MGT 3501 Lecture Notes - Lecture 16: Outsourcing, Walmart
Document Summary
In the mid-1990s, the swedish car manufacturer volvo found itself with excessive stocks of green cars. To move them along, the sales and marketing departments began offering attractive special deals, so green cars started to sell. But nobody had told the manufacturing department about the promotions. It noted the increase in sales, read it as a sign that consumers had started to like green, and ramped up production. Nobody in marketing told manufacturing about special promotion. Manufacturing just saw the increase in sale, so they made more. The further you get away from the customer, the bigger the safety margin and the bigger the inventory swing the raw material has to have. The further away from the customer, the more the inventory will vary. Additional safety is added in every step. Often each step is run from different companies. Can be up to 2 weeks from retailer to raw material supplier. Each step acts independently of each other.
