1 Construction and Management of a Supply Chain for an e-commerce website in Grocery Industry Project for Group4 Group member: Li Yan, Tan Hee Liang, Weng.

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Construction and Management of a Supply Chain for an e-commerce

website in Grocery Industry

Project for Group4

Group member: Li Yan, Tan Hee Liang,

Weng Yongmei, Zhang Cheng

Page Page 22

Design the Website and the supply chain The nature of our website in the supply chain

– We are a pure virtual EC website selling groceries– A retailer in the supply chain, we have suppliers upstream,

corporate buyers & end users downstream– We hold our own inventory but we don’t have any physical

store – Our mission is to provide customers with the most

economical yet the widest choice of quality grocery items in a fast, cost-efficient and effective way

The nature of demand for our products– Customers decide what we carry– Grocery products are functional products– Stable, predictable demand and long life cycles – The supply chain for this functional products should be

physically efficient and responsive to the market

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Design the Website and the supply chain

Supplier analysis– Multiple choice, manufacturers and wholesalers to get the

most original price– Continuous Replenishment Inventory control with us– IOIS to share inventory data, sales data, so we can

cooperate very effectively and efficiently with each other. – With CRP and IOIS we also can simplify order process and

reduce order process time Customer analysis

– Corporate buyers: B2B, regular and in relatively small number, most of the profit are from them

– Individual end users: B2C– Customer strategy can be different

Page Page 44

Design the Website and the supply chain

Service level– Delivery-to-doorstep service – Emergency delivery– Stock-out rate is about 1%– Goods return service

Design of the website (from management point of view)– Management department– Procurement and sourcing department– Order processing department– Technical support department– Information source department

Page Page 55

Design the Website and the supply chain Design of the website (from technology point of

view)– Order-taking component– Goods returning component– Supplier component– Validation component– Billing and invoicing component– Electronic notification component– Managers component

Supply chain strategy– Automation, low inventory, effective products promotion, good

customer service, free information sharing, 3rd party logistics

Page Page 66

ReferencesReferences

1. CS5262 IT and Supply Chain Management Notes2. Robert B. Handfield, Ernest L. Nichols, Jr.

Introduction to Supply Chain Management3. Marshall L. Fisher What is the right supply chain for

your product? In Harvard Business Review, March-April 1997 pp105-116

4. Donald A. Hicks, Next Generation Supply Chain Strategic Planning Technology and Application, http://hicks.ASCET.com

5. H.E.Butt Grocery Company: A Leader in ECR Implementation

Overall Supplier PolicyOverall Supplier PolicyMultiple sourcing VS. Single Sourcing Advantages: 1.Avoid the risk of relying on a single supplier 2.Freedom to choose the best from all suppliers 3.Greater bargaining power Disadvantages: 1.Communication and relation is complicated 2.More training to suppliers needed 3.Not easy to keep the loyalty with the suppliers Local Sourcing mixed with Global Sourcing Advantages of local sourcing: 1.Better cooperation with suppliers 2.Easier delivery and less delivery cost 3.Emergency orders are easily met Advantages of global sourcing: 1.More variety of products to choose from 2.Lower prices generated from difference in labor cost and material cost between overseas market and local market

Page Page 88

Requirements & Standards Requirements & Standards for suppliers for suppliers

The Supplier Agreement Inter-Organizational Information System (IOIS) Lead-time Requirements Suppliers’ ATP Record Required Timely Delivery Industry Knowledge and Integrity

Page Page 99

Understanding Bullwhip EffectUnderstanding Bullwhip Effect Definition Bad Effects:

– excessive inventory investment

– insufficient or excessive capacities

– stock outs and backlogs(lost revenues)

– poor customer service Causes:

– demand forecast update

– order batches

– price fluctuation

– shortage gaming Customer Retailer Supplier Manufacturer

Page Page 1010

Counteractions for Counteractions for Bullwhip Effect Bullwhip Effect

Ordering Policies – CRP or VMI for products with little variation in demand – Normal ordering for products which vary greatly in demand– Emergency orders

Counteractions for Bullwhip Effect– Avoid multiple demand forecast updates by information sharing– Break the order batches– Stabilize the prices– Eliminating gaming in shortage situation

Page Page 1111

ReferencesReferences Robert B. Handfield and Ernest L. Nichols, Jr., Introduction

to Supply Chain 1999 Jayashankar M. Swaminathan and Norman M. Sadeh and

Stephen F. Smith Effect of Sharing Capacity Information 1997

Hau L. Lee and Paddy Padmanabhan and Seungjin Whang The Paralyzing Curse of the Bullwhip Effect in a Supply Chain 1995

