Supply Chain

Management
Assignments-14, 15, 16, 17

Submitted By:
Abhilash C.S .
Anupama Singh
Anshu Srivastava
Atik Ur Rahman
Abhishek Mukherjee
Nevin Francis

Assignment 14:
1. What modes of transportation are best suited for large, low-value shipments?
Why?
Rail and water transportation modes are best suited for large, low-value
shipments. The price structure of the business make rail and water the modes of
choice if low-value, large, heavy, or high-density items need to be transported.
Air, package carriers, and trucks would not have the infrastructure required to
accommodate large items; roads and bridges would be damaged and the storage
capacity of the carriers is insufficient.
2. Why is it important to account for congestion when pricing the use of
transportation infrastructure?
Infrastructure often requires government ownership and is not something that can
be increased in capacity in the short term. If congestion is not factored in to the
price structure for infrastructure, then demand for the resources will exceed
capacity and major delays will occur. Pricing may be used to force users to
internalize the marginal impact of their choices, thus alleviating some of the
demand during peak periods.
3. Wal-Mart designs its networks so that a DC supports several large retail stores.
Explain how the company can use such a network to reduce transportation costs
while replenishing inventories more frequently.
A distribution center that supports several large retail stores can reduce supply
chain costs in four ways: 1) Inbound shipments to the DC achieve economies of
scale because each supplier sends a large shipment; 2) The outbound
transportation costs for a DC can be low because it serves retail locations nearby;
and very large inbound shipments that match retail demand can be cross-docked
at the DC, which saves both 3) storage and 4) material-handling costs.
A DC also can replenish retail inventories more frequently; the DC breaks bulk
from manufacturers on one side of the warehouse and sends it to retail locations
on the outbound side. Since retail demands are aggregated at the DC level, the
amount of inventory actually stored at the DC is very low and as Littles Law
indicates, the time between replenishments is low also.
4. Compare the transportation costs for an e-business such as Amazon.com and a
retailer such as Home Depot when selling home-improvement materials.
The primary difference between these retailers is that Home Depot does not incur
any outbound transportation cost for residential customers while Amazon faces
such charges. Home Depot has substantial inbound transportation charges but is
able to offload the outbound transportation cost to the vast majority of their
customers. Amazon must use high cost package carriers for much of its product
line although they are able to avoid inbound transportation costs for items that are
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drop shipped. For items that are held in one of their warehouses, Amazon must
pay both inbound and outbound.
5. What transportation challenges does Peapod face? Compare transportation costs
at online grocers and supermarket chains.
Peapod faces the burden of expensive outbound transportation costs and must
account for congestion in the delivery area. Unlike traditional grocers who dont
deliver their products, Peapod must deliver items in their fleet of climatecontrolled trucks. These trucks must be scheduled with pricing incentives offered
for peak and off-peak delivery times. Customers are keenly aware of the
transportation component of their purchases and Peapod can use pricing
incentives to spur their customers towards higher order amounts.
Both Peapod and traditional grocers must pay the inbound transportation costs of
their wares; there would appear to be no great advantage gained by either
approach unless one vendor has such substantial market share as to gain price
concessions that they other cant negotiate.
6. Do you expect aggregation of inventory at one location to be more effective when
a company such as Dell sells computers or when a company such as Amazon.com
sells books? Explain by considering transportation and inventory costs.
Inventory aggregation is a good idea when inventory and facility costs form a
large fraction of a supply chains total costs. Inventory aggregation is useful for
products with a large value to weight ratio and for products with high demand
uncertainty. Both factors allow aggregation to work to Dells advantage, while
Amazon reaps less of a reward.
Dell benefits from aggregation because personal computers have an extremely
high value to weight ratio; the demand for new items is uncertain, and Moores
Law makes holding excessive inventory an extremely unattractive proposition.
Amazon benefits from aggregation when inventory costs are examined, but is hurt
by increased transportation costs. Most items that Amazon sells have low value to
weight ratios and Amazon must ship them via package carrier, which is
expensive. Amazon saves money on storage costs since they choose to stock more
popular titles and allow other entities to hold items with more variable demand.
7. Discuss key drivers that may be used to tailor transportation. How does tailoring
help?
Tailored transportation is the term for use of different transportation networks and
modes based on customer and product characteristics. Tailoring transportation
allows firms to achieve cost and responsiveness targets that are appropriate for the
supply chain. The key drivers are density and distance, customer size, and product
demand and value. These drivers can be viewed as guide for ownership of

