A Different Supply Chain Strategy Commerce Essay


Supply chain strategy defines how the supply chain should operate in order to compete. It is a process that evaluates the cost benefit trade-offs of operational components. Some believe that an efficient supply chain must successfully address the Three A's: Agility, Adaptability, and Alignment (Lee, 2003). An agile supply chain requires strong supplier relationships, appropriate capacity levels and efficient logistics systems. In order to be adaptable, the supply chain must be sensitive and alert to shifts in the market due to product and technology cycles. Finally, in order to achieve alignment, the company must create incentives so that partners will work toward the common good the of the supply chain. To do this, all members of the chain should establish schemes to share costs, risks, and rewards. Some experts believe that "[if] you don't have all three a's when managing your supply chain, you cripple your business." (Lee, 2003) Successful supply chain strategy is vitally important to the success of any business, and there are several strategies that a supply chain manager might consider, such as a virtual company, a joint venture, or using few suppliers.

Virtual Company

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A virtual company is one that relies on a variety of supplier relationships to provide services on demand. This management strategy, also known as a "Hollow Corporation", seeks efficiency by moving functions outside of the company. The outside suppliers may serve many functions such as payroll, consulting, or manufacturing components. Virtual company networks give the supply chain "the characteristics of an organization, enabling managers and operations to communicate, to share common information and objectives in supplying customers and markets"(Chandrashekar & Schary, 1999). New technologies, particularly the internet, have made virtual companies possible and even more efficient, and it is now possible for an individual to be an active part of a virtual supply chain in a network extending throughout the state, region, or world. The end result is a group of people or organizations with specialized skills or resources that are utilized to provide greater value to the company and its customers in the form of lower overhead, flexibility, and speed. The relationships formed within a virtual company can be long or short term, and can consist of true partners, collaborators or subcontractors. This strategy results in fluid organizational boundaries that are more able to respond to changing market demands.

Joint Ventures

In terms of the supply chain, a joint venture can be defined as "the combination of the resources of two or more separate organizations to accomplish a designated task". (Zuckerman, 2005) This strategy is used when projects get too large, technology too expensive, or the costs of failure are too high for a single organization. Joint ventures are viewed as a viable alternative entry mode to new markets when compared to other strategies such as internal startup or acquisition. Smaller companies with limited resources can use this strategy to achieve an immediate large scale presence in a new market and gain an immediate competitive advantage. Advantages of joint ventures include the ability to rapidly meet evolving challenges of the market, as well as the opportunity to share costs and risks with partners. Business leaders contend that joint ventures increase "partners' access to critical resources such as marketing, technology, raw materials and components, financial assets, managerial expertise and political influence." (Hatfield, Pearce, Sleeth, & Pitts, 1998) Conversely, there are disadvantages to joint ventures as well, such as the potential for opportunistic behavior on the part of one or more partners, which can weaken the entire partnership. Because different companies have different incentives and interests, problems can arise when they all strive to optimize their own individual objectives rather than the collective objectives of the venture. In fact, many experts believe that joint ventures are inherently instable because of the inability to prevent this type of behavior, and some research report that joint venture failure rates can range from 36 to 70% (Hatfield et al., 1998).

Keiretsu Network

A Keiretsu network can be simply defined as a "large family of businesses linked by mutual ownership, obligation, and support. (Oliver, 1999) The Keiretsu is the fundamental industrial structure in Japan, and is the more modern form of the zaibatsu, a Japanese system of corporate ownership dating back to before World War II. Though similar to the zaibatsu, the primary difference of the keiretsu network is the lack of control by a single family. In the modern keiretsu networks, each member company has considerable autonomy over its own strategy and operations decisions, and no single firm has control over other member companies. Traditional horizontal keiretsu networks revolve around a commercial bank, and commonly have at least one company in every major market segment. In a horizontal keiretsu network, business operations are marked by several unique features, including cross shareholding, personnel exchange, and the presence of the main bank. Historically, six major horizontal keiretsu dominated Japan:  Fuyo, Sanwa, Sumitomo, Mitsubishi, Mitsui, and Dai-Ichi Kangyo.

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In business circles, it is believed that the common incentives to become and/or remain a member of a keiretsu is that keiretsus "play a role as an insurance mechanism for firms by protecting them from foreign takeovers, providing financial support in troubled times, and creating preferential purchasing arrangements". (Isobe, Makino, & Goerzen, 2006) A key strength of the keiretstu structure is mutual dependence. Unlike joint venture partnerships, it is extremely rare for keiretsu member companies to behave opportunistically at the expense of other firms. Within a keiretsu, there is a notion of co-properity for the group, and group trust is one of the most important benefits of the arrangement. Because of this trust, information can be shared among member companies easily, which can yield benefits in the high technology and knowledge intensive industries that are leading the global economy. Disadvantages to the keiretsu network strategy can come as a result of economic changes. One study suggests that "recent changes in the Japanese economy have challenged the stability and benefits of [kieretsu] networks. The collapse of the bubble economy and growing globalization of capital markets have severely affected the financial stability … keiretsu". (Dow, McGuire, & Yoshikawa, 2011)


