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Case Study Mintendo Game Girl  Page 380 Need to answer 3 questions 3-4 pages Guidelines for Written Case Analyses: The reports are graded for both content and report presentation. The purpose behind each case is to use the tools, concepts, and techniques studied to help the organization make a business decision. The report should be written as if the group has been tasked by the organization to provide a recommendation for the organization to adopt. A good paper should clearly and succinctly state the recommendations in the first paragraph to set the stage for the reader. The questions listed on the case should be used as a guide to structure the report. Facts in the case need not to be restated unless they are used to make a specific point. The report should NOT be a Question & Answer format where each question is listed and answered. Instead, the report represents your analysis of the situation and the rationale for your recommendation. The analysis to support your recommendation should consider the advantages and the potential pitfalls of adopting it. The analysis explains the “why” of your recommendation. In some cases, your rationale ad logic behind the analysis is more important than the course of action that you have selected. An adequate analysis is a time consuming and intellectually challenging task. Guided by the case questions, the objective is to evaluate a complete range of alternatives and discuss the consequences of your recommendation. Reports should be typed with 1.5 line-spacing and should not exceed 5 pages, not including appendices and exhibits. Exhibits appended to the reports need not be typed, but should be neat and easy to understand. SUPPLY CHAIN MANAGEMENT STRATEGY, PLANNING, AND OPERATION Seventh Edition Sunil Chopra Kellogg School of Management New York, NY Vice President, Business, Economics, and UK Courseware: Donna Battista Director of Portfolio Management: Stephanie Wall Director, Courseware Portfolio Management: Ashley Dodge Senior Sponsoring Editor: Neeraj Bhalla Editorial Assistant: Linda Albelli Product Marketer: Kaylee Claymore Product Marketing Assistant: Marianela Silvestri Manager of Field Marketing, Business Publishing: Adam Goldstein Executive Field Marketing Manager: Thomas Hayward Vice President, Production and Digital Studio, Arts and Business: Etain O’Dea Director of Production, Business: Jeff Holcomb Managing Producer, Business: Melissa Feimer Content Producer: Sugandh Juneja Operations Specialist: Carol Melville Design Lead: Kathryn Foot Manager, Learning Tools: Brian Surette Content Developer, Learning Tools: Lindsey Sloan Managing Producer, Digital Studio and GLP, Media Production and Development: Ashley Santora Managing Producer, Digital Studio: Diane Lombardo Digital Studio Producer: Regina DaSilva Digital Studio Producer: Alana Coles Digital Content Project Lead: Courtney Kamauf Project Managers: Ronel Mirano and Raja Natesan, SPi Global Interior Design: SPi Global Cover Design: SPi Global Cover Art: Carlos Castilla/Shutterstock Printer/Binder: LSC Communications, Inc./Willard Cover Printer: Phoenix Color/Hagerstown Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published as part of the services for any purpose. 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Library of Congress Cataloging-in-Publication Data Names: Chopra, Sunil Title: Supply chain management / Sunil Chopra, Kellogg School of Management. Description: Seventh edition. | Boston : Pearson Education, [2017] Identifiers: LCCN 2017035661 | ISBN 9780134731889 | ISBN 0134731883 Subjects: LCSH: Marketing channels—Management. | Delivery of goods—Management. | Physical ® ® http://www.pearsoned.com/permissions/ http://www.pearsoned.com/permissions/ http://www.pearsoned.com/permissions/ http://www.pearsoned.com/permissions/ distribution of goods—Management. | Customer services—Management. | Industrial procurement. | Materials management. Classification: LCC HF5415.13 .C533 2017 | DDC 658.7—dc23 LC record available at https:// lccn.loc.gov/2017035661 1 18 ISBN 10:0-13-473188-3 ISBN 13:978-0-13-473188-9 https://lccn.loc.gov/2017035661 https://lccn.loc.gov/2017035661 https://lccn.loc.gov/2017035661 https://lccn.loc.gov/2017035661 https://lccn.loc.gov/2017035661 https://lccn.loc.gov/2017035661 Dedication I would like to thank my colleagues at Kellogg for all I have learned from them about logistics and supply chain management. I thank Peter Meindl for his collaboration during earlier editions of this book. I am grateful for the love and encouragement that my parents, Krishan and Pushpa, and sisters, Sudha and Swati, have always