Transportation options based on customer density and distance are summarized in

the table and present cost and responsiveness tradeoffs for the supply chain.
Short distance
Medium distance
Long distance
High
Private fleet with
Cross-dock with
Cross-dock with
density
milk runs
milk runs
milk runs
Medium
Third-party milk
LTL carrier
LTL or package
density
runs
carrier
Low
Third-party milk
LTL or package
Package carrier
density
runs or LTL carrier carrier
Customer size and location dictate whether a supplier should use a TL or LTL
carrier or milk runs. Very large customers can be supplied using a TL carrier,
whereas smaller customers can use LTL carriers or milk runs. The authors discuss
a customer-partitioning procedure for combining smaller customers shipments
with larger customers in order to achieve responsiveness and cost targets.
Product demand and value determine whether aggregation strategies will benefit
the supply chain. The best combinations are shown in the table:
Product
High Value
Low Value
Type
Disaggregate cycle inventory but
aggregate safety inventory. Use an
Disaggregate all inventories
High
inexpensive mode of transportation
and use inexpensive mode
demand for replenishing cycle inventory and
of transportation for
a fast mode when replenishing safety replenishment.
inventory.
Aggregate only safety
Aggregate all inventories. If needed, inventory. Use inexpensive
Low
use fast mode of transportation for
mode of transportation for
demand
filling customer orders.
replenishing cycle
inventory.

Assignment -15:
1. In what ways can a retailer such as Nordstrom take advantage of revenue
management opportunities?
Nordstrom can take advantage of revenue management by using dynamic pricing
through their Nordstrom Rack stores. Dynamic pricing is the tactic of varying
price over time and is suitable for fashion and seasonal items. The Nordstrom
Rack web site indicates that there are currently 49 locations in 18 states and that
the Nordstrom Rack stores are the off-price division of Nordstrom (positioned for
the cost-conscious shopper). Merchandise that does not sell at the Nordstrom
stores is discounted 50-75% and moved to the Rack stores where it is sold in a
less attractive setting with a less generous return policy. Nordstrom Rack is
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positioned such that it does not compete with Nordstrom stores, but allows the
parent company to reap the greatest return from all products stocked at
Nordstrom.
2. What revenue management opportunities are available to a manufacturer? How
can it take advantage of these opportunities?
A manufacturers most profitable use of revenue management comes through the
tactic of overbooking, which is the overselling of an available asset that faces lastminute cancellations of customer orders. The manufacturers valuable asset is
production capacity, which is finite and loses value after a certain date; in this
case, capacity is worthless at the end of the production period or past the date that
the supply chain can fill customer orders. The tradeoff is the cost of unused
capacity with the cost of customer orders that cant be filled and therefore must be
subcontracted. The manufacturer can compute the marginal cost of wasted
capacity and the marginal cost of a capacity shortage, form the critical ratio, and
apply this to their knowledge of the customer order distribution, thereby
increasing asset utilization.
3. What revenue management opportunities are available to a trucking firm? How
can it take advantage of these opportunities?
A trucking firm can use revenue management by offering a two-tiered pricing
system; charging smaller customers a higher price than larger customers that
consume the majority of the fleet. The rationale is that the larger customers offer
the trucking firm steady demand and the ease of dealing with only one or very
few customers. These bulk purchases are made at a discount while smaller
customers must make spot purchases at higher prices to fill up remaining capacity.
4. What revenue management opportunities are available to the owner of a
warehouse and how can it take advantage of them?
A warehouse owner can lease capacity in bulk at a discount to a large company
and fill up the remaining warehouse capacity at full price to smaller customers.
The large customer offers more stable demand and more fully utilizes the
warehouse owners space, albeit at a discount. The smaller customer may never
materialize, so holding space for them is a risky proposition and merits a premium
price.
5. Explain the use of outlet stores such as Saks Fifth Avenue in the context of
revenue management. How does the presence of outlet stores help Saks? How
does it help its more valuable customer, who is willing to pay full price?
One way that the presence of outlet stores helps Saks is by recouping their
purchase price for items that do not sell in flagship stores. Items can be sold in the
outlet stores at a lower margin or even at a loss. Saks also benefits by freeing up
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more sales floor capacity in their main stores, allowing them to stock with the
current seasons high margin merchandise.
The full-price customers of Saks benefit because the inventory level of in-season
items at Saks is higher, therefore they are more likely to find what they want. Saks
knows they can dump any unsold merchandise at the end of the season in their
outlet store; therefore Saks initial order will be higher than if they did not use
revenue management.
6. Demand for hairdresser is much higher over the weekend, when people are not at
work. What revenue management techniques can be used by such a business?
A hairdresser can use pricing and revenue management for seasonal demand;
peaks on the weekend and valleys on weekdays. The hairdresser can provide offpeak discounting in order to shift demand from weekend to weekdays. The
hairdresser should create a price structure such that the discount given during the
off-peak period is more than offset by the decrease in cost because of a smaller
peak and the increase in revenue during the off-peak period. This tactic increases
profits for the hairdresser, decreases the price paid by a fraction of the customers,
and also brings in potentially new customers during the off-peak discount period
and is, in a word, fabulous.
7. How can a golf course use revenue management to improve financial
performance?
A golf course can use pricing and revenue management for seasonal demand
much in the way the hairdresser in the previous scenario can. By lowering the
price for less popular tee times, a golf course manager can increase revenue by
increasing the total number of players and perhaps capturing new players. A golf
course manager can also engage in overbooking for tee times, overselling the
course in the event that a foursome or individual players will cancel at the last
minute. Overbooking will use up more of the golf courses capacity which might
decrease the level of customer service but will improve the courses financial
performance.

