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?
Question 1
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 nine DCs and several 100s of stores across United States. This means
approximate 11 stores for each one Distribution Centre. If they increase the number of distribution centres closer to retail
stores, there will be a faster replenishment and in turn will reduce the transportation cost.
Whereas in the case of McMaster- Carr , the company is focused on online orders and used the DCs as both distribution
centre as well as retail store. The company need to have large capacity Dcs but less in number which will help to align with
the current strategy , have cost reduction and timely delivery of products.
Question 2
In the case of Grainger, who has a large number of retail stores, the feedback from the retail stores of sales data will help to
forecast the demand of MRO units. It should be able to fulfil both retail and online orders and help in having certainty of
demand.
Whereas in the case of McMaster- Carr , the online ordering will imply flexible demand., The product stocking should be
managed at the DCs and should always keep buffer stock to ensure timely delivery.
Question 3
The products that needs to be carried in inventory and that should be left with the supplier depends on the below:
· Kep products which are fast moving
· Products that has lead time for the supplier to be arranged
· Depends of the demand of the products
· Supplier lead time
Question 4
W.W. Grainger should carry products at the store based on the below criteria:
The products are in demand in the regional area
Items which are specially sought by customers
Certain valuable items need to be kept stock
Availability and durability of certain products
Question 5
The markets be allocated to DCs in terms of order fulfilment based on timely delivery of products and that will incur
minimum transportation cost.
In the case of Grainger, who has a large number of retail stores and DCs , if an existing DC cannot fulfil an order, the
requirement can be met from the other DCs.
Only concern would be the location accessibility depending on the transit time and demand across different points of time.
Whereas McMaster- Carr, who has limited DCs, has to keep large inventory. The company has to rely on suppliers who has a
fast response time and are responsible in the case of an order cannot be completely filled from a DC. The company need to
have better forecast to ensure availability of products.
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
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?
Answer 1:
- Toyota encountered issues after the earthquake in 2011 disrupted its supply chain. This prompted Toyota to have a
redundant capacity in case of disasters. To reach this goal, plants need to be in separate geographic areas to be able to
produce different parts. This approach also enhances flexibility.
Given the uneven rates of growth in certain areas, it is recommended that the company follows a strategy that tries to
match local supply with local demand, and therefore expand local capacity to match local demand. Generally, the company
should develop its capacity planning by applying a “think global – act local” approach, which will provide global
complementation, while adjusting for local/regional characteristics and needs.
Answer 2:
- Generally, these plants should be able to produce for all markets; however, plants will be basically satisfying the needs of
the market that has been assigned to them. Plants should be operating to create products and parts that are needed
primarily at the local level, to avoid transportation costs, but should also be ready to export to markets when the local
market weakens.
Answer 3:
The recommended strategy is primarily a co-location strategy, which de-risks the business by having customer & plant in
same geography:
• High growth markets (pull factor) – Increase capacity in China, India, Brazil, Indonesia & Mexico to meet domestic deman
• Mature markets - Build high-end models in USA (e.g. Lexus)
• Close plants in regions with economies of low scale (e.g. Australia – announced for 2017)
•Set up plants in regions (i) having free trade agreements (FTA) with key markets (nil export duty), (ii) with low cost
structure, (iii) political & currency stability & (iv) countries offering incentives for green cars (e.g. Indonesia) – these plants
would serve both domestic & global demand. Examples: Mexico ( e.g. - FTA with America), Indonesia (e.g. - FTA with ASEAN,
Australia, New Zealand, China, South Korea, etc), USA (e.g. - FTA with South Korea)
Answer 4:
- The value of this flexibility investment could be phrased as a cost reduction in terms of an emergency
•For example
–When the existing supply is disrupted because a plant goes down, how much do the costs rise in fulfilling demand?
–When the demand rises in a certain region/country, what is the opportunity cost of lost sales?
•Using financial models to calculate NPV of cash flow under different flexible supply chain scenarios (e.g. option pricing).
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?
1) Amazon needs to be the most pervasive online shopping objective and needs to give the best of administration that
would add more comfort than actual shopping. TO guarantee that they have to cut the conveyance and wait times
fromm their delivery. And to make this conceivable they have to stock items in warehouses that will lessen the lead
season of transportation the items from vendor area to objective area.
They have to have warehouses near every significant market, as US is generally covered by 40 warehouses it may require 5
to 10 more at this point.
According to worldwide warehouses it would require more 40 warehouses, however this increase ought to be as indicated
by the increase in delivery volume. So as the volume inreases, income from those areas become more and then they should
increase the activities. So any area which has more than a specific degree of itmes delivered ought to have a warehouse set
up.
3) No, neither this is basically conceivable not does it bode well. They should keep the items which has bigger timeframe of
realistic usability and the necessity is high and conveyance for items which has better standard, similar to, Diapers. There is
customary demand and the item has a serious level of extravagance.
4)The main advantages of going online from Offline mode are: all day, every day availability to take orders
Decrease away and warehouse costs
Higher comfort to clients to purchase
More extensive inclusion and increase in client base and so business
So there should be an integral methodology, there are low contribution items which individuals wouldn't fret purchasing
without contact or feel, however there are different items which individuals need to experience to purchase, online and
offline model gives more extensive scope of items.
It likewise assists clients with picking up certainty and increase the ticket size because of higher trust.
5)Offer of Shoes has the bit of leeway:
More assortment on offer
More comfort to the client
Offer of Shoes has the hindrance:
No choice of giving them a shot
Odds of wrong fit and returns are high
Offer of Diapers has the favorable position:
More assortment on offer, less expensive mass requests
More comfort to the client
It adds more trust for different products,as individuals are content with high extravagance item
Customary and appeal item
Offer of diapers has the hindrance:
No choice of giving them a shot
Any off-base or harmed item could annihilate the trust level
6)A large portion of the mass purchase items give higher rebate rates
All garments and embellishments including shoes of standard use gives more choices , way more wide reach to choose from.
Recently dispatched hardware where all the subtleties are accessible online
The Characteristics are;
Known brand/Product
Normal size
Low to medium level of inclusion
Return and substitution strategy joined to the items
