The Future of Furniture

High Definition Retailing

Workshop

Supply Chain Management

Dr. Bjarne Berg

Lenoir-Rhyne College
Agenda

Background and history

Supply Chain Management Alternatives

Software Integration of Supply Chain Initiatives

Lessons Learned

Resources

Wrap up

2
 Background and history

In the old days, waiting for something was the norm:

In 1888, Richard Sears first used a printed mailer to advertise watches

and jewelry. Delivery times was between 4 and 26 weeks.

In 1992, the delivery times (most items) in Sears catalog were 1-7 days

In 1993, Sears stopped publishing the

general catalog (customers said
delivery times were too long).

2007, Why are customers waiting for

furniture 2-16 weeks? Will they
continue to accept that?

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What is Supply Chain?

A Supply Chain is the alignment of firms that bring

products or services to market

A Supply Chain consists of all stages involved,

directly or indirectly, in fulfilling a customer
request. This includes manufacturers, suppliers,
transporters, warehouses, retailers, and customers

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A Supply Chain is an alignment of firms that bring products to market

1. Request for Quote 3. Purchase Order

4. P. O. Confirmation 2. Quotation
13. Payment Order 6. Ship Order
/ Instr.
14. Remittance
Buyer 15. Import 12. Export Supplier
Documents
Documents
Bank
Bank
5. Shipper Order/Instr.
Air Freight + Invoice
16. Proof of + Packing List
Delivery Terminal at Terminal
Destination at Origin

Surface Carriers

7a. Ship Instr. Cycle

Freight Forwarder Freight Forwarder

Capture
Gate Movement 8. Gate-in/ Capture
8. Gate-out/
Gate-out Gate Movement
Gate-in
Terminal at (Gate-out/in)
Destination
10. Bay Plan 9. Bay Plan Terminal
Ocean Carrier at Origin

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The Supply Chain and the Bullwhip effect

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Source: SCM Group
A Supply Chain Management: Information is the key to success

Production Inventory
What, how, How much to
and when to make and how
produce much to store

Information
The basis for
making
decisions

Transportation Location
How and when to Where best to do
move the product what activity

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SCM: Efficiency Vs. Responsiveness

Efficiency Responsiveness

These two directions are mutually conflicting goals and it is important to

determine where your strategy lies within these conflicting goals

Goal
Driver Responsiveness Efficiency
-Excess Capacity -Little excess capacity
Production -Flexible Manufacturing -Narrow focus
-Many small factories -Few central plants

-High Inventory levels -Low inventory levels

Inventory -Wide range of items
-Many locations close to customer
Location
-Frequent shipments
Transportation -Fast and flexible mode
-Fewer items
-Few central locations serving wide
areas
-Shipments are few and large
-Slow and cheaper modes

-Collect and share timely, accurate -Cost of information drops while other
Information data costs rise
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 How Does the Furniture Industry Stack up Against Other Industries?

Production Cycle Ave PCT Volume Value % with Level of

Sector levels
Time (PCT) (weeks) (Units) (Pesos)
d Subcon Subcon
Fine 5 1 to 2 weeks 1.5 Low High 10 few
Mango 4 2 to 4 weeks 3 High Low 0 No
Costume 6 4 to 6 weeks 5 High Low 95 high
Footwear 5 2 to 4 weeks 3 Med Med 33 few
Leathergoods 6 4 to 6 weeks 5 Med Med 82 high
Furniture 6 5 to 6 weeks 5 Low High 90 high
Housewares 6 4 to 7 weeks 5.5 Med Med 80 high
Holiday 6 8 weeks 8 High Med 95 high
(Source: Dennis T. Beng Hui, 2005)

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Agenda

Background and history

Supply Chain Management Alternatives

Software Integration of Supply Chain Initiatives

Lessons Learned

Resources

Wrap up

10
Supply Chain Management Alternatives

In a changing environment with increased lead times in the supply

chain, there are three alternative strategies a company can employ.

These include:

1. Create Marketplaces

2. Consolidation of retail operations

3. Vertical SCM integration

In the next section we will see how each of these strategies

can work in a retail furniture operation
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Supply Chain Management Alternatives

As the lead times increases from ordermanufacturing delivery,

there are increasing pressures on an industry on transitioning
from Make-to-Order (MTO) over to a Make-to-Stock (MTS) model.

The challenges with a MTS model are that there are inherent risks
to obsolete inventory, high inventory costs, and often low
production runs of each models due to changing preferences.

The cost aspects of a MTS model is also too high for a mid-sized
retail operation. Therefore, we tend to find marketplaces emerging
in these industries.

Long supply chains leads to opportunities

for marketplaces
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Supply Chain Management Alternatives Traditional

In a traditional local marketplace, the factory may delivery directly to

the stores in a region or state.

Benefits: Low inventory, personal contact from manufacturer to retail

store (allows for quick customization of products)

Drawback: Manufacturing facilities has to be relatively close to retail

operations 13
 Supply Chain Management Alternatives - Traditional

In a traditional extended marketplace, the factory may delivery to

distribution centers in an extended area

Benefits: Shortens lead-time from store order to delivery and is a

scaleable distribution system.

Drawback: Factory is distanced from customers, inventory is higher and

customized orders take longer time to delivery. Also, the demand cycle
is longer and chances of obsolete inventory increases.
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 Supply Chain Management Alternatives Overseas

In an international marketplace, the supply chain get very long. To control costs,
companies must either increase sales volume or being able to forecast demand in
advance of the customer orders. Due to long lead times, this is a system that works
well in a MTO model.

