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HBR ON SCM
Alignment: Aligning the interests of the firm in the supply network so that
supply chain performance is optimized and profits maximized.
Eg. During promotions, stock-outs can rise to 15%, and during lean periods, excess inventory. So companies often sell at discounted rates- (30% at Dept. Stores in the US.)
This can erode brand equity and anger loyal customers who bought at full price- Eg. Fashion Industry.
Eg. Akai, Fujitsu, Kyocera, Sanyo, TDK, JVC, Minolta, NEC & NTT, Sharp, etc.
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EXAMPLES
Lucents Electronic Switching Systems Division in Oklahoma, 1980s. Centralize procurement, assembly and testing, and order fulfillment. 1990s- Emergence of Asia as a market- poor response, lost market When vendors shifted to Asia- Supply chain collapsed. Intel Processors in the 1990s Compaq always behind others in launching new gen models. Long design cycle because of tight supply chain Lost mind share to early adopters, lost on pricing, lost market share Compaq couldnt take advantage of component prices falls in market Vendors: Compaq couldnt adjust to Engg. Modifications- reworking costs.
H&M, Mango, Zara- Fashion Brands of Europe Agile designers, quickly spot trends. Excellent distribution and market pulse 4
Sep 1999- Earthquake in Taiwan- US computer industry hit. Weeks and Months of delays. Dell was only exception- changed PC configurations overnight- steered consumer demand away and redirected sales efforts.
Mar 2000. Philips factory fire in New Mexico. RF Chips for Ericsson and Nokia. Nokia managers changed designs and contacted backup suppliers in US and Japan. 5 days delay only. Ericsson lost business for months. Lost launch of new product.
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WHY AGILE?
HP-Canon Printer Pact 1995: Launching ink-jets.
HP Made PCBs. Canon made the Printer Engines. Division of responsibilities- joint R&D. HP used its Idaho US and Italy factories, Canon used its W Virginia and Japan Factory. Canon could adjust production only if HP gave 6 months heads up. HPs demand forecasting systems worked only to 3-4 months Supply chain couldnt cope with fluctuations in demand. At end of life cycle- HP was stuck with huge surplus of printer engines Write off, and huge losses for HP. An example of poor agility of Supply Chain.
WHY ADAPTIBLE?
Lucent in 1990s. Making inroads into Asia
Overhauled its supply chain Set up new plants in Taiwan and China Inexpensive, cheap and customizable quickly. Compete with Siemens and Alcatel It stopped its manufacturing and shipping from US. Recaptured China, Indonesia, India and Taiwan markets.
WHY ALIGNMENT?
In 2001, Cisco wrote of $ 2.5 billion worth of Inventory.
Different firms in same supply chain can have different interests. In the 1990s, Ciscos supply chain was considered infallible. Cisco was the first to introduce internet to communicate to suppliers and customers, automate work flow and develop remote solutions. Most of Ciscos manufacturing was outsourced.
There was misalignment between Ciscos interests and those of its contract manufacturers. Contract manufacturers accumulated inventory without forecasting demand for products. Even after US Economy slowed down, contractors produced and stored inventory at the same pace. When demand fell soon after, Cisco had to scrap the inventory.
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HP AGAIN
Started its printer business in 1980s Both R&D and Manufacturing in Vancouver. Biggest printer market was the US then. When demand grew in other markets, HP set up facilities in Spain and Singapore to cater to Europe and Asia. Vancouver remained R&D hub, but Singapore became the largest production facility. By 1990s, Printer Manufacturing technologies had matured. So HP outsourced its production to vendors completely. Thus it controlled its costs and remained the leader in the market.
MICROSOFT XBOX
In 2001, Microsoft decided to enter the Video Game Market. It outsourced hardware production to Singapore based Flextronics. In 2001, Xbox had to be in the stores before December so that Microsoft targeted Christmas Shoppers. Speed was the crucial factor for a successful launch. So Xbox was made at facilities in Hungary and Mexico. The above sites were expensive, but design and engineering changes could be made quickly. Mexico and Hungary was also near the biggest markets- US, Europe The product was launched in record time and became a stiff challenge to Playstation 2 of Sony. When Sony started offering deep discounts, Flextronics shifted the supply chain to China. So it was able to compete on price. In 2003, Xbox took over 20% share in the Video Game Market from Playstation 2.
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Old Navy is for cost conscious buyers- sourced from China for efficiency. Gap is for trendy buyers- chain in central America to ensure speed and flexibility. Banana Republic is Premium Clothing: Sourced from Italy to ensure quality
The use of 3 supply chains increases overheads, lower scale of economies and transportation costs, but it improved agility and adaptability. The 3 supply chains can also serve as a back up in case of emergencies.
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VMI has problems: here, the suppliers own components till it enters the manufacturing facility. So the costs have passed from manufacturer to supplier/vendor. When the inventory costs starts rising, the vendors would charge higher costs for their products.
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