Assignment 16:
1. What processes within each macro process are best suited to being enabled by IT?
What processes are least suited?
The macro processes in a supply chain are customer relationship management
(CRM), internal supply chain management (ISCM), and supplier relationship
management (SRM). Taken collectively, these macro processes span the entire
supply chain.
CRM processes focus on the downstream interactions between the enterprise and
its customers. The key processes under CRM are marketing, selling, and order
management, and of these three, the creative sub-processes of the marketing and
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selling processes are least suited to IT enablement. The best suited processes for
IT enablement are pricing and profitability calculations, sales force automation,
and order configuration and tracking. Within order management, virtually all
processes reap the benefits of information technology.
ISCM processes focus on internal operations within the enterprise and include
strategic planning, demand planning, supply planning, fulfillment, and field
service. The use of IT to facilitate ISCM sub-processes is presented in glowing
terms in separate chapters in this text. Huge gains in efficiency and
responsiveness have been achieved via the application of IT to all aspects of
ISCM.
SRM processes focus on upstream interaction between the enterprise and its
suppliers and includes the sub-processes of design collaboration, sourcing,
negotiating, buying, and supply collaboration. The authors indicate in chapter 14
that sourcing-related IT has had the most ups and downs of any supply chain
software sector, with the primary problems being loss of flexibility and the
requirement of collaboration. Electronic marketplaces once flourished but have
since withered. This is not to say that IT does not play a role in SRM processes; in
fact, all areas are supported by IT software.
2. What are the key advantages that best-of-breed software companies provide?
The competitive arena in CRM, ISCM, and SRM can be parsed into best-of-breed
winners, ERP players, and best-of-breed startups. Best of breed companies
provide a valuable service to all sectors by defining functionality and providing
market leadership. For the CRM macro process, Siebel was the sole remaining
best of breed provider as the book went to press, but it has since been acquired by
Oracle as predicted by the authors. The ISCM and SRM macro process sectors
have had best of breed providers that have long since yielded market leadership to
ERP vendors.
3. What are the key advantages that large software companies, such as the ERP
players, provide?
ERPs popularity in the 1990s drove the most successful companies to become the
largest enterprise software companies. Their size provides a wealth of resources
and collective experience that can be brought to bear on a clients issues.
The major advantage that ERP players have relative to best-of-breed providers is
the inherent ability to integrate across the three macro processes of CRM, ISCM,
and SRM, often through the transaction management foundation.
4. What types of industries would be most likely to choose a best of breed approach
to their IT systems? What types would be more likely to choose a single large
integrated solution?
Established firms that have strong CIO leadership and see the supply chain as
encompassing the entirety of the three macro processes would probably be more
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inclined to select a large integrated solution. Well-respected CIO leadership would

