Surplus Styles is a manufacturer of hair care products, including shampoos, condition- ers, and hair gels. The company, located in Southern California, bottles the shampoos and other various hair products in their manufacturing plant, but sources the content from a number of chemical suppliers. The company has historically competed on cost and has used competitive bidding to select suppliers and award yearlong contracts. The 60 Supply Chain Strategy
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Director of Sourcing, Derick M. Frizzle, has managed the competitive bid process for the past 10 years, having moved up the ranks from purchasing. He was particularly proud that the company was cost-competitive in its market segment.
One recent day the president of the company, Frederick Davenport, called for a meeting with Mr. Frizzle. Derick could tell from the tone of Davenport’s message that the meeting would be accompanied by less-than-stellar news. As Derick took the infamous ride up the wood-paneled elevator with green marble floors to the top of their office building, he contemplated what he could have possibly done wrong. He had followed the same type of supplier bidding process for years and the company was doing well financially. He was anxious to hear what Davenport had to say.
Derick entered Davenport’s vast office, a room highlighted by ceiling-to-floor windows. He could see Mr. Davenport sitting at the end of the long, dark wooden table, with each one of his two aides accompanying him on each side. The man on the right was Bo Jenson and the woman on the left was Gertude Masterson; neither were taken lightly within the company. Derick could always tell when it was going to be a bad day.
‘‘Darn hippies,’’ Davenport rumbled. ‘‘Bo and Gertude have some troubling news. This swing towards animal rights and ‘quality goods’ is about to cost me a lot of money,’’ Davenport continued, making mocking ‘‘bunny ears’’ with his bulbous index and middle fingers. ‘‘Apparently market trends are changing again and not for the better.’’ Davenport continued to explain that there was going to be a change in the competitive strategy of the firm. The competition in the hair care market had become fierce and there was greater focus on quality. Specifically, the recent trend in animal rights and natural, organic products meant ensuring that the shampoo content did not go through animal testing and that it was ensured to be hypoallergenic. The current products were produced to compete for price and did not agree with the new demands.
Davenport wanted to see products on the retail shelf with this quality standard as soon as possible. ‘‘Do it,’’ Davenport continued and sat back down. This concluded the meeting. Luckily Mr. Frizzle had an easy exit as he had only gotten one foot in the door before his task was demanded.
Derick M. Frizzle was rather pleased with his new detail as he cared greatly for nature and had always refrained from purchasing his own company’s products due to their lack of consideration for both the individual and the environment. However, Derick was now confronted with a problem. His current suppliers offered the lowest cost in the business and would likely not be able to provide the needed quality assurances. His expertise had been in procuring the least expensive ingredients available and he did not know where to begin changing his sourcing practices.
CASE QUESTIONS
1. Identify the steps that Derick should take to solve his problem.
2. Should Derick ask for the required changes from the current suppliers? If they do not comply, should he solicit new suppliers? How might he do this?
Case Questions 61 www.freebookslides.com
3. Should Derick go through a competitive bid in the future? If so, should he do it for all purchased products or just some products?
4. What are the differences when looking for suppliers to meet cost standards versus quality standards?
REFERENCES
Cohen, Shoshanah, and Joseph Roussel.Strategic Supply Chain Management. New York:
McGraw-Hill Company, 2005.
Lambert, Douglas M., and A. Michael Knemeyer. ‘‘We’re in this Together.’’Harvard Business Review, December 2004: 114–122.
Sengupta, Sumantra. ‘‘The Top Ten Supply Chain Mistakes.’’Supply Chain Manage- ment Review, July–August 2004: 42–49.
Takeuchi, Hirotaka, Emi Osono, and Norihiko Shumizu. ‘‘The Contradictions that Drive Toyota’s Success.’’Harvard Business Review, June 2008: 96–105.
