SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Supply Chain Management

Unit 8

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Crocs
• Crocs shoes are made from Croslite
– Extremely light
– Does not skid
– Odor resistant
– Easy to wash
• The founders wanted to name the shoes something that
captured the amphibious nature
– “Alligator” had already been taken

Chapter 1 1
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com
Accessories
Various Sports
Suppliers Jibbitz protectors
Leather
Mold Grommets
producers Style &
size Glue etc
molds
Dye
Package & Labeled,
Compound Mold Assemble packaged
Label
Croc
Chem
Pellets

Color Size & Style Complete Warehouse

Pellets blanks Croc and
Dow Chem
distribute
& others

Small
In-season
retailer
orders
Large
Production
Retailer
Orders
Distribution
(plus %) Pre-booked
orders
General Map of Croc’s Basic supply, production
and distribution processes

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Croc’s Global Production strategy *Owned by Crocs vs. outsourced

[3]

Compound Mold Package & Warehouse Small

Assemble
Label / distribute retailer
Denver 3rd
party Denver Denver
Italy Canada*
distributor
Florida* [2] Labeled,
Color Size & Style Complete
[1] packaged
Pellets blanks Croc
Croc
Bosnia
[6] Large
China Bosnia Bosnia
China Retailer
Bosnia
Mexico* China China Europe
Mexico* China
Mexico* Large
Brazil* Mexico*
Mexico* Retailer
Brazil* Brazil* Asia
Brazil*
[4]
[5] Style & Large
size Retailer
South
[1] Maintain Florida plant for “Made in USA label molds
America
[2] Take advantage of tariffs, e.g., Canada to Isreal
[3] Maintain higher service component of warehousing and labeling for small retailers
[4] Minimize geographic transport by producing in region, including warehousing
[5] Move style and size molds between facilities to maximize production
[6] Use China for large volume, long-term orders from pre-season orders

Chapter 1 2
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Crocs
Phase 1: Taking over production
Initially all compounding done in Italy, then molding and assembly in
Canada, and distribution from Denver

Phase 2: Global production using contract manufacturers

Resistance from contract manufacturers outside China

Phase 3: Bringing the global supply chain in-house

Crocs acquired excess capacity (sometimes 2 to 3 times the expected
capacity)
Crocs early sales were to small retailers
After Crocs initial success in small stores, large retailers approached the
company (now they had a much stronger negotiating position)
Molds would move frequently between locations
Shifting production to reduce duty payments (from China had high tariff,
from Mexico no tariff NAFTA, also no tariff from Mexico to Europe)

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Crocs
• Revolutionized the shoe industry supply chain
model
– First shoe sold in 2003 (Revenue 1.2 million)
– Flip flop sandal introduced in 2006 (Revenue 355 million)
– Diversify in other products 2008 (Revenue 860 million)

What are advantages of having multiple production

facilities?
What are advantages of short lead times?
What are advantages of excess capacity?
How does Crocs plan for demand?

Chapter 1 3
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Crocs
Traditional industry practice was for retail distributors to place bulk orders
for each season’s inventory many months in advance, with little to no
ability to adjust to changes during the selling season. Crocs could fill new
orders within the season
Flip flop sandal was introduced in 2006. Initial decision to make 250,000
pairs (far more than the pre-booked orders). Indications of success, so
Crocs made more molds and molding machines. By the end of the season
they had shipped nearly 2.5 million pairs (10 times more).
Much of the growth was made possible by a highly flexible supply chain
allowing it to respond to unexpected high demand and fulfill new order
within the selling season (unheard of in the shoe industry). It became a
very popular supplier to shoe sellers

“It is easier to build up capacity when a forecast ends up below reality,

than it is to take it away when a forecast ends up above reality”

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Study of Supply Chain Management

• Successful supply chain management requires

decisions on the flow of information, product, and
funds that fall into three decision phases
– Supply chain strategy or design
– Supply chain planning
– Supply chain operation

Chapter 1 4
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Decision Phases in a Supply Chain

TIME FRAME TYPE TYPICAL DECISIONS
•Supply chain network design (How many plants?
Location and capacities of plants and warehouses?)
years
Strategic •Supply chain strategies (Sell direct or through
retailers? Outsource or in-house? Focus on cost or
customer service?)
•Product mix at each plant

•Workforce & Production planning

Tactical •Inventory policies (safety stock level)
3 mo.- 1year •Which locations supply which markets
•Transportation strategies

•Production scheduling
daily Operational •Decisions regarding individual orders
•Place replenishment orders

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Decision Phases in a Supply Chain

Where is uncertainty the highest?
Supply chain design, planning, and operation decisions play a
significant role in the success or failure of a firm

Supply chain strategy or design

Supply chain planning
Supply chain operation

Supply chain design decisions are long-term and expensive to reverse –

must take into account market uncertainty

Supply chain planning decisions use a fixed supply chain configuration

to come up with an overall production plan

Supply chain operation makes decisions about individual customer

orders

Chapter 1 5
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Decision Phases in a Supply Chain

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Decision Phases in a Supply Chain

Chapter 1 6
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Decision Phases in a Supply Chain

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Remember !!

Chapter 1 7
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Achieving Strategic Fit

What is a strategy in general?

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Achieving Strategic Fit

What is a strategy in general?

Strategy is the direction and scope of an organization
over the long-term: which achieves advantage for the
organization through its structure of resources within a
challenging environment, to meet the needs of
markets and to fulfill stakeholder expectations.

Chapter 1 8
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Strategy

Corporate Strategy

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Strategy

Corporate Strategy mission statement

CS: How it treat it customers and what service it will supply.

