A Chicago-based manufacturer is looking for someone to handle its

A Chicago-based manufacturer is looking for someone to handle its shipments to the West Coast. In order to evaluate potential transportation providers, the manufacturer has developed the following criteria.

a. Pick up shipments in less than eight hours from the time it is notified. (The manufacturer doesn’t have enough space for shipments to sit around at the dock.)

b. Deliver shipments in 72 hours or less. Beyond this, shippers will be evaluated according to cost and the percentage of shipments that arrive undamaged. Three shippers—McAdoo, Klooless, and Big Al— have put in bids for the business. The relevant performance information for the shippers is shown in the following chart:

a. (**) Using Figure 2.3 as a guide, graph how well each of the shippers performs with regard to the order winners and order qualifiers.

b. (**) Who is most likely to win the business? Why?

c. (**) What’s going on with Big Al? What does Big Al need to do in order to compete successfully for the business?

d. (**) Comment on Klooless’s competitive position. Does it meet the minimum requirements? Is it very competitive? Why or why not?

1. What were some of the key structural and infrastructural

1. What were some of the key structural and infrastructural elements that defined Netflix’s supply chain strategy before 2011? Today?

2. How have the customers’ order winners for Netflix’s customers changed over time? Would today’s customer be satisfied by the delivery performance or selection of Netflix’s “old” supply chain?

3. As of early 2017, Netflix still supported customers who want to rent DVDs, although the number of subscribers has fallen to around 4.1 million (vs. 94 million online subscribers). Should Netflix abandon its physical system altogether? Why or why not?

NETFLIX, now 20 years old, has more than 94 million subscribers worldwide and is the most popular subscription media business in the United States.15 In the fourth quarter of 2016 alone, Netflix had estimated total revenue of nearly $2.4 billion.16 But the road has not always been so smooth for Netflix. In 2011, Netflix dramatically changed its business strategy from one based on the physical of DVDs and Bluray discs, to one based predominantly on the direct streaming of entertainment content across the Internet. This case study looks at the impact on Netflix’s supply chain strategy.

Netflix’s Supply Chain Strategy, before 2011 Before 2011,

Netflix’s supply chain strategy mixed information technology and physical logistics to replace traditional brickand- mortar stores, such as Blockbuster. The Netflix Web site not only served as a virtual storefront but also used customized software to track its subscribers’ preferences and make recommendations based on an individual’s viewing habits.

Enough subscribers responded to these recommendations that Netflix could keep many of its older DVD titles circulating and continuing to earn revenue, while lowering demand somewhat for the “latest” releases.

The second major piece of Netflix’s supply chain, its system, was just as critical to the firm’s success. By operating several centers around the United States right from the start, the company was able to accept, inspect, and clean DVDs quickly and ship them out just as fast, so customers experienced very short wait times between placing their orders and receiving their DVDs. By 2011, Netflix had about 60 centers in operation.

For the most part, Netflix’s traditional supply chain, with its one-day delivery and same-day processing, was effective. Its inventory system not only automatically tracked incoming DVDs that customers had returned, it also emailed each customer a confirmation of receipt and alerted the appropriate shipping center to send the next title on that customer’s list or queue. It also ensured that subscribers weren’t sent more DVDs than they had paid for (customers were limited to a certain number of DVDs per month). However, a number of factors affected which DVDs a subscriber got and when they got them. If there weren’t many copies in the system, the company would ship one from a center that was far from where a subscriber lived. Another was the popularity of the movies. Often there were fewer copies of a newly released film than there were people who wanted to see it. And the shipping process, which involved multiple handling steps, sometimes resulted in damage to the DVDs.

Netflix’s Supply Chain Strategy, Today

In retrospect, all the problems listed earlier stemmed from the fact that Netflix’s traditional supply chain tied the delivery of an intangible service (information content) to a tangible item (a DVD or Blu-ray disc). With this in mind, starting in 2007 Netflix made a conscious effort to take advantage of advances in information technology and move to a truly virtual supply chain that uses the Internet to both manage subscribers’ accounts and stream content directly to them. Such a supply chain has numerous advantages, including:

• Subscribers can receive content immediately.

• Netflix no longer needs to manage an expensive network of centers. In addition to cutting costs, this also allows Netflix to quickly expand into any market that has Internet access.

• Netflix no longer needs to make decisions regarding how many DVDs or Blu-ray discs to order or where to stock them.

But this new supply chain solution is not without its risks:

• Upstream supplier risks. Netflix depends on entertainment companies to provide the content subscribers want, yet many of these companies have concerns about having their content—particularly newer shows and movies—delivered in electronic format.17 If entertainment companies refuse to license their products or provide only limited access to their “best” content, this could undermine the quality and range of Netflix’s offerings.

• Downstream distributor risks. Instead of having the U.S. Postal Service deliver discs, Netflix’s new supply chain strategy depends on Internet service providers (ISPs), such as cable companies and satellite network providers, to deliver the content. Many of these providers have been arguing that Netflix or its subscribers should pay higher fees due to the higher levels of traffic they generate. And even if these issues are resolved, higher traffic levels could result in overloaded networks and service interruptions.

