Effective supply chain management (based on collaboration between a manufacturer and retailer) allows companies to reduce costs and anticipate the demand. Another important factor is improved technology (the internet connection and computer databases) which improves coordination and control mechanisms (Simchi-Levi et al 2008).
2. In order to improve the situation, the companies should cooperate and plan their activities together. Also, they should pay a special attention to scheduling stage. Scheduling of production/operations covers detailed planning of quantities and times, facilitating the efficient and continuous operation of the process. Where smoothing is difficult to achieve, scheduling could play the role of a cushioning device. For example, it is difficult to make customers change their buying behavior, to buy diapers size two instead of size one. Instead of smoothing demand (externally) companies try to deal with the problem internally by producing at a constant rate throughout the year and building up inventories or by stepping up the production rate as the seasonal peak in demand occurs. Even if Kimberly-Clark opens its own stores, it will not benefit the company and can damage sales in Costco stores. The main problem is that Kimberly-Clark has limited product range and most buyers prefer to save time and visit supermarkets where they can buy goods and products for the whole family. Kimberly-Clark and Costco should cooperate and implement a new advertising campaign aimed to attract potential customers and popularize Kimberly-Clark products (Simchi-Levi et al 2008).
3. For Costco, the main advantages of supply chain management are low inventory cost and no need for ordering itself, 'full shelves' and low warehousing cost, low price which attracts consumers and saves on staff. For Kimberly-Clark, the main advantages are effective data analysis and forecasting of demand, stable sales and control over sales. This process helps Kimberly-Clark to plan its production and avoid overproduction of certain products. In general, the advantage of supply chain management is flexibility of all operations. In contrast, by encouraging the use of large batches, it deters a firm from becoming flexible in responding to changing customer needs. "A proposed supply chain is one in which all the operations that go toward manufacturing a particular product and its variations are grouped together" (Christopher 2005, p. 54).
4. The main advantage if in-house operation is a quick response, reduced time and control over the supply. Also, it allows the company to deliver better service and improve overall service level. The main disadvantage is limited number of products and dependency upon a single manufacturer. The advantages of external sources are market analysis and opportunities to switch from one supplier to another, buy low cost and high quality products from different suppliers. Many customers are brand loyal seeking a particular brand or a product. Cooperation (strategic alliance) with one company limits market opportunities of the retailer. In order to achieve greater value through reductions in both batch volumes and in barriers between operations, it would also be worthwhile and cost effective to use external sources of supply.