Supply chain is a connection of suppliers, warehouses, distributors, transporters and retailers that involve in the production, delivery, and sales the products to end users or customers as it known as a wider concept covering all business processes between organizations (Lambert, Cooper & Pagh, 1997). Supply chains also define as a global connection to deliver products and services from raw material through technology and information, distribution and cash (Ayers, 2006).
Moreover, supply chain process includes elements such as raw material, production, procurement, order processing, inventory management, warehousing, distribution and transportation, develop of these operation is known as supply chain management. Today, supply chain management becomes a routine part of production (www.lotsofessays.com, nd).
Source: Sheffi, Y., & Caplice, C. Overview of Logistics & Supply Chain Systems. Retrieved July 12, 2010, from http://mit.dspace.org/bitstream/handle/1721.1/39816/ESD-260JFall2003/NR/rdonlyres/Engineering-Systems-Division/ESD-260JFall2003/34C0593C-127E-431F-93FA-8A3BA0D37619/0/l01courseoview_f.pdf
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The diagram indicates the network of supply chain, the suppliers showed above is the organization that provides raw materials to manufacturers to produce end user products. While distributors are companies that take inventory in bulk from manufacturers and deliver the products to customers. Lastly, customers or consumers are any organization that purchased and consumed the products.
There are three key elements in the supply chain. First is the supply, this refers to raw material that suppliers have to acquire and how they focus on it. Next is the manufacturing, is how they turn the raw material into a finish product. The last but not least is the distribution, how the finish products reach to the customers (www.wisegeek.com, 2010). Supply chain management is that the process of all input such as services, material and transform into output and delivery to customer (Heizer & Render, 2008). Raw material such as a small component after the supply chain management process it becomes finish goods and delivery to customers.
Supply chain management includes planning, coordination and control of all activities and process in the supply chain to deliver value to the supply chain to satisfy requirement of other supply chain member (Vorst, 2004). Hence, the cycle of decision making processes, material, financial and information flow have to manage accordingly to meet customer requirement as the supply chain management is take place in different supply chain stage.
Outsourcing and purchasing are the activities include in the supply chain management with having good relationship with distributors and suppliers are important function to increase logistics efficiency, flexibility, quality and enhance productivity (Kaeli, 1990). Therefore, organization will have stronger market position, customer satisfaction and better responsive from their customer according to (Goldhar & Lei, 1991).
Source: Value Chain. Retrieved July 21, 2010, from http://www.umbrellacloud.com/_/rsrc/1249779122374/business-model/value-chain
Furthermore, managing and coordinating in the value chain will help to improve the efficiency of the supply chain management system (Al-Mudimigh, Ziri & Ahmedm, 2004). An excellent value chain will ensure that interactions between organizations along the value chain are efficient and effective. Moreover, value chain look at every step from the raw material to the end consumer because the goal of the supply chain management is to deliver high value to the end consumers in a low cost.
The diagram above was the model of supply chain management. Support activities include human resource, accounting and infrastructure, and procurement and technology. Human resource define as organization function that deal with people, related to compensation, hiring, performance management and training and development (Heathfield, nd). Human resource is important because it was unique and different people have different personality and how they can manage the organization well. Accounting is referred to the recording, reporting and analysis of financial transaction of a business (www.edbarrows.com, nd). Recording do each transaction is very important because company can know that weather they are making profit or loss, normally accounting are accrual method. Infrastructure is a system for population such as water (www.edbarrows.com, nd). Procurement is a process that involves goods and services from third part and from in-house providers (Sousa & Valvo, 2001). Technology is refer to using the application, tools to make job easier, such as by using internet employee can easily connected within each other.
Always on Time
Marked to Standard
Primary activities include in-bound logistics, are refer to storing and received material and goods (Recklies, 2001). The company received the good storing it. Manufacturing is a company uses its raw material (input) to process to finish goods (output). Out bound is referred to how the goods transport and distribute to customer. Marketing and sales is referred to the supplier and the seller understands the customers' need and sell their product to final customer. Service and support is that service after sales provide to customer and if the customers satisfy so they will support the company and spread word of mouth.