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Chapter 3
Network and System Design
& LEARNING OBJECTIVES
After completing this chapter, you should be able to:
1. Describe the supply chain as a system of processes.
2. Understand how to manage processes across the supply chain.
3. Explain system constraints and variation in managing a supply chain network.
4. Describe the stages of supply chain integration.
5. Describe key factors in designing a supply chain structure.
6. Explain enterprise resource planning (ERP) as a system integration technology.
& Chapter Outline
& The Supply Chain System
Processes Across the Supply Chain What is a Business Process?
Managing Supply Chain Processes
& Understanding Processes: Theory
of Constraints (TOC) System Constraints System Variation Capacity Implications
& Integration of Supply Chain
Processes
Stages of Integration Vertical Integration Versus
Coordination
& Designing Supply Chain Networks
Supply Chain Structure and Management Designing Segmented Structures
& Enterprise Resource Planning (ERP)
IT as an Enabler of SCM What is ERP?
ERP Configuration ERP Implementation
& Chapter Highlights
& Key Terms
& Discussion Questions
& Problems
& Case Study: Boca Electronics, LLC
63 www.freebookslides.com
In 1949, Mr. Kihachiro Onitsuka began making basketball shoes out of his living room in Kobe, Japan. He chose to make sports shoes as he thought this to be the best way to encourage the young to play sports.
He wanted his shoes to be the best in footwear and chose to call his company ASICS, an acronym for the Latin phrase anima sana in corpore sano, meaning ‘‘a sound mind in a sound body.’’
After years of hard work ASICS had become a leading maker of athletic footwear, sports apparel, and accessories. Today ASICS’
worldwide sales total around $2.4 billion. Although its great success was welcome, ASICS found it to be both a blessing and a curse.
In 2008 ASICS America found itself growing 21% annually and the company found it difficult to keep ahead of demand. ASICS had only one distribution center in the United States, which had reached capacity. This single distribution center (DC), located in Southaven Mississippi, was able to handle a maximum of 50,000 units per day.
However, the growth in demand resulted in 70,000 units per day being shipped to the DC. This capacity constraint was not only slowing down order fulfillment, but was now preventing the company from serving new customers and markets. The DC had become a ‘‘bottleneck’’ in the supply chain design network causing service slowdowns. The company understood that the supply chain network had to be changed if they were going to support this new level of demand.
The company’s U.S. network was fairly straightforward. It used con- tract manufacturers in China, Vietnam, and Indonesia to make its shoes and clothing. Those items were shipped in ocean containers to the ports of Los Angeles and Long Beach. It then used a third-party logistics provider—APL Logistics (APLL)—to unload ASICS’ ocean containers. The merchandise was then reloaded onto 53-foot trailers for shipment to the 350,000-square-foot DC in Southaven. That facility then shipped orders to the company’s 3,000 retail customers in the United States.
ASICS understood that this current network had to be restructured.
It turned to Fortna Inc., a consulting company, for help. After analyzing the network and current demands, Fortna recommended shifting some distribution operations to the West Coast to provide relief for the current distribution center, and then constructing a second distribution center close to the original site. Fortna’s analysis indicated that establishing a West Coast operation to break down imported containers and build mixed loads for shipment to customers in the western United States could save the company time and money.
The company immediately began to divert a portion of its orders directly to customers and bypass its current distribution center, using its third-party logistics (3PL) provider. These were typically full container 64 Network and System Design
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loads of products already destined for customers on the West Coast. Its problems had been solved. The company then began construction of a second distribution center in Byhalia, Mississippi, about 20 miles from the current distribution center, which is expected to handle 140,000 units per day in a single-shift. The company has also purchased enough land at the site to accommodate future expansion.
Judging from the way sales have been going, this expansion may happen sooner rather than later. The company is continuing to expe- rience sales growth in the range of 13% to 14% despite the recession.
The company is prepared for new growth and has learned that a good distribution network requires more than buildings and facilities.
Mr. Onitsuka would be proud.
Adapted from: Cooke, James A. ‘‘ASICS Keeps Pace with Growing Demand.’’ CSCMP’s Supply Chain Quarterly, July 26, 2010.