The assignment is : read the Case Study: Altimus Brands: Managing Procurement Risk from Operations Management in the Supply Chain,
Based on your readings:
a. Perform a search in Google.com on Supply Chain Operations Reference Model (SCOR).
b. Based on your results build your own model that would help you make operational decisions for Altimus Brands.
NOTA: I will send you the case in which you have to make the assignment and the Supply Chain Operations Reference Model (SCOR).
On February 1, 2011, Enzo Natale, head of Finance and Operations at Altimus Brands in London (UK), received the latest monthly report and, as he feared, costs of purchases had increased again. He knew that by the end of the month he would have to present recommendations to the board. He convened a meeting with his team of buyers to prepare the recommendations focusing on RockyMountain, their top-selling brand.
ALTIMUS BRANDS Altimus is a family-owned business with a global presence in the footwear sector. The company owns a portfolio of seven premium footwear brands, marketed in some 120 countries and in 2010 reached £1.3 bn in sales. Altimus operates about 230 retail outlets worldwide, but it also sold its products through other channels. Although the company name is rarely recognized by people outside the industry, its brands were well known around the world and considered the company’s most valuable assets. To maintain and develop the value of its brands, the company relies on four core competencies: innovation, design, quality and supply chain management. For many years manufacturing has not been central to the business; in fact they were one of the pioneers in sourcing from Asia, where they had been operating since the 1960s. It was precisely for this reason that Enzo believed the selection, management and development of suppliers were key success factors.
THE GLOBAL FOOTWEAR INDUSTRY
Impact of the Economic Situation
The footwear market had been badly hit by the recession and many retailers and producers had gone bankrupt, with the surviving players fighting for market share. Although the management team at Altimus expected that consumer confidence would start to improve, weaker wage growth and the possibility of future job cuts, particularly in Europe, could lead to consumers remaining cautious for longer. The global market for premium footwear brands was dominated by Europe and North America, although developing economies were becoming increasingly important. Production, on the other hand, tended to be concentrated in developing economies such as China, Brazil, Vietnam, Thailand, Indonesia, India and Bangladesh, with only small pockets of producers in countries like Italy, Spain, and the USA.
Trends in Footwear Sector Traditionally there were two collections per year (SpringSummer and Autumn-Winter) and hundreds of new models were designed and produced every season. However there was evidence that competition was shifting to a “Fast fashion” model led by companies like Zara and H&M, which introduced more collections per year. Some companies were talking about 13 collections per year; one every four weeks. Technologies were also changing constantly, both in terms of materials and production processes. “This continuous change makes it very difficult to manage the supply chain” said Enzo. Corporate Social Responsibility (CSR) and in particular ethical issues such as fair trade, child labor, use of sweat shops were a growing concern for companies in the footwear and clothing sector. Companies with strong brands such as Adidas, Burberry, Gap and Nike had found themselves as central protagonists in major scandals, usually the result of ethical violations by direct or indirect suppliers. In recent years, global initiatives such as the Global Compact, promoted by the UN, and the Ethical Trading Initiative (ETI) were launched to promote ethical and responsible business practices.
ALTIMUS’ SUPPLY CHAIN
Supply Chain Strategy and Structure
Altimus, like many other companies in this sector, acted as a supply chain integrator. It managed the suppliers, who manufactured the shoes; it coordinated the logistics through third party logistics providers (3PLs); and it controlled the distribution channels (see Exhibit 1). Enzo believed this approach allowed flexibility in terms of production capacity and required no investment in production assets. However, he also recognised a major limitation was that the control of manufacturing costs remained outside the boundaries of the organization. The only levers they had to reduce production costs were price negotiations, product specification and supplier switching. Altimus had focused its supplier development efforts in the Far East. Enzo believed this strategy had served them well over many years and they had developed close collaborative relationships with their suppliers in this region. However, increasing costs of supplies, caused mainly by high inflation rates in some countries, had forced Enzo to review the company’s supply base to see if cost could be reduced. Also, the EU introduction of antidumping duty for footwear from China and Vietnam was having an adverse impact on product margins. At the meeting Enzo and his team had decided to focus on RockyMountain, their top brand which was representative of the portfolio. Based on experience they estimated that demand for the RockyMountain brand for the following year would range between 375 and 425 thousand pairs per month. They hoped demand would continue growing after that but they did not have a scientific way of estimating demand further into the future.
