Amazon and its supply chain

"When we think about how we're going to grow our company, we focus on price, selection, and availability," says Jeffrey Wilke, senior VP of worldwide operations at Amazon.com Inc. "All three depend critically on the supply chain."

Amazon has one of the most-sophisticated supply-chain systems in the world, and it was all built from scratch. Homemade applications handle nearly every aspect of its supply chain: warehouse management, transportation management, inbound and outbound shipping, demand forecasts, inventory planning, and more. "We don't have any legacy systems," Wilke says. "That's a clear advantage."

In the last four years, Amazon has worked to minimize the need for human intervention in its supply-chain processes, such as manually inputting sales forecasts into an inventory-management system. Today, Amazon's supply-chain apps communicate in real time, a rarity when most companies have to integrate a variety of software tools and manual processes, such as phone and fax orders. "We've reached a point where computers do what they're supposed to do," Wilke says.

Amazon's supply chain is so tightly integrated that when an online customer buys a couple of books and a CD, the order-management system communicates with inventory and warehouse-management systems to find the optimal distribution centre or centres for fulfilling the order. The customer knows in less than a minute how long it will take to ship the items and whether they will come in one package or separately.

Amazon, which spends about $200 million a year on business technology, last year launched a business unit to resell its Web-commerce and back-end fulfilment services to retailers. And it continues to seek technical advantages in its supply chain. For instance, certain Amazon applications can use radio-frequency identification technology, and the online retailer will turn on the capability when it's needed, Wilke says. "RFID is most useful when you have one of a number of conditions: if you have poor inventory accuracy, if you have a high shrink rate, or if you have a need for more real-time information." RFID isn't a priority because those aren't problems for Amazon today.

"RFID will add the most value to us when it's used on every item," rather than on cases and pallets, as Wal-Mart Stores Inc. and Target Corp. are planning. "Then we'll just position the antennas in our operations." 

 

Vishwajit Vyas has done his B.Tech. in Electronics Engineering from Wayne State University, Detroit,  Michigan and can be reached at vishwajitvyas @ gmail . com.

Improving the quality and efficiency of fast food restaurants

Fast food restaurants are unique operational systems designed to provide customers with efficient and responsive services. Such systems consist of three interdependent subsystems: input, processing and output. The success of the operational system of a fast food restaurant is directly related to the degree of co-operation and co-ordination among these three subsystems. Any attempt to improve the efficiency, quality and responsiveness of the operational system must focus on these subsystems and their interactions.

The fast food service industry is becoming increasingly multifaceted and extremely competitive. In such an environment, restaurant owners and managers are finding themselves hard to face a two faced problem. On one hand, sales are slowing down and operating costs are increasing. On the other hand, customers are becoming more demanding and increasingly selective of the types of services they receive. These two factors combined with others are presenting restaurant managers with a special challenge, how to maintain profitability in a shrinking market while providing the sophisticated customers with high quality and efficient services. In achieving this seemingly impossible objective, fast food restaurants can pursue two strategic avenues. First, they can focus on means to improve operational efficiency of the system. Second, they can take actions to enhance the operational quality of the operational system.

Specific tactics geared to the first strategic option include improving inventory systems to reduce the cost of materials handling and waste, measures to reduce food service costs through better menu management, and ways to increase labor efficiency by cutting labor costs through better scheduling.

The second strategic option that stresses means to enhance the operational quality of the input, processing and output subsystems includes use of quality control measures to monitor the quality of incoming material, work-in-progress and the output. It also underscores the importance of understanding the needs and attitudes of customers and the adoption of technological and marketing innovations to provide customers with high quality services.

These two strategic orientations are not mutually exclusive. However, in the fast food industry there is a misconception that high quality compromises efficiency and that, from a bottom-line point of view, a quality orientation cannot be justified. This misconception can be attributed to a lack of understanding of the interdependency among the three subsystems of the operational system in relation to operational efficiency and quality. This lack of understanding coupled with the myth that quality costs money impede measures to enhance quality and efficiency of the operational systems of fast food restaurants.

Aniket Choudhary is a PGP student of Indian Institute of Management, Raipur. He has done his B.E. in Mechanical Engineering from College of Technology and Engineering, Udaipur. Aniket can be reached at aniketchoudhary87 at gmail . com

WINNING IN DIVERSE MARKETS THROUGH SUPPLY CHAIN FLEXIBILITY

The following article written by a student of Indian Institute of Management, Raipur has been adjudged the best article in the "Operations" category in an article writing event organised by Shailesh J Mehta School of Management, IIT Bombay.

