metric can be improved without

compromising the other two metrics. One such classic example of it is Walmart. Wal-

Mart is one of the most famous examples of a company that uses cross-docking. Wal-

Mart trucks pull up to distribution centers and goods are retrieved, processed, and sent

to stores that are typically within 130 miles from the distribution center. Pharmaceutical

industry is another example which faces inventory challenges and incur high research

and development costs. Many companies, like Serum, started outsourcing some parts of

their inventory management, which helped in solving their inventory issues and did not

compromise on cost or service. Due-diligent outsourcing helped them to balance all

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 these three metrics. In fact, they generated more savings, giving them additional capital

to spend on research and development.

III. Read the following case and provide an answer to the questions posed.

Our client Weber Grill Company is a family-owned grill manufacturer headquartered in Palatine, Illinois,
United States. The Weber Grill company manufactures and sells outdoor electric grills, charcoal grills, gas
grills, and charcoal smokers with related accessories.
The client Weber Grill is the current market leader but is considering outsourcing their grill production to
increase margins. A large-scale outsourcing move would be a first for the industry, and the client wants to
know if this is a worthwhile proposition.

There are two options being explored: (1) full outsourcing a grill manufacturing plant in China; (2)
outsourcing final production in Mexico with parts provided from China. Should the client outsource their
grill production?

source: https://www.consultingcase101.com/

Answer:

Developing a framework for strategic sourcing is important for Weber Grill. Identifying the

targeted spend area(s) and conducting a spend analysis, gathering information on

manufacturing capabilities of shortlisted companies, developing a future state (i.e., vision of

what Weber Grill wants the future to look like) and conducting a total cost of ownership in this

integrated value chain are important primary steps which will give us data to deeply analyze

this decision. However, with this limited data, I recommend outsourcing the full manufacturing

grill plant in China. Cheaper labor and lower asset cost in China would immensely benefit

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Weber Grill in reducing cost, making fixed costs fully variable. This strategic optimization allows

business owners to focus on their core mission and the allocation of their operations in a more

profitable manner. Weber Grill is the market leader and early movers in an industry to

outsource will have a competitive advantage

The outsourced manufacturing will be responsible for raw material planning to meet

production schedules. When these responsibilities are offloaded, the business will spend more

time on growth and building brand equity. The goal for Weber Grill is to expand and exploit the

global value chain, outsourcing their existing production facilities will provide them room for

capital expenditures. In addition, the company will optimize its value chain and at the same

time, it also requisite for the company to increase its focus and invest heavily to increase the

marketing efforts. By continuing their expansion globally, the company will be able to expand

their market share in existing and new economies, giving them a much needed boost to

revenue and operating margin. By applying Porter’s Five Forces to Weber Grill, it is apparent

that there is a high threat of competitors in their particular industry. Establishing a final

production center in Mexico in order to reduce the time taken to ship the manufactured shoes

would heavily increase the transportation, contractual and distribution costs for them. It should

work towards reducing costs in its value chain as it can reduce costs for the customers

eventually. Outsourcing can also become a complicated process that opens up more chances

for setbacks. Weber grill need to watch out for unrealistic timelines that could cause revenue

loss and more issues down the supply chain, contrary to their objectives.

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Company should form strategic alliances with Chinese manufacturer which will aide in

communicating their unique value chain. The manufacturing partner should have extensive

knowledge of Weber’s grilling products otherwise, the quality of offerings may diminish.

They can register patents for their direct injection technology which can help in

safeguarding against Chinese manufacturers who might try to plagiarize their product

designs. Outsourcing is a good business strategy for companies seeking a competitive edge

in finding low-cost labor. It has a number of unintended consequences such as lowering

barriers to entry and increasing the level of competition a company has. It also has effects

on brand loyalty and satisfaction; both for a company's employees and its customers.

Hence, understanding the risks associated with this proposition, the company can

accordingly devise a strategy.