Of the three strategies discussed above, adoption of the Keiretsu network strategy would be the most beneficial strategy for a supply chain. As mentioned, it is rare for members of a keiretsu to act in a way that does not benefit the entire network. Instead, in a keiretsu network, partners link up to create a community with similar goals, priorities, methods and technologies to achieve higher levels of success. Members of a keiretsu are assured long term relationships within the network and are expected to collaborate as partners. In fact, the mutual reliance of the network is what lends strength to the network structure. In this interconnected group of companies, everything from intracompany communications to inventory metrics is shared, and this level of information distribution enables the exchange of products and knowledge within the keiretsu without the need for detailed legal contracts, giving members a distinct advantage over non-member firms. Other advantages of the keiretsu network model include the access to cheap capital for members and the ability of the keiretsu to protect members from hostile takeovers. Successful implantation of a keiretsu network demands trust among network members, a common culture, and a commitment to mutual support and success.

B.  Discuss metrics that could be used to measure performance of the supply chain.

Supply chain performance measurement can be defined as "the process of quantifying the effectiveness and efficiency of action" (Neely, Gregory, & Platts, 1995). In order to be valuable to a company, the supply chain must be lean and efficient, and must also be responsive and dynamic. In order to ensure that the supply chain lives up to these requirements, constant monitoring and measuring is necessary. Accurate performance measurement can determine how well a supply chain is performing, and taking appropriate action on these metrics can drive down cost, lead times, late deliveries and shortages while also improving quality and customer satisfaction. By correctly utilizing performance metrics, managers can determine ow well a supply chain is performing. Efficient use of metrics can drive down costs, lead times, late deliveries and shortages while also improving overall quality. There are many metrics available to supply chain managers but unfortunately little guidance on how to use them. However, there are some guidelines to consider when attempting to measure the effectiveness and efficiency of the supply chain, including inventory turnover, lead time, and the SCOR model.

Inventory Lead Time

Lead time refers to the time elapsed between the receipt of the customer order until the delivery of finished goods to the customer. By examining lead times closely, supply chain managers can identify bottlenecks, inefficient processes and fluctuations in the volume of orders handled that can potentially lead to greater inefficiencies and longer lead times. Measurement of this metric is important because reduction in lead times can lead to reduction in overall supply chain response time, which is a major source of competitive advantage and has a direct influence on customer satisfaction. Additionally, paying special attention to this metric allows the manager to make better decisions on the investment of inventory by assessing opportunity cost and potential performance from inventory investments.

Inventory Turnover

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Another key supply chain performance metric is inventory turnover, which is a simple mathematical formula which measures the number of times a facility's inventory cycles or turns over every year. It is important to focus on the inventory turnover ratio in a facility, because the higher the ratio, the faster the turnover, which could indicate that the facility is operating at peak capacity or efficiency, and also indicates that the plant is not accumulating excess/obsolete inventory. A lower ratio could suggest that demand for the product has dropped, or that demand forecasts were inaccurate, leading to unnecessary production. This is an important metric because slow moving inventory raises storage costs by tying up cash, and can drive up the cost of capital. Inventory turnover should be calculated at least once a month, as it can be an early warning sign that something is not right in operations.

SCOR Model

The Supply Chain Operations Reference (SCOR) Model is a set of processes, metrics and best practices developed by the Supply Chain Council.  It is a process based approach that provides a framework for characterizing supply-chain management practices and processes that result in best-in-class performance. According to the council, the SCOR model can be used in many ways to improve processes and can be implemented for competitive advantage and fine-tuned as necessary for specific applications and industries. The model is an effective tool for translating strategy into performance goals and can also be used to identify and implement potential supply chain improvements. Industry experts believe that "by providing a complete set of supply chain performance metrics, industry best practices, and enabling systems' functionality, the SCOR model allows firms to perform very thorough fact based analyses of all aspects of their current supply chain" (Huan, Sheoran, & Wang, 2004).  The SCOR model has been successfully used to improve business operations in North America, Latin America, Europe, Asia and Austrialia/New Zealand (Stephens, 2001) and is comprised of five processes: Plan, Source, Make, Deliver, and Return.

Plan - Processes that balance aggregate demand and supply to develop a course of action which best meets sourcing, production, and delivery requirements.

Source - Processes that procure goods and services to meet planned or actual demand.

Make - Processes that transform product to a finished state to meet planned or actual demand.

Deliver - Processes that provide finished goods and services to meet planned or actual demand, typically including order management, transportation management, and distribution management.

