Chopra/Meindl 4/e CHAPTER FOUR Discussion Questions 1 !

hat di""erences in the retail en#iron$ent $a% &usti"% the "act that the "ast' $o#in( consu$er (oods suppl% chain in )ndia has "ar $ore distri*utors than in the United +tates, )ndia is a land o" shop-eepers sellin( to o#er a *illion consu$ers )ndia is *eco$in(l% increasin(l% !esterni.ed/ *ut it 0ill *e 1uite a 0hile 2i" not "ore#er3 *e"ore shop-eepers are supplanted *% lar(e retailers The sheer #olu$e o" s$all store o0ners re1uires a lar(e nu$*er o" distri*utors to ser#ice the$ The %oun(er (eneration in )ndia/ particularl% the )T rich areas o" 4an(alore and Chennai/ ha#e "ar hi(her disposa*le inco$e than the older (eneration and the rest o" the countr% These %oun( 0or-ers ha#e #er% di""erent retail ha*its and are causin( chan(es in )ndia5s shoppin( and suppl% chain needs Poor in"rastructure/ althou(h not entirel% a retail concern/ is another reason 0h% )ndia $a% need "ar $ore distri*utors than in the U + 6 A specialt% che$ical co$pan% is considerin( e7pandin( its operations into 4ra.il/ 0here "i#e co$panies do$inate the consu$ption o" specialt% che$icals !hat sort o" distri*ution net0or- should this co$pan% utili.e, )" the e7pansion into 4ra.il is $erel% a sales operation/ then distri*utor stora(e 0ith last $ile deli#er% is the *est net0or- desi(n )" the e7panded operations include $anu"acturin( capa*ilities/ then $anu"acturer stora(e 0ith direct shippin( is a stron( possi*ilit% 8i#en the nature o" the product/ pac-a(e carrier deli#er% is not an option and retail stora(e 0ith custo$er pic-up is out o" the 1uestion since this is a 464 scenario )n'transit $er(e 0ould *e an option onl% i" the $anu"acturer esta*lished a net0or- o" plants in 4ra.il/ perhaps "ocused "actories relati#el% close to each custo$er The che$ical co$pan% has onl% "i#e custo$ers to ser#e9 it 0ould not re1uire too lar(e an in#est$ent in lo(istical in"rastructure to e""ecti#el% ser#e all "i#e 0ithout inter#ention *% a distri*utor Their short suppl% chain 0ould *e easier to coordinate due to the sta*le de$ands and in"or$ation sharin( that is possi*le in a 464 scenario : A distri*utor has heard that one o" the $a&or $anu"acturers "ro$ 0hich it *u%s is considerin( (oin( direct to the consu$er !hat can the distri*utor do a*out this, !hat ad#anta(es can it o""er the $anu"acturer that the $anu"acturer is unli-el% to *e a*le to reproduce, The t0o suppl% net0or- desi(ns that the distri*utor can propose to counter the $anu"acturer5s proposal are the distri*utor stora(e 0ith pac-a(e carrier deli#er% and the distri*utor stora(e 0ith last $ile deli#er% 4oth o" these counter'proposals o""er hi(her order #isi*ilit% "or the custo$er 0hile ha#in( si$pler in"or$ation

Chopra/Meindl 4/e in"rastructure than 0ith $anu"acturer stora(e The response ti$e "or *oth is e7cellent/ and the custo$er e7perience is also superior to the direct $odel )" the $anu"acturer is tr%in( to pro#ide e7cellent custo$er ser#ice/ the increased costs in transportation and potentiall% hi(her le#els o" in#entor% $a% *e accepta*le tradeo""s 4 !hat t%pes o" distri*ution net0or-s are t%picall% *est suited "or co$$odit% ite$s, Co$$odit% ite$s are a#aila*le "ro$ $an% sources and custo$ers e7pect the$ to *e deli#ered 1uic-l%9 i" a suppl% chain can5t *e responsi#e/ the custo$ers 0ill $o#e on to the ne7t source A distri*ution net0or- desi(ned "or retail stora(e 0ith custo$er pic-up achie#es 1uic- response "or hi(h de$and/ lo0 #ariet% products Other co$$odit% products can *e e""ecti#el% distri*uted usin( distri*utor stora(e 0ith last'$ile deli#er%/ 0hich is also suited "or hi(h de$and/ 1uic- response products ; !hat t%pe o" net0or-s are *est suited to