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Discussion Question Chapter 6 Supply Chain Integration

dan Chapter 7 Distribution Strategies






Question 1 Discuss the Advantages of Push based supply chain. What about a Pull
based Supply Chain?

A).Advantages of a Push Based Supply Chain:

a). Products with low demand rate can be stocked. As result, can be pull based
supply chain.

b). Production and Distribution decisions based on long – term forecasts.

Advantages of Pull Based Supply Chain:

a). Production and Distribution demand are coordinated with true customer
demand rather thanforecasted demand.

b). Firm does not hold any inventory and only responds to certain orders.

c). Reduced lead times through the ability to better anticipate the incoming orders
from theretailers.

d). reduce inventory levels.

e). Less variability in the system.

f). Reduced inventory at the manufacturer to due to the reduction in variability.

Question 2 What is an example of a product with a primarily push-based supply chain? A

product with a primarily pull-based supply chain?
As discussed, the automobile industry has traditionally employed a push-based supply chain
strategy by building inventory for the dealer warehouses.

On the other hand, in industries in which demand is relatively low, and the finished products
are extremely expensive, e.g., semiconductor equipment and aircraft manufacturing, the
supply chains would be almost purely pull-based.

Question 3 what are the advantages of moving the push-based boundary earlier in a
supply chain? what about later?

By moving the push-pull boundary earlier, lead times and variability in the system are
decreased and service levels are improved due to increased ability to match supply and
demand. Also, inventory levels are decreased because there is little or no inventory in the
pull portion of the supply chain.

By moving the push-pull boundary later, costs can be reduced by taking advantage of
economies of scale. Furthermore, inventory levels may decrease due to risk pooling effects
and reduced safety stocks, if, for example, the push-pull boundary is moved later by
delaying product differentiation.

Question 4, Peapod, Dell, and many furniture manufactures use push-pull
supply chain strategies. Describe how each of these companies takes advantages of the
risk-pooling concept switched from a pure pull to a push-pull supply chain strategy after its sales
reached a significant volume. It established regional warehouses in order to aggregate
demand across large geographical areas, and increase service levels. These regional
warehouses form the boundary between the push and pull portions of the supply chain.
Similar to, Peapod moved from a pure pull to a push-pull strategy by
establishing warehouses in order to aggregate demand over geographical areas, and
increase service levels.

Computer components are standardized, and the demand for these components is
determined by the finished goods that consume them. Thus, Dell achieves significant
economies of scale and risk pooling by using a push-strategy in its supply chain up until the
assembly operation.

Furniture is a highly customized product, but its handling and distribution are complex due
to its bulkiness. Therefore, the production phase is a pull system based on realized demand
while transportation of furniture is implemented based on fixed delivery schedules in order
to achieve economies of scale and risk pooling.

Question 5 Explain Amazon’s strategy for slow-moving, low-volume products and

fast-moving, high-volume items.

High-volume, fast-moving products, whose demand can be accurately matched with

supply based on long-term forecasts, are stocked in stores. Low-volume, slow-

moving products are stocked centrally for on-line purchasing. The low-volume

products have highly uncertain demand levels, and therefore require high levels of
safety stock. Centralized stocking reduces uncertainties by aggregating demand across
geographical locations, and therefore reduce inventory levels. The Amazon retailer

uses a push strategy for high volume, fast-moving products and a push-pull strategy

for low volume, slow-moving products. This little book and CD sales turnover is low

and is not kept in an Amazon distribution center. Low inventory turnover means lower
sales, operating efficiency is low and also much more expensive DC to archive storage
costs, such as inventory costs, problems arise. In other words, the order arrived and
customer demand occurs at book and CD product sales until customer demand Yabe,
rather than raising the cost of inventory piled up in warehouses because the classroom
Pull-Based strategy is advantageous.
From Amazon so when Pull strategy. Consistently

pay profits, gradually increasing demand and, accordingly, was guilt

y of multiple warehouses. Push way to accumulate as many books are to be kept in

the warehouse. Yet Pull manner while order will take. In other words, the high
turnover rate produced by the individual order book sales when demand is increased
with longer lead time to meet

the bullwhip effect. To run the residual activity Pull approach based, the Internet when using the Push-Pull strategy depending on the

