SUPPLY CHAIN MANAGEMENT

W.W. Grainger and McMaster-Carr: MRO Suppliers
W.W. Grainger and McMaster-Carr sell maintenance, repair, and operations (MRO) products.
Both companies have catalogs and web pages through which orders can be placed. W.W. Grainger
also has several hundred stores throughout the United States. Customers can walk into a store,
call in an order, or place it via the website. W.W. Grainger orders are either shipped to the customer
or picked up by the customer at one of its stores. McMaster-Carr, on the other hand, ships
almost all its orders (although a few customers near its DCs do pick up their own orders). W.W.
Grainger has nine DCs that both replenish stores and fill customer orders. McMaster has five
DCs from which all orders are filled. Neither McMaster nor W.W. Grainger manufactures any
product. They both primarily serve the role of a distributor or retailer. Their success is largely
linked to their supply chain management ability.
Both firms offer several hundred thousand products to their customers. Grainger stocks
about 300,000 stock-keeping units (SKUs), whereas McMaster carries about 500,000. Grainger
also provides many other products that it does not stock directly from its suppliers. Both firms
face the following strategic and operational issues:
1. How many DCs should be built, and where should they be located?
2. How should product stocking be managed at the DCs? Should all DCs carry all products?
3. What products should be carried in inventory and what products should be left with the
supplier to be shipped directly in response to a customer order?
4. What products should W.W. Grainger carry at a store?
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?
Toyota: A Global Auto Manufacturer
Toyota Motor Corporation is Japan’s top auto manufacturer and has experienced significant
growth in global sales over the past two decades. A key issue facing Toyota is the design of its
global production and distribution network. Part of Toyota’s global strategy is to open factories
in every market it serves. Toyota must decide what the production capability of each of the factories
will be, as this has a significant impact on the desired distribution system. At one extreme,
each plant can be equipped only for local production. At the other extreme, each plant is capable
of supplying every market. Before 1996, Toyota used specialized local factories for each market.
After the Asian financial crisis in 1996–97, Toyota redesigned its plants so it could also export to
markets that remain strong when the local market weakens. Toyota calls this strategy “global
complementation.”
Whether to be global or local is also an issue for Toyota’s parts plants and product design.
Should parts plants be built for local production or should there be a few parts plants globally
that supply multiple assembly plants? Toyota has worked hard to increase commonality in parts
used around the globe. Although this has helped the company lower costs and improve parts
availability, common parts caused significant difficulty when one of the parts had to be recalled.
In 2009, Toyota had to recall about 12 million cars using common parts across North America,
Europe, and Asia, causing significant damage to the brand as well as to the finances.
28 Chapter 1 • Understanding the Supply Chain
Any global manufacturer like Toyota must address the following questions regarding the
configuration and capability of the supply chain:
1. Where should the plants be located, and what degree of flexibility should be built into
each? What capacity should each plant have?
2. Should plants be able to produce for all markets or only for specific contingency markets?
3. How should markets be allocated to plants and how frequently should this allocation be
revised?
4. How should the investment in flexibility be valued?
Amazon: Online Sales
Amazon sells books, music, and many other items over the Internet and is one of the pioneers of
online consumer sales. Amazon, based in Seattle, started by filling all orders using books purchased
from a distributor in response to customer orders. As it grew, the company added warehouses,
allowing it to react more quickly to customer orders. In 2013, Amazon had about 40
warehouses in the United States and another 40 in the rest of the world. It uses the U.S. Postal
Service and other package carriers, such as UPS and FedEx, to send products to customers. Outbound
shipping-related costs at Amazon in 2012 were over $5 billion.
Following the introduction of the Kindle, Amazon has worked hard to increase sales of
digital books. The company has also added a significant amount of audio and video content for
sale in digital form.
Amazon has continued to expand the set of products that it sells online. Besides books and
music, Amazon has added many product categories such as toys, apparel, electronics, jewelry,
and shoes. In 2009, one of its largest acquisitions was Zappos, a leader in online shoe sales. This
acquisition added a great deal of product variety: According to the Amazon annual report, this
required creating 121,000 product descriptions and uploading more than 2.2 million images to
the website. In 2010, another interesting acquisition by Amazon was diapers.com. Unlike Zappos,
this acquisition added little variety but considerable shipping volumes.
Several questions arise concerning how Amazon is structured and the product categories it
continues to add:
1. Why is Amazon building more warehouses as it grows? How many warehouses should it
have, and where should they be located?
2. Should Amazon stock every product it sells?
3. What advantage can bricks-and-mortar players derive from setting up an online channel?
How should they use the two channels to gain maximum advantage?
4. What advantages and disadvantages does the online channel enjoy in the sale of shoes and
diapers relative to a retail store?
5. For what products does the online channel offer the greater advantage relative to retail
stores? What characterizes these products?