2. The importance of Supply Chain Management to Organization.
2.1 Competitive advantage
Efficient supply chain management is the essential to being able to satisfy market demand and to do so in a way is profitable (Hugos, 2006). Supply chain management of the organization that enables them to deliver the best value to their consumers will generate a strong demand for the organization product or services. When information is shared in between supply chain networks, it can result a more efficient flow of goods and services (Anand & Mendelson, 1997), reduced inventory level, and lower costs (Yu, Yan & Cheng, 2001), which benefits the overall network.
Moreover, organization that has the effective supply chain management will gains value and get access to business information that allow the members of the supply chain have the power to make decision and speed up there responsiveness as well as efficiency toward customer problem (www.cisco.com, nd). Besides, effective management in the supply chain has been recognized being importance to achieving and sustaining a competitive advantage in the market (Hsiao, Purchase & Rahman, nd). Thus, inventory move faster in the supply chain which will reduce inventory carry cost, product's overall cost, customer receive products faster and shorter the production cycle time which will increase the market share of the organization that lead to competitive advantages.
Hence, the organization also can do mass manufacturing and mass customization that will offer competitive advantages given that the product life cycle of the product is improve because the organization will offer variety of product to different market segment and consumers preference. For example, Dell became the largest producer for personal computer in the world after they implemented the supply chain management to change their strategy by adopting a direct sales strategy, building every personal computer to order and shipping it directly to the customer (Klinker, Terrell & Mahfouz, 2006).
Communication with other organization within the supply chain management that controls their critical resources allows them to compete effectively in their environment (as cited in Samaddar, Nargundkar & Daley, 2006). Moreover, communication processes provide high level of contact between the supply chain members which allows members in the supply chain communicate freely, honest communication among the members will establish trust among them and information will share openly (Fawcett & William, 2004). Furthermore, trust will build commitment among the members of the supply chain network (Kwun & Suh, 2004).
Furthermore, supply chain members communication is factor to maintain and increase trust among the organizations (Ghosh & Fedorowicz, 2008). Other than that, an effective supply chain management will increase the communication among the internal employers and inter-organization as well as increase information exchange between them and create an uninterrupted flow of the product. Moreover, a good management of the supply chain will improved relationship value with the end customers by regular communication between the organization and the seller (Ghosh & Fedorowicz, 2008).
Besides, supply chain management communication is separated in two directions that are communication downstream is information flow from suppliers to customers and communication upstream is from customers to suppliers (www.guidance.echa.europa.eu, nd). Furthermore, communication downstream is the information of capacity and delivery schedule while communication upstream is the information of orders and point-of-sale data (Groznik & Trkman, 2009). Hence, a good communication in the supply chain can keep the supply chain network work efficient and effectively which can benefit all the organization in the supply chain network and add value to the end consumers.
Supply chain management built on a foundation of trust and commitment among the supply chain members (Lee & Billington, 1992). Other than that, trust will create honesty, loyalty, openness and competence among the trusted partnership (www.psiplanner.com, nd). Besides, commitment of partnership in the supply chain management will dedicate their resources to achieve the goal of the supply chain and their performance (Chen & Paulraj, 2004). Organization is more and more rely on their trusted supplier to improve the product quality, produce the product faster and reduce the product price so they can compete with their competitors (Liker & Choi, 2006). Other than that, trust makes it possible that the supplier to share cost with organization, the result in a joint effort to reduce supplier's cost through a mutual sharing ideas (Monczka, Handfield & Giunipero, 2009).
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According to Towill (1996) decision makers need to depend the overall of the process so they can manage the supply chain as one single company, to minimum uncertainty updated feed forward and feedback information flow coupled with optimal decision making. Therefore, organization that trusted the supplier willing to communicate and allow information free flow among them to ease their businesses. High trust with supplier and customer in the supply chain has a great competitive advantage toward the organization (Lynch, nd).
Furthermore, the more trust the supply chain members have among each others, the more they willing to share their knowledge such as information, expert and referent (Tang, Teo & Wei, 2008). Moreover, when the information exchange takes place among the supply chain members, new knowledge might be develop and benefit the supply chain members (Kidd, Richter & Li, 2003). Hence, trust facilitates the effect on the supply chain efficiency, organization that wants to operate efficiently and win customer they need to manage their supply chain members and build trust to create a win-win situation among them.