Amazon distribution center in order to meet the demands of the many books sales,
demand forecasting and inventory holding is cost savings and effectiveness in terms
of an appropriate strategy can be called. A cross-docking strategy is appropriate for
suppliers of fast moving nonperishable products,such as beer, rice, and shampoo, with
high overall sales volumes, but relatively low demands at individual stores. In this case,
cross-docking helps to coordinate shipments of fully loaded trucks. On the other hand,
perishable products for which lead times are critical, e.g., dairy products like milk and
yogurt, are best suited to a direct shipment strategy. Also, if individual stores require
full truckloads of certain products, then using a warehouse does not reduce
transportation costs, so the supplier can ship directly to the stores. For slow moving
products, such as household appliances, the discount store can benefit from
warehousing in order to reduce the total safety stock in the system, and to decrease
transportation costs.

Question 6 Discuss some additional examples of each of the four categories in figure
In order to assess the effect of product life cycles on the appropriate supply chain
strategy, we need to understand how the demand for a product and the importance
of economies of scale change over the life cycle of the product. A typical product life
cycle has several stages:
1. Consider a new car design. Initially, the car is introduced with a single choice for
engine size, and in a limited number of colors because the car manufacturer is not
certain whether the car will be accepted in the market. In other words, in this early
stage of the product life cycle, demand is relatively low and highly variable, and
economies of scale are not important which imply that a pull strategy is appropriate.
2. If the car is accepted by the market, then demand starts increasing at an increasing
rate. In this case, economies of scale dictate a shift toward a push-based supply chain
strategy. Meanwhile, the proliferation in engine sizes and colors of the car due to its
popularity increase the importance of the pull-based supply chain. Eventually, we
would expect that a push-pull strategy would be adopted by the time the car reaches
the mature phase of its life cycle.

Question 7 Is it possible for the appropriate supply chain (push, pull, or push-pull) to
change during a product’s life cycle? If not, explain why? If its possible, what are
some specific examples of products for which the appropriate supply chain changed?
In both catalog and on-line selling, the customer picks a product from a catalog, and
the sale happens directly from the merchant to the customer. In this sense, e-
fulfillment is not a new concept. However, there are some important differences
between these two fulfillment strategies:
1. In a catalog, search capabilities are limited, and searching is time consuming. In on-
line selling, it is much easier to direct the customer to the relevant page of the web
site according to the customers needs.
2. The amount of information that can be included in a paper catalog is limited. In on-
line selling, more information about a product can be provided easily upon demand.
3. Catalog selling is not interactive. Therefore, it is harder to match supply and demand.
In other words, in on-line selling it is easier for a customer to determine whether a
certain product fits the requirements. For instance, the My Virtual Model TM feature
on allows a customer to create a 3-D model of his/her body, and then
to try on items on the web site. Similarly, My Personal Shopper on can
suggest selected items to a customer after a few questions about his/her preferences.
Question 8 Is e-fulfillment a new concept? What is the difference between on-line
andcatalog selling? Consider, for instance, Land’s End, a company that has both
Answer:Yes e-fulfilment is the process of delivering the products; right to the
customer’s door steprather than bulk transport of products to retailers. This ensures
shorter lead time and goodcustomer satisfaction. Online selling is done by selling
items online direct to the customer,the customer browses for the item that he needs
and can purchase it any time. Catalog sellingis done by distributors who sell their
products to the retailers based on the catalog of itemsthat the particular retailer wants
to sell based on demand forecast.

