GATEWAY AND APPLE

1. Why did Gateway choose not to carry any finished-product inventory at its
retail stores? Why did Apple choose to carry inventory at its stores?
- The Gateway's strategy was based on the models and market approach. They
built on the model of helping customers choose the machine's configurations
and then transporting the finished-products to customers from the assembly
plants. This would optimize inventory costs and avoid overstocking as well
as be able to respond promptly to customer changes. Besides, the company
would also monitor customer needs to develop strategies for future
customers.
- Apple had quite a few product models so they wanted customers to
experience and buy products immediately. Besides, Apple products were
popular with consumers, so carrying finished-products inventory would help
the company to replenish the goods continuously to meet the customer
needs. Carrying inventory on-site helps ensure product availability, and
immediate purchases, and facilitates a seamless customer experience.
- Overall, Gateway focuses on flexibility and cost efficiency through a make-
to-order strategy, while Apple focuses on the direct customer experience.

2. Should a firm with an investment in retail stores carry any finished-goods

inventory? What are the characteristics of products that are most suitable to
be carried in finished-goods inventory? What characterizes products that are
best manufactured to order?
Whether a firm should carry finished-good in retail stores depends greatly on
their strategies as well as the characteristics of the products and market fluctuation.
Companies that focus on selling high-demand or essential products will carry more
finished-products to continually replenish their inventory to meet customer
demand. Companies that sell highly designed products or products with many
variations in design will be suitable for the Make-to-Order model.
Advantages of carrying finished goods in retail stores:
● Shorter lead time
Customers receive their products faster, leading to higher sales
● Cost saving
Reduce the cost of logistics and better Economic Batch Quantity
● Flexibility against demand fluctuation
Disadvantages of carrying finished goods in retail stores:

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 ● Inventory and Labor cost
Keeping an inventory will require inventory cost and labors responsible for
inventory managing
● Overstocking risk
Overstocking finished goods exposes you to the risk of short demand,
resulting in stagnated cash and profitability damage
Products with these features are suitable for retail inventory storing:
● Exclusive
● High demand
● Newly released
● Short shelf life or perishable items
Such as fresh food
● Products that could be pair with another
Characteristics of Manufactured-to-Order product:
● Sophisticated Products
Such as the projector. Complex products that require many components are
most suited to the Make-to-order model.
● Unpredictable demand
Goods that have fluctuate demand carry higher risk of overstocking which
greatly affects profitability and finance
● High customization
Smartphones and PCs are typical of products with high variety in
configuration; therefore, storing them makes companies vulnerable to
excessive stock.

3. How does product variety affect the level of inventory a retail store must
carry?

Product variety significantly impacts the level of inventory a retail store must
carry. Here are some key points to consider:

1. Increased Inventory Holding Costs: Offering a wider range of products

means that a store needs to hold more inventory, which increases storage
costs and the risk of unsold items.

2. Higher Risk of Stockouts: With more products, it becomes challenging to

predict demand accurately for each item, leading to a higher risk of
stockouts for popular items.

3. Longer Lead Times: Managing a diverse inventory can result in longer lead

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 times for replenishment, as suppliers may need more time to fulfill orders
for a wide variety of products.

4. Complexity in Inventory Management: A larger product assortment

increases the complexity of inventory management, requiring more
sophisticated systems and processes to track and manage stock levels.

5. Misplaced Products: Higher product variety can lead to more misplaced

products, which are items that are physically present in the store but not
easily found by customers. This can negatively impact sales.

In the case of Gateway, by not carrying finished-product inventory at retail stores

and focusing on a build-to-order model, which is enhancing satisfaction by
providing products tailored to individual needs, they avoided many of these
challenges. This strategy allowed them to minimize inventory costs and reduce the
risk of stockouts and obsolescence.

4. Is a direct selling supply chain without retail stores always less expensive
than a supply chain with retail stores?

We think that SC without retail stores is not always less expensive than a SC with
retail stores.In some cases SC without retail stores is cheaper than a SC with a
retail stores, as we can see the SC with retail stores has to go through some stages
before arriving to the customers, that would lead to a more expensive product
price.
In addition there are also the costs of maintenance, operations, the inventory cost,
electricity… So not only the transportation cost but also some additional cost will
make SC with retail stores more expensive than without retail stores.
However SC with retail sometimes will help a firm gain higher profit from retail
stores like Apple Store. This is because retail stores allow a wider range of
consumers to purchase the product that would increase the sales of a company

Example 2:
- Direct Selling Supply Chain: Microsoft and other software companies
increasingly sell their products directly to consumers through digital
downloads and cloud-based subscriptions, like Office 365. This model
eliminates the need for physical retail stores, reducing costs related to
distribution, packaging, and retail partnership.
- Retail Store Supply Chain: Some software companies, particularly in the
past, distributed their products via physical stores, packaged in CDs or

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 DVDs. This involved costs for physical production, shipping, and retail
margins.

