Chain reaction
Cooperation is the key to delivering the best price, quality and service
Archived article from Jan 19, 2001
By Dave Muha
The joint venture between Toysrus.com and Amazon.com was the e-tail champ of the 2000 holiday season. Their virtual toy store logged 123 million visitors -- more than five times the volume seen by any other online retailer. This runaway success represents a quick turnaround from the dismal holiday season the two had suffered just a year earlier in the online toy marketplace.
In 1999, Toys R Us had the toys in its inventory, but it couldn't get them to the customer before Christmas. It didn't have the support it needed to make on-time deliveries. Amazon, which had just entered the toy market, failed to realize that toys, unlike books, are manufactured primarily in Asia and therefore must be ordered months in advance. The e-tail giant ran out of the most popular items even before the holiday shopping season began.
To remedy these problems, the two companies combined expertise so each could do what it does best to meet customer demand.
"This case illustrates the importance of the supply chain," says Associate Professor Lei Lei, referring to what is quickly becoming the new business model for the 21st century. "The partnership builds on the strengths of both companies -- Toysrus.com's selection and prices and Amazon.com's advanced online store and reliable shipping."
Lei, who was a driving force behind the Graduate School of Management's (GSM) new M.B.A. concentration in supply chain management, notes that competition is forcing companies to focus solely on the things they can do most effectively.
"A single company cannot do everything -- procurement, manufacturing, marketing, warehousing, shipping -- and still give the best price, quality and service to the customer," she says. "It needs the cooperation of many companies, which, taken together, is what we call the supply chain."
This discipline is ever-increasing in significance because of the importance Wall Street places on profits.
"Every company talks about improving operational performance, re-engineering, improving profits," continues Lei. "For years, you have done every possible thing that you can do within a firm. What else can you do for continuous performance improvement? The answer lies in better management of your supply chain and your cooperation with your key partners."
It's all in how companies form and manage their strategic alliances, Lei maintains, noting that today's executive literally has a world of business partners to choose from. Each choice has a direct bearing on a company's ability to compete for customers.
She illustrates this point with a simplified scenario -- a company that does its manufacturing in Asia, where costs are less, but sells its product primarily in the United States. This firm would need to coordinate with a local logistics provider to get its product from its inland plant to the harbor and with a cargo carrier to pack it in containers and ship it across the ocean. Their fees, along with delays or damage during delivery, affect the final price or "landed cost" to the consumer.
Given the complexities facing actual multi-nationals, who must manage multiple supply chains that are much larger in scope, it is surprising that supply chain management is not a top priority for all business schools. In reality, Rutgers is among the first in the nation to offer a formal concentration in this area.
Lei first recognized the need for an M.B.A. concentration in supply chain management two years ago while she was teaching a core course in operations management. She decided to devote a lecture to the topic, which was then an emerging field. While the supply chain wasn't a formal part of the curriculum, Lei often tries to enliven her highly quantitative material with fresh perspectives on industry trends and real-world examples.
"The students loved this material, because they recognized it as something that their company CEOs were talking about," Lei remembers. "They wanted to learn more, because they knew they could then talk the same language as the senior managers in the company."
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