provided during every endeavor in my life. I thank my children, Ravi and Rajiv, for the joy they have brought me. Finally, none of this would have been possible without the constant love, caring, and support of my wife, Maria Cristina. —Sunil Chopra About the Author Sunil Chopra Sunil Chopra is the IBM Distinguished Professor of Operations Management and Information Systems at the Kellogg School of Management. He has served as the interim dean and senior associate dean for curriculum and teaching, and the codirector of the MMM program, a joint dual- degree program between the Kellogg School of Management and the McCormick School of Engineering at Northwestern University. He has a PhD in operations research from SUNY at Stony Brook. Prior to joining Kellogg, he taught at New York University and spent a year at IBM Research. Professor Chopra’s research and teaching interests are in supply chain and logistics management, operations management, combinatorial optimization, and the design of telecommunication networks. He has won several teaching awards at the MBA and Executive programs of Kellogg. He has authored more than 50 papers and two books. He has been a department editor for Management Science and an associate editor for Manufacturing & Service Operations Management, Operations Research, and Decision Sciences Journal. He has also consulted for several firms in the area of supply chain and operations management. Contents Cover Title Page Copygiht Dedication About the Author Preface ix Part I Building a Strategic Framework to Analyze Supply Chains Chapter 1 Understanding the Supply Chain 1 What Is a Supply Chain? 1 The Objective of a Supply Chain 3 Decision Phases in a Supply Chain 6 Process Views of a Supply Chain 8 Examples of Supply Chains 13 Developing Skills for Your Career 17 Discussion Questions 18 Bibliography 18 Chapter 2 Achieving Strategic Fit in a Supply Chain 19 Competitive and Supply Chain Strategies 19 How is Strategic Fit Achieved? 22 Supply Chain Levers to Deal with Uncertainty 31 Expanding Strategic Scope 33 Discussion Questions 36 Bibliography 36 Case Study: The Demise of Blockbuster 37 Chapter 3 Supply Chain Drivers and Metrics 40 Financial Measures of Performance 40 A Framework for Supply Chain Decisions 45 Facilities 47 Inventory 50 Transportation 52 Information 54 Sourcing 56 Pricing 58 Discussion Questions 61 Bibliography 61 Case Study: Seven-Eleven Japan Co. 61 Case Study: Financial Statements for Walmart Stores inc. and Macy’s inc. 68 Part II Designing the Supply Chain Network Chapter 4 Designing Distribution Networks and Applications to Omni-Channel Retailing 69 Factors Affecting Distribution Network Design in the Supply Chain 69 Design Options for a Distribution Network 74 Online Sales and Omni-Channel Retailing 88 Discussion Questions 97 Bibliography 97 Case Study: Blue Nile and Diamond Retailing 98 Chapter 5 Network Design in the Supply Chain 103 The Role of Network Design in the Supply Chain 103 Factors Influencing Network Design Decisions 105 Framework for Network Design Decisions 110 Models for Designing a Regional Network Configuration 113 Models for Identifying Potential Sites in a Region 118 Models for Demand Allocation and Plant Location 121 Discussion Questions 129 Exercises 129 Bibliography 134 Case Study: Designing the Production Network at CoolWipes 134 Case Study: Managing a Merger at Lightning Networks 135 Chapter 6 Designing Global Supply Chain Networks 138 The Impact of Globalization on Supply Chain Networks 138 The Importance of Total Cost in Global Networks 140 Risk Management in Global Supply Chains 143 Evaluating Network Design Decisions using Decision Trees 147 To Onshore or To Offshore: The Value of Flexibility in a Supply Chain Under Uncertainty 157 Discussion Questions 165 Exercises 165 Bibliography 167 Case Study: BioPharma, Inc. 168 Case Study: The Sourcing Decision at Forever Young 171 Part III Planning and Coordinating Demand and Supply in a Supply Chain Chapter 7 Demand Forecasting in a Supply Chain 172 The Role of Forecasting in a Supply Chain 172 Components of a Forecast and Forecasting Methods 174 Time-Series Forecasting Methods 178 Measures of Forecast Error 188 Building Forecasting Models using Excel 191 Discussion Questions 199 Exercises 200 Bibliography 202 Case Study: Specialty Packaging Corporation 202 Chapter 8 Aggregate Planning in a Supply Chain 205 Aggregate Planning and its Role in a Supply Chain 205 The Basic Tradeoffs in Aggregate Planning 208 Aggregate Planning using Linear Programming 209 Aggregate Planning in Excel 217 Discussion Questions 222 Exercises 222 Bibliography 224 Case Study: Kloss Planters and Harvesters 224 Case