Return - Processes associated with returning or receiving returned products for any reason. These processes extend into post-delivery customer support. http://en.wikipedia.org/wiki/Supply-chain_operations_reference>

C.  Discuss three of the following issues that could complicate the development of an efficient, integrated supply chain: local optimization, incentives, large lots, and the bullwhip effect.

Supply chain managers face many issues and potential pitfalls when attempting to integrate all of the functions and processes that make up a productive supply chain. Without constant measurement and attention, significant issues could arise that could lead to serious inefficiencies along the supply chain. A successful integrated supply chain begins with mutual agreement on goals, trust between all members of the supply chain, and compatible organizational cultures. In addition to the complications of managing these factors, a supply chain manager must also be aware of other issues that could complicate the efficiencies of the supply chain, such as local optimization, large lots, and the bullwhip effect.

Local Optimization

The pressures of competition can have a strong effect on supply chain strategy and integration. Though all members of the integrated supply chain are ostensibly working toward the same goal, in some cases, members of the supply chain are inclined to focus more on their own bottom line at the expense of the supply chain. This is referred to as local optimization, and when this happens, the results are felt throughout the supply chain. One example of local optimization is when a supplier (Supplier A) receives an order that reflects a slight upturn in demand. Supplier A responds by overcompensating and ordering more inventory than is necessary in order to ensure adequate supply. Conversely, if Supplier A receives a smaller than expected order, he might undercompensate when ordering so as not to be caught holding excess inventory. In both of these cases, the supplier is making decisions to protect itself and its bottom line without taking into consideration how its actions will affect other members of the supply chain. The problem arises when other suppliers make decisions based on the order information they have received from Supplier A. For example, Supplier B may order a larger or smaller supply of inventory based on how much Supplier A has ordered, not knowing that Supplier A's order does not accurately reflect customer demand. As suppliers up and down the supply chain make orders based on this erroneous information, fluctuations are magnified. Communication and strong dedication to the well-being and success of the entire supply chain is vital to combat this issue.

Large Lots

Another way that individual suppliers within the supply chain can cause disruption is by ordering large quantities of materials to reduce unit costs and save on shipping. This can be thought of as another form of local optimization as it is a result of individual suppliers making decisions that benefit them, but not necessarily other members of the supply chain. Though this may seem like a savvy business move, large lots often fail to reflect actual sales and increased holding costs, which results in inaccurate information being communicated to other members of the supply chain. Additionally, experts note that "large batch sizes lead to large fluctuations in inventory levels as first a large batch is produced, far in excess of current demand, so that the inventory levels rise to high levels only to be reduced until they reach a reorder point, at which point a new large batch enters the inventory" (Hussain & Drake, 2011). Though ordering in large lots can help individual suppliers capitalize on economies of scale and reduce transportation costs, it is important that inventory levels be kept in line with actual demand so that other suppliers in the chain can make rational, well-informed decisions regarding their own ordering practices.

Bullwhip Effect

Local optimization and large lot ordering are two factors which contribute to a phenomenon known as the bullwhip effect. According to experts, this phenomenon states that the "demand process seen by a given stage of a supply chain becomes more variable as we move up the supply chain (i.e. as one moves away from customer demand). In other words, the orders seen by the upstream stages of a supply chain are more variable than the orders seen by the downstream stages." (Power, 2005) In other words, the bullwhip effect is a result of the increasing fluctuation in orders that occur as orders move through the supply chain. This order variability can be attributed to the irrational behavior of participants involved in the supply chain, as discussed regarding local optimization and large lots above. In such cases, order variability amplifies the orders for upstream suppliers and can potentially throw the entire supply chain out of wack. Research shows that the increased variability evident in the bullwhip effect "requires each member of the supply chain to increase the level of stocks in order to maintain established service levels causing increased inventory holding costs due to overstocking throughout the supply chain, and leads to inefficient use of resources, and eventually results in poor customer service and profitability". (Seung-Kuk & Bagchi, 2007) These fluctuations can also cause increases in inventory, shipping and other transportation costs.


Poor coordination and information sharing as a result of local optimization and large lot ordering by supply chain partners can cause distortion and fluctuation throughout the supply chain. These and other examples of irrational behavior throughout the supply chain can lead to a phenomenon called the bullwhip effect, which further increase the cost associated with inventory, transpotation, shipping and receiving as well as decreasing customer service and profitability. In order to avoid these potential pitfalls, supply chain managers must ensure that the entire supply chain is built on trust, mutual agreement on goals, and compatible organizational cultures. Supply chain members must share information as well as risks and costs, and activities such as customer research, sales analysis, forecasting and production planning should be conducted as joint activities. Communication and information sharing can ensure there is consistency in the direction and objectives of all entities along the supply chain, which will result in increased profits and customer satisfaction.

