chapter 9: using supply chains to create value for customers

by Jeff Tanner and Mary Anne Raymondby Jeff Tanner and Mary Anne Raymond

Principles of Marketing

Chapter 9Chapter 9Using Supply ChainsUsing Supply Chains

to Create Value for Customersto Create Value for Customers

©2010 Flat World Knowledge, Inc.


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• Supply chains include all of the organizations that impact products before, during, and after their production.

• Designing, monitoring, and altering these organizations is called supply chain management.

• These organizations are viewed too narrowly by many companies, but some companies consider them to be an integral part of the marketing plans.

• In the progressive companies the term value chain is used to signify the important role they play.

Sourcing and ProcurementSourcing and Procurement

Learning Objectives1.Explain why sourcing and procurement

activities are an important part of supply chain management.

2.Describe the reasons why the use of outsourcing and offshoring has grown.

3.Explain some of the drawbacks companies face when they outsource their activities.


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Sourcing and ProcurementSourcing and Procurement


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Outsourcing—Why Outsource?Outsourcing—Why Outsource?

Percentage of Supply Chain Percentage of Supply Chain Functions Offshored in 2008Functions Offshored in 2008


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Risks in OutsourcingRisks in Outsourcing


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Outsourcing—Social Responsibility Outsourcing—Social Responsibility and Sustainabilityand Sustainability


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Going GreenGoing Green


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Other Outsourcing Concerns Other Outsourcing Concerns

• Logistics of transporting and storing• Work force policies of 3rd world

companies• Some concerns lead to insourcing or

moving activities back in house.


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Matching Sourcing and Customer Matching Sourcing and Customer NeedsNeeds

• Customers can determine outsourcing and insourcing strategies.

• The customer is the last link in the supply chain.

• Recycling and reclaiming programs require the customer’s cooperation.


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Key TakeawaysKey Takeaways

• Companies outsource activities to lower their costs.

• Outsource activities can include a loss of control leading to product quality and safety issues.

• When firms can’t resolve supplier problems, they move the activities back in house, which is a process called insourcing.

• Customers are the focus of insourcing and outsourcing decisions that companies make.


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Demand Planning and Inventory Demand Planning and Inventory ControlControl

Learning Objectives1.Explain why demand planning adds value

to products.2.Describe the role inventory control plays

when it comes to marketing products.3.List the reasons why firms collaborate with

another for the purposes of inventory control and demand planning.


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ForecastingForecasting

• Demand planning is the process of estimating how much a good or service a customer will buy.

• Production scheduling is the management of the resources, events, and processes needed to create an offering.

• Lead time is the amount of time it takes for a customer to receive a good or service once it’s been ordered.


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Sourcing and ForecastingSourcing and Forecasting

• Sourcing decisions—deciding which suppliers to use—are generally made periodically.

• Forecasting decisions must be made more frequently. – As an example, the world economy fell

precipitously in 2008 and marketing forecasts on 2007 data alone would lead to costly overproduction.


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Supply Chain ManagingSupply Chain Managing

• Supply chain managers consult with marketing managers and sales executives when they are generating demand forecasts.

• Firms also look to their supply chain partners to help with their demand planning.

• In collaborative planning, forecasting, and replenishment (CPFR) supply chain partners share information and coordinate their operations.


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Integrating the Supply Chain in Integrating the Supply Chain in PlanningPlanning

• Supply chain visibility—the trend is clearly toward more shared information.

• Demand planning software—synthesizes a variety of factors to better predict a firm’s demand.

• Inventory control—the process of ensuring your firm has an adequate amount of products to meet customer needs.

• Goals of inventory management is to avoid stockouts.


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Some Inventory TermsSome Inventory Terms

• Safety stock is backup inventory that serves as a buffer in case of a surge in demand.

• Shrinkage is a term used to describe a reduction or loss in inventory due to shoplifting, employee theft, paperwork errors, and supplier fraud.


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Just-in Time Inventory Just-in Time Inventory


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Requires long term relationshipsbetween product provider and suppliers!

Product TrackingProduct Tracking

• Bar codes (UPC)—ubiquitous scanner read approach.

• Electronic product code (EPC)—similar to a barcode, only it is better because the number on it is truly unique.

• Radio frequency identification (RFID) tag emits radio signals that can record and track.


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• Good marketing decisions require good forecasts.• Demand forecasting is the process of estimating

how much a customer will buy from you. • Demand forecasting is part of a company’s overall

inventory control activities.• JIT inventory is a way to reduce inventory costs.• A goal of inventory control is to avoid stockouts.• New product tracking devices are emerging.


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Warehousing and TransportationWarehousing and Transportation

Learning Objectives1.Understand the role warehouses and

distribution centers play in the supply chain.

2.Outline the transportation modes firms have to choose from and the advantages and disadvantages of each.


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Warehousing and Distribution Warehousing and Distribution CentersCenters

• Warehouses are needed to accommodate supply and demand changes for products.

• Distribution centers are warehouses or storage facilities where the emphasis is on processing and moving goods on to wholesalers, retailers, or consumers rather than on to storage.

• The trend is towards smaller warehouses.


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How Warehouses and How Warehouses and Distribution Centers FunctionDistribution Centers Function

• Logistics—The physical flow of materials in the supply chain.

• Trucks—More products are shipped by truck than by another means. Most products have some trucking.

• Water—International trade could scarcely be conducted without cargo shipping.

• Railroads—In terms of its speed and cost, shipping by rail falls somewhere between truck and water transportation. They do what ships do except over land.

• Pipelines—Pipelines are generally used to transport oil, natural gas, and chemicals.

• Air—high cost of air transport limits use to time sensitive products such as leis from Hawaii.


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TransportationTransportation


• A distribution center is a warehouse or storage facility where the emphasis is on processing and moving goods on to other parts of the supply chain.

• Logistics refers to the physical flow of materials in the supply chain.

• Not all goods and services need to be physically transported.

• Products that need to be transported physically to get to customers are moved via air, rail, truck, water, and pipelines.

• Some firms store products until their prices increase.


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Track and Trace Systems Track and Trace Systems and Reverse Logisticsand Reverse Logistics

Learning Objectives1.Understand why being able to trace products

is important to organizations and their customers.

2.Explain what reverse logistics is and why firms utilize it.


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Track and Trace SystemsTrack and Trace Systems

• Track and trace systems that electronically record the paths shipments take has become almost as important to customers as shipping costs themselves.

• Today most product shipments can be traced using GPS, RFID, and Bar codes; though tracking individual packages is harder.

• Consumers are more interested than ever to know where their products come from and when they will arrive.

• Companies are working to develop systems that may one day make it possible to trace all products.


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Reverse LogisticsReverse Logistics

• Firms now run products and materials backwards through the supply chain to extract value from them. The process is known as reverse logistics.

• Most companies set up reverse logistics systems to “turn trash into cash.”

• A recent study suggests companies can recover up to 0.3 percent of their annual sales this way, which for Best Buy would amount to $100 million a year.

• Upcycling is a process to extract value from waste and using it to create new products.


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• Tracing products helps a company anticipate events that could disrupt the supply chain.

• Tracking individual products, especially after they combine to make other products, is more difficult.

• Consumers are more interested than ever to know where their products come from.

• Reverse logistics is the process of running damaged and defective products and scrap materials backwards through the supply chain to extract value from them.

• Companies are increasingly employing reverse logistics not only to save money but for environmental reasons.


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chapter 9: using supply chains to create value for customers

Documents

reverse logistics

demand planning

inventory control

trace systems

supply chain

demand forecasting

moving goods

physical flow