Study: Smartphone Production at Quicktronics 226 Chapter 9 Sales and Operations Planning in a Supply Chain 227 Responding to Predictable Variability in the Supply Chain 227 Sales and Operations Planning at Red Tomato 231 Discussion Questions 238 Exercises 238 Bibliography 240 Case Study: Mintendo Game Girl 241 Case Study: Promotion Challenges at Gulmarg Skis 242 Chapter 10 Coordination in a Supply Chain 244 Lack of Supply Chain Coordination and its Impact on Performance 244 Obstacles to Coordination in a Supply Chain 248 Managerial Levers to Improve Coordination 252 Some Practical Approaches to Improve Supply Chain Coordination 258 Discussion Questions 263 Bibliography 263 Part IV Planning and Managing Inventories in a Supply Chain Chapter 11 Managing Economies of Scale in a Supply Chain Cycle Inventory 264 The Role of Cycle Inventory in a Supply Chain 264 Economies of Scale to Exploit Fixed Costs 267 Aggregating Multiple Products in a Single Order 274 Economies of Scale to Exploit Quantity Discounts 282 Why do Suppliers offer Quantity Discounts? 288 Short-Term Discounting: Trade Promotions 294 Managing Multiechelon Cycle Inventory 298 Managerial Levers to Reduce Cycle Inventory 301 Discussion Questions 303 Exercises 303 Bibliography 307 Case Study: Delivery Strategy at MoonChem 307 Case Study: Pricing and Delivery at Kar Foods 309 Appendix 11A: Economic Order Quantity 310 Chapter 12 Managing Uncertainty in a Supply Chain Safety Inventory 311 The Role of Safety Inventory in a Supply Chain 311 Factors Affecting the Level of Safety Inventory 313 Determining the Appropriate Level of Safety Inventory 317 Impact of Supply Uncertainty on Safety Inventory 326 Impact of Aggregation on Safety Inventory 328 Impact of Replenishment Policies on Safety Inventory 341 Managing Safety Inventory in a Multiechelon Supply Chain 344 Managerial Levers to Reduce Safety Inventory 345 Discussion Questions 346 Exercises 346 Bibliography 350 Case Study: Managing Inventories at Alko Inc. 350 Case Study: Should Packing be Postponed to the DC? 353 Appendix 12A: The Normal Distribution 354 Appendix 12B: The Normal Distribution in Excel 355 Appendix 12C: Expected Shortage per Replenishment Cycle 355 Appendix 12D: Evaluating Safety Inventory For Slow-Moving Items 356 Chapter 13 Linking Product Availability to Profits 358 Factors Affecting the Desired Level of Product Availability 358 Evaluating the Optimal Level of Product Availability 362 Basic Managerial Levers to Improve Supply Chain Profitability 370 The Value of Speed in a Seasonal Supply Chain 372 The Value of Postponement in a Seasonal Supply Chain 377 Setting Product Availability for Multiple Products under Capacity Constraints 382 Discussion Questions 385 Exercises 385 Bibliography 388 Case Study: The Need for Speed at Winner Apparel 388 Appendix 13A: Optimal Level of Product Availability 390 Appendix 13B: An Intermediate Evaluation 390 Appendix 13C: Expected Profit from an Order 391 Appendix 13D: Expected Overstock from an Order 392 Appendix 13E: Expected Understock from an Order 392 Appendix 13F: Simulation using Spreadsheets 393 Part V Designing and Planning Transportation Networks Chapter 14 Transportation in a Supply Chain 396 Transportation Modes and their Role in a Supply Chain 396 Transportation Infrastructure and Policies 402 Design Options for a Transportation Network 405 Mumbai Dabbawalas: A Successful Same-Day Delivery Network 411 Trade-Offs in Transportation Design 412 Tailored Transportation 420 Discussion Questions 423 Bibliography 423 Case Study: Designing the Distribution Network for Michael’s Hardware 424 Case Study: The Future of Same-Day Delivery: Same as the Past? 425 Case Study: Selecting Transportation Modes for China Imports 426 Part VI Managing Cross-Functional Drivers in a Supply Chain Chapter 15 Sourcing Decisions in a Supply Chain 427 The Sourcing Decision in a Supply Chain 427 Total Cost of Ownership 437 Designing a Sourcing Portfolio: Tailored Sourcing 439 The Impact of Incentives on Third-Party Behavior 443 Sharing Risk and Reward in the Supply Chain 445 Discussion Questions 456 Exercises 457 Bibliography 458 Case Study: Polaris Industries inc. 459 Chapter 16 Pricing and Revenue Management in a Supply Chain 464 The Role of Pricing and Revenue Management in a Supply Chain 464 Differential Pricing for Multiple Customer Segments 467 Dynamic Pricing and Overbooking for Perishable Assets 474 Discounting and Peak Pricing for Seasonal Demand 481 Constructing a Portfolio of Bulk Contracts and Spot Buying 482 Some Practical Challenges When using Revenue Management 484 Discussion Questions 485 Exercises 485 Bibliography 486 Case Study: To Savor or to Groupon? 