The ability of an organisation to respond to uncertainty has always been important for success. Due to the increase in the number and the nature of threats that can affect our supply chain, the need to have a flexible supply chain has increased. It is no longer about managing the uncertainty but about managing it better than one’s competitors. In fact, companies should perceive it as an opportunity in disguise.

Here is a list of some practices that a company can adopt to win in diverse markets through supply chain flexibility:-

1. COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT (CPFR) – CPFR aims to enhance supply chain integration by supporting joint practices. Information is shared between the components of a supply chain to reduce the inventory and to respond to the changing demand. As Hitachi’s supply chain expanded globally, its value chain became more complex. To respond to this increase in complexity, Hitachi shares accurate and timely information on projected part sales with its vendors to be more able to adapt to the changes in customer demand.

It is not necessary to have expensive IT systems to improve collaboration. Simple moves such as establishing direct communication from planner to planner and running forecasting processes jointly with key suppliers can improve collaboration.

2.  RISK POOLING – It suggests that demand variability is reduced if a company aggregates demand across locations because as demand is aggregated across locations, it is more likely that the increase in demand at one location will be offset by reduction in demand for another location. This leads to reduction in uncertainty in demand which leads to reduction in safety stock and hence to reduction in average inventory.
3. Managers should be able to make supply chain decisions quickly. They should be able to analyse the changes in demand if any and should be able to respond to it quickly. The managers should be able to make sense out of numbers and should know which data to rely on and which data to discard. Such a manager will be able to place frequent but small orders hence reducing average inventory as well. The structure of the system should be such as to allow the different departments to take the necessary decisions as and when required eg. Toyota gives its assembly line workers the authority to halt the production by pressing the emergency button.
4. Use of concurrent processes instead of sequential processes – Use of concurrent processes reduces the dependence of processes on one another in a supply chain. This can speed up processes in case any emergency arises.
5. Reducing risk due to cost fluctuations – Having a mix of short term and long term contracts with the suppliers will help in reducing the risk in supply chain due to cost fluctuations. Outsourcing can also come in handy in case the cost of production of the company increases at certain parts.
6. Converting Stock outs to Back Orders – If it is possible to convert stock outs to back orders, it would take away a lot of pressure from the supply chain. However, it requires an effective supply chain which can ensure delivery of the committed quantity of the products at the committed quality at the committed time. Incentives can also be given to the customers in case they agree to commit to their orders well in advance.
7.  Vendor Management – Several companies develop a network of vendors who are able to supply inventory to them within the stipulated time. These companies work closely with their vendors to develop them and assist them in periodically improving their processes. Maruti develops close relations with its vendors through strategic relationships and providing incentives to them. This also helps in reducing the bargaining power of Maruti’s suppliers as the company maintains and develops a network of suppliers.
8. Use of standardized and generic parts – This will reduce the dependence of production on certain specific parts. In case of any emergency demand, the parts can be bought from other suppliers or the production of these parts can be outsourced to other reliable suppliers who can supply these parts at the desired quality and quantity at the right place and time.
9.  Effective Communication between teams can help to respond to the varying market demand. This will help the procurement department to procure supplies in case of increased demand and will also intimate the sales department to reduce the prices and destock the less sold product. While changing production schedules, the opinion of all the departments need to be taken in consideration to avoid any last minute hassles.
10. Increased Production and Purchasing in low-cost countries – As a company increases its production and purchasing in low-cost countries, it is able to adapt itself to changing prices eg. Husqvarna has a well-developed production base to handle variations in demand related to seasonality and weather conditions. A major reason being that the share of purchases from low cost countries is increasing steadily, and amounted to approximately 23% in 2009.
11. Build models to evaluate the possible alternatives i.e. “What if Analysis”– The Company should build models that are expected to work in case of any deviations in the supply chain. This requires the managers to predict the various ways in which things may go wrong and be prepared for them.
12. Role of Human Resource Department - The workers should be conditioned to be resilient and flexible. The HR department should ensure that the workers have enthusiasm for their work.

