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With rapid and drastic changes imposed by globalization on the structure of labour intensive industries, like the furniture industry, greater number of imports at lower prices force manufacturers to see competitive edges and if required, to restructure their operations.
The primary purpose of managing the Supply Chain of an organization is to gain revenue growth as well as cost reduction, concurrently. This entails that a balance between the goals of a potential customer-service level and the goals of lower inventory-investment and low unit-cost is essential. Practically, these are tough tradeoffs. Low inventory levels and low unit costs are obtainable for processes particularly for serving clients with stable and similar kinds of needs. Further, greater customer service levels usually demand both process and product flexibility. The lack of efficiencies rising from inhomogeneous customer needs and greater inventory for reducing order lead-time can be remunerated by higher prices paid by customers (Fleur van Veenstra 2009) (European Union).
Nonetheless, management complications in supply chains is not uncertainty based, not all uncertainty in Supply Chain Management (SCM) is random in nature. Since the introduction of SCM in 1982, it has gained overwhelming interest both in the literature as well as at the industrial level. This fact is backed by the evidence that there are so many numerous facets and the tasks of achieving the aims of SCM are so demanding that is can be said that SCM is more than just on ongoing venture place rather than a single short-term project. Furthermore, the widespread scope of SCM imposes the difficulty of determining an appropriate "common" definition and explanation of the term (Seurring 2009) (Beamon 2008).
The main aim of the paper is to project the implications of a shift in order penetration/decoupling points/ change to agile supply chain for an organization, theoretically. These findings are accurately applied to the furniture industry to better be able to compare SC of conventional retailers with new online furniture retailer, by using the case study of the French company "myfab.com"
An brief introduction to SCM is provided by reviewing the building blocks that incur some novel features for the apt management of the firms; thereby playing a vital role in SCM.
What is Supply Chain Management?
Supply Chain Management is the task involving interfacing of organizational units with a supply chain and coordination of materials, data as well as financial flows, to satisfy customer needs with the key objective of improving competitiveness of the supply chain as a whole (Seurring 2009). This definition can be best understood via the house of SCM as shown in the figure below:
The roof of the SCM house indicates the ultimate aim of SCM, particularly improving the overall competitiveness of a supply chain. The roof is laid upon two pillars, namely 'integration of organizational units' and "flow coordination". Integration of business unit involves finding those partners who have the best fit to the current supply chain and the customer needs which must be served. At the beginning, the supply strategy may comprise of a single firm that takes the initiative. A working supply chain is formed by adopting only a small set of products or services for the ultimate customer (European Union). As a contrast to a virtual company that is formed for fulfilling a single customer order, a supply chain partnership is generated in the medium-term, such as a lifetime of a product. And this allows bigger investments in close partnerships throughout the supply chain. Furthermore, a supply chain can be considered as a tight network of companies having some common goals (Yang & Burns 2003). The main challenge in controlling this network arises from the nature of potential relationships among SC partners. Leadership is again a crucial issue while considering the accurate working of a supply chain. A focal SC is equipped by a partner who is nothing but a natural leader, mainly because of his outstanding knowledge of products and processes or his financial strength. On the other hand, a polycentric network is one in which all partners are viewed at an equal level, such as in consumer goods manufacturing, retailing, etc (Mason-Jones & Towill 1999).
Building blocks that enable improved coordination of information, material and financial flows throughout the supply chain depict the second pillar of SCM house.
Novel opportunities of information and communication technology nowadays allows for easier information exchange amongst partners within seconds by using the Internet and related web services. Therefore, sales records, market predictions, orders, and other messages can be conveniently exchanged over the SC instantly at low costs (Naylor et al 1999) (Beamon 2008).
Additionally, process orientation not only focuses on discarding the barriers between business operations for accelerating the execution of processes and corresponding tasks, but also between firms. Here, apart from incremental improvements, organizations can gain competitive benefits as well. However, one can link existing activities more efficiently along with a redesign of such processes, by discarding unwanted or duplicate activities.
The next building block, advance planning has been developed to fill the gap made by the transactional enterprise resource planning systems which is not included in the area of planning. APS is based on the rationales of hierarchical planning and extensively uses solution schemes of mathematical programming and meta-heuristics (Seurring 2009).
Put simply, Supply Chain Management is not a novel management prototype. It is rather an exact depiction of how organizational units can be linked to best serve client needs and to enhance the competitiveness of the overall supply chain. In this attempt, SCM has derived approaches and knowledge from several disciplines like computer science, marketing, operations and logistics research, and many more (Fleur van Veenstra 2009).
The ever-changing and ever-evolving context of SCM brings forth the degree of competition; the organization success does not only rely on the management of core activities but also on supply relations and supply management. Hence, upwards and downwards the supply chain, an organization needs to manage relationships with customers and suppliers. Obviously, the developing outsourcing trend gives rise to this necessity (Beamon 2008).