However, some supply chain members are reluctant to share their information because lack of trust and fear their organization information will be revealed to competitors (Mazlan & Ali, 2006). Hence, lack of trust among the supply chain members often results in inefficient and ineffective performance in the organization because increase the transaction cost among the supply chain members (Spekman, Kamauff & Myhr, 1998).
Besides, trust in the supply chain partnership relationship is depend on supply chain members to evaluate others members whether have no risk in the relationship (Mazlan & Ali, 2006). Therefore, supply chain members can manage and reduce their risk in the partnership with a good supply chain management to manage their relationship in the supply chain networks. Moreover, high level of customer satisfaction can be created when level of trust in the supply network is high (Andaleeb, 1996).For example, Dell developed a strong relationship and trust with both suppliers and the customers allow it to ensure those computer components are available from supplier to meet customer demand (Taylor, 2005).
2.1.4. Long-term relationships
Supplier will become part of the supply chain and have a long relationship on the competiveness of the process of the supply chain with a good supply chain management (Choi & Hartley, 1996). Moreover, information sharing is an important aspect on incorporation and joint inter-organizational relationship (Huang, Lau & Mak, 2003).Long-term relationship will create opportunity to capture the synergy of intra and intercompany integration and management (Lambert et al., 1997)
Limitation of information in the supply chain will lead to Bullwhip effect such as unnecessary inventory investment, poor customer services, wrong capacity allocation, reduce revenue and missed production (Lee, Padmanabhan & Whang, 1997). Plan along the supply chain and coordinating information can control Bullwhip effect and improve their supply chain relationship and performance (Lee et al. 1997).
According to Fiala, (2004) information exchange is a very important issue for coordinating actions. If member of the supply chain have free flow information it can reduced their lead time of information such as orders, demand and capacity forecast, point-of-sale data for the whole supply chain. (Lee, So & Tang, 2000) find that the benefits of sales information sharing and identified the drivers that have significant impacts.
Organization that have long term relationship from the supplier will obtains larger inventory or cost reduction when the demand is highly associated if the lead time is long. Eventually customer will receive a higher quality, cost-effective product in a shorter amount of time. For example, Chrysler Corporation cut their supplier base in half and brought the remaining supplier in on the design of a new generation cars and develop long term relationship based on trust. The long term relationship has helped the organization increase in profit (Braun, Guthrie, McCampbell & Sit, nd).
2.1.5. Reduce cost
Supply chain management system can influence the organization cost for administrative personnel and information purpose to plan and control the flow of inventory (Jonsson, 2008). Moreover, supply chain objective is to reduce cost by eliminating all non value added activities in the flow of goods from raw material supplier to end customers (Vorts, 2004).
So the efficiency of supply chain management can reduce the organization inventory and stock cost (Steckel, Gupta & Banerji, 2004). The efficiency of the supply chain management allows the organization having the right good at the right time in a right place (Ketchen & Hult, 2007).
Therefore, organization can deliver their product according to agreement so it can reduce the shortage cost, delay cost arise when late delivery occur to compensate the customers. Other than that, it enables organization to reduce the cost of goods sold, shorten lead-times for orders and reduce inventory costs (Li, Ragu-Nathan, Ragu-Nathan & Rao, 2006). Besides, organization does not need to hold inventory can reduce their cost of storing their inventory at their warehouse. Without using warehouse organization can save the transportation cost from the warehouse to the organization. Moreover, the cost reduction of the production organization can create customer value by reducing the price of the end users product (Ketchen & Hult, 2007). For example, Apple Computer is making lose in 1997; Steve Jobs do some changes in the supply chain management has saved the organization by reducing the cost of inventory (Taylor, 2005).
3. Challenges of Supply Chain Management
Appropriate plan of the supply chain management can get advantages, improperly handled will lead to tragic (Taylor, 2005). Moreover, accurate planning is important but planning error will lead to dramatically change in plans (Stadtler, 2004). Planning in supply chain is an activity to select and evaluate the future activities for a specific decision making for organizations (Gunther & Meyr, 2009). However, the plan remains to be the same, is to minimize production time, costs, efficiently organized use of resources and maximize.
Furthermore, transportation schedules, production schedules and distribution needed to plan adequately, if not it will lead to complexity (Stadtler, 2004). The complexity is created from the additional of separate transport amount due to improper planning. Moreover, the problem start with the customer demand that the organization is going to meet in the production planning and production scheduling (Gunther & Meyr, 2009).
