the club war case study report by sachin mathews

By Sachin Mathews

8/19/2015

2015Strategic Supply Chain Management Trimester 2A THE CLUB WAR CASE STUDY REPORT

The Club War – Case Study

Table of Contents

Sl No. Title Page No

1. Introduction 2

2. Objective 2

3. Background 2

4. Current Inefficiencies 3

5. Recommendations 4

6. Conclusion 6

7. References 7

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1. Introduction

The given case “The Club War” is about a company called Sam’s club which is “price club”

a retail phenomenon that began in 1976 where the club operates stores and warehouses and

offers distinctive advantages to its members by selling their merchandise lowest possible

price and giving customers a better buying experience. Many clubs sprang up in the later part

of the 20th century leading to intense completion in this warehouse retailing market. The

focus of these companies were to achieve greater operational efficiency, at lowest possible

overall supply chain cost, and pass on these saving achieved to its valuable members in the

form of low warehouse prices, better deals on merchandise and improved customer

experience.

2. Objective

The main objective of this study is to analyse Sam’s club and their current inefficiencies and

provide suggestions to Mr.Jim who heads the reengineering team that can help his team

formulate appropriate supply chain strategies in order to achieve lowest possible cost and

attain greater competitive advantage. The paper provides a background of the current

situation faced by club where the current inefficiencies are discussed and possible

recommendations are then suggested.

3. Background

Sam’s club is one of the leading price clubs in the US but faces stiff competition from Costco

another price club based in US who share the similar philosophy of cutting down costs by an

efficient supply chain and passing on savings to their esteemed members. But as presented in

the case they achieve tremendous buying power due to their large membership base. Sam’s

club notable differentiators mentioned are their low profit margins and offering bigger deals

on merchandise and services. The product line ranges from apparel, appliances, automotive,

books, consumer packaged goods, electronics, fresh and frozen foods, home furnishing and

office supplies. The firm recognizes that not all items needed to be available round the year

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and have seasonal items, unique special buy items which are available only once that creates

an atmosphere of “impulse buying” for end customers. This is proven marketing strategy but

requires an efficient supply chain or else could lead to stock out, lost sales, inventory holding

costs and various other variable costs resulting in poor business performance and loss of

competitive advantage.

4. Current Inefficiencies

Jim’s re-engineering team on conducting an “as-is” analysis that aims at understanding the

current dynamics of supply chain its current strengths, weaknesses, opportunities and threats

found 10 sources of inefficiency which are discussed below.

There was significant amount of freight moving in LTL quantities," though freight cost

analysis revealed TL to be the low-cost option. LTL which aggregates freight from several

customer from numerous touch points requires dock-personal, material handling equipment

etc., that increase the material-handling cost (Coyle 2011). There also runs the risk of

loss/damage if proper tracking and safety mechanisms are not in place. This is evident in the

case as they incurred huge loss and damage bills and high material handling cost. The firm

used cross docking facilities where shipments from suppliers or inbound trucks arrive at a

transit point and sent directly to buyer locations without storing them. Though they were able

to leverage TL economies they felt there was opportunity for improvement. As pointed out by

(Chopra & Meindl, 2013) the complete benefits of cross-docking can be achieved only if

economies of scale can be attained both in their inbound as well as outbound shipments

which needs effective coordination and transport mechanisms. In the existing framework

there was no way to implement milk runs, and team felt they were missing an opportunity to

reduce transportation costs. The team found that despite efforts they were still running empty

backhauls, which means increase miles travelled without load that results in added cost and

time consumed (Coyle 2011). Also significant amount of quantities were moved through

parcel and airfreight. All this shows a lack of an optimized transportation network, poor

trailer loading policies that were leading to increased lead times, higher material handling &

holding costs and transportation costs. In addition their purchasing, sourcing and supplier

delivery options were not analysed and synchronised with their transportation and

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distribution mechanisms. Freight from Asian suppliers was received on the west coast and

then shipped by trucks to the distribution centres and retail stores, increasing time of delivery

and transportation cost.

5. Recommendations

In the given case the main inefficiency lies in management of physical flow of materials from

source to consumption. As identified by the re-engineering team there is a lack of efficient

transportation network which includes optimal use of all available modal transportation,

routing and distribution mechanisms. However warehouse retailing firms also face the risk of

capitulating to the temptation of adding new features or making too many changes, diluting

the original strategy, pointed out by (McLaughlin 1992) as the “wheel of retailing” due to

which much of the competitive advantage gained by the organization is compromised. Jim

needs to keep this in mind while formulating new strategies. As pointed out by (Harrington

2008) the retail sector is known for its demanding service requirements and Jim will need to

thoroughly assess cost and service trade-offs before deciding on the way forward.

Information plays a crucial role in planning and execution phases of logistics activities.