hi(hl% di""erentiated products, The net0or-s that are *est suited to hi(hl% di""erentiated products are the $anu"acturer stora(e 0ith direct shippin( and the $anu"acturer stora(e 0ith in' transit $er(e 4oth approaches ha#e the a*ilit% to a((re(ate in#entories and postpone product custo$i.ation/ 0hich 0ould help support a 0ider #ariet% o" products < )n the "uture/ do %ou see the #alue added *% distri*utors decreasin(/ increasin(/ or sta%in( a*out the sa$e, )t is dou*t"ul that #alue added *% distri*utors 0ill decrease o#er ti$e9 the nature o" co$petition in all areas 0ould su((est that distri*utors that add less #alue 0ould *e 0inno0ed out )t is $ore li-el% that distri*utors 0ill *e as-ed to do $ore or $a% #olunteer to do so as a $eans o" di""erentiatin( the$sel#es "ro$ the co$petition = !h% has e'*usiness *een $ore success"ul in the PC industr% co$pared to the (rocer% industr%, )n the "uture/ ho0 #alua*le is e'*usiness li-el% to *e in the PC industr%, The PC industr% is sellin( a hi(hl% custo$i.ed product that is purchased on a per' household *asis/ less routinel% than the co$$odit% products that $a-e up (roceries A co$pan% li-e Dell can le#era(e the )nternet as a $ar-etin( and distri*ution tool to ad#ertise ne0 capa*ilities and options *e"ore *ric-s and $ortar retailers can Dell also re$o#es 0hate#er inti$idation 2or "rustration3 "actor $i(ht *e e7perienced *% con#ersin( 0ith in'store sales representati#es Co$puters ha#e a #er% hi(h #alue to shippin( cost ratio/ so the increased shippin( costs 0hen co$pared to a traditional store are ne(li(i*le 8roceries ha#e a $uch

Chopra/Meindl 4/e lo0er ratio9 althou(h in'store shoppers are incurrin( costs to pic- up their (roceries/ those costs are hidden in co$parison to the deli#er% char(e on an ite$i.ed *ill "ro$ Peapod E'*usiness 0ill continue to *e a #alua*le tool in the PC industr%9 none o" the ad#anta(es currentl% *ein( en&o%ed *% Dell and 8ate0a% are li-el% to chan(e si(ni"icantl% > )s e'*usiness li-el% to *e $ore *ene"icial in the earl% part or the $ature part o" a product5s li"e c%cle, !h%, E'*usiness is $ore li-el% to *e $ore *ene"icial in the earl% part o" a product5s li"e c%cle E'*usiness stren(ths include "le7i*le pricin(/ pro$otions/ and product port"olios and (reater speed in disse$inatin( product in"or$ation ?ater in the li"e c%cle/ a product is li-el% to *e a co$$odit%/ 0hich doesn5t pla% to the stren(ths o" this channel @ Consider the sale o" ho$e i$pro#e$ent products at Ho$e Depot or a chain o" hard0are stores such as True Aalue !ho can e7tract the (reatest *ene"it "ro$ (oin( online, !h%, 4oth entities and other hard0are co$panies li-e Ace are alread% on'line An article titled BHo$e Depot5s +el"')$pro#e$ent C Co$pan% 4usiness and Mar-etin(D *% Eric Eoun( in The Industry Standard/ +epte$*er 11/ 6FFF/ indicates that Ho$e Depot is the last $a&or pla%er to (o on'line/ *ut *rin(s the deepest poc-ets Those o" us that ha#e stood in line 0ith the contractors reali.e that $an% o" Ho$e Depot5s ite$s are ill'suited to a 0e* enterprise and the clientele is e1uall% ill'suited Contractor sales are such a si(ni"icant portion o" Ho$e Depot5s sales in co$parison 0ith the $i7 at True'Aalue/ that it is li-el% that True'Aalue 0ill ulti$atel% *ene"it $ore "ro$ an e'co$$erce di#ision The article (oes on to sa%/ BEach chain is e$plo%in( a sli(htl% di""erent e'co$$erce strate(% !hereas Ho$e Depot 0ants its site to replicate its $erchandise $i7/ True Aalue li$its the nu$*er o" ite$s it o""ers online For e7a$ple/ at True Aalue/ Get shoppers 0onHt "ind products $ost people need in a hurr%/ such as toilet'tan- "i7'it -its IEouHre not (oin( to 0ait three da%s to ha#e it shipped so %ou can