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Supply Chain IntegrationSupply Chain Integration

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OutlineOutline

external integration Wal-Mart and Procter & Gamble

TSMC and ASE

vertical integration

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Supply IntegrationSupply Integration

professionally managing suppliers and professionally managing suppliers and developing close working relationships with developing close working relationships with different internal groupsdifferent internal groups

internal and external integrationinternal and external integration internal: cross-functional teamsinternal: cross-functional teams

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Wal-Mart Wal-Mart

Company A: 1891 stores, average revenue US$7.25 mill per store, total revenue ~ US$13.7 billion

Company B: 229 stores, each store earning about half as that of Company A, total revenue ~ US$ 0.83 billion

statistic taken around 1979 23 years later

Company A filed for Chapter 11 Company B became one of the most successful companies in the

world

Company A: K Mart; Company B: Wal-Mart main reason: Wal-Mart has one of the best skills in supply

management

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Vendor-managed InventoryVendor-managed Inventory

A Form of External IntegrationA Form of External Integration

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Vendor-managed InventoryVendor-managed Inventory#1#1

a supplier (a manufacturer or a distributor) monitors a buyer’s inventory and places replenishment orders for the buy quantity, quality, frequency, and timing

popularized by Wal-Mart and Procter & Gamble in the late 1980’s

#1 Material for VMI from: Michael Grean, and Michael J. Shaw (from web) Supply-Chain Integration through Information Sharing: Channel Partnership

between Wal-Mart and Procter & Gamble

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Sam Walton #2#2 and and Wal--Mart

Sam Walton 1945: franchisee of a Ben Franklin variety store in

Newport, Arkansas

1951: Walton’s Five and Dime in Bentonville, Arkansas

1962, July 2: first Wal-Mart store in nearby Rogers trend of discount stores

K Mart by S.S. Kresge (800 variety franchise stores)

Woolco by F.W. Woolworth

Target chain by Dayton Hudson

#2 Some material for Sam Walton from: Sam Walton (1992) Made in America: My Story

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Sam Walton and and Wal--Mart

basic idea of discount store low supply price by economizes of scale

cheap household consumables (e.g., toothpaste, pain killers, soap, shampoo, etc.) to attract customers

other goods at 30% mark up (in comparison to 40% to 45% in variety stores)

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Sam Walton and and Wal--Mart

Wal-Mart in infancy in small towns of country side, cheap rental, simple

decoration cheap price, good promotion, eliminating middleman,

hard bargainer without any system

manual system with no inventory control no categorization of goods no accounting system no fixed suppliers simple price setting mechanism

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Sam Walton and and Wal--Mart

Wal-Mart in development adopting new ideas and technology

computer course for Sam Walton in 1966 by late 80’s, one of the most powerful and data intensive

computer systems in the world

first distribution center around 1967

centralized order to distribution centers in 1968

bar code, cross-stocking, vendor-managed inventory

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Growth of Wal-MartGrowth of Wal-Mart

20111990198019781976197419721970

110K1.4 m91960

Profit (US $)Revenue (US $)# of storesyear

1.2 m31 m3278 m51

15.36 b421.85 b89701 b26 b1528

1.2 b267678 m195340 m125168 m78

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Procter & Gamble (P&G) Procter & Gamble (P&G)

founded 1837 1980: revenue US$10B 2011: revenue US$82.6B; profit US$ 11.80B; 24 brands

with revenue over US$ 1B

2013revenue US$84.17Bprofit US$14.48B

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Relationship Between Relationship Between WalMart & P&G in Mid to Late 80’sWalMart & P&G in Mid to Late 80’s

poor adversarial relationship 12 different product divisions of P&G interacting

independently with Wal-Mart

on day-to-day transactions

fragmented information

1985: dropping the “Vendor of Year” award to P&G by Sam Walton because of repeated redirected calls to CEO of P&G

business between the two companies in 1988: $375 m

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Change of RelationshipChange of Relationship

a new VP, Lou Pritchett , in Sales and Customer Development of P&G

canoe trip with Sam Walton

two-day retreat between P&G and Wal-Mart senior management to change the supplier-retailer relationship

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Mission StatementMission Statement

“The mission of the Wal-Mart/P&G Business team is to achieve the long-term business objectives of both companies by building a total system partnership that leads our respective companies and industries to better serve our mutual customer the consumer.”