486 Chapter 17 Sustainability and the Supply Chain 489 The Role of Sustainability in a Supply Chain 489 The Tragedy of the Commons 491 Key Pillars of Corporate Social Responsibility 495 Sustainability and Supply Chain Drivers 499 The Role of Incentives and Regulation for Sustainability 502 Discussion Questions 507 Bibliography 507 Part VII Online Chapter Chapter A Information Technology in a Supply Chain The Role of IT in a Supply Chain The Supply Chain IT Framework The Future of IT in the Supply Chain Risk Management in IT Discussion Questions Bibliography Index 508 Preface This book is targeted toward an academic as well as a practitioner audience. On the academic side, it is appropriate for MBA students, engineering master’s students, and senior undergraduate students interested in supply chain management and logistics. It can also serve as a suitable reference for both concepts as well as providing a methodology for practitioners in consulting and industry. New to this Edition The seventh edition has focused on changes that enhance students’ ability to sharpen their critical thinking and data analytics skills as they study with the book. All concepts discussed in the book are linked to strategic decision making in a supply chain, and all quantitative ideas are illustrated using spreadsheets that can be implemented in practice. Some specific changes in the seventh edition include: The link between supply chain decisions and the financial performance of a firm is developed in detail in Chapter 3. The concepts underlying the design of distribution networks are illustrated in the context of omni- channel retailing in Chapter 4. The evolution of retailing is used throughout the book to illustrate the link between supply chain concepts and strategic decision making in a supply chain. Each section of each chapter in the book is associated with a clearly identified learning objective that is summarized at the end of the section. We have added new mini-cases in Chapters 5, 8, and 15. Information in other cases has been updated to be current. New exercises have been added in several chapters. For all numerical examples discussed in the book, we have developed spreadsheets that students can use to understand the concept at a deeper level. These spreadsheets are referred to in the book and allow the student to try different “what-if” analyses. These spreadsheets are available at www.pearsonhighered.com/chopra along with basic guidance on how they may be created and used. We have continued to add current examples throughout the book, with a particular focus on bringing in more global examples. Solving Teaching and Learning Challenges To be successful, supply chain practitioners must be able to formulate effective supply chain strategy and be able to solve any resulting supply chain problems using the available analytical tools. In a supply chain class this creates the challenge of teaching students to think strategically while supporting their decisions with robust quantitative analysis. This book is designed to help faculty and students overcome this challenge through its conceptual and pedagogical structure. Conceptually, the book aims to develop an understanding of the following key areas and their interrelationships: The strategic role of a supply chain The key strategic drivers of supply chain performance Analytic methodologies for supply chain analysis To illustrate the strategic importance of good supply chain management, we provide many current examples to show how companies have succeeded through effective supply chain management or http://www.pearsonhighered.com/chopra failed because of weak supply chain management. Our strategic framework, the use of Excel-based models to explain analytic methodologies, and several mini-cases to help students internalize the link between the analytic methodologies and strategic decision making provide pedagogical support for faculty using the book. A Consistent Strategic Framework Within the strategic framework, we identify facilities, inventory, transportation, information, sourcing, and pricing as the key drivers of supply chain performance. The book is structured to dig deeper into each driver to understand its role in the success of a supply chain, its interaction with other drivers, analytic methodologies to support decisions related to the driver, and managerial levers related to the driver that help improve supply chain performance. Every analytic methodology is illustrated with its application in Excel. Students have access to the associated Excel file along with instructions to construct and use the file. The Excel files help students deepen their