Chapter 9: Using Supply Chains to Create Value for Customers

by Jeff Tanner and Mary Anne Raymondby Jeff Tanner and Mary Anne Raymond
Principles of Marketing

Chapter 9Chapter 9
Using Supply ChainsUsing Supply Chains
to Create Value for Customersto Create Value for Customers
©2010 Flat World Knowledge, Inc.

©2010 Flat World Knowledge, Inc. 3
• Supply chains include all of the organizations that
impact products before, during, and after their
production.
• Designing, monitoring, and altering these organizations
is called supply chain management.
• These organizations are viewed too narrowly by many
companies, but some companies consider them to be an
integral part of the marketing plans.
• In the progressive companies the term value chain is
used to signify the important role they play.

Sourcing and ProcurementSourcing and Procurement
Learning Objectives
1. Explain why sourcing and procurement
activities are an important part of supply chain
management.
2. Describe the reasons why the use of outsourcing
and offshoring has grown.
3. Explain some of the drawbacks companies face
when they outsource their activities.

Sourcing and ProcurementSourcing and Procurement

Outsourcing—Why Outsource?Outsourcing—Why Outsource?

Percentage of Supply Chain FunctionsPercentage of Supply Chain Functions
Offshored in 2008Offshored in 2008

Risks in OutsourcingRisks in Outsourcing

Outsourcing—Social ResponsibilityOutsourcing—Social Responsibility
and Sustainabilityand Sustainability

Going GreenGoing Green

Other Outsourcing ConcernsOther Outsourcing Concerns
• Logistics of transporting and storing
• Work force policies of 3rd world companies
• Some concerns lead to insourcing or moving
activities back in house.

Matching Sourcing and Customer NeedsMatching Sourcing and Customer Needs
• Customers can determine outsourcing and
insourcing strategies.
• The customer is the last link in the supply
chain.
• Recycling and reclaiming programs
require the customer’s cooperation.

Key TakeawaysKey Takeaways
• Companies outsource activities to lower their
costs.
• Outsource activities can include a loss of control
leading to product quality and safety issues.
• When firms can’t resolve supplier problems,
they move the activities back in house, which is
a process called insourcing.
• Customers are the focus of insourcing and
outsourcing decisions that companies make.

Demand Planning and Inventory ControlDemand Planning and Inventory Control
Learning Objectives
1. Explain why demand planning adds value to
products.
2. Describe the role inventory control plays when it
comes to marketing products.
3. List the reasons why firms collaborate with
another for the purposes of inventory control
and demand planning.

ForecastingForecasting
• Demand planning is the process of
estimating how much a good or service a
customer will buy.
• Production scheduling is the management
of the resources, events, and processes
needed to create an offering.
• Lead time is the amount of time it takes
for a customer to receive a good or service
once it’s been ordered.

Sourcing and ForecastingSourcing and Forecasting
• Sourcing decisions—deciding which
suppliers to use—are generally made
periodically.
• Forecasting decisions must be made more
frequently.
– As an example, the world economy fell
precipitously in 2008 and marketing forecasts
on 2007 data alone would lead to costly
overproduction.

Supply Chain ManagingSupply Chain Managing
• Supply chain managers consult with marketing
managers and sales executives when they are
generating demand forecasts.
• Firms also look to their supply chain partners
to help with their demand planning.
• In collaborative planning, forecasting, and
replenishment (CPFR) supply chain partners
share information and coordinate their
operations.

Integrating the Supply Chain in PlanningIntegrating the Supply Chain in Planning
• Supply chain visibility—the trend is clearly
toward more shared information.
• Demand planning software—synthesizes a
variety of factors to better predict a firm’s
demand.
• Inventory control—the process of ensuring your
firm has an adequate amount of products to
meet customer needs.
• Goals of inventory management is to avoid
stockouts.