References

http://blogs.hbr.org/cs/2007/08/building_a_resilient_supply_ch.html (last accessed on 18 March’ 2011)

http://en.wikipedia.org/wiki/Collaborative_planning,_forecasting,_and_replenishment (last accessed on 18 March’ 2011)

https://www.mckinseyquarterly.com/Building_a_flexible_supply_chain_for_uncertain_times_2330 (last accessed on 18 March’ 2011)

http://www.scdigest.com/assets/newsviews/06-03-08-1.cfm (last accessed on 18 March’ 2011)

http://corporate.husqvarna.com/?p=about&s=strategy&t=supply_chain&afw_lang=en (last accessed on 18 March’ 2011)

Rohit Bhagat has done his B.E. in Electronics and Communication Engineering from Netaji Subhas Institute of Technology, Delhi University and can be reached at jeffhardy_027 @ yahoo . co . in

How are Procter & Gamble’s Supply Chain Strategies better than their Competitors’?

 

Procter & Gamble has established itself as a market leader as a result of certain strategies it applies on its products’ Supply Chains and that impact directly on those Supply Chains.  For example, as stated in its Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis, it focuses on acquisitions of companies and products that are already good performers, with reasonable demands for these products, and that are already well-established in the market place.  Such products, to have become well-established, are themselves the result of good, efficiently-run Supply Chains.  Therefore, these Supply Chains enable their products to be sold at competitive prices to their intended markets.

If the Supply Chains operate inefficiently, the products resulting from them would require artificially higher selling prices to recover the excess costs resulting from those Supply Chains.  These excess costs would therefore result in reduced demands for the products in their marketplaces.  Consumers would therefore go for the less expensive alternatives, which would more than likely not be products manufactured and distributed by Procter & Gamble.  Thus, for Procter & Gamble to achieve Competitive Advantage over its competitors, its best interest would lie in its ability to focus on products well-established and accepted by the markets, and produced from efficient, well-run Supply Chains.

Procter & Gamble also earmark their products for redevelopment and consolidation, with a view to broadening their consumer base on a reduced number of products, per product type.  To enable this, Procter & Gamble subject their products to controlled investigations by well-qualified and experienced scientists.  These scientists would not approve them for release unless the products are tried and proven, are focused towards being innovative, and are capable of addressing the requirements of the extended or broadened market.

Procter & Gamble also has a drive to reducing its Capital spending to a certain percentage of Sales.  This Capital may in fact be part of the Supply Chain.  On achieving this, there would be a further reduction associated with, for example, Supply Chain costs, and that consumers should benefit from, as a result of reduced product prices.

Procter & Gamble also drive to concentrate on and build up their core businesses and leading brands into stronger market leaders.  Currently, Procter & Gamble has four core categories, Fabric Care, Hair Care, Baby Care and Feminine Care.  As these core businesses attract nearly 50% of its sales and larger profits, Procter & Gamble devote considerable energies to maintain these strong, and takes steps to help them grow.  In addition to developing close working relationships with its customers and main suppliers, it focuses on inventory–reduction schemes, cost reduction processes and increases in the Return on Investments (ROI) in marketing and in new products.  It also develops value–generating activities throughout the entire Supply Chain, for each of its core products, through for example, the pooling of knowledge, expertise, and reach. 

According to Procter & Gamble’s CEO, George D. Carpenter, the Company has made products more affordable to consumer markets in less developed countries lacking large–scale Supply Chains and distribution efficiencies, evident in fully developed countries.  For example, in the Philippines, Procter & Gamble has developed a job creation scheme that gets products to consumers originally not able to buy their products, through a “Reach, Distribution, and Livelihood Program”.  This Program involves “the delivery of products to people living in remote areas or whose local stores are too small or inaccessible to receive stock” [Procter & Gamble 2003 Sustainability Report].  After five months in operation, 580 jobs had been created and an additional 28,000 stores were selling Procter & Gamble products, with local distributors earning margins of 1%.

In Brazil, Procter & Gamble decided that to better understand local, domestic households, they would need to live in them and be a part of the locals’ lives.  They teamed up with the local food industry leaders, Sadia, to implement a program they would call “Living It” [Procter & Gamble 2003 Sustainability Report].  Under this scheme, Procter & Gamble staff would live in local Brazilian homes for two weeks, trying to better understand family and community life.  Through this scheme, Procter & Gamble were able to work on new products and distribution systems, as well as find better ways of communicating with its consumers.

Conclusion

Procter & Gamble are truly a global organization, operating plants all over the world. These plants are also used for job creation in developing areas.  As Procter & Gamble make many different products according to many different categories, their competitors are plentiful; although there is no single, direct competitor, in 100% of its product lines, services, and activities.  There are only many different competitors that compete on any one or more of different product lines.