understanding of the link between the analytic models and the strategic decisions they support. Mini Cases Most chapters have mini cases that can be used by faculty to ensure that students can apply the concepts and methodologies in the context of strategic decision making for a business. Developing Career Skills Skills learned in this book will be of great use no matter what path students choose to follow. The book is developed with the premise that good strategic decisions cannot be made without access to relevant analytics, and all analytics should be designed to support decision making. As a result, students will develop critical thinking, the ability to formulate and analyze problems, and support their recommendations with analytics that uses data literacy and computing skills. Every chapter in the book pushes students to think critically in order to define and solve supply chain problems. For example, Chapter 4 develops a framework for distribution networks and then pushes students to think about how retailing may evolve in the future as consumer preferences and technology change. The first part of the chapter teaches frameworks and concepts related to the design of distribution networks. The last part of the chapter then pushes the students to analyze retailing by applying the knowledge they have gained in order to decide how retailers need to change in order to succeed in the 21 century. All the analytics in the book are developed through the use of Microsoft Excel. This helps students develop data literacy, computing skills, and the knowledge of how to apply information technology to support decision making. The analytics that are developed in these chapters in turn support the framework laid out in Chapter 4. Whereas Chapter 4 helps students to think conceptually about why certain retailing models have succeeded for selling jewelry while others have failed, the succeeding chapters help students quantify financial metrics for different retail networks. As a result, students learn how to use data and models to improve strategic decision making. st Excel Based Models Table of Contents Overview Part 1 Building a Strategic Framework to Analyze Supply Chains Ch. 1: Understanding the Supply Chain Introduces the supply chain, the managerial objective, and key decisions Ch. 2: Achieving Strategic Fit in a Supply Chain Discusses the need to align strategy with supply chain capabilities Ch. 3: Supply Chain Drivers and Metrics Defines key drivers of supply chain performance and associated performance metrics Part 2 Designing the Supply Chain Network Ch. 4: Designing Distribution Networks and Applications to Omni-Channel Retailing Introduces framework for designing distribution networks with an application to omni-channel retailing Ch. 5: Network Design in the Supply Chain Presents analytic models that support network design Ch. 6: Designing Global Supply Chain Networks Discusses risks in global supply chains and analytic methodologies that incorporate uncertainty in network design Part 3 Planning and Coordinating Demand and Supply in a Supply Chain Ch. 7: Demand Forecasting in a Supply Chain Introduces techniques for demand forecasting and measuring forecast error Ch. 8: Aggregate Planning in a Supply Chain Introduces methodologies to plan supply to meet seasonal demand Ch. 9: Sales and Operations Planning in a Supply Chain Discusses how optimally managing both demand and supply can grow supply chain profits Ch. 10: Coordination in a Supply Chain Discusses obstacles to coordination and managerial levers that help improve coordination in a supply chain Part 4 Planning and Managing Inventories in a Supply Chain Ch. 11: Managing Economies of Scale in a Supply Chain – Cycle Inventory Introduces methodologies to obtain optimal batch sizes and discusses managerial levers that help reduce cycle inventory without hurting costs Ch. 12: Managing Uncertainty in a Supply Chain – Safety Inventory Introduces methodologies to obtain safety inventory and discusses managerial levers that help reduce safety inventory without hurting product availability Ch. 13: Linking Product Availability to Profits Discusses managerial levers that help increase profits in a supply chain Part 5 Designing and Planning Transportation Networks Ch. 14: Transportation in a Supply Chain Discusses options and tradeoffs when designing a transportation network Part 6 Managing Cross Functional Drivers in a Supply Chain Ch. 15: Sourcing Decisions in a Supply Chain Introduces the concept of total cost in the context of sourcing and discusses the benefits of sharing risk and reward in a supply chain Ch. 16: Pricing and Revenue Management in a