SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Supply Chain Management
Unit 8
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Crocs
• Crocs shoes are made from Croslite
– Extremely light
– Does not skid
– Odor resistant
– Easy to wash
• The founders wanted to name the shoes something that
captured the amphibious nature
– “Alligator” had already been taken
Chapter 1 1
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Accessories
Various Sports
Suppliers Jibbitz protectors
Leather
Mold Grommets
producers Style &
size Glue etc
molds
Dye
Package & Labeled,
Compound Mold Assemble packaged
Label
Croc
Chem
Pellets
Color Size & Style Complete Warehouse
Pellets blanks Croc and
Dow Chem
distribute
& others
Small
In-season
retailer
orders
Large
Production
Retailer
Orders
Distribution
(plus %) Pre-booked
orders
General Map of Croc’s Basic supply, production
and distribution processes
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Croc’s Global Production strategy *Owned by Crocs vs. outsourced
[3]
Compound Mold Package & Warehouse Small
Assemble
Label / distribute retailer
Denver 3rd
party Denver Denver
Italy Canada*
distributor
Florida* [2] Labeled,
Color Size & Style Complete
[1] packaged
Pellets blanks Croc
Croc
Bosnia
[6] Large
China Bosnia Bosnia
China Retailer
Bosnia
Mexico* China China Europe
Mexico* China
Mexico* Large
Brazil* Mexico*
Mexico* Retailer
Brazil* Brazil* Asia
Brazil*
[4]
[5] Style & Large
size Retailer
South
[1] Maintain Florida plant for “Made in USA label molds
America
[2] Take advantage of tariffs, e.g., Canada to Isreal
[3] Maintain higher service component of warehousing and labeling for small retailers
[4] Minimize geographic transport by producing in region, including warehousing
[5] Move style and size molds between facilities to maximize production
[6] Use China for large volume, long-term orders from pre-season orders
Chapter 1 2
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Crocs
Phase 1: Taking over production
Initially all compounding done in Italy, then molding and assembly in
Canada, and distribution from Denver
Phase 2: Global production using contract manufacturers
Resistance from contract manufacturers outside China
Phase 3: Bringing the global supply chain in-house
Crocs acquired excess capacity (sometimes 2 to 3 times the expected
capacity)
Crocs early sales were to small retailers
After Crocs initial success in small stores, large retailers approached the
company (now they had a much stronger negotiating position)
Molds would move frequently between locations
Shifting production to reduce duty payments (from China had high tariff,
from Mexico no tariff NAFTA, also no tariff from Mexico to Europe)
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Crocs
• Revolutionized the shoe industry supply chain
model
– First shoe sold in 2003 (Revenue 1.2 million)
– Flip flop sandal introduced in 2006 (Revenue 355 million)
– Diversify in other products 2008 (Revenue 860 million)
What are advantages of having multiple production
facilities?
What are advantages of short lead times?
What are advantages of excess capacity?
How does Crocs plan for demand?
Chapter 1 3
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Crocs
Traditional industry practice was for retail distributors to place bulk orders
for each season’s inventory many months in advance, with little to no
ability to adjust to changes during the selling season. Crocs could fill new
orders within the season
Flip flop sandal was introduced in 2006. Initial decision to make 250,000
pairs (far more than the pre-booked orders). Indications of success, so
Crocs made more molds and molding machines. By the end of the season
they had shipped nearly 2.5 million pairs (10 times more).
Much of the growth was made possible by a highly flexible supply chain
allowing it to respond to unexpected high demand and fulfill new order
within the selling season (unheard of in the shoe industry). It became a
very popular supplier to shoe sellers
“It is easier to build up capacity when a forecast ends up below reality,
than it is to take it away when a forecast ends up above reality”
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Study of Supply Chain Management
• Successful supply chain management requires
decisions on the flow of information, product, and
funds that fall into three decision phases
– Supply chain strategy or design
– Supply chain planning
– Supply chain operation
Chapter 1 4
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Decision Phases in a Supply Chain
TIME FRAME TYPE TYPICAL DECISIONS
•Supply chain network design (How many plants?
Location and capacities of plants and warehouses?)
years
Strategic •Supply chain strategies (Sell direct or through
retailers? Outsource or in-house? Focus on cost or
customer service?)
•Product mix at each plant
•Workforce & Production planning
Tactical •Inventory policies (safety stock level)
3 mo.- 1year •Which locations supply which markets
•Transportation strategies
•Production scheduling
daily Operational •Decisions regarding individual orders
•Place replenishment orders
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Decision Phases in a Supply Chain
Where is uncertainty the highest?
Supply chain design, planning, and operation decisions play a
significant role in the success or failure of a firm
Supply chain strategy or design
Supply chain planning
Supply chain operation
Supply chain design decisions are long-term and expensive to reverse –
must take into account market uncertainty
Supply chain planning decisions use a fixed supply chain configuration
to come up with an overall production plan
Supply chain operation makes decisions about individual customer
orders
Chapter 1 5
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Decision Phases in a Supply Chain
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Decision Phases in a Supply Chain
Chapter 1 6
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Decision Phases in a Supply Chain
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Remember !!
Chapter 1 7
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Achieving Strategic Fit
What is a strategy in general?
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Achieving Strategic Fit
What is a strategy in general?
Strategy is the direction and scope of an organization
over the long-term: which achieves advantage for the
organization through its structure of resources within a
challenging environment, to meet the needs of
markets and to fulfill stakeholder expectations.
Chapter 1 8
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Strategy
Corporate Strategy
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Strategy
Corporate Strategy mission statement
CS: How it treat it customers and what service it will supply.