Their evaluation centered on four suppliers, three of them were established suppliers and one was a new potential supplier. Yu Ven was a factory located in Vietnam which had been supplying Altimus for almost nine years and in 2010 it supplied the company with around 52 percent of their products for the RockyMountain brand. Jai Nin, in China, had been supplying them for a decade and in 2010 produced 32 percent of their requirements. Far Byung in Indonesia, had been supplying them for only three years, and by 2010 they were supplying almost 16 percent of the products. Footnow was a potential new supplier located in Bangladesh, and although this alternative appeared to be cheaper than all their current suppliers, the team was reluctant to take a major risk with them. The criteria for evaluating suppliers included several quantitative factors such as total cost, inflation rates, duties, capacity. However, the team believed that many of the risks could not be assessed quantitatively and decided to use a simple qualitative scale to indicate if a particular risk was Low, Medium or High (the results of this evaluation are presented in Exhibit 2).
One risk Enzo and his team did not directly evaluate was ethical standards. The buyers had different perceptions and options about each of the four suppliers and could not reach a consensus. They believed their long term partners represented a lower risk but they thought that by working closely with any of the suppliers they could resolve ethical issues in a relatively short time. Ultimately they decided not to include ethical standards as a risk.
Enzo was aware that restructuring the supply base could have detrimental effects if not managed correctly. Simply going for the cheapest suppliers around the world was not a viable alternative as there were many other factors to consider, such as quality, capacity, product development capability and respect for ethical standards. His team had been working for years with some of the suppliers to develop their capabilities and he feared changes to the supply base could waste all this hard work, destroy trust with the suppliers and expose the company to risks. One particular concern for Enzo was the issue of ethical sourcing. He knew the CEO was very sensitive about this and the company had a very clear ethical policy that emphasized business should be conducted honestly, fairly and with respect for people, their dignity and their rights. Altimus also participated in the Ethical Trading Initiative (ETI) and subscribed to its nine principles (see Exhibit 3). To ensure these principles were respected, the company conducted its own reviews of the suppliers and worked with them to resolve any issues that arose. This meant that any ethical infringements by suppliers were unlikely to be picked up by the media or press.
Enzo’s Recommendation Enzo knew a recommendation would be required for the board meeting at the end of the month. Reducing costs was a major consideration, but his dilemma was how to reduce the cost of supplies without exposing the supply chain to major disruptions and risks. The meeting with his team provided him with most of the information required to prepare a recommendation for the board, but he was still pondering about the right balance between costs and risks.
Estrategia y estructura de la cadena de suministro
Altimus, como muchas otras empresas de este sector, actuó como integrador de la cadena de suministro. Gestionó a los proveedores, que fabricaban los zapatos; coordinó la logística a través de proveedores de logística de terceros (3PL); y controló los canales de distribución (ver Anexo 1). Enzo creía que este enfoque permitía flexibilidad en términos de capacidad de producción y no requería inversión en activos de producción. Sin embargo, también reconoció que una limitación importante era que el control de los costos de fabricación permanecía fuera de los límites de la organización. Las únicas palancas que tenían para reducir los costos de producción eran las negociaciones de precios, la especificación del producto y el cambio de proveedor. Altimus había centrado sus esfuerzos de desarrollo de proveedores en el Lejano Oriente. Enzo creía que esta estrategia les había servido bien durante muchos años y habían desarrollado estrechas relaciones de colaboración con sus proveedores en esta región. Sin embargo, el aumento de los costos de los suministros, causado principalmente por las altas tasas de inflación en algunos países, había obligado a Enzo a revisar la base de suministro de la empresa para ver si se podía reducir el costo. Además, la introducción por la UE de un derecho antidumping para el calzado de China y Vietnam estaba teniendo un impacto adverso en los márgenes de los productos. En la reunión, Enzo y su equipo habían decidido centrarse en RockyMountain, su marca líder que era representativa de la cartera. Basándose en la experiencia, estimaron que la demanda de la marca RockyMountain para el año siguiente oscilaría entre 375 y 425 mil pares por mes. Esperaban que la demanda siguiera creciendo después de eso, pero no tenían una forma científica de estimar la demanda en el futuro.