D.  Recommend concepts and methods for effective management in an integrated supply chain.

Effectively managing an integrated supply chain is a complicated endeavor, and supply chain managers must be able to coordinate the business processes of several entities at once in order to successfully reap the benefits that a well-run supply chain offers. By attacking the inefficiencies along the supply chain, managers can enjoy decreased order times, increased inventory turnover, and increased revenue and cost reduction across the chain. To realize these benefits, there are several strategies that a supply chain manager can use, including standardization, postponement, and collaborative planning, forecasting and replenishment (CPFR).


One of the strategies that a supply chain manager can use to improve the effectiveness of the supply chain is postponement. Postponement refers to the practice of delaying modifications to a product as long as possible in the production process in order to minimize internal variety. In a marketplace where customers demand evermore customized products, it is important for companies to be able to deliver such products rapidly and at low cost. In order for a company to successfully implement a postponement strategy, the product must be designed so that it consists of independent modules that can be assembled into different forms of the product. Additionally, the manufacturing process will also need to be designed to accommodate the new arrangement, with modules that can be moved or rearranged easily to accommodate the desired end-result product specification. Finally, the supply network needs to be designed to supply the basic product to the distribution centers who will perform the final customization in a cost effective manner.

One example of postponement is the way that HP changed its manufacturing process to incorporate external power supplies into its Deskjet printers. In this instance, the company decided to postpone the country specific customization of its power supplies until the products reached the local distribution center, rather than at the factories. Instead of manufacturing the printers with an internal power supply that would only work in specific countries, HP designed the Deskjet printers to accept an external power supply that the customer plugs in when they receive the printer. By postponing the customization until nearly the last minute, HP was able to reduce their total manufacturing, shipping and inventory costs by 25% (Feitzinger & Lee, 1997).

This example highlights the potential benefits of postponement. Research has shown that a postponement strategy has the potential to significantly reduce inventory and transportation costs, while also improving responsiveness to customer demand. Adoption of this strategy will allow the company to deliver highly customized products at low cost, while at the same time operate at maximum efficiency while quickly meeting customers' orders with a minimum amount of inventory.


Standardization can also be used to effectively manage an integrated supply chain. Similar to the postponement strategy, standardization is the process by which a company endeavors to replace several components with a single component that has all the functionalities of the components it replaces. Though customers want greater choice in products, managers must realize that the introduction of too many products can have a negative impact on supply chain management. Experts contend that product standardization is recognition of the fact that supply chain costs are more than just the price of the product, and that acquisition costs must be taken into account as well. The desire for product choice must be balanced against the entire cost of acquiring a product. With this strategy, fewer unique components are needed, and manufacturing, warehousing and development costs are reduced. The reasons for standardizing products and processes are varied, and include reducing costs, simplifying supply support efforts, and improving quality. Additionally, focusing on standardization of products rather than customization enables continuous flow of the product through the company's system to the customer. Toyota is one notable company that has embraced the standardization model, and their emphasis on standardization has led to significant reduction in the time required to manufacture an automobile (Vitasek, Manrodt, & Abbott, 2005). Indeed, standardization is being used in supply chains across many companies and industries, and a recent survey showed that materials standardization was the third most implemented cost reduction strategy in US firms (Cristóbal, 2006).

Collaborative Planning, Forecasting and Replenishment (CPFR)

Collaborative planning, forecasting and replenishment (CPFR) is another strategy for an integrated supply chain, and can be simply defined as the joint effort of members of a supply chain to share information in order to reduce supply chain costs. The objective of CPFR is to "exchange selected internal information on a shared web server in order to provide for reliable, long term future views of demand in the supply chain" (Fliedner, 2003). With CPFR, members of the supply chain share planning, forecasting and inventory information across a chain-wide electronic network and work toward solutions that will benefit the entire supply chain. The electronic nature of CPFR enables real time information sharing within the supply chain that can be used to quickly respond to demand. Coming on the heels of the electronic data exchange approach, CPFR is viewed as a "revolutionary business process using forecasting models and onging point of sale transaction information to produce a more cost-efficient and responsive supply chain" (Lewis, 2000). To successfully implement a CPFR system, supply chain members must create a front end partnership agreement that specifies objectives, resource requirements, and expectations of confidentiality. They must then engage in joint business planning that identifies joint partnership strategies. Finally, they must develop demand forecasts and share those forecasts along the entire supply chain. At this step, the electronic server examines the forecasts and alerts supply chain members of any major differences. This warning allows planners to work together to come up with a "consensus" forecast in order to accurately prepare for demand. This early exchange of information along the supply chain leads to reliable long term views of demand in the supply chain and also yields increased sales, faster order response and lower product inventories.

E.  Explain the actions that should be taken to mitigate one possible risk for each of the following areas:

1.  Process

2.  Control

3.  Environmental

Risk mitigation is an important part of supply chain management. As business operations expand globally and supply chains become more complex, business face increased risk from supply chain problems that can disrupt or delay business processes. Failure to manage supply chain risk can have significant negative impact on companies throughout the supply chain. Consequences can also include reduction in product quality, damage to property and equipment, and loss of reputation. As such, managers must develop risk mitigation strategies that keep inventory, capacity, and other elements at appropriate levels across the entire supply chain. When developing risk management strategies, management must be able to lessen disruptions in process, control, and environment.