Troy J. Strader and Fu-Ren Lin and Michael J. Shaw Business-to-Business Electronic Commerce and Convergent Assembly Supply Chain 1999

Efraim Truban, Jae Lee, David King and H. Michael Chung Electronic Commerce A Managerial Perspective 1999 

Page Page 1212

Customer service

Customer Service Strategy – Customer Characteristics

Purchaing BehaviorContact Charater

Contact MethodInformation Recording

Loyalty Program

Bulk, low purchasing rate

One-to-OneFace-to-face, phone,

fax, email, EDIVery Detailed Often

End-user Normal UserSmall volume, low purchasing rate

One-to-ManyWebsite, phone, fax,

emailGeneral Rare

Loyal MemberSmall volume, high

purchasing rateOne-to-Many

Website, phone, fax, email

Detailed Often

Corporation

Customer Type

Page Page 1313

Customer service

– Customer Management

– Service Strategy Service Performance Index

– Response Time

– Service Level

– Cycle Time

– Inventory Turnover  

Page Page 1414

Logistics process

Third-party logistics

Cross-docking

Warehouse management

Emergency Force

Page Page 1515

Information Management

Information System Architecture

Page Page 1616

Information Management Information Management Strategy

– Information Sharing – Mixed Decentralized and Centralized Information

Management

Page Page 1717

ReferencesReferences Ronam McIvor, “A practical framework for understanding the outsourcing

process”, Supply Chain Management: An International Journal”, Volume 5. Number1. 2000 pp.22-36

Theodore P. Stank and Thomas F. Goldsby, “A framework for transportation decision making in an integrated supply chain”, Supply Chain Management: An International Journal”, Volume 5. Number2. 2000 pp.71-77

Remkp I.van Hoek, “Postponement and the reconfiguration challenge for food supply chains”, Supply chain Management, Volume4. Number1. 1999. pp.18-34

Tome Davis, “Effective Supply Chain Management”, Sloan Management Review/Summer 1993

Jules Abend and Penny Gill, “Retail,E-Tail”, Supply chain management review, May/June 2000

Dow Bauknight and Douglas J.Bade, “Fourth Party Logistics—Breakthrough Performance in supply chain outsourcing”, Supply Chain Management Review Global Supplement, Winter 1999.

Page Page 1818

Order fulfillment

Traditional retailer– Minimal differentiation of service level

– Most orders are large and infrequent

– Demand is stable and consistent

– Delivery locations are concentrated and standard e-tailer

– More differentiation of service level

– Most orders are small and frequent

– Demand spikes are sporadic and consistent

– Delivery locations are highly dispersed

Page Page 1919

Order fulfillment

Improve backend processes– infrastructure eg EDI, Internet, Extranet

– integration of processes such as order fulfillment, warehouse management and distribution processes

Improve customer service– Availability to Promise

– Realistic expectation Get help from 3rd party logistics provided

– Inventory management, warehouse management and fulfillment

Page Page 2020

Order fulfillment

Different distribution models– Own warehouse and distribution (Amazon.com )

– Own warehouse and 3rd party distribution (Toysmart.com )

– Pure-play. Supplier has own distribution network (Garden.com)

– 3rd party logistics (Fogdog Sports)

– Multi-channel (eWorldofSport.com)

Page Page 2121

Order fulfillment Comparison of e-tailers

Garden Toysmart Furniture

Perishability Yes No No

Product focus Plants Toys Furnishings anddecors

Size of order Moderate Small Bulky

Order pattern A few peakperiods

Peak duringChristmasperiod

Constant

Inventoryturnover rate

Moderate Fast Slow

Warehousemanagement

Supplier-managed.

Manage ownwarehouse.

Supplier-managed.

Distributionchannel

Supplier-managed.

Outsource to 3rd

party.Supplier-managed.

Page Page 2222

ReferencesReferences Convenience is king,PricewaterhouseCoopers, 24 Jan 2000 E-retailers learn delivery lesson,David Orenstein

Computerworld, 03 Jan 2000 Integration for online customer retention

PricewaterhouseCoopers, 2000 Internet retailers,Mark Emond,e-com advisor, vol.2 no.3, 2000 Battle for holiday 2000 dot com retailers focus on order

fulfillment to survive Giftware Business News Watch, 2000 The emergence of third-party logistics

PricewaterhouseCoopers, 2000 Stand (pick) and deliver,Constantine Von Hoffman

CIO Magazine, 15 Apr 2000