Master of Engineering in Logistics at the Massachusts Ist of Technology

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An Analysis of Current Supply Chain Best Practices in the Retail Industry with Case Studies of Wal-Mart and Amazon.com
by Colby Ronald Chiles and Marguarette Thi Dau Bachelor of Science in Industrial Engineering (2001, 2004) Georgia Institute of Technology Submitted to the Engineering Systems Division in Partial Fulfillment of the Requirements for the Degree of

Master of Engineering in Logistics
at the
MASSACHUSTS IST
OF TECHNOLOGY

E

Massachusetts Institute of Technology
June 2005 © 2005 Colby Ronald Chiles and Marguarette Thi Dau All rights reserved JUL 15 2005

LIBRARIES

Signature of Author Signature of Author

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,.................

.... ..................................... Engineering Systems Division May 6, 2005

Certified by .................
Gabriel R. Bitran

Nippon Telegraph and Telephone Professor oflanagement Science 1 //l Thesis Supervisor

Accepted by .......

If..(..... ......................

Profess -'w('

Yossi Sheffi

Professo"'o Civil and Environmental Engineering Professor of Engineering Systems Director, MIT Center for Transportation and Logistics

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An Analysis of Current Supply Chain Best Practices in the Retail Industry with Case Studies of Wal-Mart and Amazon.com
by Colby Ronald Chiles and Marguarette Thi Dau Submitted to the Engineering Systems Division on May 6, 2005 in Partial Fulfillment of the

Requirements for the Degree of Master of Engineering in
Logistics

Abstract
In support of the Supply Chain 2020 Project at MIT, this thesis identifies current best practices in retail industry supply chains, with a specific focus on mass merchandising and internet retailing. Using a survey of current literature for context and industry expert interviews, this thesis assesses the current state of the retail industry and analyzes case studies of Wal-Mart and Amazon.com to illustrate retail supply chain best practices. Topics covered in each case study include supply chain strategy and business strategy linkage, operating models, supply chain design, replenishment and distribution processes, and ongoing supply chain improvement initiatives. Wal-Mart and Amazon.com are found to have very different supply chains in terms

of structure and processes, based on their different operating models. However, there are many supply chain themes that are common among the two companies. Both case study companies have supply chain strategies, designs, and processes that clearly support their business strategies. Additionally, these companies tailor processes to fit specific product and demand profiles, collaborate extensively with supply chain partners, invest significantly in information technology, focus on operational efficiency, and leverage scale to facilitate competitive

advantage through supply chain management. Based on the common and unique aspects of WalMart and Amazon.com's supply chains, we provide recommendations for the potential transferability of Wal-Mart and Amazon.com practices within the retail industry and to other industries. Thesis Supervisor: Gabriel Bitran

Title: Nippon Telegraph and Telephone Professor of Management Science

2

Acknowledgements
We would like to thank our thesis advisor Professor Gabriel Bitran for providing the right mix of direction and autonomy and for sharing his expertise and insight regarding the retail industry.

We would like to thank industry experts Fred Hajjar of Accenture, Steve Biciocchi of CSC Consulting, Gurdip Singh of i2 Technologies, Christian Koch of SAP, and Harvey Rickles and Cy Wang of UPS Supply Chain Solutions, Mike Spears of Gillette for their insight. We also

would like to thank industry experts who are not explicitly named in this document. From MIT, we would like to thank Dr. Larry Lapide and Dr. Chris Caplice who provided direction, industry expert contacts, and expertise to help facilitate the completion of this thesis.

Colby's Acknowledgments
I would like to thank my...
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