be essential in promoting and managing such a project. A firm that is mature in
this supply chain is fertile ground for an integrated solution.
Firms that have recently merged or integrated vertically may have a more selfcentered perspective on the supply chain and might skew towards a best-of-breed
approach. These firms might start their IT enablement with a focus on ISCM and
then seek to work either end of the supply chain with an SRM or CRM best-ofbreed implementation. Firms closer to either end of the supply chain; e.g., an
extractor of raw materials that sells to a few fabricators or a turnkey service
operation that spends most of their efforts dealing with customers might choose a
system tailored to their end of the supply chain.
5. Discuss why the high tech industry has been the leader in adopting supply chain
IT systems.
The high tech industry has been the leader in adopting supply chain IT systems
because of the mindset of the decision-makers in this sector. The high tech
workforce tends to be early adopters of new technologies; they understand there is
a risk associated with adoption but are willing to assume the risk and proceed.
High tech corporate cultures lend themselves to such ventures; there is little
resistance to change because survival in this sector depends on it.
6. Are manufacturers better candidates for IT enablement than service
organizations? Why or why not?
From a supply chain perspective, manufacturers overall are better candidates for
IT enablement than service organizations, although both can derive considerable
benefit. The tangible, standard (or modular) nature of the output affords
manufacturing this advantage. Next on the spectrum are back office service
processes which can be completely automated using information technology.
These back office processes can be a component of either a manufacturing or
service organization or could be stand-alone organization, e.g., medical
transcription, claims processing, payment centers, etc. This is not to say that a
pure service cannot reap the rewards of IT enablement; Pixar Studios, Peapod,
and Prudential Insurance are three companies just from the Ps that owe a great
deal of their success to information technology.

Assignment-17:
1. What is the bullwhip effect and how does it relate to lack of coordination in a
supply chain?
The bullwhip effect refers to the fluctuation in orders along the length of the
supply chain as orders move from retailers to wholesalers to manufacturers to
suppliers. The bullwhip effect relates directly to the lack of coordination (demand
information flows) within the supply chain. Each supply chain member has a
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different idea of what demand is, and the demand estimates are grossly distorted
and exaggerated as the supply chain partner is distanced from the customer.
2. What is the impact of lack of coordination on the performance of a supply chain?
The impact of lack of coordination is degradation of responsiveness and poor cost
performance for all supply chain members. As the bullwhip effect rears its ugly
head, supply chain partners find themselves with excessive inventory followed by
stockouts and backorders. The fluctuations in inventory result in increased
holding costs and lost sales, which in turn spike transportation and material
handling costs. Ultimately, the struggle with cost and responsiveness hurts the
relationships among supply chain partners as they seek to explain their lack of
performance.
3. In what way can improper incentives lead to a lack of coordination in a supply
chain? What countermeasures can be used to offset this effect?
Incentive obstacles occur in situations when different participants in the supply
chain are motivated by self interest.
Incentives that focus only on the local impact of an action result in decisions
being made that achieve a local optimum but can avoid a global (supply chain)
optimum. All supply chain partners must agree on global performance measures
and structure rewards such that members are appropriately motivated.
Sales force incentives also are responsible for counterproductive supply chain
behavior. Commissions that are based on a single short time frame can be gamed
by the sales force to maximize commission but these actions inadvertently
increase demand variability and exert pressure on the supply chain. Commissions
should be structured to provide incentives to consistently sell large volumes of
product over a broad time frame to the sell-through point.

4. What problems result if each stage of a supply chain views its demand as the
orders placed by the downstream stage? How should firms within a supply chain
communicate to facilitate coordination?
If each stage of a supply chain views its demand as the orders placed by their
downstream counterpart, the bullwhip effect is realized by the supply chain. Each
member develops a forecast that is based on something other than the true
customer demand and hilarity ensues. Supply chain members should share pointof-sale (POS) data so that all members are aware of the true customer demand for
product. The beauty of data sharing requirements is that only aggregate POS data
must be shared to mitigate the bullwhip effect; there is no need to share detailed
POS data.