5. What factors explain the success of Apple retail and the failure of Gateway
country stores?
The success of Apple's retail stores and the failure of Gateway's country stores can
be attributed to several key factors:

1. Customer experience:
● Apple focused on creating a unique, engaging, and visually appealing retail
experience for customers. Their stores were designed to showcase their
products in an interactive way, with knowledgeable staff to assist customers.
● In contrast, Gateway's country stores were more akin to traditional
electronics retailers, lacking the same level of focus on the customer
experience.
2. Product lineup and branding:
● Apple had a strong, cohesive product lineup that resonated with customers
and aligned with their brand image of innovation and design.
● Gateway's product offerings were more generic and lacked the same level of
brand differentiation and appeal.
3. Retail strategy and execution:
● Apple carefully selected prime retail locations, often in high-traffic areas,
and invested heavily in the design and layout of their stores.
● Gateway attempted to reach customers in more remote, rural areas with their
country stores, which proved to be a less effective strategy.
4. Synergies with online and other sales channels
● Apple's retail stores complemented their strong online presence and other
sales channels, creating a seamless omnichannel experience for customers.
● Gateway's country stores may not have been as well-integrated with their
online and other sales channels.

Let's look at a real-world example with more detailed numbers - the success of
Apple's retail stores compared to the failure of Gateway's country stores.

Apple Retail Stores:

● In 2001, Apple opened its first two retail stores in Virginia and California.
● By 2021, Apple had over 500 retail stores worldwide, generating over $70
billion in annual revenue.

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 ● Apple's retail stores have an average of $16 million in annual sales per store,
one of the highest sales per square foot in the retail industry.
● Apple's stores are known for their sleek, minimalist design, knowledgeable
staff, and focus on creating an engaging customer experience.
● This customer-centric approach has helped Apple build strong brand loyalty
and drive sales of both hardware and software products through their retail
channel.

Gateway Country Stores:

● Gateway was an American computer hardware company that attempted to

compete with Dell and other PC manufacturers in the 1990s and early
2000s.
● In 1996, Gateway launched its "Gateway Country" retail stores, aiming to
reach customers in more rural and suburban areas.
● At its peak in 2000, Gateway had over 300 country stores across the United
States.
● However, by 2004, Gateway had closed all of its country stores due to poor
financial performance, with the stores losing an estimated $400 million per
year.
● The Gateway country stores were criticized for their generic, big-box store
feel, lack of knowledgeable staff, and failure to create a compelling
customer experience.
● This, combined with Gateway's struggles to differentiate its products in an
increasingly competitive PC market, led to the ultimate demise of the
Gateway country store model.

In contrast, Apple's laser-focus on creating a premium retail experience, combined

with its strong brand and product lineup, has enabled the company to achieve
tremendous success with its retail stores, both in terms of sales and profitability.
The Gateway country stores, on the other hand, failed to establish a unique identity
and provide a compelling value proposition to customers, ultimately leading to
their downfall.

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Question 1:
Answer:
Zara's responsive supply chain gives it several competitive advantages:
1. Speed to market: Zara can design, produce, and deliver new products to stores in just
a few weeks. Thus, they can change their display by 75% every 3 – 4 weeks.
Therefore, Zara's products on display match customer preferences much more closely
than do those of the competition
2. Inventory Management: By producing smaller batches and frequently updating
collections, Zara minimizes the risk of excess inventory and markdowns. This
approach keeps their offerings fresh and encourages customers to visit stores more
often.
3. Increased Full-Price Sale: Sell most products at full price and only half the
markdowns in stores compared to competition. The scarcity created by limited
production runs encourages customers to buy items at full price before they sell out.
4. Customer-Centric Approach: Zara’s supply chain is designed to quickly respond to
customer feedback and changing preferences. This agility allows them to incorporate
customer insights into their designs in real-time.
5. Reduced Lead Times: By having eight distribution centers in Spain, Zara reduces
lead times compared to competitors that rely on distant manufacturing. This proximity
allows for quicker adjustments in production based on sales data. Zara also has
multiple weekly shipments that allow close matches to demand.

Question 2:
Answer:

Reasons for Both In-House and Outsourced Manufacturing:

1. Flexibility and Control: 40% in-house production allows added responsiveness

to trends and postponement of decision until after trends.
2. Outsourced manufacturing is for the production of products with
predictable demand
3. In-house manufacturing is for the production of products with highly
uncertain demand.
4. Speed: In-house manufacturing, particularly in Europe, allows for shorter lead times.
This is essential for Zara to maintain its four- to six-week design-to-sales cycle,
ensuring that the company can quickly replenish popular items and introduce new
designs.
5. Cost Efficiency: Outsourced manufacturing, especially in Asia, provides cost
advantages due to lower labor and production costs. This helps Inditex keep prices
competitive while maintaining profitability.

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 6. A strong IT department helps them make quick product decisions and drive
replenishment.

