Intro to Supply Chain and Channel Management Simulation

1. Intro to Supply Chain and Channel Management Simulation A 6 quarter (decision period) game

2. 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

3. There Are Three Market Segments(Market Structure) Mercedes Traveler Performance Work Horse Price

4. Game Scenario Each firm can choose to be either a reseller or a supplier.

5. Resellers Can Setup 3 Regional Web Centers for e-Commerce, and/or 12 International Sales Offices

6. Suppliers Can Setup a Factory in Any of Three Locations

7. Suppliers and Resellers Have Specialized Functions and Must Work Together to Satisfy the Market Reseller Supplier Market Research Capacity Investments Production Scheduling Lean Manufacturing Quality Control Financial Management Market Research Marketing (brand, price advertising) Sales Channel (web, offices) Sales Force Management Financial Management Negotiations Quantities & Prices Shipping Options Supply Chain Improvements Special Payments

8. Channel Relations Are Free To Form and Dissolve Suppliers Resellers 1 1 End Users 2 2 3 3 n n

9. 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

10. Negotiation Process Time t Reseller emails RFP with order quantities, shipment mode and frequency, who pays the freight, & penalties for failed deliveries t+1 Supplier runs demand specifications through factory simulation to estimate production costs, ability to deliver, and acceptable price Supplier emails proposal to reseller or rejects FRP t+2 Reseller evaluates offer and emails acceptance, modifications or rejections t+3 Supplier builds and ships goods according to agreed schedule t+4 to end of Q Reseller ships products to customers from warehouse if brand is in stock

11. 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

12. 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

13. 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

14. 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

15. Mine Yours 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 Ours

16. 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.

17. 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.

18. 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

19. 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

20. 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

21. 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.

22. 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

23. 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 Negotiation Schedule Deadlines* *New York Time ** Military Time

24. Questions?