Process Risks

Process risks are those that include disruptions to raw material and component availability, logistics, and quality issues. This is an especially important area because disruptions to material flow are unpredictable and can be quite damaging to business processes. Some examples of events that can disrupt the flow of materials are natural disasters, fires and labor strikes. For example, a general strike of truckers can seriously disrupt the transportation of materials through the supply chain. Also, an event like the terrorist attacks of September 11, 2001 can temporarily shut down all shipping and transportation channels, leaving suppliers no way to deliver goods and materials to their partners. Though such an occurrence would likely affect all businesses in the industry or area, savvy supply chain managers should have a pre-defined plan to mitigate the consequences of such events.

In the event of a massive transportation shutdown that delays or compromises the availability of raw materials or other components, supply chain managers must have a contingency plan in place to ensure that their supply chain remains viable. One strategy to combat this type of process risk in the supply chain is to develop multiple sources of supply so that managers can shift supply transportation to those suppliers that have not been disrupted. By developing relationships with a diverse group of suppliers, managers can ensure that events that compromise one supplier do not necessarily impact the rest of the supply chain.

Control Risk

Control risks in the supply chain can be described as those that involve management metrics and secure communications for financial transactions, as well as product decisions and logistics scheduling. These risks are "broader" than those incurred by traditional risks such as warehouse fires, products being lost or damaged during transportation, etc. Threats to a company's logistics scheduling or secure communications can have devastating consequences for all aspects of production if not handled properly. An example of this type of threat would be a fire or other disaster that destroyed the company's computer servers that contained all transaction and logistics data. Without proper planning, an event like this could back up production and business operations for an extended period of time, leading to lost revenue and negative consumer sentiment. To mitigate this risk, managers must install strong backup systems throughout the organization that include multiple duplications of all data and transactions. This system must be well-communicated throughout all levels of the supply chain so that partners can easily access information in the event of a crisis. Such a plan would likely avert a fiscal and operational disaster if physical records are ever compromised or destroyed.

Environment Risk

In the supply chain, environment risks are those that affect overall business context across industries. As the business world becomes smaller as a result of globalization, the risks associated with international business operations have the potential to affect everyone involved in any sort of global trade. Everyone in the industry will be affected to some extent or another due to general environmental conditions. Because of this, managers must become adept at studying and recognizing political risks involved in doing business with overseas supply chain partners. Additionally, managers must structure their supply chains in such a way that they prepare for and minimize the potential risks. These conditions/risks include political uncertainty, tarrifs, security screening, natural disasters or terrorist attacks.

One obvious example of environmental risk in the supply chain is the possibility of a terrorist attack at some point in the organization's supply chain. In the current global political climate, terrorist attacks and general political unrest seem to be increasing, and it is imperative that supply chain managers have plans in place to mitigate the risk of such an occurrence and to minimize the consequences if the supply chain is affected by an attack. In a global supply chain, there are several points where the supply chain might be vulnerable to a terrorist attack, such as during shipping or while materials is being held at the supplier's facility. In order to successfully plan for a possible terrorist attack, managers must develop proactive strategies that can help avoid or reduce the effects such an attack might have on the entire supply chain.

One way to mitigate the risk of a terrorist attack on the supply chain is to build flexibility and redundancy into the supply chain. For example, if a production plant in the UK is attacked or disrupted in some way, the company can shift production to a nearby plant to continue operations until the UK plant is operational again. Using this strategy, a company has the option to reduce the impact throughout the supply chain, averting potential lost time, revenue and inventory. Additionally, holding some level of excess inventory can also help to mitigate the effects of disruption along the supply chain.

F.  Recommend a functional organizational structure for the manufacturing facility.

Below, you will find a recommended organizational structure for the manufacturing facility.


Figure - Recommended Organizational Structure

This structure is recommended because it effectively and efficiently separates the functions of the company into clear and logical departments, and provides a clear chain of command and information flow throughout the company. Additionally, this type of organizational structure facilitates communication and learning among departments with the same general function (i.e. Operations).

1.  Discuss components of the operations function.


The overall function of the facilities department is to ensure that the processes needed to produce and distribute the product run smoothly and without unnecessary interruption. The facilities department serves as a value-added service provider to the manufacturing company. In fact, business experts recognize that facilities departments have "direct performance and financial impact on expense control/profitability, productivity, staff welfare, and delivery of products and services" (Bancroft, 2009). This department is responsible for maintaining the plumbing, lighting, electrical, heating and air conditioning of the facility, as well as security, office cleaning and landscaping. Employees and managers in this department must anticipate problems in the building and keep operating costs at a minimum by setting goals that affect the short and long term management and care of the facility.