Besides, forecast of the organizations future demand might inaccurate as forecast is inevitable and organization must plan to react to the demand uncertainty (You, Wassick & Grossmann, 2008). Poor planning to react to the demand uncertainty will create a loss to the organization. For example, Kmart Corporation have planning error that the organization crippling its ability it match the price offered by Wal-Mart, the worse is when the organization able to lure back the customer but the supply chain not able to deliver to them in time. Due to the wrong forecast and planning Kmart is now bankrupt (Konicki, 2002).
3.2. Supplier attention
Supply chains involve multiple customers and multiple suppliers each of whom has a supply chain. Lack of supplier attention is a challenge in supply chain network (Craig, 2009). While lack of supplier attention will cause late placed orders due to conflicting objectives and goal. Potential issues of vendors, late delivered and wrong delivered is the great obstacles in to supply chain management. Early obtaining material will minimize risk such as additional cost. Internal procurement issues also subject to supply chain management (Henrie, 2006).
Hence, lack of supplier attention will create inefficiency and ineffective in the supply chain and the organizational cost will increase (Byrnes, 2003). Due to this problem, company cannot managing well as when the material arrive, when the material should be purchase, and how many quantities should be purchase and when the material should be delivered.
Moreover, the suppliers in the supply chain deliver their business information and raw material late will create bullwhip effect (Lee et al., 1997). Consequently, the organization need to wait the raw material to be process, worker need to work extra time to produce the product and extra cost need to be pay. Furthermore, supply chain management is horizontal processes that run across organizations include supplier, customers and logistics service providers (Craig, 2009). Hence, processes, product and information from supplier do not flow smoothly across the organization will create organization inefficiency. For example, NASA Company had experience this problem because the project will face shrinkage costs, breakage and additional cost for warehouse (Galluzzi, Zapata, Steele & Weck, nd).
3.3. Customer value
Customers always change the value perception toward a product, so the organizations will response to the change or predict the change (Flint, 2004). Hence, finding ways to meet ever-rising customer expectations at a manageable cost is very challenging. Therefore, organization need to response toward the challenge by doing research on how the value perception of the customer change and improve their prediction and planning process. Competitive advantage can be gain if organization can predict their customer perception of the end user product (Slater, 1997).
Furthermore, customers have different level of individual income and education that will influence the perception of product from the organizations (Gunther & Meyr, 2009). Consequently, some customers willing to pay higher price for a product from a certain organization even the quality is not support the price paid. Professional sellers, good customer and community support will increase organization reputation to customers (Davey, 2010). Besides, it is very hard to satisfy customers as they always reluctant to look information from others organization because of the word-of-mouth transfer that is the most effective form to help organization to gain larger market share.
Other than that, customer perceived value play role in determining customer satisfaction toward the organization product. Hence, to improve the customer's satisfaction, manager should measure customer's individual perceived value to design product that can increase customer satisfaction (McDougall & Levesque, 2000). However, the measurement of customers' value and customers' satisfaction is not sufficient condition for future intention as customers' perceived value is always influenced by past experience and word-of-mouth communication (Bolton & Drew, 1991).
4. Barriers of Supply Chain Management
4.1. Supply chain process
The three types of generic process in supply chains are ordering, production and shipment. Function such as logistics, distribution, sourcing, customer service, sales, accounting and manufacturing are the activities in supply chain process to meet the customers' satisfaction (Craig, 2003). The ordering process starts from a buyer who places an order with the supplier and finishes when the supplier accepts the order.
Moreover, each type of process is related to different kinds of information. The characteristics of business processes in the supply chain that adds value to satisfying customer demands is described by process information. To meet customers' requirements, company must well control in using the internal function of supply chain process.
Furthermore, unable assess order to delivery process will lead to barriers in the supply chain process, most company are well intentioned but they are ineffective in order to delivery process so this will frustrate the management by seeming inability to solve the inventory and lead time problem (Donovan, 2010). Hence, unable access in the supply chain process will lead to incur extra cost to the company and management will be frustrated in dealing with inventory and lead time problem.
