Supply Chain Integration 1 Outline external integration WalMart

Supply Chain Integration 1

Outline è external integration èWal-Mart èTSMC è vertical and Procter & Gamble and ASE integration 2

Supply Integration è professionally managing suppliers and developing close working relationships with different internal groups è internal and external integration èinternal: cross-functional teams 3

Wal-Mart è Company A: 1891 stores, average revenue US$7. 25 mill per store, total revenue ~ US$13. 7 billion è statistic taken around 1979 è 23 years later è Company B: 229 stores, each store earning about half as that of Company A, total revenue ~ US$ 0. 83 billion è Company A filed for Chapter 11 è Company B became one of the most successful companies in the world è Company A: K Mart; Company B: Wal-Mart è main reason: Wal-Mart has one of the best skills in supply management 4

Vendor-managed Inventory A Form of External Integration 5

Vendor-managed Inventory#1 èa supplier (a manufacturer or a distributor) monitors a buyer’s inventory and places replenishment orders for the buy èquantity, quality, frequency, and timing è popularized by Wal-Mart and Procter & Gamble in the late 1980’s 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 #1 6

Sam Walton #2 and Wal-Mart è Sam Walton è 1945: franchisee of a Ben Franklin variety store in Newport, Arkansas è 1951: Walton’s Five and Dime in Bentonville, Arkansas è 1962, July 2: first Wal-Mart store in nearby Rogers è trend èK of discount stores Mart by S. S. Kresge (800 variety franchise stores) è Woolco è Target by F. W. Woolworth chain by Dayton Hudson Some material for Sam Walton from: Sam Walton (1992) Made in America: My Story #2 7

Sam Walton and Wal-Mart è basic èlow idea of discount store supply price by economizes of scale ècheap household consumables (e. g. , toothpaste, pain killers, soap, shampoo, etc. ) to attract customers èother goods at 30% mark up (in comparison to 40% to 45% in variety stores) 8

Sam Walton and Wal-Mart è Wal-Mart in infancy è in small towns of country side, cheap rental, simple decoration è cheap price, good promotion, eliminating middleman, hard bargainer è without any system è manual system with no inventory control è no categorization of goods è no accounting system è no fixed suppliers è simple price setting mechanism 9

Sam Walton and Wal-Mart èadopting in development new ideas and technology ècomputer course for Sam Walton in 1966 è by late 80’s, one of the most powerful and data intensive computer systems in the world èfirst distribution center around 1967 ècentralized èbar order to distribution centers in 1968 code, cross-stocking, vendor-managed inventory 10

Growth of Wal-Mart year 1960 1972 1974 1976 1978 1980 1990 2011 # of stores 9 32 51 78 125 195 267 1528 8970 Revenue (US $) Profit (US $) 1. 4 m 110 K 31 m 1. 2 m 78 m 168 m 340 m 678 m 1. 2 b 26 b 1 b 421. 85 b 15. 36 b 11

Procter & Gamble (P&G) 2013 revenue US$84. 17 B profit US$14. 48 B è founded 1837 è 1980: revenue US$10 B è 2011: revenue US$82. 6 B; profit US$ 11. 80 B; 24 brands with revenue over US$ 1 B 12

Relationship Between Wal. Mart & P&G in Mid to Late 80’s è poor adversarial relationship è 12 different product divisions of P&G interacting independently with Wal-Mart è on day-to-day transactions è fragmented information è 1985: dropping the “Vendor of Year” award to P&G by Sam Walton because of repeated redirected calls to CEO of P&G è business between the two companies in 1988: $375 m 13

Change of Relationship èa new VP, Lou Pritchett , in Sales and Customer Development of P&G è canoe trip with Sam Walton è two-day retreat between P&G and Wal. Mart senior management to change the supplier-retailer relationship 14

Mission Statement è “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. ” 15

Process and Changes è Integration ècommon performance measure ècost reduction of the process èdata sharing to understand customers and drive sales 16

Process and Changes è information systems ècomplementary èP&G: information data from marketing research èWal-Mart: actual sales data ènew information systems of Wal-Mart (1988): track sales of all products in each store ère-engineering of P&G systems: from productto customer-oriented 17

Vendor-managed Inventory (Continuous Replenishment Process) è è è P&G information systems è hold product information on status of products in store, warehouse, and outstanding orders è determine frequency, quantity, and timing of shipping without explicitly orders placed by Wal-Mart Goods to Wal-Mart è usually within 4 hours of orders è staying for less than 24 hours è interest earning later, VMI by major suppliers as requested by Wal-Mart 18

Benefits è è business between the two companies è US$375 M in 1988 è over US$4 B in early 2000’s è identifying potential winners from marketing data by P&G and verifying actual winners and losers by POS from Wal-Mart simplifying procedure è PO, invoices, advanced shipment notifications, financial payment, handled by EDI è common goals between the two companies è understanding and trust è reduction of bull-whip effect 19

Reduction of Bull-Whip Effect 20

Information Sharing A Form of External Integration 21

Steps in IC Fabrication è IC design è silicon è wafer è test preparation fabrication and sort è assembly è final and packaging testing 22

Information Sharing Between TSMC and ASE è Taiwan Semiconductor Manufacturing Company (TSMC 台積電): the first and the largest dedicated semiconductor foundry è Advanced Semiconductor Engineering Inc. (ASE日月光半 導體 ): the world’s largest independent providers of semiconductor packaging and test services è fabless IC designers requiring service of TSMC and ASE for IC production è 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. 23

Challenges è standardization of terms è standard protocol for information exchanges è business è process re-engineering and data exchange integration è business process and system integration 24

Vertical Integration of SPA (Specialty Store Retailer of Private Label Apparel) 25

Four SPA#3 s H&M (Sweden) Revenue Profit Zara (Spain) GAP (USA) Uniqlo (Japan) US$21. 69 B US$22. 2 B (2012) US$15. 7 B US$13. 46 B (2012) (2014) US$ 2. 31 b (2012) US$1. 1 B (2012) #3 US$4. 36 B (2012) US$0. 86 B (2014) Some material for SPA and Uniqlo from: 2010商業周刊 1181期「拆解 3大致勝秘訣」 26

Supply Chain raw material supplier How to reduce lead time and cut cost in a supply chain? supplier manufacturer è first-hand customer preference held by a retailer è who is more powerful? è who holds a brand? wholesaler / distributor retailer customer 27

Specialty Store Retailer of Private Label Apparel è some form of vertical integration being the norm when a brand requiring large volume, good quality, and low price è integrator: traders or brand name holders è SPA: vertical integration from design to retailing through a brand held by a retailer è quick response to adjust production from customer preference è 1970’s: 6 months from design to completion of production è now, some takes 6 weeks or shorter 28

ZARA è founded in 1975 è lead time from design to store: two weeks è # of new products: 10, 000 to 20, 000 annually è è competitors: about 1000 to 4, 000 characteristics è not much in advisterisement è main production in Spain è 50% in Spain, 26% in the rest of Europe, 24% in Asia and Afraica è products life manufactured in Asia and Turkey: products of longer shelf 29

Uniqlo è è different strategy from Zara è nameless, timeless design è same clothe possibly for different seasons, occasions, and even sexes strategic alliance with one of the largest textile corporation è joint R&D è direct sourcing from primary material source è strict internal standards è stricter than international or trade standards è experienced textile technicians stationing in subcontractor’s factories è quick response è over 1, 000 feedbacks per day through call center, retail outlets, and emails è organized and feedback to relevant departments 30