Introduction
Supply Chain
In management and microeconomics, a vertical integration refers to a case where the company owns the supply chain. It follows that each unit in the supply chain usually produce or market a specific product or service (Michael, 2011). In the end, this products and services combine to satisfy a common need. It has long been perceived as a plan that not only brings the supply chain under one ownership but also into one corporation. Our scenario calls for common ownership of the Power Tools Company clearly achieved via the vertical integration. Further, we can classify a company as a composite tool oriented where different tools are produced. However the ultimate goal for these company is to sell as much of these products as possible (common need), as a result, we need to incorporate a vertical integration strategy which can intermarry all this units to achieve this common need.
There are various supply chain measurements at our disposals such as Inventory Turns, Cycle Time, DPMO and Fill Rate. Metrics helps in understanding how the company is performing at a particular given period. Inventory Turns are regarded as the number of times that the company inventory cycles or turns over a year. It is a common, but highly effective method especially given that the company deals with fixed assets. The DPMO is a Six Sigma method that uses statistical analysis in determining a company’s performance through identification of defects in the manufacturing process. It helps in reducing the number of defects and also in checking of the manufacturing process. Cycle time helps in calculating the days (or hours) in between the start and the end of the process. A good example is the time between the purchase order and the delivery of the product.
Distribution channels have an observed phenomenon known as the bullwhip effect that depends on the forecast. It refers to larger and lager alternating trends of inventory in responses to changing customer demands. These arise as a consequent result of the forecast of customer demand is based on statistics that are rarely accurate. As one moves up the supply chain, there is a tendency of having greater observed variation in demand. The impact of this is that the company will have to keep greater safety stocks and may result to inefficient production or excessive stock. Best way to counter this is to operate in a demand-driven supply chain as opposed to forecast-driven supply chain thus reacting to actual customer orders. Most companies use incentives with respect to the division, group or site. Companies need to develop new incentives in order to get multiple sites from divisions or groups. Local optimization refers to modeling approach that helps deliver the significant reduction in supply chain costs by better aligning supply chain strategies. For an efficient supply chain, the company should choose a powerful and relevant optimization method; supply chain network design is highly advisable.
There are several strategies for improving an integrated supply chain, two of these include, developing a design for supply management; such that product designs are not only evaluated based on their functionality and performance but also the resulting costs and service implication is too evaluated. The second strategy is integrating databases throughout the supply chain, and this will ensure there is a centralized coordination of key data from the various units of the supply chain. These data is linked such that managers can easily access any information at the convenience of their office.
Supply chain is not short of risk, and specific risks come as a result of the process, control or environment. A processing risk would be the poor choice of metrics. Metrics used should take the supply chain perspective. They should consider processes such as inventory measures and total response time. Also, all entities of the supply chain should own their own metrics. A risk that could arise as a result of control could be making of independent decisions. It is known that the decision of one supply entity affect all other entities hence decision making should be centralized. An environmental risk would be the company ignoring the welfare of different stakeholders that affect or are affected by the company. The manufacturers should understand the needs of these stakeholders. Also, the production process should be friendly.
In order to achieve set goals, a supply chain needs to operate within a certain organizational structure. Since the supply chain will have many layers of authority, and then a hierarchical structure comes in handy. This is due to the fact this structure has many layers of management with narrow span of control. This structure ensures tight control, which is a major factor where the success of a supply chain matters. Supply chain includes departments such as, Procurement, Production, Distribution, Warehousing, Inventory, Transportation and Customer Service (for all supply chain units. Given that the supply is as strong as its weakest link, a structure that ensures tight control is highly recommended.
Strategic and critical supply chain executive decisions are made and formulated at an enterprise level with the benefits and efficiencies of the supply chain in mind. They include day to day decisions, and they can be identified in manufacturing, processing, supplier and logistical relationships. With regards to manufacturing, they are decisions such as adoption of just-in-time. This would highly rely on the location of the company with respect to the suppliers. Suppose it is hard to rely on the supplier’s delivery times, and then just in time might not be suitable. With respect to suppliers, this decisions include negotiations of contracts to ensure the company’s global buying power is taken into account. It may also include the quality of the products being supplied. Thus the operations management would be needed to make a decision to negotiate with the supplier to supply quality products. In logistics, strategic chain supply decisions focus on the use of third party logistics companies. These companies come with lots of cost benefits and thus form a core part of the supply chain. As a result, the operations management needs to make decisions on outsourcing of services with local companies such as warehousing services.
Mitigation of cost and at the same time maintaining or improving quality of products is our goal as a company. The use of flexible computer-aided systems in the production process is known as mass customization. The systems combine low units of mass production processes with the flexibility that comes with individual customization (Nicholas, 2006). It is extremely advantageous in that its goal is to achieve tremendous increase in variety and customization without increase in cost. Thus it is highly recommended.
One major cost a manufacturing company will incur is that of poor inventory management brought about by idle raw materials. This can be mitigated through just-in-time delivery services, movement of stock to the facility to the facility directly upon arrival. The supply has various areas through which the company can cut costs, at the top is the customer, the customer requirements should shape the supply chain. It should provide customers with what they need and thus avoid costs of producing what is not needed. A well-defined supply chain help in avoiding wasting money on actions that do not contribute to the company’s ultimate goal. Use of appropriate analytical tools ensures that a wide range of cost and service options are tested hence the company can achieve the most optimal network design. Also, outsourcing greatly cuts cost. Where another firm can provide services and skills more efficiently, outsourcing is highly advisable.
References;
- Michael, H (2011). Essentials of Supply Chain Management. JohnWiley & Sons.
- Nicholas J. (2006). Operations Management for Competitive Advantage (11th ed.). New York: McGraw-Hill/Irwin.