Reasons for Maintaining Manufacturing Capacity in Europe:

1. Proximity to Key Markets: Europe remains a significant market for Zara. By

maintaining manufacturing capacity close to these markets, Inditex can reduce
shipping times and respond more quickly to customer demand.
2. Postponement Strategy: For ZARA, speed and responsiveness are more
important than cost. Manufacturing Capacity in Europe helps manufacturers
offer fast and flexible sourcing and such products are to be delivered quick
instead of at Asia
3. Quality Control: Manufacturing in Europe allows Inditex to maintain higher quality
standards, which can be more challenging to enforce in outsourced facilities.
4. Inventories and forecast error: The above helps Zara reduce inventories and
forecast error. (cái này khá là nông, t bỏ cái này nhé Minh ơi )

Question 3:
Answer:

- Reason for Zara source products with uncertain demand from local
manufacturers:

Products with uncertain demand are more likely to be produced in

smaller quantities compared to those with stable demand. By sourcing
these products from local manufacturers, ZARA gains the speed required
to quickly test and deliver them to market, ensuring they remain
relevant and avoid the risk of becoming obsolete and needing to be sold
at a discount. This approach aligns with a responsive pull strategy.
- Reason for Zara products with predictable demand from Asian
manufacturers:

Products with predictable demand are produced in Asia because of the

lower labor costs and the large quantities required. Manufacturing in
bulk is more cost-effective since predictable demand products have a
larger opportunity to deliver products without becoming outdated. This
also enables production to take place before the season begins, fitting
within a push strategy.

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 => This approach enables multiple shipments each week, closely meet
the demand. By quickly responding to trends and manufacturing in-house,
they can efficiently deliver products worldwide in less than two days.

Question 4:

Answer

a) What adavantages does Zara gain from replenishing its stores multiple times a
week compared to a less frequent schedule

Đáp án: Regarding the frequent replenishment of Zara’s stores, there are three
substantial benefits

. First of all, This allow Zara to closely match customer’s demands for trendy
clothes and accessories

- Secondly, the Variable product range filled with latest fashions could also
help Zara to sell most product at full price and only half the markdowns in
stores compared to other competitions

- Finally, Frequent replenishment enhance Zara’s supply chain speed and

responsiveness

How does the frequency of replenishment affect the design of its distribution system?
This replenishment is one of Zara inventory management strategies where all stores
are well managed.
It has made ZARA:
- Increase the size and also centralize its distribution design by handling its
global operations through 8 Distribution canters based in Spain.
- Keeping up with rapidly changing fashion trends, avoiding the situation of
having dozens of outdated products in stock.
- Meeting worldwide demands in as little time as possible.
This effective strategy brought greater customer satisfaction and gains more market
share globally.

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Question 5:
Answer:

Zara’s responsive replenishment infrastructure is better suited for retail sales than
for online sales. While Zara’s quick distribution system allows for a rapid response to
fashion trends, its lack of decentralized distribution makes it less effective for
online sales. Online sales often require managing a wider range of products and
meeting faster delivery expectations, which Zara’s centralized model may not
accommodate as well. In contrast, companies like Amazon, with their global network
of distribution centers, can offer same-day delivery and better handle diverse online
demand. Zara’s 24-hour delivery from Spain to its outlets worldwide is efficient
for retail but may not meet the fast delivery needs of online shoppers, making it
challenging to achieve the same level of efficiency in the online sales space.

OKAY!

Grainger
Question 1: How many DCs should be built and where should they be
located?
· W.W. Grainger: Different delivery modes

· Shipping to customer

· Picked by the customer at stores

=> Number of Distribution Center: More DCs to fulfill both retail and online orders

· McMaster-Carr

· Focused on online orders

· Shipment

=> Large capacity DCs, less in number to ensure timely delivery

· Location: Place DCs near major highways, railroads, retail stores to

reduce transportation fees and shipping times.

McMaster-Carr: the company is focused on online orders and used the DCs as both
distribution center as well as retail store. The company need to have large capacity DCs

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but less in number which will help to align with the current strategy, have cost reduction
and timely delivery of products.

W.W. Grainger Company: has a business delivery model of either shipping directly to
customers or it’s picked up by customers at their stores. The company has around 9 DCs
and several 100s of stores across United States. This means approximately 11 stores for
each one Distribution Centre, if they increase the number of distribution centers closer to
retail store, there will be a faster replenishment and will reduce the transportation cost.

Question 2: How should product stocking be managed at the DCs?

Should all DCs carry all products?

Objective: To be able to minimize the joint costs of transportation and inventory stocking
while guaranteeing to achieve the target time-based service level.

How should product stocking be managed at the DCs?

· W.W Grainger: Since Grainger has a collective of 9 different DCs across

the US, and is also flexible with customers’ satisfaction methods (i.e. delivery
or pick-up at the location), the amount of product stocking should be
mainly based on customers’ feedback. This is dependent on the location
(how many of their customers are nearby to the DC), and what different
product demands they have for the respective area.

· Explanation:

· The reason why we need to base our stocking on

customers’ feedback and stock accordingly is to reduce the
amount of excessive stocking, which could greatly reduce the
joint costs of transportation on each of the DCs, and still be
able to achieve the target time-based service level.

· While customers’ satisfaction and minimizing joint costs is

one of the main focus, each of the DCs still need to have buffer
stock, in case of emergency reasons (i.e.: stock does not meet
the requirements, sudden increase of customers,...)
· To do this, they need to collect data and feedback from their
customers, and forecast accordingly to ensure fulfillment for
both retail and online orders.

· McMaster-Carr: Since McMaster-Carr only has one main delivery

method, which is through online stores, stocking for each of their DCs
should be flexible in terms of their amount of stocking to ensure the best
coverage of their services.