Chapter 1 9
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Strategy

Corporate Strategy mission statement

Competitive Strategy

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Strategy

Corporate Strategy mission statement

developed by the
Competitive Strategy marketing people

Chapter 1 10
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Vision
• A statement of the future business environment and how
the company will operate in that environment.
• Vision is the result of dreams in action . It is a positive
image of the future that is the strongest motivator for
change.
• Characteristics
– Common purpose: worth the effort
– Positive feeling and diffuse fear
– Clarity and values
– Capture the imagination
– Inspires and empowers
– Should have "reach" and "range"

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Mission
• A statement of the basic purpose or reason for the
company to exist.
• Lines of questioning
– What business are we in?
– What is the geographic scope?
– What markets do we serve?
– What products and services do we provide?
– What are the critical successful factors of the organization?
– How can we achieve our competitive advantage?

Chapter 1 11
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Mission Examples

• AT&T: Our business is service

• Gerber: Babies are our business
• Du Pont: Better things for better living through
chemistry

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Strategic Visioning Process

Visions

Stories

Context
Insight Foresight

Past Present Future

Chapter 1 12
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

What is Competitive Strategy?

• Competitive strategy
– Defines, relative to competitors, a company’s set of
customer needs that it seeks to satisfy through its
products and services
• Imtiaz Supermarket
– Everyday low prices
• Honda Motorcycle
– Low maintenance, less fuel consumption, easily available all over
Pakistan
• Dell
– Custom-made computer systems at a reasonable cost

Competitive strategy is defined based on how the customer

prioritizes product cost, delivery time, variety, and quality

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Competitive Strategy

• To execute a company’s competitive strategy, all

functions that play a role must each develop its
own strategy

Finance, Accounting, Information Technology

New Marketing
Product and Operations Distribution Service
Development Sales

Chapter 1 13
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Competitive Strategy

• To execute a company’s competitive strategy, all

functions that play a role must each develop its
own strategy

Finance, Accounting, Information Technology

New Marketing
Product and Operations Distribution Service
These are theSales
Development core processes or functions that must be
performed for a successful sale. Finance, accounting,
information technology, and human resources support and
facilitate the functioning of the value chain

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Strategy

Corporate Strategy

Competitive Strategy

Supply Chain Strategy

Chapter 1 14
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Strategy
 Competitive strategy defines the set of customer needs a firm
seeks to satisfy through its products and services
 Product development strategy specifies the portfolio of new
products that the company will try to develop
 Marketing and sales strategy specifies how the market will be
segmented and product positioned, priced, and promoted
 Supply chain strategy determines the nature of material
procurement, transportation of materials, manufacture of
product or creation of service, distribution of product
 All functional strategies must support one another and the
competitive strategy

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Strategy

Corporate Strategy

Competitive Strategy

Supply Chain Strategy

Supply chain strategy
Specifies what the operations, distribution, and service
functions, whether performed in-house or outsourced, should
do particularly well
Includes a specification of the broad structure of the supply
chain
Includes design decisions regarding inventory, transportation,
operating facilities, and information flows

Chapter 1 15
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

What is Strategic Fit?

• Strategic fit
– For any company to be successful, its supply chain strategy and
competitive strategy must fit together
• Imtiaz Supermarket
– Everyday low prices
– Buys from low cost producers, Owns its infrastructure and
distribution network
• Honda Motorcycle
– Low maintenance, less fuel consumption, easily available all over
Pakistan
– Quality sourcing, R&D, Owns its infrastructure and
distribution network
• Dell
– Custom-made computer systems at a reasonable cost
– Online ordering, no middle-man

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Examples

• Successful supply chain management requires

decisions on the flow of information, product, and
funds

Chapter 1 16
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

What is Supply Chain Strategy?

• Supply chain strategy

– Given a competitive strategy, what should a company’s supply chain
do particularly well?
• Imtiaz Supermarket
– Everyday low prices (low cost retailer for a wide variety of products)
Competitive Strategy
– Buys from low cost producers, owns its infrastructure and
distribution network Supply Chain Strategy
• Honda Motorcycle
– Low maintenance, less fuel consumption, easily available all Strategy
Competitive over
Pakistan
– Quality sourcing, R&D, Owns its infrastructure and Chain
Supply distribution
Strategy
network
• Dell Competitive Strategy
– Custom-made computer systems at a reasonable cost
– Online ordering, no middle-man Supply Chain Strategy

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

What is Strategic Fit?

• Strategic fit
– Both the competitive strategy and the supply chain
strategy have aligned goals
– Matching customer needs with supply chain
capabilities
• How is strategic fit achieved?
1. Understanding the customer and supply chain
uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit

Chapter 1 17
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

How is Strategic Fit Achieved?

1. Understanding the customer and supply chain

uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Why Is Uncertainty Hard to Deal With?

• Matching supply and demand is difficult.
• Forecasting doesn’t solve the problem.
• Inventory and back-order levels typically fluctuate
widely across the supply chain.
• Demand is not the only source of uncertainty:
– Lead times
– Yields
– Transportation times
– Natural Disasters
– Component Availability

Chapter 1 18
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Supply Chain Variability

Manufacturer Forecast
of Sales
Volumes

Actual
Consumer
Retailer Warehouse Demand
Retailer Orders to Shop

Production Plan

Time

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

What Management Gets...

Volumes

Consumer
Demand

Production Plan

Time

Chapter 1 19
SYST 4050 Slides

Supply Chain Management Faisal Jalal

Road Map to Excellence…. faisaljalal@hotmail.com

Volumes
What Management Wants…

Production Plan
Consumer
Demand

Time

Chapter 1 20