(Schoenthaler 2003) elucidates how accurate and timely information affects supply chain

performance. Jim could benefit from implementing CPFR (Collaborative Planning,

Forecasting and Replenishment) a technique that combines the advantages of EDI and VMI

(Prater 2013) that would provide greater supply chain visibility and achieve better co-

ordination while planning the front-haul and back-haul transportation network. This

combined with TMS (transport management system) and WMS (warehouse management

system), ERP 2 and MRP2 tools can help Jim to design a better inbound and outbound

transportation network that can be synchronized with sourcing and distribution network.

However as pointed out by (Fliedner 2003) and (White 2013), for CPFR to work successfully

and to reap the complete benefits of it, there needs to be strong supplier-buyer relationships

where both parties work together to mutually agreed goals.

(Christopher 2005) further elucidates on how firms can gain long-term supplier relationship

can create value to the supply network. Jim needs to improve these relationships and

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negotiate better incoterms (International Commercial Terms) which relates to the rights and

obligation of parties in contract with relation to the delivery of sold goods (Coyle 2011), such

as DAF (Delivered at Frontier) where the exporter responsible for transportation and risk of

damage or DES (Delivered Ex Ship) / DDU (Delivered Duty Paid) where exporter takes

additional responsibilities. However Jim needs to examine the quality aspect and past history

of the service rendered by theses suppliers before deciding the incoterms. This would reduce

the bill of loss/damage that Sam’s Club is incurring. In addition, Jim needs make these

purchasing decisions in view of the current transportation inefficiencies.

In terms of their transportation and distribution network, Jim could use the option of a

“Tailored Network” that uses an effective combination of TL, LTL, cross-docking and Milk

runs which can further help in reducing cost and improve the responsiveness of Sam’s Club

supply chain. Depending on the demand of products, shipment can be sent directly

(preferably for high demand) or to and from a DC (for low-demand). Emphasis should be to

use TL as it is the low-cost option, and reduce the shipments through LTL which can be

achieved using TMS by optimizing the trailer capacity. As pointed out by (Irista 2005)

through TMS, various permutations and combinations of these arrangements can be analyzed

and optimal solutions that reduce the transit time and transportation cost can be arrived at.

For smaller shipments especially to the retail stores, that does not fill a truck, Jim should use

Milk runs along with cross-docking. This requires significant amount of coordination and can

only be achieved by improving the information and communication technology used by the

firm. For larger shipments, Jim must make use of “Economy of Scale" and "Economy of

Distance" and use direct shipping that would simplify operations and co-ordination and

reduce the transportation time. For shipment arriving from Asia, landing on the west-coast,

Jim could use the option of using mutli-modal transport such as rail-truck, while considering

the type of product, degree of spoilage or damage as it would increase amount of handling

required. Jim must also evaluate the option of near-sourcing some of these products and

make necessary trade-offs between transportation cost and price of these products from low-

cost producing countries. These steps would decrease the transportation cost significantly. As

pointed out by (Harrington 2008) through improved relationships and co-ordination with

suppliers and their carriers, Jim could also make use of overlapping networks and reduce the

effect of empty backhauls.

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6. Conclusion

As seen in this case study firms need to regularly revisit and re-evaluate their purchasing,

sourcing and logistics mechanisms and align them to their organizational strategy. In the

price club or warehouse retail market, the main differentiator is the efficiency of the supply

chain at lowest possible cost. Firms need look out for every possible opportunity to improve

efficiency and reduce cost in their current operating environment without losing track of their

core competency that will enable them to achieve greater competitive advantage.

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7. References

Chopra, Sunil, and Peter Meindl. 2013. Supply Chain Management - Strategy, Planning and Operations. Pearson.

Christopher, Martin.,. 2005. Logistics and Supply Chain Management - Creating Value added Networks. Pearson Education Limited.

Coyle, J.,John.,Novak,A.,Robert,Gibson,J.,Brian.,Bardi,J.,Edward. 2011. Trasportaion - A supply Chain Perspective. South Western Cenage Learning.

Fliedner, G.,. 2003. “CPFR: an emerging supply chain tool.” Industrial Management and Data Systems,Vol 103(1) pp.14-21.

Fliedner, G.,. 2003. “CPFR: An Emerging Supply Chain Tool.” Industrial Management and Data Systems,Vol.103(1) pp.14-21.

Harrington, Lisa.,. 2008. “Ground Tactics: Optimizing Transportation Networks.” Inbound Logistics. http://www.inboundlogistics.com/cms/article/ground-tactics-optimizing-transportation-networks/.

Irista, P.,. 2005. “Transportation Optimization: Is This the Next Step ?” HK Systems Company.

McLaughlin, Edward.,Hawkes,Gerard.,Perosio,Debra.,. 1992. “Wholesale Club Stores: The Emerging Challenge.” Cornell Food Industry Management Program pp.1-46.

Prater, Edmund.,Whitehead,Kim. 2013. An Introduction to Supply Chain Mangement - A Global Supply Chain perspective. New York: Business exper press.

Schoenthaler, R. 2003. “Creating real-time supply chain visibility.” Electronic Business 12-13.

White, Andrew.,. 2013. “Best Practices Collaborative Advanced Planning & Scheduling presentation.” Gartner,Inc.,.

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the club war case study report by sachin mathews

Leadership & Management