Next, manager is hired because he has the skills and ability to control others and take the charge to run the show, but in some situation manager fears to loss their control so that manager not so allow their employees to take over the ownership such as decentralization or empowerment (Satcher, 2009). Nowadays, certain company leader they resist to change their management style will lead to barriers to supply chain management. It is because manager they scare loss their control and their personal interest.
4.2. Bullwhip Effect
The bullwhip effect is defined as amplify the demand variability from a downstream site to an upstream site (Lee, Padmanabhan & Whang, 2004). Due to a lack of information across the supply chain, the bullwhip effect is considered as a wasteful phenomenon (Buchmeister, Pavlinjek, Palcic & Polajnar, 2008). Basically, Bullwhip Effect is safety stock for safety stock because suppliers hold extra stocks for their customers the same ways retailers holds extra stocks for their customers. When the information is not shared between the manufacturers and the retailers, this may lead to a heavy burden on the safety stock or a greater expenditure in shortage cost. The Bullwhip Effect can impel from 13 percent to 25 percent of operating costs in some supply chains (Lee et al., 1997). Thus "taming" the Bullwhip Effect can have a major influence on firm costs and realize where to invest effort and resources for this purpose should be a high priority for supply chain managers.
The bullwhip effect is an important concern in supply chain management for several reasons (Li, Chao, Chen & Liu, 2009). Firstly, each supply chain member is required by the increased order variability requires to hold excessively high inventory levels in order to meet a boom-and-bust demand pattern. Secondly, the lack of synchronization between supply and demand could lead to complete stockout at certain times despite the overall overstocking throughout the supply chain, Finally, the bullwhip effect increases not only the operating costs but also the physical inventories. The erratic capacity planning and missed production schedule can be caused by poor demand forecasts which is based on the distorted orders.
Supply chain nodes possess only local information and are "blind" to what is going on outside their level with no information sharing (Chatfield, Kim, Harrison & Hayya, 2004). Each node's supply chain knowledge-base is derived from the incoming demand flow which is coming from the downstream partner and the outgoing flow of orders being placed with the upstream partner. With information sharing, each node in the supply chain receives information on customer demand and orders from its downstream supply chain partner.
Besides that, the supplier only has information on the orders received from the buyer and must utilize historical data to augment the order information when preparing demand forecasts if with no information sharing (Gavinern, Kapuscinski & Tayur, 1999)
With no information sharing, each node generates its own forecast which is based on local information. After that, the forecast is will be used to generate a new order-up-to value (Chatfield et al., 2004).
5. 2. Electronic Data Interchange
The solution for supply chain process is that by using Electronic Data Interchange (EDI) and Computer Aided Ordering (www.Quickmba.com, nd). Electronic Data Interchange (EDI) refer to the transmissions, a standard syntax, unambiguous information of business or strategic significance between computers of independent organization, by using this software company can reduce the administrative cost of doing business, it can transmitting a document with high speed, accuracy and can result in reduce cost of the company (b2b.statefarm.com/b2b/guides/edi.asp, nd). By using the EDI, organization can reduce the unnecessary admin cost like hire IT Company to set database. Hence, organizations that adopt EDI will have high speed of transferring information in the supply chain network.
Next solution for improving the process of supply chain is that effective leadership. Leadership is the process that how other person been directing, control and work together to achieve the common objective (Kotelnikov, nd). An effective leadership must be always resistance to change to solve their problem. Leaders and follower have difference because when leader facing problem they will dealing with the problem by making good decision (Kehler, nd). An effective leader will dealing with his problem by making good decision, this kind of leader will always resistant to change, such as certain period they will delegate their job to their employees so that they can train an efficiency worker.
5.4. Information sharing
Information sharing in the supply chain is the sharing of knowledge among partners to serve downstream customers effectively and efficiently. There are three types of sharing modes which are amount, timeliness and neighbourhood. When the amount of shared information is more, the level of information sharing is higher. There are three different modes of information sharing was examined in a linear supply chain which are end demand, downstream inventory, and shipment information (Tan, 1999).
Bullwhip effect can be reduced by sharing the end demand information of the supply chain to all supply chain members (Tan, 1999). Sharing of shipment and inventory information are less beneficial if compare with sharing the demand information. More inventory cost savings can be achieved by sharing demand information by sharing inventory information than sharing inventory information. Cost savings for the supplier can be produced by sharing planed order information but this will hurt retailers (Zhao & Xie, 2001).