• Competitive risks. Today, Netflix faces a new set of competitors, including Amazon, Google, and Hulu, and possibly new companies that have not yet entered the market.18

After developing her 2020 forecast (Example 9.8), Jamie Favre gets

After developing her 2020 forecast (Example 9.8), Jamie Favre gets a visit from Cheeznax’s production manager, Mark Mobley. Mark says, “I think the forecast is fine, but I really need estimates of demand broken out by product type. In other words, how much of each month’s demand do we think will consist of cheese balls, cheese nachos, and cheese potato chips?” Jamie goes back to the 2019 sales results and finds the following figures:

Using this information and the 2020 adjusted forecast results shown in Figure 9.22, develop a forecast for each product in each month of 2020. The sum of the individual product forecasts should equal the monthly total sales forecast.

1. As of 2017, what type of manufacturing process did

1. As of 2017, what type of manufacturing process did LWT appear to be using? What level of customization was it offering? Where was the point of customization?

2. Using Table 3.2 and Figure 3.12 as guides, how would you describe the service side of LWT’s business prior to 2018? What were the managerial challenges?

3. What type of manufacturing process is needed to support the changes proposed by Chuck Keown? What level of customization will LWT be offering? Where will the point of customization be?

4. Using Table 3.2 and Figure 3.12 as guides, how will the service side of the house change in 2018? What will the new managerial challenges be?

5. Develop a list of 8 to 10 things that must happen in order to accomplish the changes Chuck Keown envisions. Will the new business model be more or less difficult to manage than the old one? Justify your answer.

Figure 3.12

Table 3.2

For nearly 50 years, Loganville Window Treatments (LWT) of Loganville, Georgia, has made interior shutters that are sold through decorating centers. Figure 3.20 shows some of the various styles of shutters LWT makes.

Past Manufacturing and Service Operations: 2017

Traditionally, LWT supported a limited mix of standard products. At any particular point in time, the mix of products might consist of six different styles offered in five predetermined sizes, resulting in 30 possible end products. LWT would produce each of these end products in batches of 500 to 1,000 (depending on the popularity of each style/size combination) and hold the finished products in the plant warehouse. When a decorating center called in with an order, LWT would either meet the order from the finished goods inventory or hold the order to be shipped when the next batch was finished.

LWT’s products were sold through independent decorating centers located across the United States and Canada. LWT would send each of these decorating centers a copy of its catalog, and the decorating centers would use these catalogs to market LWT’s products to potential customers. It was the responsibility of the decorating centers to work with customers to price out the shutters, make sure the correct size and style were ordered from LWT, and resolve any problems. As a result, LWT almost never dealt directly with the final customers.

Manufacturing and Service Operations: 2018

By 2017, the influx of low-cost shutters made in China had forced LWT to reconsider its business model. Specifically, because of the low labor costs in China (20% of LWT’s labor costs), Chinese manufacturers could make exact copies of LWT’s products for substantially less and hold them in warehouses across the United States and Canada. LWT’s traditional customers—the decorating centers—were turning more and more to these alternative sources.

LWT decided to fight back. As Chuck Keown, president of LWT, put it:

The only permanent advantage that we have over our competitors is that we are located here in the United States, closer to the final customer. So from now on, we will be a make-to-order manufacturer. We will deal directly with customers and make shutters to whatever specific measurements and finish they need. This means we can no longer count on producing batches of 500 to 1,000 shutters at a time and holding them in inventory. Rather, we will need to be able to make a few at a time in one-off sizes, if that’s what the customer needs.

On the service and marketing side of the house, we will now take orders directly from the customer. We will reach them through the Internet and through catalogs. We will work with them to determine what style best suits their needs, and to take the measurements needed to make the shutters. When there is a problem, we will work directly with the customer to resolve them.

Yes, this will require dramatic changes to our business. But it also means we will be able to charge a premium for our products and create a relationship with the customers that our Chinese rivals will find difficult to emulate. As I see it, this is the only way we can survive.

Smarmy Sales, Inc. (SSI) sells herbal remedies through its Web

Smarmy Sales, Inc. (SSI) sells herbal remedies through its Web site and through phone reps. Over the past six years, SSI has started to depend more and more on its Web site to generate sales. The figures below show total sales, phone rep costs, and Web site costs for the past six years:

a. Calculate productivity for the phone reps for each of the past six years. Interpret the results.
b. Calculate the productivity for the Web site for each of the past six years. Interpret the results.
c. Compare your results in parts a and b. What are the limitations of these single-factor productivity measures?

d. Now calculate a multifactor productivity score for each year, where the “input” is the total amount spent on both the phone reps and the Web site. Interpret the results. What can you conclude?

AnderSet Laboratories produces rough lenses that will ultimately be ground

AnderSet Laboratories produces rough lenses that will ultimately be ground into precision lenses for use in laboratory equipment. The company has developed the following thickness measures, based on 15 samples of four lenses that were taken when the process was under control:

a. Use these data to calculate X and R and set up the appropriate control charts.

b. Can the process be “under control” in statistical terms but still fail to meet the needs of AnderSet’s customers? Explain, using a numerical example.

c. Suppose AnderSet Laboratories takes some additional samples of the same size, yielding the following results. Plot these samples on the control charts and circle any observations that appear to be out of control.