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 · Since Carr’s orders are mainly online and shipped, each of
their DCs need to have higher capacities to ensure the best
customers’ fulfillment regardless of their location.
· McMaster-Carr should also always ensure buffer stock, in
case of emergencies.
· Note: Since McMaster-Carr does not have a lot of DCs
compared to Grainger, they may have to focus more on timely
delivery and cost reduction in order to keep their service
accessible and reliable.

Should all DCs carry all products?

· As mentioned above for both companies’ cases, flexibility is needed for

each of the DCs, to ensure the best customers’ fulfillment level.

Question 3: What products should be carried in inventory and what

product should be left with the supplier to be shipped directly in
response to a customer order ?

Objectives: To determine which products should be carried in inventory and which

should be drop-shipped directly from the supplier, W.W. Grainger and McMaster-Carr
should consider several factors such as lead time, Demand Patterns, Inventory Holding
Costs, Customer Expectations and Service Levels, Product Margins and Profitability,…

Products to Carry in Inventory:

· High-Demand Items: Fasteners, electrical components, common
hand tools.
=>These products are ordered frequently, and customers expect immediate availability.
Keeping them in stock reduces lead time and ensures customer satisfaction.
· Small or Lightweight Items: Nuts, bolts, screws, safety gloves, small
bearings.
=>These products are easy to store and manage, and the cost of holding inventory is
relatively low. They also have quick turnover, reducing inventory holding costs.

· High-Margin Items: Specialized tools, proprietary components.

=> Products with higher profit margins should be readily available to maximize sales
opportunities.

· Critical or Emergency Items: Emergency repair kits, safety

equipment, replacement parts for essential machinery.

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=> These are items that customers may need urgently. Quick availability is crucial to
avoid downtime in operations.

Products to Drop-Ship from Supplier:

· Low-Demand or Specialized Items: Rarely used machinery

parts, custom-order products, niche tools.
=>These products are ordered infrequently, so it is more cost-effective to order them on-
demand rather than hold them in inventory.

· Bulky or Large Items: Industrial machinery, large HVAC units, large

storage containers.
=> These items take up significant space, and holding them in inventory can be costly.
Shipping them directly from the supplier can reduce warehousing costs.

· Items with High Holding Costs: Perishable goods (if applicable),

high-value machinery.
=>The cost of storing these items, such as the need for special conditions or insurance,
may outweigh the benefits of immediate availability.

· Custom or Configurable Products: Made-to-order items,

customizable tools or parts.
=>These products are typically configured to customer specifications, so it’s more
efficient to have them shipped directly from the supplier after the order is placed.

Question 4: What products should W.W. Grainger carry at a store?

This question is addressing the inventory strategy for W.W. Grainger's physical retail
locations. It's an important consideration because W.W. Grainger, unlike McMaster-Carr,
operates several hundred stores throughout the United States in addition to its online and
catalog sales channels.

Objective: The challenge here is to determine the optimal product mix for these physical
locations, balancing factors: customer needs, inventory costs, store space limitations, and
the relationship between in-store and online offerings.

· High-demand MRO items: are “bread and butter” of MRO industry and
are frequently needed by customers with urgency. (replacement parts for
machinery, electrical components, plumbing supplies…)
=> Meet immediate customers’ needs

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=> Reduce downtime for businesses that can’t afford to wait for shipping

· Safety equipment and emergency supplies: PPE (hard hats,

safety glasses, work gloves, respiratory, first-aid kids)
=> Subject to regulatory requirements => Make immediate availability critical

=> Become a go-to resource for businesses looking to maintain compliance and protect
their workforce

· Consumable products: get used up and need frequent replacement

(lubricants, adhesives, abrasives, disposable tools, cleaning supplies)
=> Customers often prefer to purchase them in person to assess quality or compare
options

=> Ideal for sale => Drive repeat visits => Build customers loyalty

· Locally relevant products: tailored to the dominant industries and

specific needs of businesses in the store's geographic area. (stores near
agricultural regions might stock more farm-related supplies, while those in
manufacturing hubs could focus on industrial components)

=> Meets specific customer needs

=> Positions Grainger as a knowledgeable supplier attuned to local market

demands.

Question 5: How should markets be allocated to DCs in terms of order

fulfillment? What should be done if an order cannot be completely
filled from a DC? Should there be specified backup locations? How
should they be selected?
How should markets be allocated to DCs in terms of order fulfillment?
· Firstly, consider the demand patterns for different products in
different regions. Some products might be more popular in certain
areas, so it makes sense to have DCs located closer to those
markets. By mapping out this demand geographically, the company
can begin to align its DC resources with areas of highest need. For
example, if a particular region consistently shows high demand for
certain products, it would be strategic to ensure that a nearby DC has
ample stock of those products. This step also involves considering
seasonality and other factors that might affect demand fluctuations

· Secondly, consider the capacity of each DC. This includes evaluating the
storage capacity, throughput (how quickly orders can be processed), and

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geographic location relative to major markets. DCs closer to high-demand
regions can reduce shipping times and costs, improving overall efficiency.
Additionally, it's essential to consider the specific strengths of each DC, such
as whether certain DCs are better equipped to handle high-volume orders or
specific product categories. This evaluation helps in determining which DCs
should serve which markets, ensuring that each DC is optimally utilized and
capable of meeting the demands of its allocated region.