Chapter 1 9
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Strategy
Corporate Strategy mission statement
Competitive Strategy
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Strategy
Corporate Strategy mission statement
developed by the
Competitive Strategy marketing people
Chapter 1 10
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Vision
• A statement of the future business environment and how
the company will operate in that environment.
• Vision is the result of dreams in action . It is a positive
image of the future that is the strongest motivator for
change.
• Characteristics
– Common purpose: worth the effort
– Positive feeling and diffuse fear
– Clarity and values
– Capture the imagination
– Inspires and empowers
– Should have "reach" and "range"
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Mission
• A statement of the basic purpose or reason for the
company to exist.
• Lines of questioning
– What business are we in?
– What is the geographic scope?
– What markets do we serve?
– What products and services do we provide?
– What are the critical successful factors of the organization?
– How can we achieve our competitive advantage?
Chapter 1 11
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Mission Examples
• AT&T: Our business is service
• Gerber: Babies are our business
• Du Pont: Better things for better living through
chemistry
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Strategic Visioning Process
Visions
Stories
Context
Insight Foresight
Past Present Future
Chapter 1 12
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
What is Competitive Strategy?
• Competitive strategy
– Defines, relative to competitors, a company’s set of
customer needs that it seeks to satisfy through its
products and services
• Imtiaz Supermarket
– Everyday low prices
• Honda Motorcycle
– Low maintenance, less fuel consumption, easily available all over
Pakistan
• Dell
– Custom-made computer systems at a reasonable cost
Competitive strategy is defined based on how the customer
prioritizes product cost, delivery time, variety, and quality
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Competitive Strategy
• To execute a company’s competitive strategy, all
functions that play a role must each develop its
own strategy
Finance, Accounting, Information Technology
New Marketing
Product and Operations Distribution Service
Development Sales
Chapter 1 13
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Competitive Strategy
• To execute a company’s competitive strategy, all
functions that play a role must each develop its
own strategy
Finance, Accounting, Information Technology
New Marketing
Product and Operations Distribution Service
These are theSales
Development core processes or functions that must be
performed for a successful sale. Finance, accounting,
information technology, and human resources support and
facilitate the functioning of the value chain
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Strategy
Corporate Strategy
Competitive Strategy
Supply Chain Strategy
Chapter 1 14
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Strategy
Competitive strategy defines the set of customer needs a firm
seeks to satisfy through its products and services
Product development strategy specifies the portfolio of new
products that the company will try to develop
Marketing and sales strategy specifies how the market will be
segmented and product positioned, priced, and promoted
Supply chain strategy determines the nature of material
procurement, transportation of materials, manufacture of
product or creation of service, distribution of product
All functional strategies must support one another and the
competitive strategy
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Strategy
Corporate Strategy
Competitive Strategy
Supply Chain Strategy
Supply chain strategy
Specifies what the operations, distribution, and service
functions, whether performed in-house or outsourced, should
do particularly well
Includes a specification of the broad structure of the supply
chain
Includes design decisions regarding inventory, transportation,
operating facilities, and information flows
Chapter 1 15
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
What is Strategic Fit?
• Strategic fit
– For any company to be successful, its supply chain strategy and
competitive strategy must fit together
• Imtiaz Supermarket
– Everyday low prices
– Buys from low cost producers, Owns its infrastructure and
distribution network
• Honda Motorcycle
– Low maintenance, less fuel consumption, easily available all over
Pakistan
– Quality sourcing, R&D, Owns its infrastructure and
distribution network
• Dell
– Custom-made computer systems at a reasonable cost
– Online ordering, no middle-man
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Examples
• Successful supply chain management requires
decisions on the flow of information, product, and
funds
Chapter 1 16
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
What is Supply Chain Strategy?
• Supply chain strategy
– Given a competitive strategy, what should a company’s supply chain
do particularly well?
• Imtiaz Supermarket
– Everyday low prices (low cost retailer for a wide variety of products)
Competitive Strategy
– Buys from low cost producers, owns its infrastructure and
distribution network Supply Chain Strategy
• Honda Motorcycle
– Low maintenance, less fuel consumption, easily available all Strategy
Competitive over
Pakistan
– Quality sourcing, R&D, Owns its infrastructure and Chain
Supply distribution
Strategy
network
• Dell Competitive Strategy
– Custom-made computer systems at a reasonable cost
– Online ordering, no middle-man Supply Chain Strategy
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
What is Strategic Fit?
• Strategic fit
– Both the competitive strategy and the supply chain
strategy have aligned goals
– Matching customer needs with supply chain
capabilities
• How is strategic fit achieved?
1. Understanding the customer and supply chain
uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit
Chapter 1 17
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
How is Strategic Fit Achieved?
1. Understanding the customer and supply chain
uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Why Is Uncertainty Hard to Deal With?
• Matching supply and demand is difficult.
• Forecasting doesn’t solve the problem.
• Inventory and back-order levels typically fluctuate
widely across the supply chain.
• Demand is not the only source of uncertainty:
– Lead times
– Yields
– Transportation times
– Natural Disasters
– Component Availability
Chapter 1 18
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Supply Chain Variability
Manufacturer Forecast
of Sales
Volumes
Actual
Consumer
Retailer Warehouse Demand
Retailer Orders to Shop
Production Plan
Time
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
What Management Gets...
Volumes
Consumer
Demand
Production Plan
Time
Chapter 1 19
SYST 4050 Slides
Supply Chain Management Faisal Jalal
Road Map to Excellence…. faisaljalal@[Link]
Volumes
What Management Wants…
Production Plan
Consumer
Demand
Time
Chapter 1 20