Timeliness of information sharing indicates the earliness or lateness of sharing information. Lateness of sharing information also means delay of information which is known as one of the major causes of bullwhip effect (Lee et al., 1997). The service level increases by timely demand information under various conditions. Besides that, sharing information in advance has been proposed to improve supply chin performance. Gibert and Ballou (1999) studied the trade off between cost of obtaining advance demand information from customer and benefits of the shared information. Zhao et al. (2001) studied the interaction between earliness of demand information and other factors by using a simulation model. Karaesmen et al.(2002) investigated optimal policy of using advance demand information in a make-to-stock supply chain system.
Neighbourhood of information sharing refers to the extent of enterprises with whom the information is shared. The level is higher when information is shared with more enterprises such as the neighbourhood is larger. Wei and Krajewski (2000) analyzed three neighbourhood modes which are first tier suppliers, suppliers on critical path and all suppliers of sharing order schedules in a manufacturing supply chain. They found that cost savings due to intermediate sharing modes is very close to full sharing modes under some situations. This implies that full information sharing may not be beneficial if the cost of information sharing is considerable. Tsung (2000) investigated the directional aspect of sharing quality information between a supplier and a manufacturer. Benefit of one-way and two-way exchange of quality information was analyzed.
The idea of information sharing is that if the nodes were aware of the current customer demands, they would make forecasts with that information and fine-tune their inventory system parameters accordingly (Chatfield et al., 2004). Since the customer's demand order stream will have a variance less than or equal to the variance of the orders coming from the downstream partner, the assumption is that a node using customer information will smooth the fluctuations in the order-up-to level and the resulting order stream will have a lower variance
Next, incorporates the sharing of operational information, which usually occurs in situations where another partner can more effectively utilize valuable information possessed by one partner, since the receiving partner has the requisite expertise and/or resources (Seidmann & Sundararajan, 1998). For instance, the use of a VMI system facilitates the transfer of the responsibility for inventory management from the buyer to a supplier who has more experience managing large product inventories and has firsthand knowledge of the production schedule for the products.
The information shared has minimal value to the partner owning the information but can provide strategic benefits when used by another party and also operational benefits for the donating partner (Seidmann & Sundararajan, 1998). This is evidenced when a supplier is given access to a retailer's POS data of all product sales from that supplier. Such information allows the supplier to increase demand forecasting accuracy, and gather information on sales patterns. As a result, operations are more efficient for both parties and plans for new product development and sales expansion strategies in the case of the receiving partner are better.
Ducati the Italian motorcycle maker had improved their company's supply chain and create a big success to the company. Ducati revamped its supply chain in "operation turnaround" by using the principles such as kaizen, TQM, Six sigma, just-in-time inventory control and others. This few principles had help the company to decrease production cost, product cycle time, increase the manufacturing quality and production volume.
Ducati was founded in 1962 in Bologna, Italy, as an industrial component manufactures, by 1970 the company became famous for making stellar racing bikes. In 1999, the company wanted to eliminate all non value adding activity, eliminate waste and improve their racing bikes quality because of the challenges the company had to make changes in their supply chain.
The improved of the work and implementing a predictive maintenance system for all the factory equipment had decreased the machine downtime and increased productivity. Pellerey, Ducati's top manager said that those changes had reduced the hourly cost of process.
Furthermore, the new supply chain management process of Ducati had allowed the company to gained control its inventory and can respond quickly to their customer's preference that will reduced life cycle time of a particular motorcycle model.
1. What lessons can other companies learn from Ducati's experiences of reworking its supply chain?
Supply chain contributes a good brand image to customer. Toyota Company use Toyota Production System (TPS) to gain its reputation for quality, increase sales and to reduce the waste of inventory (Ayers, 2006). Lesson that Toyota Company had learn is that by using supply chain management can reduce the cost of production by reduce the excess of inventory. Supply chain management that is not effective and efficiency will increase organization cost, product cycle time, reduced product quality and the production volume will decrease as well (Kaeli, 1990). This mean that company use high cost to produce a low quality product. The inefficiency of the Supply chain management can cause an organization to bankrupt such as Kmart (Konicki, 2002). Kmart Company was bankrupt due to their wrong planning in their supply chain management. Besides that, Kmart company also facing liquidity problem. AMR Research cited a study by A.T. Kearney in October that estimated $40 billion, or 3.5 percent of total retail sales, are lost annually because of supply-chain inefficiency (Kemp, 2010).