What should be done if an order cannot be completely filled from a DC?

· Option 1: use a backup location. This could be another DC or

even a supplier's warehouse. Having a backup location ensures that
customers don't have to wait too long for their orders, even if one DC
is running low on inventory.

· Option 2: communicate with the customer. To ensure customer

satisfaction, it's essential to communicate promptly and provide options. This
could involve offering

partial shipment for available items, free expedited shipping for backordered
items, or the choice to wait for a complete shipment. Additionally, transparent
communication is key to maintaining customer trust and reassurance during the
resolution process.

Should there be specified backup locations? How should they be

selected?
In case any DC cannot manage order fulfillment due to low inventory rate, backup
locations are then required to avoid supply chain disruptions. Based on dissimilarities in
their supply chain models, these two businesses should adopt different approaches to
establishing backups yet share several criteria in selection of strategic locations:

- Strategic Selection: Backup locations should be strategically selected

based on their ability to cover gaps in the primary DC’s coverage. To select
ideal locations for backup points, service providers should consider these
major factors:

· Regional demand density: In order to optimize the backup solution, the

rate of demand should be taken into analysis hence reasonable decisions on
the volume of inventory in each backup. Thorough consideration of market
demand in specific areas propel efficient transportation of products due to
minimization of redistribution.

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· Proximity to other DCs: The distance between backups and its
DCs/retail points presents a crucial role to reduce time consumption and
transportation cost in the process of transferring products.

· Transportation infrastructure: Transportation infrastructure is a critical

component of the supply chain, as it directly impacts the efficiency, cost, and
reliability of moving goods from suppliers to customers.

- Cost-Benefit Analysis: The selection of backup locations should also

consider the cost- benefit analysis. While redundancy is important, the
additional costs associated with maintaining backup locations should be
justified by the service level improvements they offer.

Question 6: How should replenishment of inventory be managed at

the various stocking locations?

Customer Usage Patterns:

· Customer Segmentation: Analyze customer demand by industry, location,

and purchasing patterns. Tailor forecasts to match these insights.

· Historical Sales Data: Leverage extensive historical data to forecast

demand, factoring in seasonal variations, economic trends, and regional
differences.
Seasonal Adjustments:

· Proactive Stocking: Increase inventory levels ahead of known seasonal

demand spikes, such as during winter months for certain industries.

· Promotional Events: Coordinate inventory replenishment with planned

promotions or industry events that might drive higher demand.
Disaster and Emergency Preparedness:

· Contingency Planning: Develop contingency plans for

replenishment in case of supply chain disruptions, natural disasters,
or other emergencies.
· Buffer Inventory: Maintain buffer inventory in strategic locations to
ensure continued operations during unforeseen events.

Step 2: Set Reorder Points (ROP) and Safety Stock Levels

Dynamic ROP Calculation:

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 · Demand Variability: Set reorder points dynamically based on the
variability of demand for different products at each location.

· Supplier Lead Time: Adjust ROP based on lead times, which may vary
depending on the product and its supplier.
Safety Stock Strategies:

· Critical Parts: For essential items that are critical to customer operations,
maintain higher safety stock to avoid stockouts.

· Service Level Agreements (SLAs): Align safety stock levels with the
service levels promised to key customers, ensuring high availability for
products covered under specific SLAs.

Step 3: Implement a Centralized Inventory Management System with

Vendor Collaboration and Vendor-Managed Inventory (VMI)
Vendor Partnerships:

· Strategic Suppliers: Collaborate closely with key suppliers to synchronize

inventory levels with production schedules and lead times.

· Joint Demand Planning: Engage in joint demand planning with suppliers

to align inventory replenishment with anticipated customer demand.
VMI Programs:

· Implement VMI: For critical or high-demand items, establish VMI

programs where suppliers manage the inventory levels at your stocking
locations based on real-time sales data.

· Shared Data Access: Provide suppliers with access to sales and

inventory data to optimize replenishment cycles and improve
responsiveness.
Advanced Software Integration:

· Real-Time Tracking: Utilize advanced inventory management systems

that allow for real-time tracking and automatic replenishment triggers across
all locations.

· Integration with ERP: Ensure the inventory management system is

integrated with the ERP system to streamline order processing, supplier
management, and financial tracking.
Centralized Control with Local Flexibility:

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· Centralized Planning: Maintain centralized control over inventory planning
to leverage economies of scale and ensure consistency.

· Local Adjustments: Allow local stocking locations to make adjustments

based on immediate, localized demand fluctuations.

Step 4: Optimize Distribution and Replenishment Strategies

Cross-Docking and Regional Hubs:

· Cross-Docking: For fast-moving items, use cross-docking to

minimize storage time and speed up delivery.

· Regional Hubs: Utilize regional distribution centers to reduce lead times

and improve service levels in geographically diverse areas.
Inter-Location Transfers:

· Stock Balancing: Implement a system for transferring inventory between

locations to balance stock levels and reduce excess inventory.