5. What factors lead to a batching of orders within a supply chain? How does this
affect coordination? What actions can minimize large batches and improve
coordination?
Order batching is caused by a number of different factors. One mechanism is the
price structure of TL and LTL shipment quantities; there is incentive to wait a
while to make sure that a TL shipment is achieved. A customers natural tendency
to wait for a milestone, either real or perceived, can also cause batching.
Customers may wait until Friday, Monday, the last or first day of the month, etc.,
just because thats when they always have or because that event reminds them to
order. Order batching also occurs because customers are aware of an impending
price reduction and want to take advantage of it. Batching adversely affects
supply chain coordination because the supply chain will be starved for flow, then
overwhelmed with demand.
A supply chain can reconfigure their transportation and distribution system to
allow for shipments to multiple customers on a single truck to achieve TL
quantities. The chain can also assign (or encourage) days for placing orders and
move from lot-size based to volume based quantity discounts (or abandon
discounts and promotions altogether).
6. How do trade promotions and price fluctuations affect coordination in a supply
chain? What pricing and promotion policies can facilitate coordination?
Trade promotions and price fluctuations make supply chain coordination more
difficult. Customers seek to purchase goods for less and engage in forward buying
which creates spikes in demand that may exceed capacity. All parties would
benefit if the supply chain used every day low pricing (EDLP) to mitigate forward
buying and allow procurement, production, and logistics to function at a steadier
pace. If price incentives must be offered, the chain is better served by
implementing a volume-based quantity discount plan instead of a lot size based
quantity discount, i.e., providing incentives to purchase large quantities over a
long period of time, perhaps a year.
7. How is the building of strategic partnerships and trust valuable within a supply
chain?
Cooperation and trust within the supply chain help improve performance for the
following reasons:
When stages trust each other, they are more likely to take the other partys
objectives into consideration when making decisions, thereby facilitating win-win
situations.
Action-oriented managerial levers to achieve coordination become easier to
implement and the supply chain becomes more agile.
An increase in supply chain productivity results, either by elimination of
duplicated effort or by allocating effort to the appropriate stage.

Detailed sales and production information is shared; this allows the supply chain
to coordinate production and distribution decisions.
8. What issues must be considered when designing a supply chain relationship to
improve the chances of developing cooperation and trust?
The issues that supply chain partners must consider when designing their chain
include assessing the value of the relationship, the operational roles and decision
rights for each, the execution of binding contracts, and establishment of conflict
resolution mechanisms.
The value of the relationship is assessed by identifying the mutual benefits that it
provides and the costs and contributions of each party. The mix of effort and
benefit for all parties should be equitable.
The roles and decision rights take into account the interdependence between the
parties; the nirvana of interdependence is reciprocal interdependence, where
parties come together and exchange information and inputs in both directions.
This requires more effort than sequential interdependence but the payoff is
increased supply chain surplus.
Managers can help promote trust by creating contracts that encourage negotiation
as unplanned contingencies arise since complete information and consideration of
all future contingencies is impossible. The primary contacts from each side are an
important starting point in developing a healthy relationship.
Effective contract-resolution mechanisms can significantly strengthen any supply
chain relationship. Such mechanisms allow parties the opportunity to
communicate and work through their differences, in the process building greater
trust.
9. What issues must be considered when managing a supply chain relationship to
improve the chances of developing cooperation and trust?
The following issues merit attention when management endeavors to improve the
chances of success in supply chain partnership:
The presence of flexibility, trust, and commitment in both parties helps a supply
chain relationship succeed. In particular, commitment of top management on both
sides is crucial for success.
Good organizational arrangements, especially for information sharing and conflict
resolution, improve chances for success.
Mechanisms that make the actions of each party and resulting outcomes visible
help avoid conflicts and resolve disputes.
The more fairly the stronger partner teats the weaker, vulnerable partner, the
stronger the supply chain relationship tends to be.
10. What are the different CPFR scenarios and how do they benefit supply chain
partners?

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Collaborative planning, forecasting, and replenishment (CPFR) is defined as a

business practice that combines the intelligence of multiple partners in the
planning and fulfillment of customer demand. In order to be successful, the two
parties must have synchronized their data and established standards for
exchanging the information.
The four scenarios that sellers and buyers can collaborate along include:
Retail event collaboration the identification of specific SKUs that will be
involved in sales promotions and sharing of information regarding the
timing, duration, pricing, advertising, and display tactics to be deployed.
The benefit of retail event collaborations is a reduction in stockouts,
excess inventory and unplanned logistics costs.
DC replenishment collaboration the forecasting of DC withdrawals or
demand from the DC to the manufacturer is converted to a stream of
orders that are locked in over a specified time horizon. A successful DC
replenishment collaboration reduces production costs at the manufacturer
and inventory and stockouts at the retailer.
Store replenishment collaboration the forecasting of store-level orders
that are committed over a specific time horizon. Such a collaboration
results in greater visibility of sales for the manufacturer, improved
replenishment accuracy and product availability, and reduced inventories.
Collaborative assortment planning the forecasting (collaborative
interpretation) of industry trends, macroeconomic factors, and customer
tastes for seasonal goods. This forecast is converted into a planned
purchase order at the style/color/size level that is used to produce sample
products for a fashion event before final merchandising decisions are
made. The manufacturer benefits from this collaboration by having more
lead time to purchase raw materials and plan capacity.

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