Furthermore, SABMiller, the global brewing giant has revamped it supply chain management system (Goodwin, 2009). The company rework it supply chain to reduce their stock out cause by it efficiency supply chain management. SABMiller has used the advance supply chain management system that allow the company to collect information from their resource planning system and financial system to generate useful information for production schedules, raw material orders and financial forecast to increase their flexibility to meet changes in demand(McGettrick, Sewell & Sivills, nd).
Moreover, IKEA also had revamps its own company supply chain with JDA. IKEA was trying to change their supply chain strategy by cutting back on suppliers, and more concern on low cost country (www.logisticsit.com, 2006). JDA call "Customer-Driven Value Chain", it has a unique market position and it offer a complete supply and demand chain industry specialized suite with capabilities necessary (www.jda.com/solutions, 2010). JDA was software that use by IKEA Company to revamps their supply chain strategy, by using the JDA software can lead to high performance in business process (www.logisticsit.com, 2006). IKEA Company using the JDA software can achieve the goal that they set, cutting back on supplier and more focus on low cost country.
Other than that, Nike sport had invested $225m to review its supply chain in order to increase its production efficiency in year 2009 (www.procurementleaders.com, 2010). Airbus look at supply chain management for better operational efficiencies and lower cost, this company they plan to revamp their supply chain management to make it production more efficient and can cutting cost (Esposito, 2006). Nike Company and Airbus Company had learned form Ducati company by revamp their supply chain management to increase their company performance.
2. To achieve result such as those at Ducati, how important is the free flow of information among members of a company's supply chain? Explain.
Ducati had to involve its supply chain partner in the "operational turnaround" because 92 percent of the cost of a typical motorcycle was come from the company's supply chain. Ducati need to transfer the culture and the technique for creating a lean and efficient supply chain to their supplier. As Ducati consider their suppliers to be an extensions of Ducati which connected them via the web to accelerate the flow of information. To achieve the efficiency in the organization, information free flow involves sharing information across company boundaries with supply chain member is important since organization is unable to generate all their required resource internally (Titus & Bröchner, 2005).
Besides, information sharing enhances the agility of firms while improved the stability and performance of the whole supply chain. Hence, the increase of product quality and speed of responses throughout the supply chain is mainly based on the efficiency of the information free flow in the network (Dimitriadis & Koh, 2005).
According (as cited in Hsu, Chiu, Chen and Liu, 2009) the importance of sensible information and quantified the impact of upstream disorder on supply chain. When received information from other member of the supply chain, everything remain the same except other than receive an order from the previous supply chain member but also receives end users demand for the current period ( Dejonckheere, Disney, Lambrecht & Towill, 2004).
Refer to (as cited in Samaddar et al., 2006) information can flow along the supply chain in sequence, within orders posed by each supply chain members or it may be share by them. Free flow information can be achieved by using information and communication technologies based tools which allow supply chain members to get information at the real time with accurate information on the point of sale demand to allow them to forecast replenishment needs inventory need and eliminate under or overestimated orders and inventories (Pendroso & Nakano, 2009). For example, Wal-
Mart shares point of sale information with their suppliers and delivery orders electronically to the relevant supplier when their inventory for an item falls to minimum level of stock.
Information sharing allows better planning and coordination of the supply chain (as cited in Welker, Vaart & Donk, 2008). Moreover, information sharing is an important aspect on assimilation and collaborative inter-organizational relationship (Huang, Lau & Mak, 2003). Ordering process is a function related to the information sharing and it is important to process in the supply chain (as in Welker et al., 2008). Hence, organization can make better decision on the ordering process, production plan and capacity allocation therefore the supply chain dynamics can be optimized (Huang et al., 2003).
Furthermore, information free flow is important because partnership always formed so that individual can share unique information (Hsu et al., 2009). There should be levels of information sharing for mutual benefits and cooperation (Christiansen, Rohde & Hald, 2003). Ducati use the buyer - supplier strategies because information sharing varies depending on the level of intensity of the relationship that Ducati introduce an integration program that involved their employees and supplier to work as a team. For example, companies share data with suppliers to reduce cost and bargaining also increase efficiency.
