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SUPPLY CHAIN MANAGEMENT
SUPPLY CHAIN MANAGEMENT
• Supply Chain
– A network that includes:
• Vendors of raw materials
• Plants that transform those materials into
useful products
• Distribution centers that get products to
customers
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SUPPLY CHAIN MANAGEMENT
• If there is no specific effort to coordinate
the overall supply chain:
– Each organization in the network will have its
own agenda
– Each organization will operate independently
from the others
– Inefficiencies will result from the lack of
management
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SUPPLY CHAIN MANAGEMENT
• There is much to be gained by managing the
supply chain network to improve its
performance and efficiency
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DECISION VARIABLES IN
SUPPLY CHAIN MANAGEMENT
• Decision Variables (when managing the supply
chain)
– Location
• Of facilities and sourcing points
– Production
• What to produce in which facilities
– Inventory
• How much to order and when to order
– Transportation
• Mode of transport, shipment size, routing, and scheduling
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THE BULLWHIP EFFECT
• A problem observed frequently in unmanaged
supply chains
• Demand variability increases as one moves up the
supply chain away from the retail customer
• Small changes in consumer demand can result in
large variations in orders placed upstream
• The network can oscillate in very large swings as
each organization in the supply chain seeks to
solve the problem from its own perspective
• Results in increased cost and poorer service
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INVENTORY MANAGAMENT
• Variation in demand increases the challenge
of maintaining inventory to avoid stock-outs
• The uncertainty of demand can cause stockouts in which inventory is depleted and
orders cannot be filled
• Inventory management minimizes supply
and demand imbalances in the supply chain
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VENDOR MANAGED INVENTORY
• VMI is an effective way to improve supply
chain performance
• The vendor determines the quantities that
should be ordered by its downstream
customers
• It can be an effective method for reducing
inventory and stock-outs
• Its implementation faces practical challenges
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ACCURATE RESPONSE
• A firm’s ability to match supply and
demand, and ultimately make a profit
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SUPPLY CHAIN STRUCTURE
• The performance of a supply chain is measured in terms of profit,
average product fill rate, response time, and capacity utilization
• Profit projections may improve if another parameter is relaxed, but one
must consider the impact of all aspects of the relaxed parameter on
profit
• Response time often can be improved at the expense of higher overall
costs
• Capacity utilization should be high enough to reduce overhead
sufficiently, but not so high that there is no room to grow or handle
fluctuations in demand
• Lower capacity utilization, in effect, buys an option for increased
output in the future
• Higher capacity utilization decreases downside risk since costs are
reduced, but also limits the upside gain if future demand should
outstrip supply
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MAKE-TO-ORDER
• Produce a product only after it is ordered
• Compare this to make-to-stock
– Produce products and stock them as inventory
until sold
• Reduces inventory
• Increases flexibility
• Increases customization
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MAKE-TO-ORDER
• Factors to consider when evaluating the prospect
of make-to-order:
–
–
–
–
–
–
–
Value of custom product to consumers
Customer patience
Cost of stock-outs
Inventory holding costs
Modularity
Manufacturing lead time
Manufacturing set-up costs
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MARKET SHARE
MARKET SHARE
• Sales figures do not necessarily indicate
how a firm is performing relative to its
competitors
• Changes in sales simply may reflect
changes in the market size or changes in
economic conditions
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MARKET SHARE
• A firm’s performance relative to
competitors can be measured by the
proportion of the market that the firm is able
to capture
• That “proportion” is the market share
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MARKET SHARE
Market Share = Firm’s Sales / Total Market Sales
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REASONS TO INCREASE
MARKET SHARE
• Market share is often associated with
profitability
• Many firms seek to increase their sales
relative to competitors
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REASONS TO INCREASE
MARKET SHARE
•
•
•
•
Economies of scale
Sales growth in a stagnant industry
Reputation
Increased bargaining power
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WAYS TO INCREASE MARKET
SHARE
Share of Market = Share of Preferences * Share of
Voice * Share of Distribution
• Share of Preferences
– Can be increased through product, pricing, and
promotional changes
• Share of Voice (promotional expenditures)
– Can be increased by increasing advertising
expenditures
• Share of Distribution
– Can be increased through more intensive distribution
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MARKETING MIX
• The Four (4) Ps of Marketing – The
variables that marketing managers can
control in order to best satisfy customers in
the target market
–
–
–
–
Product
Price
Place (Distribution)
Promotion
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MARKETING MIX
• Product
– Attributes can be changed to provide more value to the customer
• Price
– Consider price elasticity and competitors’ prices before making
price adjustments
• Place (Distribution)
– Add new distribution channels or increase the intensity of
distribution in each channel
• Promotion
– Increasing advertising expenditures can increase market share,
unless competitors respond with similar increases
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MARKETING MIX
PRODUCT
PLACE
TARGET
MARKET
PRICE
PROMOTION
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REASONS NOT TO INCREASE
MARKET SHARE
• An increase in market share is not always desirable
– When a firm is at or near its production capacity
– When market share is gained due to increasing promotional
expenditures or by decreasing prices (this is not always true)
– If competitors lower prices in an attempt for a price war
– Small/Unique/Niche markets (this is not always true)
• As an example, if a company’s market share increases, a larger, more
capable competitor may decide to enter the niche
– Antitrust issues (laws that protect businesses from concerns such
as monopolization) may arise if a firm dominates its market
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REASONS NOT TO INCREASE
MARKET SHARE
• In some cases, it may be advantageous to
decrease market share
• It is possible to increase profitability while
dropping certain customers/markets
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REFERENCES
• http://www.quickmba.com/ops/scm/
• http://www.quickmba.com/marketing/mark
et-share/
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