Question 9 Explain how demand for a product like televisions can be shaped? How
does thiscompare to the ways in which demand for a product like canned soup can be
Answer:Televisions, in a very global and technology based environment, the Television
had become acommodity comparable to rice, best thing is television don’t expire.
Mass Media, Politics,Health, Sports, Emergency Management and Education can now
be done using the Televisionalmost all household, commercial and work place has one.
Manufacturers are now fightingfor the most advanced technology available to
produce the most economical and wideplatform. The television does not choose
race, color or location it basically became a requirement. The need of man for
Entertainment and Information is what fuels the continuousdevelopment of
technology that satisfies the customer. Canned soup is a kind of food that isused for
eating. It is different from Television. It is a product for healthy. To get profit
frombuying soup. They must find the way to make a best soup that the customers are
reallyneeded to buy it and eat for their health.

Question 10 Other than the examples listed in Section 6.5, what are some more
examples offailed Internet supply chain strategies? Successful Internet supply chain
A cross-docking strategy is appropriate for suppliers of fast moving nonperishable
products, such as beer, rice, and shampoo, with high overall sales volumes, but
relatively low demands at individual stores. In this case, cross-docking helps to
coordinate shipments of fully loaded trucks.
On the other hand, perishable products for which lead times are critical, e.g., dairy
products like milk and yogurt, are best suited to a direct shipment strategy. Also, if
individual stores require full truckloads of certain products, then using a warehouse
does not reduce transportation costs, so the supplier can ship directly to the stores.
For slow moving products, such as household appliances, the discount store can
benefit from warehousing in order to reduce the total safety stock in the system, and
to decrease transportation costs.

Question 11 Answer the questions at the end of the case study “Dell Inc. Improving
theFlexibility of the Desktop PC Supply Chain.
Case Question 1: Why does L5 incur higher manufacturing and logistics costs than
L6?What are some of the costs that are incurred in L5 but not in L6? Are there any
coststhat apply to only L6 but not L5?

L6 L5
Dell facility Integrated inside a Dell facility
Integrated motherboard-insidechassis Chassis shipped on water
shipped on water
Labor savings Motherboards shipped by air
MB air-freighting costs areeliminated Increased motherboard air-freighting
Reduced motherboard packaging costs 3rd-party integration cost in US
Separate logistical costs for chassis

Root causes of increasing L5 manufacturing

•Dell’s inability to provide motherboards in a timely fashion to CMs
A. Chipset Supplier decommit or supply issues.
a) Creates a disruption in the desktop PC supply chain.
b) Accounted for more than 60% of L5 manufacturing
B. Quality/engineering issues
i.Leads to dysfunctional or problematic motherboards
ii.Create additional demand for motherboardsc.
C. Dell forecast accuracy
i.Due to faulty forecast, Dell needs to source its extra chipsets or risk notmeeting
the customer demand
ii.Long Lead Time in chipset makes things difficult for the supplierd.
D. New Pdt Introduction
i.Actual demand for new PC pdt is volatile, so need to air freight

Cost incurred in L5
–Motherboard packaging cost
–Motherboard air freight/expedite cost
–Chassis and motherboard US transportation cost
–Local/regional integration cost
–Motherboard rework cost at DELL

Cost incurred in L6–China assembler’s cost (Foxconn performing L6)

Case Question 2: Which of the six proposed manufacturing solutions

should Dellimplement, based on the survey result? Why? What are the pros
and cons of thisrecommendation?

Option 3A: Integration at SLC/Hub
–Less Complex for Worldwide Procurement
–Supplier quality engineering management is reduced

–Most Complex for Cost Accounting

Case Question 3: How easily sustainable is your recommendation for the

previousquestion if the chipset supply shortage further deteriorates?

Answer: -

Case Question 4: How good is the methodology employed by the BPI team to
determinethe optimal manufacturing option for Dell? Are there more effective
•Methodology of BPI team was GOOD
–Cost per box
–Pdt Quality
–Capital Investment
–Material Handling

•Some other effective approaches can be

–Geographical Location of suppliers

Case Question 5: How can Dell effectively address the root causes contributing to
theincrease of L5 manufacturing?