· Centralized Redistribution: For slow-moving or specialized items,

consider centralized redistribution strategies to avoid overstocking at
individual locations.

Step 5: Monitor, Analyze, and Adjust Replenishment Strategies

Performance Metrics:

· KPIs: Track key performance indicators (KPIs) such as inventory

turnover, stockout rates, and order fulfillment times across all locations.

· Continuous Monitoring: Use analytics tools to continuously monitor

inventory levels and demand patterns, adjusting replenishment strategies as
needed.
Feedback Loop:

· Regular Reviews: Conduct regular reviews of replenishment performance

at each location, making adjustments based on feedback from local
managers, suppliers, and customers.

· Process Improvement: Implement continuous improvement processes to

refine inventory management practices, including adjustments to ROP,
safety stock, and lead time calculations.

Step 6: Leverage Technology and Automation

IoT and RFID:

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· Real-Time Inventory Tracking: Utilize IoT devices and RFID technology to
enable real-time tracking of inventory levels and movements across all
stocking locations.

· Automated Replenishment: Implement automated replenishment systems

that can autonomously trigger orders based on real-time data and
predefined thresholds.
Advanced Analytics:

· Predictive Analytics: Use predictive analytics to anticipate demand spikes

or slowdowns, allowing for proactive adjustments in inventory levels.

· Machine Learning: Leverage machine learning algorithms to optimize

inventory levels and reduce the need for manual intervention in the
replenishment process.

Question 7: How should Web orders be handled relative to the

existing business? Is it better to integrate the Web business with the
existing business or to set up separate distribution?
In my opinion, there are both pros and cons to this approach.

- Pros

· Streamlined channels: If Web orders are handled through the same

channels as the existing business, it will make the process of delivering
more streamlined and less complicated. All of the orders will go through
almost the same procedures and departments, making it easier and faster
for the customer to receive the service on time, ensuring the best customers’
satisfaction.

· Reducing Cost -> Increasing Revenue: Since orders are fulfilled

through the same channels, this will reduce the amount of DCs needed to be
built, decentralizing DCs, allowing for higher coverage of each companies’
service. -> This will greatly reduce the cost for extra DCs needed to be built
in order to satisfy customers, making it easier to scale.

· Boost operation efficiency -> Reduce cost: If the information-control

system is efficient and effective enough to sync the website with physical
stores, the firms could be operated much more adequately, such as easily
tracking the delivery processes or checking each store’s goods in stock via
the website. Applying software also reduces the workload of staff and then
boosts the work efficiency, while minimizing the cost of operation and paying
salary.

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 - Cons

· Since both channels are integrated with each other, this will increase the
possibility of the channels overloading, which could significantly slow down
timely fulfillment for customers.
Solution: Companies like Grainger can choose to increase the capacities at each of the
DCs, or could choose to optimize their services to ensure each order is fulfilled on time
and avoid bottleneck.

· While this integration does reduce the cost for construction and
expansion of extra physical DCs, it could induce extra costs involving cost of
online infrastructures (i.e.: maintenance, performance analysis,…)
Solution: While it is true that there will be cost to maintain these online services, this pales
in comparison to the amount of budget spent on maintaining and constructing extra
physical DCs just for online stores, making it indefinitely better to spend money on online
stores to streamline and decomplicate the process. -> Less time and less money to fulfill
orders.

· Staffs are required more specific skills to work with the new system,
therefore, causing more cost of training.

How should Web orders be handled relative to the existing business?

- Website design
· Decide if web orders will be processed through the existing order
management system or if a new system is needed
· Website should be easy to navigate, with clear product
descriptions, pricing..., and provide enough information, such as
purchasing policies, stores’ address, contact number, email,

- Operation:

· Information about inventory and orders should be synced with physical

stores, making sure that inventory management system is updated in real-
time across all sales channels in order to make orders flow seamlessly from
the website to your fulfillment center or store and avoid selling products that
are out of stock.

· Integrating shipping and returns options that align with the existing
logistics, which contains in-store picking up. It is also crucial to widen the
logistics system or build additional storage or fulfillment centers due to the
increase in order volume.

- Omnichannel marketing:

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· Analyze and identify the channels that customers use most frequently,
the traits and performance of each platform in order to design relevant and
adequate contents and marketing strategy.

· Use consistent branding and messaging across physical store and

online channels.

· Promote web exclusives and in-store events to drive traffic both online
and offline.

- Employee Training:

· Train staff on handling web orders, including processing, shipping,

managing customer inquiries and dealing with website or orders
management issues.

· Combining online and offline operations often leads to improved customer

service. For instance, customers can return online purchases in physical
stores, or get in- person assistance for issues encountered online.