Evaluación de proveedores
Su evaluación se centró en cuatro proveedores, tres de ellos eran proveedores establecidos y uno era un nuevo proveedor potencial. Yu Ven era una fábrica ubicada en Vietnam que había estado suministrando Altimus durante casi nueve años y en 2010 suministró a la empresa alrededor del 52 por ciento de sus productos para la marca RockyMountain. Jai Nin, en China, los había estado suministrando durante una década y en 2010 produjo el 32 por ciento de sus necesidades. Far Byung en Indonesia, los había estado suministrando durante solo tres años, y en 2010 estaban suministrando casi el 16 por ciento de los productos. Footnow era un nuevo proveedor potencial ubicado en Bangladesh y, aunque esta alternativa parecía ser más barata que todos sus proveedores actuales, el equipo se mostró reacio a asumir un riesgo importante con ellos. Los criterios para evaluar a los proveedores incluyeron varios factores cuantitativos como el costo total, las tasas de inflación, los aranceles y la capacidad. Sin embargo, el equipo creía que muchos de los riesgos no podían evaluarse cuantitativamente y decidió utilizar una escala cualitativa simple para indicar si un riesgo en particular era Bajo, Medio o Alto (los resultados de esta evaluación se presentan en el Anexo 2).
Un riesgo que Enzo y su equipo no evaluaron directamente fueron los estándares éticos. Los compradores tenían diferentes percepciones y opciones sobre cada uno de los cuatro proveedores y no pudieron llegar a un consenso. Creían que sus socios a largo plazo representaban un riesgo menor, pero pensaban que trabajando en estrecha colaboración con cualquiera de los proveedores podrían resolver los problemas éticos en un tiempo relativamente corto. Finalmente, decidieron no incluir los estándares éticos como un riesgo.
The SCOR model (Supply-chain Operations Reference Model) is the reference framework for supply chain operations. It is a model originally developed by the organization called SCC (‘Supply Chain Council‘) founded in by a group of consulting firms based in Boston.
The SCOR model is organized around the five major management processes:
Plan: activities related to planning the operation of the supply chain, including gathering information, requirements and available resources, identifying gaps in the demand for resources and determining actions to correct those gaps.
Source: deals with the issuance of orders or delivery planning and the receipt of goods and services. It includes, in addition to the issuance of orders or delivery planning, aspects such as the reception, validation, storage of the goods and the acceptance of the supplier's invoice.
Make: activities of transformation of materials or creation of services. It is an expanded way of talking about what we would normally call production or manufacturing. It includes the assembly, chemical processing, maintenance, repair, revision, adjustment, refurbish ('refurbish'), etc.
Deliver: Activities associated with the creation, maintenance and execution of orders for clients. It includes the receipt and validation of customer orders, delivery planning, 'picking-pack', shipping and customer billing.
Return: activities associated with the reverse flow or reverse logistics, that is, the withdrawal of goods. It includes the identification of the need for this return, the planning and the sending and receiving of those goods.
Enable: a process that was not in some previous versions of SCOR and that includes supply chain management activities such as business rules management, data management, infrastructures, contracts, resources, etc.
Myerson, P. A. (2015). Supply chain and logistics management made easy: Methods and applications for planning, operations, integration, control and improvement, and network design. Pearson Education.
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