Therefore, the SCM philosophy necessitates the following points:
Treating the whole supply chain as a single, integrated entity
The cost, quality and delivery prerequisites of the manufacturing customer are primary objectives common to every firm in the chain
Inventory is said to be the last resort in handling supply-requirement imbalances among the tiers
Hence, every supplier in the supply chain must thoroughly study and understand its customers. This understanding encompasses factors more than only knowledge of quality, delivery, quantity, and cost requisites. It also includes the knowledge of the final customer's processes, markets, organizational cultures, together with their hurdles, limitations, and requirements. Experts advocate customer service to be the outcome of the Supply Chain. Every activity in the SC must be well balanced, for providing a greater degree of customer service without imposing an excessive burden of cost (Yang & Burns 2003) (Mason-Jones & Towill 1999).
Working with supplier's resources means jointly solving organizational problems, exercising quality-at-the-source, and interchanging information. Furthermore, quality-at-the-source starts with quality-at-the-supplier. That is, if suppliers insure a 100 % quality, the consumer can discard the process of inspection of inbound supplies. Corporations and their suppliers exchange information among themselves in regards to long-range plans, production agendas, design changes, and limitations/ constraints. A company provides its suppliers with advance notification about changes to the situation regarding product mix and product requirements, so as to enable them to adjust. Suppliers also give advance notices about delivery or quality problems so that the final customers can assist them in determining solutions and creating contingencies (Naylor et al 1999). A partnership sort of relationship is necessary rather than the traditional relationship. And this transparency in information at different levels, throughout the supply chain, decreases the risks and uncertainties resulting in waiting times, surplus inventory and surplus production.
The decoupling point is a standard term used for defining the position in the material pipeline wherein the product flow changes from "push" to "pull". The decoupling point is officially defined as:
The point within the product axis at which the customer's order will penetrate. It is that point where order driven and prediction driven activities coincide. As a rule, the decoupling point meets an important stock point or a main stock point, from where the customer is supplied with. Briefly, the decoupling point functions similar to a buffer between upstream and downstream entities in the supply chain. This protects upstream players from non-uniform consumer buying behaviour, thereby generating smoother upstream dynamics, while downstream consumer demands are met from a product pull from the buffer stock (Yang & Burns 2003) (Seurring 2009).
The strategic placement of material decoupling point is based on the product type, final customer demands and the supply chain approach employed. Selection of decoupling points is a strategic decision which decides customer lead times as well as inventory investment. Therefore an organization may have many DPs and even a single product may have DP more than one, since it can serve multiple product-market relations. The general tenet for the placement of the decoupling point is to shift the supply chain upstream, i.e. the planning and implementation of activities of industrial manufacturers and key producers are most often dependent on customer demand information.
On the other hand, the order penetration point is one in the manufacturing value chain for a product in which the product is associated to a specific customer order. Various manufacturing events like make-to-stock, assemble-to-order, engineer-to-order, and make-to-order,, are linked to different positions of the order penetration point (OPP). Different manufacturing positions are linked to the ability of the manufacturing operations in order to fit customizing or a broad product range (Lee 2002) (Beamon 2008).
About a decade and a half earlier, the computer industry was associated with delivery lead times up to multiple weeks, particularly due to the lengthy production lead time. Since then, customer requirements have altered significantly, leading to a request for short delivery lead times and a bigger product portfolio. Further, producers have responded to this by shifting the DP or OPP upstream in the supply chain (Mason-Jones & Towill 1999). Secondly, in order to maintain the business at a profitable level, they focused on
Internet technology to generate high-speed information/ data transfer and exchange and use a direct link to obtain customer order information, thus removing the dealer network
Product standardization, by using modular or generic inventory which is a final commitment to a particular customer order postponement.
Tight partnerships with suppliers who deliver the demanded modules at the requested place and time
Greater production/ assembly flexibility
Fast transportation structures (Naylor et al 1999) (Beamon 2008)
However, today, computers are assembled in order and the configuration asked for can be delivered with a span of few days.
In order for being customer driven as well as time managing the complexity of the overall product design process, companies and business should develop strategies that allow for greater levels of responsiveness throughout the product life cycle. The principle of postponement recommends the delaying of initiation of activities until real demand can be determined, so as to ensure that some parts of the manufacturing and logistics processes are postponed before the time final customer requisites are known, thereby reducing the risk and uncertainty (Mentzer et al 2001). The chosen postponement strategy helps in determining the position of the decoupling point or the order penetration point in the supply chain. In essence, for an agile supply chain, strategic inventory in sustained in a generic form as much upstream as possible at the point where information about real final demand penetrates and eventually reduces the distortion in demand. In essence, the challenge is to search for methods, by which product development time can be reduced, feedback from market place made relatively quick and refilling times constricted (Yang & Burns 2003) (Beamon 2008).