Question 8: What transportation modes should be used for order

fulfillment and stock replenishment?
Objective: The transport should be mixed (multimodal solutions). The delivery of goods
and stock replenishment should be done using same vehicles. The explanation for this
answer is that multimodal is the utilization of more than one mode of transport, including
various modes of transportation such as rail, road and sea. Below are pros and cons of 4
prevalent modes of transportation:
- Road (truck, container…)

· Pros: Most flexible for door-to-door, cheap

· Cons: limited to continental transport, urban congestion, limited spacing

- Rail

· Pros: ideal for heavy goods and long distances, environmentally friendly

· Cons: connection to rail system required, low transport speed

- Air

· Pros: fastest delivery for both short and long distances, accessible to
most global locations with airport infrastructure

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 · Cons: expensive, limits for size and weight

- Sea

· Pros: ideal for bulky and heavy goods, most cost-effective way to
ship large cargo across the globe

· Cons: inflexible routes, low transport speed

Depending on several factors like goods size, delivery timelines, cost considerations or
the geography, both firms can consider suitable combinations of vehicles. Below are 3
typical types of combination:
- Air + Truck

· For deliveries that need to move quickly over long distances, with the
truck handling the last-mile delivery.

- Sea + Rail/Truck

· For cost-effective international shipping where sea freight covers long

distances and rail or truck handles domestic distribution.

- Rail + Truck

· For domestic shipping with rail covering long-distances and trucks

handling last- mile delivery.
Conclusion: Each mode of transport has its advantages and disadvantages. Using a mix
of different modes can optimize companies’ supply chain performance and cost-
effectiveness, meet customer expectations.

Amazon:
II. Questions and answers

1. Why is Amazon building more warehouses as it grows? How many warehouses

should it have, and where should they be located?

v Amazon is investing in building more warehouses to get closer to its customers and
provide faster service.

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v In 2019, Amazon operates more than 175 fulfillment centers around the world in
more than 150 million square feet of space, the majority located across North America
and Europe.

v The large amount of warehouse reduces shipping times and costs, thereby enhancing
customer satisfaction and maintaining a competitive edge in the e-commerce market.

v It’s hard to tell the exact number of warehouses should Amazon have, but it should
be planned long term and short term based on various factors, including geographic
coverage, order volume, product range, etc.

v The location of warehouses must be considered carefully. According to Tompkins,

an industry observer, the company is building millions of square footage of
warehouses near major metropolitan areas. In 2004, 38% of Amazon’s fulfillment
capacity was less than 200 miles from a major metropolitan area. Today, 79% of
which are within 200 miles of a major metropolitan area.

2. Should Amazon stock every product it sells?

v Amazon shouldn’t stock every product it sells due to the inventory cost. Stocking
every product requires significant warehouse space and increases inventory costs. It
would be a waste of money since some products are less consuming. Therefore it isn’t
necessary and efficient.

v The company uses a combination of strategies to manage its vast inventory:

· In-Stock Products: Amazon keeps a significant number of popular and fast-

moving items in its own fulfillment centers to ensure quick delivery.

· Drop Shipping: The suppliers ships the products directly to the customer on
Amazon’s behalf.

· Just-in-Time Inventory: Stock products only as needed based on demand

forecasts and sales trends.

v By focusing on stocking the necessary items (high demand products), Amazon could
maintain faster delivery times for popular products; optimize the inventory costs,
especially the warehouse rent.

3. What advantage can bricks-and-mortar players derive from setting up an online

channel?

v Increase customers’ reach

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· Moving your retail business online could help reach customers both around the
world and locally, whether they shop online or visit the physical stores.

· Choosing an eCommerce platform with good SEO features can greatly increase
the site's visibility, help more people find the channel, and boost sales both online and
in-store.

v Round-the-clock sales

1. In the last 20 years, the retail industry has transformed into a 24/7 business.
Relying solely on a brick-and-mortar store means missing out on the chance to make
sales while you sleep. With an eCommerce site, you free yourself from the constraints
of standard operating hours and don’t need to be present at all times or hire extra staff.
With the right eCommerce platform and a solid content and sales strategy in place, the
products could be seen to “sell themselves”.

v Added value

2. “Content is king” By adding detailed, SEO-friendly product descriptions,

customer reviews, an ongoing blog and other helpful, entertaining content such as
videos, not only do you establish brand authority, you build trust. The more
consumers trust you, the more likely they are to purchase from you and become loyal
customers.

4. How should they use the two channels to gain maximum advantage?

v To gain maximum benefits using the online and offline channels, bricks-and-mortar
shop owners should try to organize and use both channels seamlessly. In order to
achieve this, they should apply some of these strategies:

· Firstly, they need unified shopping cart system by allowing customers to put
items in their cart online and and complete the purchasing method directly in store, or
vice versa, they also need to make sure that the branding is consistent across two
channels. For example, the promotions shown at the physical stores are the same as
those on the online ones; customer service at the bricks-and-mortar shop and online
shop could be distinctive in its form and demonstration, but its quality must be the
same.

⇒ Doing this will ensure an omnichannel experience, keeping the customers loyal
and attached to the brand in the long-term. Drawing more new and potential
prospects in the short-term.

· Secondly, to increase buyer’s satisfaction, shop owners could offer customers

the option to buy needed products online and pick them up at the nearest store. Doing
this will save shipping time and costs, increasing the customer’s convenience. [The
BOPIS (Buy Online, Pick Up in Store) method]

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Also, by making the buyers engage in the physical store’s activities, such as direct gift
rewarding when buying a certain amount of goods. Or things as simple as elevating
the shopping environment and improving the curb appeal, rearranging the store layout,
all these changes could be applied to psychologically affect the customers into
purchasing more goods. Thus, helping the owner gain more revenue.

