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What is the right supply chain for your product?

What is the right supply chain for your product?. Harvard Business Review March-April 1997 v75 n2 p.105(12) Presented by Stephen Lackey November 16, 2004. Efficient production. Soup is a price-sensitive functional good. What’s wrong with gaining market share by cutting prices sometimes?

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What is the right supply chain for your product?

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  1. What is the right supply chain for your product? Harvard Business Review March-April 1997 v75 n2 p.105(12) Presented by Stephen Lackey November 16, 2004

  2. Efficient production • Soup is a price-sensitive functional good. What’s wrong with gaining market share by cutting prices sometimes? • Price cutting distorts sales, demand • Manufacturing has to support peak demands to avoid shortages, and underproduction the rest of the time • Distorted peak demands mean more expensive running costs and raises base prices of goods. • Is this efficient?

  3. Can there be innovation in canned soup? • Consumers demand new flavors once in a while • New packaging may improve sales • Ready-to-eat “gourmet” soups • Pull-top cans • “Cup at hand” drinkable cup of soup

  4. Making Innovative soup • ELP strategies • flatten demand to match capacity with sales • Lower costs /prices raise weekly sales • Innovations scaled gradually • New flavors / products gradually rolled into replenishment stream • Slow moving flavors gradually rolled back • minimal added inventory costs • Balance between innovative and functional mean higher overall profits and lower costs

  5. Are skis functional? • Sport Obermeyer like fashion goods? • High peak demand • Short product lifespans • High product diversity • High markup • Does it matter how low costs are if you don’t make the sale?

  6. Innovative skis • Fast supply most important • Locally rational cost savings kill profits • USPS Mail instead of FedEx? Saving $15 bucks costs company $25K per day • EDI replenishment reduces lost sales

  7. What are automobiles? • JIT manufacturing shaves inventories down to hours instead of days or weeks. • Missed shipments mean factory shuts down • Factories build remotely on cheap land nobody else wants. Who cares? • Car dealerships built on small, expensive lots convenient to buyers • Thousands of variations possible • Impulse buyers move on rather than wait 8 weeks for customized car from factory • Cars sit on lots for average of 3 months • Car companies don’t make money until car is sold.

  8. Where they fall…

  9. Questions? • [passing around print of microfilm] • ELP seems obvious. But aren’t sales and loss leader strategies addictive? • Think of streaming next quarter sales to this quarter. Where does it end? • Is it obvious to pick responsive or efficient supply chain characteristics? • Do you always have to decide? Can you have both?

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