barcode using vb.net Core Discipline 2: Develop an End-to-End Process Architecture in Software

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CHAPTER 2 Core Discipline 2: Develop an End-to-End Process Architecture
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The relevance of specific supply chain practices will change as your supply chain strategy changes. When Amazon was founded, developing a core competency in order-fulfillment management was not a key element of the company s strategy. Amazon s original business model was to own no inventory and simply order products directly from manufacturers or distributors as customers placed orders. The supply chain and associated processes were designed to take advantage of the fact that warehousing of the primary product books was done already by book distribution companies. Amazon planned simply to place orders to these warehouses and not worry about managing inventory. However, the company found that this model did not provide adequate control over the supply chain, the customer s experience, and the associated transactions. So it made the decision to build and operate its own warehouses. The company has invested in some costly physical assets but also has become an expert at warehousing. Between 1999 and 2003, through automation and a persistent focus on productivity-enhancing practices, Amazon was able to triple warehouse output productivity. Operating costs fell from nearly 20 percent of total revenues to less than 10 percent. Warehousing performance became so good that Amazon started a side business of running the e-commerce back end of other retailers, including Toys R Us and Target.1 Allan Lyall, Amazon s vice president of European operations, notes that keeping Amazon s supply chain strategy in line with the company s business strategy is a constant challenge. It s not like we make fundamental changes to our strategy all the time, he says, but we do make tweaks. That means we need to tweak the associated supply chain processes. For example, we started experimenting with next-day delivery in certain locations. Everything we had done until that time was based on a model where trucks leave our distribution facilities at 8:00 P.M. With the new strategy, suddenly we had to rethink some of our most basic processes one pickup per day was not good enough. 2 Mark Mastandrea, director of fulfillment, explains how constant process improvements are managed: We place an emphasis on understanding each element of the end-to-end process. So even though we have warehouses that were built at different times and therefore have different levels of automation, we break the process into small enough increments that we can get to the point where we have common denominators that apply across all facilities. Then we do internal benchmarking to understand the best way to perform that particular process, and put those practices in place in the other facilities.
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Strategic Supply Chain Management
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Amazon calls this a structured methodology and uses teams consisting of industrial engineers, Six Sigma experts, and representatives from all major functions continuously to cut the overall process into increments that can be shared across the company. Mastandrea notes that this approach is effective, even though the warehouse infrastructures can vary significantly. One warehouse might use processes A and B, and another might use processes A and C. We want to focus on optimizing how we do A [and] then do it the same way in each location. Today, Amazon has moved to a mixed approach consisting of stocking high-volume products and using partners to inventory lower-volume items, as well as large or irregularly shaped items that use warehouse space inefficiently. The disadvantage of this strategy is maintaining single-shipment orders when items originate in multiple locations. Customers can choose to consolidate all items into a single shipment or have the products ship as each becomes available. If the second option is selected, products are shipped directly from the locations in which they are stocked. In some cases, Amazon may not allow the customer to consolidate all items and will ship certain purchases directly from a partner. With the consolidation option, customers pay only for a single shipment, but the cost to Amazon actually may be higher than sending multiple shipments. Each nonstocked item is shipped to one distribution center, held until all items are received, and then repackaged and shipped to the customer. Amazon uses highly sophisticated algorithms to plan stocking levels and locations to minimize these split shipments; these algorithms are reviewed and enhanced continuously. Allowing the customer to choose the delivery mode clearly enhances the customer s experience and also has a significant impact on supply chain processes. Amazon s process design emphasizes the importance of demand planning to predict sales and to determine the We caution you to appropriate inventory levels to stock at each avoid the trap of location. This focus has allowed the company to become highly efficient at organizchoosing costly ing warehouses to stock items close together that tend to be purchased at the leading-edge same time. One indication of the success of practices that tailoring processes to the strategy has been a reduction in order-fulfillment costs to 9.6 provide only percent of sales in the first quarter of 2003 marginal support. from 10.6 percent in first quarter 2002.3
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