Some Inventory TermsSome Inventory Terms
• Safety stock is backup inventory that
serves as a buffer in case of a surge in
demand.
• Shrinkage is a term used to describe a
reduction or loss in inventory due to
shoplifting, employee theft, paperwork
errors, and supplier fraud.

Just-in Time InventoryJust-in Time Inventory
Requires long term relationships
between product provider and
suppliers!

Product TrackingProduct Tracking
• Bar codes (UPC)—ubiquitous scanner
read approach.
• Electronic product code (EPC)—similar to
a barcode, only it is better because the
number on it is truly unique.
• Radio frequency identification (RFID) tag
emits radio signals that can record and
track.

• Good marketing decisions require good forecasts.
• Demand forecasting is the process of estimating
how much a customer will buy from you.
• Demand forecasting is part of a company’s
overall inventory control activities.
• JIT inventory is a way to reduce inventory costs.
• A goal of inventory control is to avoid stockouts.
• New product tracking devices are emerging.

Warehousing and TransportationWarehousing and Transportation
Learning Objectives
1. Understand the role warehouses and
distribution centers play in the supply chain.
2. Outline the transportation modes firms
have to choose from and the advantages and
disadvantages of each.

Warehousing and Distribution CentersWarehousing and Distribution Centers
• Warehouses are needed to accommodate
supply and demand changes for products.
• Distribution centers are warehouses or
storage facilities where the emphasis is on
processing and moving goods on to
wholesalers, retailers, or consumers rather
than on to storage.
• The trend is towards smaller warehouses.

How Warehouses andHow Warehouses and
Distribution Centers FunctionDistribution Centers Function

• Logistics—The physical flow of materials in the supply chain.
• Trucks—More products are shipped by truck than by another
means. Most products have some trucking.
• Water—International trade could scarcely be conducted
without cargo shipping.
• Railroads—In terms of its speed and cost, shipping by rail
falls somewhere between truck and water transportation.
They do what ships do except over land.
• Pipelines—Pipelines are generally used to transport oil,
natural gas, and chemicals.
• Air—high cost of air transport limits use to time sensitive
products such as leis from Hawaii.
TransportationTransportation

• A distribution center is a warehouse or storage facility
where the emphasis is on processing and moving goods
on to other parts of the supply chain.
• Logistics refers to the physical flow of materials in the
supply chain.
• Not all goods and services need to be physically
transported.
• Products that need to be transported physically to get to
customers are moved via air, rail, truck, water, and
pipelines.
• Some firms store products until their prices increase.

Track and Trace SystemsTrack and Trace Systems
and Reverse Logisticsand Reverse Logistics
Learning Objectives
1. Understand why being able to trace products is
important to organizations and their customers.
2. Explain what reverse logistics is and why firms
utilize it.

Track and Trace SystemsTrack and Trace Systems
• Track and trace systems that electronically record the
paths shipments take has become almost as important to
customers as shipping costs themselves.
• Today most product shipments can be traced using GPS,
RFID, and Bar codes; though tracking individual
packages is harder.
• Consumers are more interested than ever to know where
their products come from and when they will arrive.
• Companies are working to develop systems that may
one day make it possible to trace all products.

Reverse LogisticsReverse Logistics
• Firms now run products and materials backwards
through the supply chain to extract value from them.
The process is known as reverse logistics.
• Most companies set up reverse logistics systems to “turn
trash into cash.”
• A recent study suggests companies can recover up to
0.3 percent of their annual sales this way, which for
Best Buy would amount to $100 million a year.
• Upcycling is a process to extract value from waste and
using it to create new products.

• Tracing products helps a company anticipate events that
could disrupt the supply chain.
• Tracking individual products, especially after they
combine to make other products, is more difficult.
• Consumers are more interested than ever to know where
their products come from.
• Reverse logistics is the process of running damaged and
defective products and scrap materials backwards
through the supply chain to extract value from them.
• Companies are increasingly employing reverse logistics
not only to save money but for environmental reasons.

Chapter 9: Using Supply Chains to Create Value for Customers

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