 By providing motherboards in a timely fashion to CMs
 Ensuring that Chipset supplier dnt decommit or have other supply issues
 Have multiple suppliers
 Have some safety stock
 Reduce quality/engineering issues
 Benchmark Standard Operating procedures
 Forecast accurately to avoid demand fluctuations
 Plan demand in a better way for a new product introduction

Problem 1:
Consider a large discount store. Discuss some products and suppliers for which the
discount store should use a cross-docking strategy; some products and suppliers
better suited to a direct-shipment strategy; and, finally, some products and suppliers
for which the discount store should utilize a change to; "traditional warehousing

Cross Docking strategy is useful for the retail stores that deal with multiple products.
Since they need to maintain lowest level of inventories in their warehouses for all
specific items and must be able to ship them at the right time to their retail outlets.
The best example of the implementation of cross-docking strategy is WalMart.
WalMart generally handles thousands of products in their retail outlets. Hence
requires cross docking strategy for general day to day purpose products such as soaps,
cosmetics, vegetables and other food items such as bread, cereals, dairy etc. that have
reasonable perishable times.Direct shipping is generally suited for products such as
electronic items, bikes, accessories such as school bags, laptop bags that do not have
high day to day demand. Here the companies can use the retail outlets for the
promotion and sales purpose; but should be able to manage sales by directly shipping
from their warehouses. For example electronic items such as calculators, flash drives,
air-conditioners etc. and watches. Generally items that require installation and service
could go for direct shipment.Traditional warehousing should be utilized for products
such as clothes, utensils, stationary, books etc. These products have longer
life periods and the demand can be managed easily by the discount stores. And in
case of high demand products, the company can purchase
the products in wholesale from the distributor. Also in case of traditional
warehouses the warehouses are spread across multiple locations that are logistically
correct, the lead-time should not be a concern for the discount stores.

Problem 2:
Consider the following supply chains. For each one, list specific advantages of
centralized and decentralized management, and centralized and local facilities:
a. Milk and dairy products
b. b. Newspapers
c. MP3 players
d. Cars
e. Jeans

a). Milk and Dairy Products:
Advantages of Centralized Management:
1. Less inventory holding cost.
2. Lesser lead-Times.
3. Faster Transportation.
4. Accurate Demand information.

5.Advantage due to centralized risk-pooling.

Advantages due to Decentralized Management:

1.Limited inventory carrying cost.
2.Faster shipment of products to the retail outlets.
3.Retailer‟ s demand specific warehouses. This implies functioning of warehouses with
regards to the retailer‟ s demand on one to one basis.
4.Local Optimization.

Advantages of Centralized and Local Facilities:

1.Higher service levels.
2.Higher sales. And could improve product promotion and brand value.

b). Newspaper:
Advantages of Centralized Management:
1.Lesser inventory costs due to the accurate demand estimations. Since could involve
incorrect estimation of demand due to available inventory models such as news-
vendor.Also, availability of historical data.
2.Wholesale discounts to the customers.

Advantages due to Decentralized Management:

1.Faster delivery time.
2.More sales. Because of higher safety stock at each retailer and distributor.
3.Can answer unexpected or variability in demand.

Advantages of Centralized and Local Facilities:

1.More customers.
2.Higher sales.

c). MP3 Players:

Advantages of Centralized Management:
1.Maximum utilization of information systems. Both in terms of shipments and
2.Lower inventory costs.
3.Lower inventory levels.
4.Reduction in over-all system costs due to Centralized risk– pooling.

Advantages due to Decentralized Management:

1.Reduced shipment times.
2.Direct shipments.
3.High service levels.
4.Higher safety stocks.

Advantages of Centralized and Local Facilities:

1.Increase in sales due to availability of products near local areas.

d). Cars:
Advantages of Centralized Management:
1.Overall reduction in system costs due to risk pooling.
2.Lower safety stocks.
3.Higher sales to the dealer at a point in time.
4.Lesser warehouses.
5.Information sharing among dealers. Good for the parent company sales.

Advantages due to Decentralized Management:

1.Higher safety stocks.
2.Higher service levels.
3.Lower lead times.
4.Higher sales.