Production & Inventory Control

The production and inventory control department is one of the most important in a manufacturing company, as it involves the organization of the overall manufacturing process to produce the product. As such, the department acts as a useful tool to coordinate the activities of the production system by using proper methods of planning and control. Managers and employees in this department are responsible for the optimum scheduling of resources to ensure uninterrupted flow of materials through the production line by sure parts and materials are available at the right time and in the required quantity. Successful operation of this department must include intensive planning and scheduling of resources to achieve regular and interrupted flow of materials. A well run production and inventory control department will bring the company a competitive advantage in the form of reliable and shortened delivery to customers as well as lowered production costs.

Quality Assurance & Control

The quality assurance and control department is responsible for inspecting products to uncover defects, and also for improving and stabilizing the production process to avoid or minimize issues in the first place. It is important for managers in a manufacturing facility to establish, manage and monitor their quality control and quality assurance systems and their standard operating procedures to provide high-quality products to fully satisfy customer expectations.  This component of the operating function assures that quality requirements are met and successful management of the department can benefit the company by reducing product defects, which will lead to increased customer satisfaction and higher revenue.

Supply Chain Management

Supply chain management is another very important component of the operations function in a manufacturing company. With the growth of outsourcing, it is essential that the structure and processes of a company's supply chain are planned and run in an efficient and cost effective manner. The main purpose of supply chain management is to improve trust and collaboration among supply chain partners, thereby improving inventory quality and the speed of inventory movement. To do this, supply chain managers often make decisions regarding how products are developed, sold, moved and manufactured. Supply chain management integrates many other organizational functions such as procurement, logistics, accounting, and information technology to manage the flow of goods throughout the supply chain. Proper supply chain management ensures that products move efficiently along the supply chain to maximize profits and customer satisfaction. In a global organization, this involves dealing with companies and partners in other countries, which includes dealing with the foreign country's politics, regulations, tariffs, etc.


As the name suggests, the manufacturing component deals with the actual manufacturing of the product in a manufacturing company. Many other components and departments of the organization directly support the manufacturing component. In turn, the processes and schedules of the manufacturing department must be shared with other parts of the company to ensure that logistics and other necessary support is available and that inventory is maintained at an acceptable level. Managers and employers in the manufacturing department are responsible for turning raw materials into finished goods. The manufacturing department is also responsible for quality control and inspection of the finished goods before final shipment to the end user. This can be viewed as the most important component of the operations function because, if the product is not manufactured, there is no company.

Industrial Engineering

In very broad terms, it can be said that engineers transform ideas and technologies into products and services. In a manufacturing context, the industrial engineering component of the operations department is responsible for developing ideas and technologies to ensure efficient, productive operations. The main objective of the industrial engineering department is to constantly improve methods, and procedures within the company, thereby increasing productivity and profits. Managers and employees in this department use simulations, decision making tools and other software to solve problems and develop more efficient systems. The industrial engineering department is not just concerned with designing systems directly related to manufacturing of the product. In a manufacturing company, the industrial engineering department may make proposals changing practices in other areas of the company if those changes can contribute to a more efficient company overall. The overall function of the industrial engineering component is to determine and develop processes that deliver maximum profit and minimum loss, risk, and cost.

Process Analysis

An efficient manufacturing enterprise must continually look for ways to improve its processes to ensure continued efficiency and success, and this is the main function of the process analysis component of operations. Like the industrial engineering component, process analysis is focused on improving the overall efficiency and productivity of the manufacturing operations. Process analysis does this by continually analyzing the entire system, identifying weaknesses and activities that need to be improved. Effective process analysis can diagnose waste in a system, restructure the manufacturing process to improve its performance, and tune the structure of the entire organization to face oncoming business challenges. Process analysis can lead to the implementation of Just-In-Time (JIT) or Total Quality Management (TQM) strategies to improve efficiencies and enhance product quality and customer satisfaction.

G.  Discuss at least three of the following strategic operations management decisions that would support the implementation of the firm's mission and strategy:

•  design of goods and services

•  design of process and capacity

•  quality

•  location

•  layout design

•  human resources and job design

•  supply-chain management

•  inventory

•  scheduling

•  maintenance

Operations management can be a complicated role in a manufacturing company. As discussed above, there are many components involved in the operations function (Facilities, Supply Chain Management, Industrial Engineering, etc.), and proper management of these components requires effective decision making skills to ensure that all components work together to achieve a competitive advantage and adhere to the company's mission and strategy. Some examples of important decision making areas for operations managers include maintenance, inventory, and human resources.