Ironically, over the years with supply chains becoming global in the hunt for lower costs, lead times have significantly lengthened. Also, as more and more products are being manufactured far from the final customer, the chances of failed products within the market place are high, resulting into increase in the total costs and not reducing them (Fleur van Veenstra 2009).
Advantages of SCM:
The profitability of the supply chains can be improved drastically by improved delivery performance and greater information availability at the operational level as well as decrease in time-to-market at the strategic and tactical level.
Furthermore, the potential for advancement while applying SCM-theories is based on the decrease in inventory-carrying as well as transportation costs, decrease in direct and indirect labour costs and the increase in sales and sales margins. Several corporations are re-engineering and simplifying their supply chain network for gaining these advantages (Lee 2002) (Seurring 2009).
The supply chain can be dealt with differently, depending on the different key performances addressed by companies for building their competitive advantage as well as and on the characteristics of the market sector. Recent years have witnessed new supply chain strategies trying to enhance the cost-service trade-off, working both on efficiency and speed. Moreover, the emerging strategies are based on two dimensions, namely product and product typology/ classification, leading to different supply chain strategies (Mentzer et al 2001).
Lean: This strategy can be applied when demand prediction accuracy and production procedure stability are at its peak. In such cases, on may pursue logistic cost minimization, that is, a complete efficiency strategy. Particularly, firms eliminate or outsource all non value-adding activities seeking economies of scale for production. This typically involves the centralization of product planning as well as stock management for the entire supply chain. It also involves the application of optimization schemes for reduction of operational costs. Coordination of a complicated system and decrease lead times needs automation of the information exchange with suppliers (Mentzer et al 2001).
Responsive: In cases where market demands fluctuate and products ranges are high, operational processes need to be settled. Consequently, it is relatively difficult to plan requisites for keeping stocks low. Besides, stable technologies enable a reactive and flexible SCM. Fundamental to meeting customer needs is the procurement, production as well as distribution lead-time deduction (Naylor et al 1999).
Risk Hedging: For cases where market demand is forecasted processes of procurement, production and distribution are often submitted to constant changes. Companies often direct their attention to nullify risks that may be structural or anomalous. Further, they require backup stocks for such events. Else, a firm may use back up suppliers when one may not be able to meet customer requirements. Similar to other strategies, information systems assist in coordination of different actors and allow for timely and precise information on stocks together with demand across the supply chain (European Union).
Agile: Experiences reveal that the toughest supply chains to handle are the ones in which demand in continually varying and processes are unstable. Such cases need the combination of responsive and risk hedging strategies. Such firms embrace various forms of supply chain strategies with respect to different products from different parts of the supply chain (Lee 2002).
Supply chain of MyFab.com
Myfab.com is the very first internet platform for selling premium design products directly out of the factory at the customer's doorstep. The sale does not involve any intermediaries. Myfab.com aims at delivering top quality design at prices with discounts of 30 to 80% relative to traditional retail price (Myfab.com 2010).
Myfab.com delivers premium products at factory prices. The designs are undertaken as demanded by the immediate customer; it produces only what is ordered. All myfab products precisely comply with the US regulations for quality standards. Myfab shipes the products direct from the factory gate to the customer's front door within a span of 8 to 12 weeks, without any additional transport; it rewards patience of customers with unbelievably low prices. A customer is enabled to follow the progress of their item's production as well as delivery online (Myfab.com 2010).
The Supply Chain of Myfab is depicted in the diagram below:
The greatest asset of Myfab is that it reverses the conventional value and distribution that leads to amazingly low prices. To help in determining demand and prevent selling unpopular products, Myfab offers a choice to customers in product selection via the 'VOTE' functionality. Factories produce products "on demand" and the just the exact quantity is sold for avoiding inventory and warehousing costs. Contracted designer are hired to create furniture designs; the production process takes place in-house (Myfab.com 2010) (Thomasville 2004).
The diagram illustrates the complete process of furniture production of Myfab, from raw materials to the final marketing and distribution to customers. The largest sector of the furniture industry value chain may be the household furniture manufacturing; however, as a result of increasing global competition, Myfab has witnessed a drastic rise in the wholesale, retailing and design portions of the value chain for maintaining its competitiveness (Fleur van Veenstra 2009) (European Union).
The seminar paper successfully outlines the concept Supply Chain Management and the strategies involved in it. The paper also demonstrates the importance of SCM for an organization and how its theories help in attaining the organizational goals.
The research paper effectively gives an overview of the role of the final customer in the management of a company's supply chain. With the help of a case study of Myfab.com, which is a premium internet platform aimed at selling design furniture, the paper takes a look at the furniture industry and the globalization it has attained by effectively improving the supply chain by adopting newer strategies as per the client demands.
The paper talks about the supply chain of Myfab and how it has emerged as a globalized platform for the sale of designer furniture.