In addition, Ducati's new supply chain management processes that support information-sharing activities aim to support data sharing and communication between supply chain partners which allow the company reduced the bullwhip effect. Lack of information of raw material quality from supplier will decrease the product quality and customer will not buy from the organization (Towill, 1996).
Therefore, supplier commitment is very important that supplier allow information flow to organization and will reduce the uncertainty.Plan along the supply chain and coordinating information can control Bullwhip effect and improve their supply chain performance (Lee et al., 1997). As order information flow is related to material flows and are important for supply chain to performance effectively, effective supply chain management will help the organization to reduce Bullwhip effect (Pendroso & Nakano, 2009). Information that flow slowly in the supply chains network may interrupt the production lead time and excessive inventory in the organization.
3. What barriers exist to the free flow of information among the members of a company's supply chain and what can managers do to overcome those barriers?
Information free flows among supply chain members have direct impact to the organizations efficiency such as production scheduling, inventory and delivery planning of individual members in the supply chain (Lee et al., 2004). Barriers exits in free flow of information among the members of supply chain are financial constraints, lack of information technology system, lack of supply chain management knowledge and Bullwhip effect (Harland, Cadwell, Powell & Zheng, 2007).
Lack of Supply Chain Management knowledge
Supply chain management knowledge of their organization employees is very important to the organizations of the supply chain network (Ravi & Shankar, 2005). Hence, employees that lack of supply chain management knowledge is a barrier because lack of personnel resources (Rogers & Tibben-Lembke, 1998). Moreover, knowledge toward the supply chain management of the employees is needed throughout the organization to let the information to reach upstream and downstream of the organization (Ravi & Shankar, 2005). Furthermore, if the organization does not provide adequate training to employees in the technology and the process of the supply chain management will create information distortion.
Moreover, Bullwhip effect is a common problem to those who deal with supply chain management. According to (Lee et al. 1997), this effect occurs when there is a lack of coordination among the elements of the supply chain at the moment when information flow from the supplier to customer through the chain. The supply chain members will diminishing the orders differently from what is really necessary, seeking to protect themselves. The lack of coordination mainly caused by two reasons which are the different stages of the supply chain has conflicting objectives, and the information sent among the different stages suffers delays and distortions according to Chopra & Meindl (2001). Furthermore, information distortions will lead inefficiency performance such as increased in inventory cost and cycle times (Patnayakuni, Rai & Seth, 2006).
Lack of information technology system
Information technology is considered as requirement for effective control in the supply chain management that benefit the inter-organization information technologies and information sharing (Auromo, Inkilainen, Kauremaa, Kemppainen, Karkkainen, Laukkanen, Sarpola & Tansknen, 2005). Hence, lack of information technology system will increase the information flow uncertainty in the supply chain network because the information received by organization might not up to date due to the delay of the information by the inefficiency technology system (Geiger, Honeyman & Dooley, 1997). Furthermore, information are unable to flow freely because without the information technology system the information hardly can flow from upstream or downstream of the supply chain network( Henrie, 2006).
Kaizen also know as continuous process improvement strategy which means change for the better on a continual and never ending basis (Kentent, nd). Hence, continuous improvement refers to improvement of both organization processes and employees. Furthermore, by adopting this strategy the organization employees is responsible to participate in Kaizen through teamwork activities, continuous self improvement and continuous enhancing job skill through education and training to gain knowledge (www.training-management.info, nd). Consequently, the organization employees can gain more knowledge on the supply chain management and reduce the inefficiency of the information free flow among the supply chain members.
Radio Frequency Identification
Other than that, RFID (Radio Frequency Identification) is an emerging technology intended to complement or replace traditional barcode technology to identify, track, and trace items automatically (Asif & Mandviwalla. 2005). By adopting RFID, information free flow among the supply chain member will be more effective. Furthermore, RFID can be used to reduce labour costs, reduce out-of-stock supply chain cost, reduction in theft, improved tracking through warehousing and distribution centres and reduced inventory holding and carrying costs (Asif & Mandviwalla. 2005). Hence, improve the information flow among the supply chain members, channel alignment and efficiency operation is a strategy to counteract the Bullwhip effect (Lee et al., 1997).