Intro to Supply Chain and Channel Management Simulation

A 6 quarter (decision period) game

Learning Objective: Give Students Meaningful Experience

• Developing business to business relationships• Working with and managing a supply chain/channel• Developing insight into

– Selling - Purchasing– Negotiating Business Deals - Managing Conflict– Cultivating Trust - Using Power– Managing Dependence - Applying Influence – Delivering Service Quality - Dealing with Ethical Issues

There Are Three Market Segments(Market Structure)

Price

Performance

WorkHorse

Traveler

Mercedes

Each firm can choose to be either a

reseller or a supplier.

Game Scenario

                                                                                                                                                                    

  

                                                                                                                                                

Resellers Can Setup 3 Regional Web Centers for e-Commerce, and/or 12

International Sales Offices

                                                                                                                                                

  

                                                                                                                                                                    

Suppliers Can Setup a Factory in Any of Three Locations

Supplier

Market ResearchCapacity Investments Production SchedulingLean ManufacturingQuality ControlFinancial Management

Market ResearchMarketing (brand, price

advertising)Sales Channel (web, offices)Sales Force ManagementFinancial Management

Reseller

Negotiations Quantities & Prices Shipping Options Supply Chain Improvements Special Payments

Suppliers and Resellers Have Specialized Functions and Must Work Together to

Satisfy the Market

Channel Relations Are Free To Form and Dissolve

End Users

Suppliers

1

2

3

n

1

2

3

n

Resellers

There Are Many Decisions That Impact Channel Partners

• Order quantities and prices• Mode and frequency of delivery• Who pays the freight• Supply Chain Management Information System• Penalties for failure to fulfill promises• Financial incentives to encourage favorable activities• Points of influence

– Quality control – manufacturer’s reliability impacts reseller’s demand

– Marketing decisions – manufacturer can monitor market and offer advice to reseller

Negotiation Process

Time

tt+1

t+3Reseller evaluates offer and emails acceptance, modifications or rejections

t+2

Reseller emails RFP with order quantities, shipment mode and frequency, who pays the freight, & penalties for failed deliveries

Supplier runs demand specifications through factory simulation to estimate production costs, ability to deliver, and acceptable price

Supplier builds and ships goods according to agreed schedulet+4 to

end of Q

Reseller ships products to customers from warehouse if brand is in stock

Supplier emails proposal to reseller or rejects FRP

Shipping Options

• Mode of transportation– Slow Economic– Intermediate Expedite – Fast Quick Response

• Frequency of shipment– Every 2, 4, 6, 8, 10 or 12 days

• Who pays the freight– Supplier– Reseller

Supply Chain Management Information System

• Four supply chain MIS options– None - Inventory Push System – Level I – Partial Demand Pull System - $250,000– Level II – Comprehensive Demand Pull System – $600,000– Level III – Direct Link To Customer - $2,000,000

• Both Supplier and Reseller must have the same MIS, otherwise working options default to the lesser system

Parties Can Negotiate Risk Sharing Fees

• For Suppliers for Level II and III MIS– Reseller guarantees a minimum quantity of demand – If demand falls below minimum, reseller will pay a negotiated fee

for each unit of demand not generated– Fee will offset or pay for excess capacity costs

• For Resellers for Levels I, II, and III MIS– Supplier guarantees to produce and ship enough units to meet

contractual obligations – If the quantity shipped is less than the number promised, then

supplier will pay a negotiated fee for each unit promised but not delivered

– Fee will offset or pay for lost profits

Challenges

• Each party has a lot to do to just manage their operations, much less deal with supply chain issues

• Leads and lags in inventory flows will cause misalignments between demand and supply leading to stock outs or excess capacity and/or unneeded inventory

Challenges• There is a finite amount of money to be divided between suppliers and

resellers – it will be hard to get past the zero-sum game to the win-win game

• Improvements in supply chain require lots of money, negotiations, patience, trust and a long-term perspective

• Relationships will be strained due to – Normal hiccups in system– Short-term opportunities that cause teams to short-change partners– Perceptions of inequity (real or imagined) due to how profits and costs are shared

and who has the advantage

1

2

Mine

Yours

1

2

Ours

Longer-term Relationship Agreements

• A clear statement of – your intent to work together, – the spirit of the intended relationship

• The establishment of actions to be taken and a timetable for these actions,

• Specification of goals, incentives and penalties, and

• Specification of sizeable investments in supply chain assets.

Benefits of Longer-term Relationship Agreements

• Reduce the uncertainty and risks of buying and selling inventory in the future.

• Lead to a better coordination of activities and investments that could reduce costs and/or improve margins.

• Reduce the workload and stress for all parties involved.

• Allow your firm to move away from zero-sum negotiations to win/win business development.

Action Items

• Choose day and time to meet– Class– Executive Briefing

• Decide on teams• Sign up for software• Complete Q1 decisions by Tuesday noon

– Decide on whether to be supplier or reseller• Only 2 supplier and 3 reseller positions open

– Make relevant decisions for channel role

Resellers in Q1

• Choose your target segments

• Design a brand for each target segment

• Schedule the opening of the first sales office and/or web center

• Contact suppliers to learn who they are and how they would like to do business

Suppliers in Q1

• Decide where to build a factory

• Decide how large of a factory to build

• Contact resellers to learn who they are and how they would like to do business

Resellers in Q2

• Establish brand prices and priorities, • Design an advertising campaign, • Hire sales and service personnel, • Select web marketing tactics, • Negotiate supply contracts with one or more

suppliers, • Explore longer-term relationships with suppliers• Invest in MIS • Invest in EDI (for Level II and III MIS)• Purchase market research.

Suppliers in Q2

• Negotiate sales contracts with resellers, • Schedule production to meet the resellers'

needs, • Add capacity if needed, • Explore longer-term relationships with resellers• Invest in MIS • Invest in EDI (for Level II and III MIS)• Purchase market research

Negotiation Schedule Deadlines*

• Wednesday 12:00**

• Thursday 12:00

• Friday 12:00

• Monday 10:00

• Monday TBA

• Monday 23:00

• Resellers send out RFPs to suppliers

• Suppliers run simulations to evaluate opportunities

• Respond to RFPs by sending a proposal or a rejection

• Resellers accept, modify or reject proposals• Conclude negotiations with primary

partner(s)• Start negotiations with secondary

partner(s), if needed

• End second round of negotiations

• Teams meet with Business Coach

• Wrap up for the quarter

*New York Time ** Military Time

Questions?