In the current era of multifaceted corporations, lean operations, and just-in-time strategies, proper maintenance of plant and equipment is a vital issue for operations managers. In fact, with many corporations embracing these lean strategies, reliability is even more important because in a lean operation, machine breakdowns can cause larger problems as there is little time for interruption and delay in such a rigidly structured and scheduled system. Maintenance is vital to the function of the company because consistent, uninterrupted operation of machinery is essential to efficient production. Furthermore, catastrophic failures of operating plant and machinery are a major cause of industrial accidents, which can also have ramifications throughout the company. Machine breakdowns and failures can affect many other areas of production and lead to lost revenue, product quality issues, and customer dissatisfaction. Therefore, management must make decisions regarding the desired levels of reliability and stability of plant machinery, and must then plan, design, and implement systems that maintain those levels.

To support implantation of the firm's mission and strategy, operations managers must design a maintenance plan that keeps facilities in optimal operating condition. A preventative maintenance plan would preserve reliability and factory efficiency by replacing worn components before they actually fail. This plan must take into account the normal degradation of plant machinery due to everyday use and integrate scheduled maintenance into the production schedule to prevent machine failure. This requires coordination with other departments such as inventory, facilities and supply chain management to manage work schedules, inventory levels and production capacity for optimal maintenance scheduling. Plant managers and maintenance staff must decide on the proper priority balance between peak operating capacity and proper maintenance schedules. To accomplish this, management can invest in a computerized maintenance management system (CMMS) that will alert personnel of scheduled maintenance and help determine the best time to repair or inspect the machinery to ensure the lowest level of machine downtime. Effective preventative maintenance through the use of a CMMS can give a company a competitive advantage in terms of cost leadership through effective capacity use (less machine downtime = higher production capacity).


Quality is an issue that has obvious relation to the company's mission and strategy. In order to succeed in the marketplace, the company must deliver goods that adhere to the customers' expectations of quality in a more cost effective way than competitors. Focusing on quality improvement as a strategy will almost certainly result in increased sales, especially repeat sales, which in turn will lead to a solid market position. Additionally, processes that focus on producing quality goods the first time will lead to less waste.

One of the first steps to determining customers' quality expectations is to conduct market research. In-depth analysis of customer responses will inform management about improvements or changes that need to be made to the product, and management can use this as a starting point to begin making quality improvements. After market research is conducted, a total quality management policy may be implemented that transforms the way the organization functions by focusing management energies on continuous improvement of all functions and processes. This strategy make everyone in the company responsible for quality. Managers can conduct outside research to learn what "best in class" organizations are doing to improve quality, and use that information as a benchmark goal to strive for. By listening to what customers are saying and converting that knowledge into action, operations managers can gain a competitive advantage in the marketplace and gain customer loyalty and increased sales.

Human Resources and Job Design

Human resources management is the systematic process that ensures that an organization has the right number of people with the right skills to fulfill business needs. People are the lifeblood of any organization, and hiring the right people can be one of the most important decisions any manager makes. Effective management of human resources can drive the company toward higher levels of performance and the long term strength and viability of a company relies on the strength and talents of its employees. In addition to hiring the right employees, management must ensure that employees are satisfied and given the right tools and resources to do their jobs in an efficient and cost-effective manner. In an organization devoted to customer satisfaction and product quality, it is even more vital to focus on human resources decisions to ensure that the organization has hired and trained the right people with the right skills to deliver quality to the organization and to the customer. To guarantee this, it is important that HR decisions are closely aligned with company strategic objectives.

Job descriptions should be planned and written with considerable input from managers and other involved parties. Some experts believe that to effectively utilize human resources in the implementation of corporate strategies, job concepts and descriptions should be redefined into a set of individual core competencies and organizational units. In fact, it has been found that "the most successful changes and turnarounds in the western industrial world are cases where organizations have concentrated on the core competencies from both the standpoint of the organization and the actual quality of competencies of their employees" (Godbout, 2000). In this way, jobs can be designed to more closely align with the needs and goals of the organization. Additionally, attention should be given to the skills and motivations of existing employees, as these factors are important in achieving company objectives. Improving employee morale by focusing on work life balance issues and employee skills training can also prove beneficial to the company, as well-rounded, happy employees provide cost savings to an organization and also tend to output more quality work.

1.  Discuss whether the company should adopt a consumer-focused mass customization process.

In the age of fast changing customer requirements, mass customization offers companies the opportunity for significant competitive advantage if they can offer individualized products to customers at relatively low cost. The goal of mass customization is to determine the range within which a product or service can be customized for an individual customer, then facilitate the customer's choice of options from within that range. Using mass customization strategy, a large quantity and large variety of products are produced, requiring rapid changeover on flexible equipment. True commitment to mass customization requires an explicit mass customization strategy that will be unique to every organization; as the name suggests, there is no cookie cutter approach to successful mass customization. One of the essential ingredients of mass customization is modular design. In order to effectively produce individualized products, factories must be designed to accommodate many different configurations. Additionally, effective scheduling, personnel and supportive supply chains are also required.