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Process and ChangesProcess and Changes

Integration common

performance measure

cost reduction of the cost reduction of the processprocess

data sharing to data sharing to understand understand customers and drive customers and drive salessales

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Process and ChangesProcess and Changes

information systems complementary information

P&G: data from marketing research

Wal-Mart: actual sales data

new information systems of Wal-Mart (1988): track sales of all products in each store

re-engineering of P&G systems: from product- to customer-oriented

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Vendor-managed Inventory Vendor-managed Inventory (Continuous Replenishment Process)(Continuous Replenishment Process)

P&G information systems hold product information on status of products in store,

warehouse, and outstanding orders determine frequency, quantity, and timing of shipping without

explicitly orders placed by Wal-Mart

Goods to Wal-Mart usually within 4 hours of orders staying for less than 24 hours interest earning

later, VMI by major suppliers as requested by Wal-Mart

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BenefitsBenefits

business between the two companiesbusiness between the two companies US$375M in 1988 US$375M in 1988 over US$4B in early 2000’sover US$4B in early 2000’s identifying potential winners from marketing data by P&G and

verifying actual winners and losers by POS from Wal-Mart

simplifying procedure PO, invoices, advanced shipment notifications, financial payment,

handled by EDI

common goals between the two companies understanding and trust reduction of bull-whip effect reduction of bull-whip effect

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Reduction of Bull-Whip Effect

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Information SharingInformation Sharing

A Form of External IntegrationA Form of External Integration

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Steps in IC Fabrication Steps in IC Fabrication

IC design

silicon preparation

wafer fabrication

test and sort

assembly and packaging

final testing

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Information Sharing Between Information Sharing Between TSMC and ASE TSMC and ASE

Taiwan Semiconductor Manufacturing Company (TSMC台積電 ): the first and the largest dedicated semiconductor foundry

Advanced Semiconductor Engineering Inc. (ASE 日月光半導體 ): the world’s largest independent providers of semiconductor packaging and test services

fabless IC designers requiring service of TSMC and ASE for IC production

logical step: seamless information and transaction flows for the same customers and suppliers #4 Material from: Bang-Ning Hwang & Shih-Chi Chang & Hsiao-Cheng Yu and Che-Wei

Chang (2008) Pioneering e-supply chain integration in semiconductor industry: a case

study, International Journal of Advanced Manufacturing Technology, 36:825–832.

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ChallengesChallenges

standardization of terms

standard protocol for information exchanges

business process re-engineering

process and data exchange integration

business process and system integration

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Vertical Integration of SPAVertical Integration of SPA(Specialty Store Retailer of Private Label Apparel)(Specialty Store Retailer of Private Label Apparel)

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Four SPA#3s

#3 Some material for SPA and Uniqlo from: 2010商業周刊 1181期「拆解 3 大致勝秘

訣」

H & M (Sweden)

Zara (Spain)

GAP (USA)

Uniqlo (Japan)

RevenueUS$21.69B

(2012)US$22.2B

(2012)US$15.7B

(2012)US$13.46B

(2014)

ProfitUS$ 2.31 b

(2012)US$4.36B

(2012)US$1.1B

(2012)US$0.86B

(2014)

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Supply ChainSupply Chain

retailer

wholesaler / distributor

manufacturer

supplier

raw material supplier

customer

How to reduce lead time and cut cost in a

supply chain?

first-hand customer preference held by a retailer

who is more powerful?

who holds a brand?

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Specialty Store Retailer of Specialty Store Retailer of Private Label ApparelPrivate Label Apparel

some form of vertical integration being the norm when a brand requiring large volume, good quality, and low price integrator: traders or brand name holders integrator: traders or brand name holders

SPA: vertical integration from design to retailing through vertical integration from design to retailing through a brand held by a retailera brand held by a retailer

quick response to adjust production from customer quick response to adjust production from customer preferencepreference 1970’s: 6 months from design to completion of production 1970’s: 6 months from design to completion of production

now, some takes 6 weeks or shorter

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ZARAZARA

founded in 1975 lead time from design to store: two weeks # of new products: 10,000 to 20,000 annually

competitors: about 1000 to 4,000

characteristics not much in advisterisement main production in Spain

50% in Spain, 26% in the rest of Europe, 24% in Asia and Afraica products manufactured in Asia and Turkey: products of longer shelf li

fe

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UniqloUniqlo

different strategy from Zara nameless, timeless design nameless, timeless design

same clothe possibly for different seasons, occasions, andsame clothe possibly for different seasons, occasions, and even sexessexes

strategic alliance with one of the largest textile corporation joint joint RR&&DD

direct sourcing from primary material source direct sourcing from primary material source

strict internal standards strict internal standards stricter than international or trade standards stricter than international or trade standards

experienced textile technicians stationing in subcontractor’s factoriesexperienced textile technicians stationing in subcontractor’s factories

quick response quick response over 1,000 feedbacks per day through call center, retail outlets, and emailsover 1,000 feedbacks per day through call center, retail outlets, and emails

organized and feedback to relevant departmentsorganized and feedback to relevant departments