Benefits: Access to low costs materials and low costs labor

Drawback: Long lead times and long times to deliver customized orders. Also, over
time there is a shift in power to the manufacturer (i.e. Datsun Vs. Nissan).
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 Supply Chain Management Alternatives - Marketplaces

Company A

The exchange

Company B

Some well known examples of exchanges are Amazon (books); Travelocity (travel);
AlliedElectronics (microchips); Dell (customized computers); LL Bean (clothing).

In a Exchange marketplace, the retail channel is owned by either the marketplace, or

the exchange. However, the exchange cannot engage in retail operations, while also
selling to other retail networks. The classic model here is a wholesaler.

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 Supply Chain Management Alternatives - Marketplaces

Company A

The exchange

Company B

In this SCM model, the power is at the exchange level. Suppliers and retailers are
dependent on an efficient marketplace. The exchange keeps most of the inventory, and
the turnover rates are high. Due to scale, the exchange can also keep relatively low
demand items on hand as well (products that company A and B cannot to afford to carry).

There are two hybrid models for this Supply Chain:

1. Finished goods and/or Raw materials
2. Work in Progress (components)
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 Supply Chain Management Alternatives - Marketplaces

Company A

The exchange

Company B

The most efficient exchange model is a hybrid, where components are traded through
the exchange (i.e. sofa and chair frames; standardized components), while the local
companies finishes the customization locally
This decreases the lead times, while shortening the effective supply chain from
customer to customization.
Today, this is done in a variety of industries, such as automotive breaks, small
engines, microprocessors, memory, displays, roof frames, and much more
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 Supply Chain Management Alternatives - Marketplaces

Company A

The exchange

Company B

In the 1990s the introduction of exchanges created revolutions in many industries

such as travel, computers, book sellers, automotive, energy, candy (M&M), small
appliances (i.e. Whirlpool and Maytag).

The winners in all these revolutions were companies that adapted fast (Amazon,
Barns & Noble,CVS, Advanced Motorparts, eBay). While the losers where those who
tried to held on to old SCM models (travel agents, K-Mart, Delphi automotive, local
pharmacies and many more).
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 SCM Alternatives - Consolidation of retail operations
Another alternative is to increase the retail operations sales market consolidation
(mergers), prices, and/or better sales channels (internet, stores, showrooms).

This allows the retail operations to have the capacity to keep a certain amount of
inventory (increased inventory turnover reduces overall costs).

The challenge is that capital is not as inexpensive as it once was, the industry is highly
fragmented and the risks to the execution are high. Also, benefits of scale can only be
achieved by standardization of products (are customers ready for less choice?)

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 SCM Alternatives - Vertical integration
A retailer, or wholesaler can also create strategic alliances with suppliers where
inventory risk are shared.

1. This can be done by having the overseas vendor providing inventory

at distribution center (risks: who owns the distribution center?)

2. This can also be done by retailers having Vendor Managed Inventory (VMI), where the
retailer owns the space, but the vendor does not get paid until items are sold. This
shifts risks from retailer to manufacturer, but creates mutual dependencies.

3. Vertical integration can also take place when manufacturer acquire manufacturing
companies or facilities overseas and thereby own the supply chain.

In every industry in turmoil there are opportunities and

challenges; winners and losers
(i.e. NationsBank vs. Barnett Bank)
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Agenda

Background and history

Supply Chain Management Alternatives

Software Integration of Supply Chain Initiatives

Lessons Learned

Resources

Wrap up

22
 Software Integration of Supply Chain Initiatives

SAP and Oracle has

ERP tools that allows
you to integrate the
supply chain in a
single location

Initially ERP systems

integrated data
within a company;
today it integrates
vendors, companies
and end customers.

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 Software Integration of Supply Chain Initiatives

ERP systems removes

manual tracking systems and
can track all items from
purchase orders to final
delivery

ERP system also allows for

vendor evaluation and more
realistic delivery dates based
on actual history.
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Agenda

Background and history

Supply Chain Management Alternatives

Software Integration of Supply Chain Initiatives

Lessons Learned

Resources

Wrap up

25
 Lessons Learned
1. Companies in industries that faces long supply chains and overseas
competition will do better by being proactive, instead of delaying making
changes.

2. Changes are drastic and change management is required (employee

and stakeholder satisfaction).

3. Avoid hybrid strategies. Be single-

minded and concentrate resources.

4. Use a SCM tool and make sure your

partners (vendor/customer) do also.

5. You can only increasing volume by

reducing choice. Find out what
really matters (costs is king). 26
Agenda

Background and history

Supply Chain Management Alternatives

Software Integration of Supply Chain Initiatives

Lessons Learned

Resources

Wrap up

27
 7 Key Points to Take Away

1. You need a long-term strategy (design, not evolve! Hint: Nokia)

2. Only the really big players will make it without strategic alliances

3. Supply chain management is paramount in overseas transportation

4. You need one integrated supply chain management system

5. Standardization of components is critical for volume & reduced lead-times.

can you make customers believe that you are mass customizing?
(hint: Lexus vs. Toyota).

6. In a retail setting, the company that owns the channels wins (hint: eBay,
Dell, Travelocity, Wal-Mart, Exxon Mobil, Shell, International Paper)

7. Customers says they want choices, but costs wins most of the time!

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Resources

Manufacturing planning and Control Systems for Supply Chain

Management: The Definitive Guide for Professionals by Thomas E
Vollmann , William Lee Berry , David Clay Whybark , F. Robert Jacobs ,
Thomas Vollmann , William Berry

Successful Strategies in Supply Chain Management by Chi-Kin Chan,

H. W. J. Lee

The Practice of Supply Chain Management: Where Theory and

Application Converge by Terry P. Harrison, Hau L. Lee, John J. Neale

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Agenda

Background and history

Supply Chain Management Alternatives

Software Integration of Supply Chain Initiatives

Lessons Learned

Resources

Wrap up

30
How to contact me:
Dr. Bjarne Berg
bergb@lrc.edu

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