· Thirdly, Inventory Management could be improved using real-time inventory

updates systems, helping the inventory manager to prevent situations such as
stockouts or overstocks. Aside from using integrated systems to reduce inventory
costs, the shop owners can utilize physical stores as many extra distribution centers to
respond to online orders and reduce delivery times and costs.

· Personalized Marketing is also an important facet to be taken into consideration.

Using data combined from online and offline channels, the marketing team can gain a
comprehensive understanding of customer taste and behaviors. Thus, help them create
more personalized marketing campaigns that drive in both online and in-store sales.

· Shop owners also need to provide consistent and reliable customer support
across all channels, ensuring that customers can get help whether they are shopping
online, in-store, or through any other medium. This support should include live chat,
email, phone support, and even social media interactions to cover all possible
customer touchpoints.

Along with the aid of technology integration such as mobile apps that enhance the
shopping experience by in-store navigation, product scanning, personalized
recommendation, using technology such as Augmented Reality to support customers
visualize the goods before making a potential purchase.

· Additionally, implement comprehensive loyalty programs that reward customers

for purchases made both online and offline. These programs should include a variety
of rewards such as discounts, exclusive offers, and points that can be redeemed for
future purchases, thereby encouraging repeat business and fostering long-term
customer relationships.

5. What advantages and disadvantages does the online channel enjoy in the sale of
shoes and diapers relative to a retail store?

a) Advantages of Selling Shoes and Diapers Online compared to Retail

Stores

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v Product Variety and Accessibility: Amazon’s acquisition of Zappos in 2009
expanded its shoe inventory dramatically, requiring the creation of 121,000 product
descriptions and the upload of over 2.2 million images. This vast selection is
unmatched by physical stores, which are limited by shelf space. Similarly, after
acquiring diapers.com in 2010, Amazon could offer a wide range of diaper brands,
including specialty options that may not be available in local retail stores.

v Convenience and Time Savings: Amazon’s ability to operate 24/7 allows customers
to shop for shoes and diapers at their convenience, avoiding the need for physical
store visits. This is particularly appealing to busy parents who may prefer to order
diapers in bulk online. The expansion to over 100 U.S. locations by 2015, supported
by a robust logistics network using UPS, FedEx, and the U.S. Postal Service, ensures
relatively quick delivery times.

v Pricing, Promotions, and Costs: Amazon’s lower operational costs compared to

physical stores enable more competitive pricing. For instance, Amazon’s dynamic
pricing model can offer frequent discounts on shoes and diapers, which are harder to
match in retail stores due to higher overhead costs such as rent and staffing.

v Improved Inventory Management: Amazon's centralized warehouses and advanced

inventory systems allow it to manage a broad range of products efficiently. For
example, Amazon supports over 200 global locations and uses data analytics to
predict and meet demand, ensuring a wide selection of shoes and diapers is
consistently available.

b) Disadvantages of Selling Shoes and Diapers Online compared to

Retail Stores

v Inability to Try Products and Assess Quality: Customers cannot try on shoes or
physically inspect diapers before purchasing them online.For example, Zappos sees
around a 35% return rate for shoes due to fit issues. Physical stores, by contrast, allow
customers to try on shoes, ensuring a better fit and reducing the likelihood of returns.
For diapers, parents can inspect and compare products directly before purchasing.

v Shipping, Delivery, and Returns: Shipping costs, which amounted to over $10
billion for Amazon in 2015, contribute to the total cost of purchasing online.
Customers must also wait for products to be delivered, which can be inconvenient,
especially for essential items like diapers. Returns are more cumbersome online,
requiring repackaging and shipping back to the seller, whereas in-store returns are
immediate and hassle-free.

v Customer Service and Trust: Lacks personalized service and may raise concerns
about product authenticity and online payment security, particularly for high-end
shoes or specialty diapers. Trust issues persist despite customer reviews and online
support.

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v High IT and Infrastructure Costs: Amazon invests heavily in IT infrastructure to
maintain its e-commerce platform. In 2015, technology and content costs were in the
billions, highlighting the significant expense associated with online operations.

6. For what products does the online channel offer the greater advantage relative
to retail stores? What characterizes these products?

Categories What characterizes these products

Wide selection of Non-perishability

products

Online channels are

not limited by physical
space and can
therefore offer a much
larger inventory of
items:

Toys from a variety of Perishable goods, such as processed

nations, for different foods, dairy products, and meats, are
genders, highly dependent on expiration dates and
proper storage conditions. As a result,
online sales necessitate significant
Books & authors/artists, genre, investment in preservation and
Media digital download/hard transportation to ensure that these
(music, copies products maintain optimal quality.
movies…)
Non-perishable items, which do not have
expiration dates, streamline the storage
and distribution process, making them
Apparel sizes, styles, colors, more straightforward to manage
(clothing, brands compared to perishable goods.
jewelry,
shoes) Efficiently warehoused

Electronics different models, hard-

& Gadgets to-find items (which

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 are harder to find in
retail shops)

Macy:
1. Should online orders be filled from stores or fulfillment centers?

2. How should store inventories be managed in an omni-channel setting?

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3. Should returns be kept at a store or sent to a fulfillment center?

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