Supply Chain Management is integral to creating and maintaining Competitive Advantage.  Procter & Gamble have done this by aligning many of their accounts with suppliers and by initiating change in their overall Supply Chain structure; such that they now call it a network as it allows for communication between each and every level rather than only according to a flow-on fashion.  They have brought a change about in their system to be what they are today.  Procter & Gamble attribute this success of theirs to their way of managing the Supply Chain.  Hence we can say that managing Supply Chains in an effective style will definitely help organisations by giving it a Competitive Advantage over its rivals.

References

Datamonitor (2004), Proctor & Gamble Company profile.

Day, C.R. (1993), Turn up the thermostat, Industry Week, 242(16) pp.38-41.

http://www.computerworld.com/softwaretopics/erp/story/0,10801,77855,00.html

http://www.manufacturing.net/scm/article/CA202086

http://books.nap.edu/books/0309068789/html/24.html

http://www.computerworld.com/computerworld/records/images/pdf/P_Gs_Supply_
Network.pdf

http://www.cisco.com/warp/public/779/ibs/solutions/customer/pgcasestudy1.pdf

http://www.manufacturing.net/scm/article/CA85844?stt=%25stt&pubdate=4%2F1%2F2004

Procter & Gamble Sustainability Report (2003), http://www.pg.com/.

 Harshad Patil has done his B.Tech. from Veermata Jijabhai Technological Institute, Mumbai and can be reached at eharshad @ gmail . com

Disney’s FASTPASS

During my visit to Disneyland Hong Kong a few years ago, I observed how Disney had made an attempt to eliminate waiting queues through the use of FASTPASS^TM. Left quite impressed with this concept, I am describing it here.

 Disney has come up with one of the most unique and innovative ways of making the wait invisible through the application of virtual queues. Disney has become a leader in this queuing advancement which allows customers to engage in other activities while they wait for their desired activity at an appointed time.

Disney is addressing this problem through its “virtual queue system” known as FASTPASS^TM. It allows the visitors to stand in a virtual queue by registering themselves. On registering, they will be given a time duration during which they should come back and join a smaller queue.

The idea behind this system is to have a queue of less than 15 minutes.   

FASTPASS^TM is very easy to use. One just needs to walk to the FASTPASS^TM attraction of one’s choice. At the FASTPASS^TM distribution centre, one can see a board listing the current standby time and the current FASTPASS^TM return time. To make a registration, one needs to insert one’s park ticket in the FASTPASS^TM distribution machine

The system was first tested at Walt Disney world in 1998. The system was assessed by surveying the guests who used it. Results were positive and indicated that guests spent considerably less time in lines, spent more per capita, and saw significantly more number of attractions. Needless to say, satisfaction levels skyrocketed.

The  system was  expanded  in  1999  to  include  five  of  the most  popular  park  attractions,  and was  named FASTPASS^TM. The system has since been expanded to all Disney theme parks worldwide, and is now used by over 50 million guests per year.    

To  ensure  that  guests  feel  comfortable  in  using  precious  waiting  time  to  do  other  things,  FASTPASS^TM designers added some flexibility into the system. Once an assigned FASTPASS^TM time is generated and provided to a guest, it is good for the 1 hour beyond that time creating a “window” in which guests can return.

FASTPASS^TM has been able to add to the bottomline of Disney as the key feature of the FASTPASS^TM system is choice. A quick survey of an attraction’s queue found that FASTPASS^TM  allows guests to pick the shorter wait and move on to something else. Disney managers knew that the queues were self regulating, but were perplexed as to why some guests actually chose traditional waits. They soon learnt that those who chose traditional waits were most often holding FASTPASS^TM tickets for another attraction. Thus, the system allows them the opportunity to see two attractions during the time they would have previously been able to see only one attraction. Obvious results were that guests were able to engage in more revenue producing activities, saw more of the popular attractions, and began to involve in other less utilized attractions in their free time.

References

http://en.wikipedia.org/wiki/Disney's_Fastpass (last accessed on 8 April’2011)

http://park.hongkongdisneyland.com/hkdl/en_US/general/guestServices?name=FastPassPage (last accessed on 8 April’2011)

www.cluteinstitute-onlinejournals.com/PDFs/1180.pdf (last accessed on 8 April’2011)

www.disneygeek.com/Disneyland Resort Guide (last accessed on 8 April’2011)

www.cluteinstitute-onlinejournals.com/PDFs/1180.pdf (last accessed on 8 April’2011)

Rohit Bhagat has done his B.E. in Electronics and Communication Engineering from Netaji Subhas Institute of Technology, Delhi University and can be reached at jeffhardy_027 @ yahoo . co . in