Supply Chain Strategy

Supply-Chain Management Supply-chain management consists of developing a strategy to organize, control, and motivate the resources involved in the flow of services and materials within the supply chain. A supply chain strategy, an essential aspect of supply chain management, seeks to design a firm’s supply chain to meet the competitive priorities of the firm’s operations strategy. 1 Supply Chain Strategy Across the Organization Supply chains must be managed to coordinate the inputs with the outputs in a firm to achieve the appropriate competitive priorities of the firm’s enterprise processes.The Internet offers firms an alternative to traditional methods for managing supply chains.

A supply chain strategy is essential for service as well as manufacturing firms. 2 Supply Chain for Services and Manufacturing Every firm or organization is a member of some supply chain. 1 Services Supply chain design for a service provider is driven by the need to provide support for the essential elements of the various service packages it delivers. Elements of its service package include: ? Supporting facilities ? Facilitating goods ? Explicit services ? Implicit services 2 ManufacturingA fundamental purpose of supply chain design for manufacturers is to control inventory by managing the flow of materials.

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Inventory is a stock of materials used to satisfy customer demand or to support the production of services or goods. Inventory exists in three aggregate categories, which are useful for accounting purposes. Raw Materials (RM) are inventories needed for the production of services or goods. They are considered to be inputs to the transformation processes of the firm. Work-in-process (WIP) consists of items such as components or assemblies, needed to produce a final product in manufacturing.WIP is also present in some service operations, such as repair shops, restaurants, check-processing centers, and package delivery services. Finished goods (FG) in manufacturing plants, warehouses, and retail outlets are the items sold to the firm’s customers. The finished goods of one firm may actually be the raw materials for another.

Suppliers are often identified by their position in the supply chain. Here, tier 1 suppliers provide materials or services that are used directly by the firms, tier 2 suppliers supply tier 1 suppliers, and so on. [pic] Supply Chain for a Manufacturing Firm 3 Supply Chain DynamicsBullwhip effect is the phenomenon in supply chains whereby ordering patterns experience increasing variance as you proceed upstream in the chain.

Upstream members (toward the lowest tier in the supply chain) must react to the demands placed on them by downstream members of the chain. The slightest change in customer demand can ripple through the entire chain, each member receiving more variability in demands from the member immediately downstream. 1 External causes ? Volume changes ? Service and product mix changes ? Late deliveries ? Underfilled shipments 2 Internal causes ? Internally generated shortages Engineering changes ? New service or product introductions ? Service or product promotions 3 Integrated supply chainsA starting point for minimizing supply chain disruptions is to develop a supply chain with a high degree of functional and organizational integration. Integration must include linkages between the firm and its suppliers and customers. The design of an integrated supply chain is complex. The Customer relationship, Order fulfillment, and Supplier relationship processes need to be analyzed from the perspective of process structure, process improvement, layout, and capacity. 4 Supply Chain Strategies Strategic focus A supply chain is a net work of firms. Thus, each firm in the chain should build its own supply chains to support the competitive priorities of its services or products.

Two distinct designs used to competitive advantage are efficient supply chains and responsive supply chains. Efficient supply chains work best in environments where demand is highly predictable. The focus of the supply chain is on efficient flows of services and materials keeping inventories to a minimum. The firm’s competitive priorities are low-cost operations, consistent quality, and on-time delivery.Responsive supply chains designed to react quickly in order to hedge against uncertainties in demand. Work best when firms offer a great variety of services or products and demand predictability is low.

Typical competitive priorities are development speed, fast delivery times, customization, variety, volume flexibility, and top quality. Tables below show the environments and design features that best suit each design. Environments Best Suited for Efficient and Responsive Supply Chains Design Features for Efficient and Responsive Supply ChainsCombining efficient and responsive supply chains may be necessary when a firm can segment the supply chain to achieve two different requirements. Just as processes can be broken into parts, with different process structures for each, supply chain processes can be segmented to achieve optimal performance.

2 Mass customization Mass customization is a strategy whereby a firm’s flexible processes generate a wide variety of personalized services or products at reasonably low cost. Essentially, the firm allows customers to select from a variety of standard options to create the service or product of their choice. Competitive advantages A mass customization strategy has three important competitive advantages. ? Managing customer relationships Mass customization requires detailed inputs from customers. The firm can learn a lot about its customers from the data it receives. Once customers are in the database, the firm can keep track of them over time. ? Eliminate finished goods inventory Producing to a customer’s order is more efficient than producing to a forecast because forecasts are not perfect.

The trick is to have everything you need to produce the order quickly.A technology some firms use for their order placement process is a software system called a configurator, which gives firms and customers easy access to data relevant to the options available for the service or product. ? Increased perceived value of services or products With mass customization, customers can have it their way. In general, most customization often has a higher value in the mind of the customer than it actually costs to produce.

This perception allows firms to charge prices that provide a nice margin. 2 Supply chain designHow does mass customization affect the design of supply chains? First, the underlying process design is an assemble-to-order strategy. This strategy involves keeping sock of produced or purchased standardized components and assembling these standard components to a specific customer order. Second, the service or product must have a modular design that enables the ‘customization’ the customer desires.

Finally, successful mass customizers postpone the task of differentiating a service or product for a specific customer until the last possible moment.Postponement is an organizational concept whereby some of the final activities in the provision of a service or product are delayed until the orders are received. Doing so allows the greatest application of standard modules of the service package or product before specific customization is done. 3 Lean supply chain A starting point is to develop an integrated supply chain, and to apply lean systems to all of its internal processes. Beyond that, three key activities are required to attain a lean supply chain.Strategic sourcing refers to identifying items of high value or complexity and purchasing them from a select set of suppliers with whom the firm establishes a close relationship. Cost management: By limiting the number of suppliers, the lean supply chain approach gives the firm more time to work with its strategic suppliers to reduce costs by changing the cost structure, not by negotiating prices.

Supplier development: These efforts, although initially costly, can result in dramatic improvements in process, operational productivity, quality and delivery performance. 4 Outsourcing and offshoring ?Vertical integration Offshoring ? Comparative labor costs ? Logistics costs ? Tariffs and taxes ? Labor laws and unions ? Internet ? Pulling the plug too quickly ? Technology transfer ? Process integration 5 Virtual supply chains ? The advent of the Internet opened an entirely new set of opportunities for supply chain design. ? Disadvantages ? Traditional approach: favored when ? The trade-offs are important considerations for a firm Virtual supply chains provide the firm with more flexibility to change the design of its service packages or its products because it does not have the heavy overhead investment in the order fulfillment process.

Author: Ellen Clark


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