Supply Chain Discusses how differential pricing can help increase profits in a supply chain Ch. 17: Sustainability and the Supply Chain Discusses the challenge to sustainability posed by the tragedy of the commons and the role of incentives and regulation for improved sustainability Part 7 Online Chapter Ch. A: Information Technology in a Supply Chain Introduces a framework for the role of information technology in a supply chain Instructor Teaching Resources At the Instructor Resource Center, http://www.pearsonhighered.com/irc, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit https://support.pearson.com/getsupport for answers to frequently asked questions and toll-free user support phone numbers. This program comes with the following teaching resources. Supplements available to instructors at www.pearsonhighered.com/irc Features of the Supplement Instructor’s Solution Manual developed by the author Case Teaching Notes and Worksheets Spreadsheets for all quantitative examples Discussion questions Example figures Additional exercises Solutions to all questions and problems in the book Test Bank authored by Geoff Willis of the University of Central Oklahoma 2000 multiple-choice, true/false, short- answer, and graphing questions with these annotations: Correct answer Difficulty level (1 for straight recall, 2 for some analysis, 3 for complex analysis) Learning outcome reference Topic covered AACSB learning standard (Analytical Thinking; Information Technology; Application of Knowledge) TestGen Computerized Test Bank TestGen allows instructors to: Customize, save, and generate classroom tests Edit, add, or delete questions from the Test Item Files Analyze test results ® http://www.pearsonhighered.com/irc https://support.pearson.com/getsupport https://www.pearsonhighered.com/irc Organize a database of tests and student results. PowerPoint Presentations authored by Jeff Heyl of the Lincoln University Slides include all the graphs, tables, and equations in the textbook. PowerPoints meet accessibility standards for students with disabilities. Features include, but not limited to: Keyboard and Screen Reader access Alternative text for images High color contrast between background and foreground colors For Students The following material is available to students at http://www.pearsonhighered.com/chopra: Spreadsheets for numerical examples discussed in the book. These provide the details of the example discussed, but are live and allow the student to try different what-if analyses. Spreadsheets that allow students to build every table shown in Chapters 5 through 16. Online chapter: Chapter A: Information Technology in a Supply Chain. Technical Note: Routing and Scheduling in Transportation. This note is also bundled with the Instructor’s Manual available on www.pearsonhighered.com/irc. Acknowledgments I would like to thank the many people who helped throughout this process. I thank the reviewers whose suggestions significantly improved the book, including: Steven Brown, Arizona State University; Ming Chen, California State University, Long Beach; Sameer Kumar, University of Saint Thomas; Frank Montabon, Iowa State University; Brian Sauser, University of North Texas; and Paul Venderspek, Colorado State University, and Michael Godfrey, University of Wisconsin Oshkosh. I would also like to thank my editor, Neeraj Bhalla, content producer, Sugandh Juneja, editorial assistant, Linda Albelli, and the people at SPi, including Nicole Suddeth, Ronel Mirano, and Raja Natesan, for their efforts with the book. Finally, I would like to thank you, the readers, for reading and using this book. I hope it contributes to all your efforts to improve the performance of companies and supply chains throughout the world. I would be pleased to hear your comments and suggestions for future editions of this text. Sunil Chopra Kellogg School of Management, Northwestern University http://www.pearsonhighered.com/chopra http://www.pearsonhighered.com/irc Part I Building a Strategic Framework to Analyze Supply Chains Chapter 1 Understanding the Supply Chain Learning Objectives After reading this chapter, you will be able to In this chapter, we provide a conceptual understanding of what a supply chain is and the various issues that must be considered when designing, planning, or operating a supply chain. We identify the goal of a supply chain and discuss the significance of supply chain decisions for the success of a firm. We also provide several examples from different industries to emphasize the variety of supply chain issues and decisions that companies need to consider at the strategic, planning, and operational levels. 1.1 Discuss …