stop the 0ater "ro$ drippin( into %our nei(h*orHs apart$ent/I sa%s Geil Hastie/ C)O at TrueAalue co$ Ace Hard0are/ $ean0hile/ thin-s *i((er is *etter )ts site o""ers al$ost e#er%thin( in its stores/ plus a*out 1;/FFF additional products AceHs supple$entar% online o""erin(s are a 0ind"all "ro$ its in#est$ent in OurHouse co$/ a !e*'*ased ho$e i$pro#e$ent site that handles AceHs online sales The t0o co$panies split online re#enues Ace &oined "orces 0ith OurHouse to (et a le( up in e'co$$erce I!e didnHt 0ant to *e le"t in the startin( (ate/I sa%s Jen Gichols/ a retail operations #ice president "or Ace !aitin( in the 0in(s is ?o0eHs/ the nationHs second'lar(est ho$e i$pro#e$ent chain ?i-e Ho$e Depot/ ?o0eHs 0ants to e7pand its online presence *ut is

Chopra/Meindl 4/e approachin( e'co$$erce slo0l% 4e(innin( in Octo*er/ the retailer 0ill o""er a 0ide selection in a li$ited nu$*er o" cate(ories/ such as hand tools and appliances ?o0eHs 0ill deli#er Get orders directl% to *u%ers or to the store closest to the custo$er/ a(ain li-e Ho$e Depot Mean0hile/ )nternet'onl% retailers are scra$*lin( to 0in o#er custo$ers/ #o0in( to co$pete a(ainst o""line chains in price and selection CornerHard0are/ "or e7a$ple/ sa%s it currentl% has 16;/FFF products a#aila*le '' three ti$es the nu$*er a#aila*le at an a#era(e Ho$e Depot store The pure )nternet pla%ers ac-no0led(e that the% donHt ha#e the *rand reco(nition o" Ho$e Depot 4ut the% hope to *uild their *rands *e"ore Ho$e Depot and the other *ric-'and'$ortar stores esta*lish a stron( online presence +till/ itHs not clear that an% are *ene"itin( "ro$ "irst'$o#er ad#anta(e Alread% t0o Get pure'pla%s '' Hard0are co$ and Ho$e!arehouse co$ '' ha#e (one under D 1F A$a.on co$ sells *oo-s/ $usic/ electronics/ so"t0are/ to%s/ and ho$e i$pro#e$ent products online )n 0hich product cate(or% does e'*usiness o""er the (reatest ad#anta(e co$pared to a retail store chain, )n 0hich product cate(or% does e'*usiness o""er the s$allest ad#anta(e 2or a potential cost disad#anta(e3 co$pared to a retail store chain, !h%, A$a.on5s (reatest e'*usiness ad#anta(e co$es "ro$ *oo- sales9 the% are a*le to list $illions o" *oo- titles that a ph%sical store cannot possi*l% carr% on their shel#es Cost ad#anta(es "or A$a.on are "e0 and "ar *et0een9 the ite$ price to shippin( cost ratio "or *oo-s/ $usic/ and so"t0are is not as hi(h as $ost consu$ers 0ould pre"er A$a.on certainl% has no cost ad#anta(e 0ith $usic and so"t0are 4oth are readil% sold o#er the )nternet9 it 0ould *ehoo#e A$a.on to partner 0ith another +eattle'area co$pan% to $a-e this the nor$ Electronics/ hard0are/ and e#en to%s are products that $ost consu$ers 0ould li-e to e7perience *e"ore $a-in( a selection An% cost ad#anta(e A$a.on $i(ht ha#e in these sectors $a% *e o#ershado0ed *% an ina*ilit% to hold the ite$ on'line 11 !h% should an e'*usiness such as A$a.on co$ *uild $ore 0arehouses as its sales #olu$e (ro0s, A$a.on initiall% tried to run their entire *oo- *usiness 0ith no 0arehousin( "acilities/ instead rel%in( on other distri*utors to carr% their entire in#entor% Ge7t/ A$a.on ran their *usiness out o" a sin(le 0arehouse in +eattle and disco#ered it 0asn5t "easi*le9 the trade'o"" o" responsi#eness and cost 0as causin( e7cessi#e dela%s in (ettin( products to custo$ers Go0 A$a.on uses a h%*rid o" these t0o s%ste$s/ carr%in( ite$s that it -no0s 0ill sell in its o0n 0arehouses and lettin( others carr% ite$s that ha#e (reater de$and uncertaint% As A$a.on5s *usiness (ro0s/ it should continue to esta*lish 0arehouses to spread its "acilities closer to poc-ets o" ne0 custo$ers/ thus achie#in( *etter le#els o" responsi#eness 0hile still $aintainin( its cost ad#anta(e