Advantages of Centralized and Local Facilities:

1.Higher service levels. As the customer can approach other dealer in case of
unavailability of a car.
2.Optimal solution for a car making company.
3.Increase in sales.

e). Jeans:
Advantages of Centralized Management:
1.Lower inventory.
2.Lower Inventory costs.
3.Accurate demand estimations using efficient information systems.

Advantages due to Decentralized Management:

1.Faster delivery.
2.Lead-Time Reduction.
3.Higher safety stock.
4.Wholesale discounts.

Advantages of Centralized and Local Facilities:

1.Promotion of products and leverage of brand value.
2.More sales due to more customers.
3.Availability of the product nearer to the customer.

Problem 3:
What companies or supply chains can you think of that use an inventory pooling

Inventory pooling is the capability of the companies to serve several marketplaces
each with their own uncertain demand – from a single stock of inventory
(centralized warehouse,common components, delayed differentiation,
product/component substitution, e-tailing, etc.). Companies that serve multiple
products to multiple markets can use inventory pooling strategy such as fashion
apparel companies.

Problem 4:
What companies or supply chains can you think of that use transshipment strategies?
Transshipment is the shipment of goods or containers to an intermediate destination,
then to yet another destination. Companies that require the cheapest route of
bringing goods from one location to another, use the transshipment. The
transshipment strategy is recommended for companies like IKEA (designs and sells
ready-to-assemble furniture,appliances, and home accessories) where the goods are
easy to assemble or disassemble by the customers themselves. It requires an export
license to carry transshipped goods unless it comes under certain exemptions. It
usually takes place between two different countries. The transshipped goods however
do not undergo a customs check as it will deter it from being an efficient means of
transportation. This makes it more susceptible to illegal activities.

Problem 5:
List two similarities between inventory pooling and transshipment strategies. List two
differences. Why might one or the other be appropriate for a particular supply chain?
The similarities between the inventory pooling and the transshipment strategies are:
1.Both the methodologies reduce the risk of the retailer, as the lost in sale can be
compensated either by ordering higher than required as in the case of
inventory pooling or by sharing the inventory from the other retailer as in the ca
se of transshipment.
2.Higher service levels.
3.Lesser lead times.
4.Sharing the risks.

The differences between the inventory pooling and the transshipment strategies are:
1.No need to share information with the other dealers in the case of inventory p
ooling since if there is a lack of inventory then the dealer could directly get it from the
manufacturer. But in the case of transshipment the dealers need to share information.
2.Inventory pooling involves high holding cost but the transshipment involves lesser
holding cost.

Considering the customer search concept into consideration it’s better to opt for
transshipment with decentralized system through obtaining the ‘Nash Equilibrium’.
Also using the transshipment methodology will reduce the lead times and increase the
profits of the dealers.

Problem 6:
Discuss how companies or dealers can encourage search.
Companies can encourage search by estimating the percentage of customers
searching for other dealers, from the dealer who has lost the sale. This information is
important for the company because the company can estimate the estimated loss in
sales for the particular dealer and could accommodate this percentage to the orders
he has made.Dealers can encourage search to gain customer good-will in providing
the car to the customer from the other dealer (Competitor) to compensate for the lost
sale, reduce lead times and optimize the profits between the dealers through sharing
their inventory information.

Problem 7:
Discuss how dealers might discourage search. Why might dealers want to discourage
Dealers might discourage search, since they need to share the information with their
competitors. As it appears; due to the final sales from either of the dealers the
manufacturer benefits, but the lost in sale to one dealer is an
advantage to its competitor. Moreover this is more risky to the independent dealers
or retailers when compared to the company owned retail outlets.

Problem 8:
Answer the following questions about amazon case at the start of the chapter.
a) What expansion options should Amazon Europe select? Expand into other
countries?Launch Marketplace activities?
Answer a): -

b) What distribution network configuration should Amazon Europe adopt?

Answer b):
In Europe, as seen from the given case, Amazon has 3 independent Distribution
Centers (DCs), in the UK, Germany & France. Here, we have seen the location of the
inventory to be geographically determined. However, we believe that Amazon could
adopt the concept of a European Distribution Network (EDN), where the location of
the inventory could be strategically determined.