This overhaul of factory and organizational processes is one of the challenges in implementing mass customization. Previous processes and facilities based on static product lines will no longer be viable if the company chooses to focus on a build to order production model. Additionally, introduction of extremely tight inventory control and tight schedules that track orders and material from design to delivery must be implemented.

There are many benefits to be gained from the implantation of a mass customization model. Firstly, by achieving the ability to meet the individual needs of customers, the company will gain new, highly loyal individual customers, increasing revenue and market share. Additionally, because products are built to order based on customer demand, the company will be able to trim costs that exist because of inaccurate sales forecasting. Hewlett Packard is an excellent example of the benefits to be gained by adopting a mass customization model. As stated above, when HP adopted mass customization strategies such as redesigning their printers to accommodate different power supplies, they were able to reduce their total manufacturing, shipping and inventory costs by 25% (Feitzinger & Lee, 1997).

These and other benefits make it easy to recommend that the company adopt a customer-focused mass customization strategy. Products, manufacturing processes, and supply networks need to be redesigned to include independent modules that can be rearranged to easily support different product configurations. By implementing a mass customization strategy, the company can begin to compete with larger firms by efficiently streamlining processes and pinpointing customer needs. Indeed, meeting customer needs in such a way can allow the company to reduce its marketing costs as well, as this strategy can potentially satisfy customers to a degree that they don't leave, negating the need to spend money acquiring new customers. Today's customers want choice, and mass customization is the way to give it to them. Research shows that mass customization is on its way to becoming the standard practice in some of the biggest industries, including aerospace, high technology, and automotive (Schmitz, 2000), and implementing mass customization strategies is a way to realize some of the same benefits enjoyed by top manufacturers in those industries.


H.  Recommend actions to improve cost effectiveness for each of the following:

1.  Manufacturing facility

2.  Supply chain

Cost reduction has become an oft-heard buzzword in business circles. In the current economic climate it is important for managers to find a way to deliver quality products to customers while reducing the costs associated with manufacturing the goods. Reducing costs can give a company an advantage over competitors, and companies that are able to reduce costs while maintaining quality are in a good position to secure significant market share by sharing those cost savings with customers.

Manufacturing Facility

One way to improve cost effectiveness in a manufacturing facility is by implementing Just-In-Time (JIT) policies and practices. One of the main principles of JIT is to eliminate waste and reduce cost through carefully monitoring and scheduling inventory quantities. JIT is based on "pull manufacturing", which manufactures products in response to actual customer demand rather than potentially inaccurate demand forecasts. This increased accuracy means that time, money and manpower are only spent on manufacturing products that will yield revenue, and the potential for excess inventory is greatly reduced or eliminated. Implementation of JIT policies and practices requires a synchronized supply chain and sophisticated information sharing systems to ensure that orders and information regarding supply are communicated to all parties accurately and in a timely manner. Other elements of successful JIT implementation include small batches, modular manufacturing, preventative maintenance and; multi-skilled workers.

Implementation of JIT practices is recommended as a strategy to improve cost effectiveness in a manufacturing facility because in addition to realizing cost savings by eliminating waste, it also allows companies to improve transportation systems, production scheduling, sales forecasting and internal response times. Eliminating excess inventory can expose deficiencies in these areas that can then be rectified. In this manner, introduction of JIT practices and processes in the manufacturing facility can lead to cost reductions in all other areas of the company.

Supply Chain

The complexities of the modern supply chain make cost reduction a daunting task. However, those same complexities make the supply chain one of the best places to begin when considering cost cutting strategies. With so many partners and "moving parts", there are many areas to explore when considering cost effectiveness strategies. One way to approach cost reduction in the supply chain is by implementing a system that improves the visibility of real time inventory and lead time information among supply chain partners. This system, known as Radio Frequency Identification (RFID) is similar to bar code technology, and is used to track materials through production, distribution, and other supply chain processes.

Implementation of RFID technology is rising in the manufacturing sector because increasing the visibility of inventory and material flow through the supply chain promises a reduction in loss caused by information inadequacy or inefficiency. Research has shown the manufacturers can benefit from RFID implementation. In fact, manufacturers can "reduce working capital needs approximately 2 to 8% by taking advantage of the visibility of work in process and inventory through use of RFID" (Gu, 2008). Additionally, adoption of RFID can lead to 5% inventory reduction, 7.5% labor and costs reduction in stores and warehouses, and a reduced stock-out cost of as high as 7% in revenues (Gu, 2008). These potential savings

Adoption of RFID technology is recommended as a strategy to improve cost effectiveness in the supply chain because increased visibility of inventory throughout the supply chain and increased information sharing among partners can lead to significant cost savings. These savings can come in the form of labor cost reduction, improved workforce efficiency, streamlined business processes, or reduced stock out costs. RFID can dramatically change the way companies produce and distribute their products, and implementation of the technology can be an important step in introducing major efficiencies and cost savings into the supply chain.