BINDURA UNIVERSITY OF SCIENCE EDUCATION
NAME :VICTOR MAKAMERA
REG NO : B1852692
MODULE : OPERATIONS MANAGEMENT AND CONTROL (SCM510)
FACULTY : COMMERCE
DEGREE : MSc PURCHASING AND SUPPLY CAHIN MANAGEMENT
LECTURER : DR. SHONHE
1a. Organisation performance can be, among other things, a function of logistics or supply chain design. Using the following drivers, explain how they can influence and impact the organisation with respect to responsiveness and efficiency as part of the logistics/supply chain network design:
1b.Identify and critically evaluate logistics collaboration and integration issues and further provide how Information and Communication Technology manages those issues. 7 marks
The write up was done focussing on how drivers of supply chain performance can affect responsiveness and efficiency of an organisation to give absolute and comparative advantage on its supply chain. Supply chain performance can be guided by the decisions one make regarding four supply chain drivers, that is Facility Network, Inventory, Transportation and Information Technology Infrastructure. This will be discussed below.
Each company can develop and manage each and every driver as way to bring emphasis on its responsiveness or efficiency. Decisions made on how each driver operates will be a determining factor on the blend of responsiveness and efficiency a supply chain is capable of achieving. Below is a diagram illustrating these drivers’ connectivity and relationship:
Source: A.E. Ellinger et al,2011Facility Network (Production):-
Facility Network focuses on where the product and its raw materials are being stored, processed and fabricated. This requires improved management on facility role, plant or site, capacity and flexibility to contribute towards improving supply chain performance. At most, company can be either more responsive or more efficient but not both at same time. For example, an auto parts distributor a case in point, Toyota Zimbabwe may decide to have many warehouses near to its customers for them quickly access their products. Many warehousing facilities will show responsiveness to Toyota Zimbabwe but its efficiency will be compromised due to increased warehousing cost. In contrast, if the company chooses to have fewer warehouses, only at main points can result in more efficient through low warehouse cost with low responsiveness (Sunil Chopra et al, 2007). In trying to balance off the trade off on responsiveness and efficiency with many warehouses an organisation can close operations or downsizing other facilities with the consideration of the following factors (Creazza, A et al, 2010:-
Plant Size – Efficiency of a small plant tend to be lower than that of a large plant due to average cost of each unit produced will be higher. Managers should consider shutting down operations at small facilities and allowing large size facilities which have better efficiency and response to operate.
Site Constraints – Less responsiveness and efficiency can be experienced on facilities with less space and high constraints sites. These sites need to be closed as will not have extra space which might be needed for parking, future modification and storage facilities.
Capacity – Lower and small capacity plants have less responsiveness and efficiency cannot survive leaving big capacity plants which can offer high responsiveness and efficiency.
Labour Productivity – Managers have to check and balance labour characteristics and productivity on each plant. Closure can be given to those plants with lower labour productivity as they can offer less responsive and efficiency while promoting sites with high productivity.
Distance from Head Office – If the production plants are far from its head office, head office top management is limited and they will have less information about subordinates on site and can result in less responsive and efficiency. Having two plants one near and other far from head office, closure should be given to high distant plants.
Age of Plant – There can be less efficiency and responsiveness to old age plants as they require high cost of maintenance. Managers can close these plants with old building and machinery which requires high cost for operations.
Remoteness – This includes transportation cost associated with different production and storage sites and managerial time involved to maintain it. Closure should be given to sites where transport and production are considered to be unusual.
Grants Elsewhere – This factor includes plant expansion, building rehabilitation and training cost. Grants are given to those site where above three activities could be done. Those sites would subject for closure where the grants for above activities is not helpful for the productivity of company (Kirkham et al., 1998).
Facility Network will improve responsiveness and efficiency to an organisation through establishing plants with excess capacity and uses modern flexible processing techniques that enable to produce of wide range of goods. A company can do their production in many smaller plants close to its major customers to shorten lead times. If efficiency is desirable, the company can build plant with little excess capacity and optimising for production of limited range of items. Centralisation will bring economies of scale which can lead up to improved efficiency even though delivery times might be longer.
Inventories include raw materials, work in process, spares and parts and finished goods within the supply chain. Responsiveness will be achieved by holding high stock levels of wide range of products. It can also be gained by stocking products at many locations to have items close to customers and readily available. However, efficiency in inventory management would call for reduction in stock levels especially slow moving of items. One can have more efficiency in inventory by stocking items in few central locations such as regional distribution centres as they bring economies of scale and cost savings.
As case in point, clothing retailer proved to be more responsive by storing large inventory but efficiency becomes low because of high inventory cost and low work quality (Sunil Chopra and Meindl, 2007). This will be a disaster to Perishable inventory management. To balance off the trade off on its responsiveness and efficiency through inventory management, an organisation has ensure the hiring of experienced staff and give them training, define target stock levels and order patterns, organize and control transparency of inventories, simple inventory procedures, fresh stock and check and balance on shelf life and collaboration with other businesses, (Stanger et al., 2012).
Vendor-managed inventory (VMI) is efficient in construction sites and for other manufacturers. Authors apply their methodology on three selected pilot sites and find that the efficiency and responsiveness of vendor managed inventory is higher than that of organization’s self-managed inventory. Authors argued upon eight key steps that are; time for finding item, receiving and storing item, order versus recording, rushed orders, hardware store visits, time for invoice handling, total time spent at site and remaining inventory (Tanskanen et al., 2009).
To counter for responsiveness and efficiency through inventory management, Wallin et al. 2006 have identified four approaches to inventory management:-
Inventory speculation – This is holding inventory in accordance with quick delivery of raw material for manufacturing. The advantage is just in time delivery raw materials. However, the organisation faces high cost of holding stock and capital investment.
Inventory postponement – This includes delay in inventory purchasing with zero cost on speculation, stock holding cost and free from large speculative capital investment. However, they will be no quick delivery of raw material.
Inventory consignment – The inventory will be physically held by manufacturer but ownership under the supplier. Manufacturing firms can use inventory quickly without any investment increasing efficiency. However, this can reduce efficiency if inflation occurs.
Reverse inventory consignment – Inventory will be owned by the manufacturer and manufacturer pay price to supplier but physical possession held in the hand of the supplier. This will reduce inflation risk and having low inventory cost. However, this approach is the capital investment in inventory. Any organization can adopt any of the above four approaches by forecasting customer demand requirement, nature of supply line and bargaining power of firm relative to the supplier (Wallin et al., 2006).
Fast transportation service can increase responsiveness but efficiency becomes low due to high transportation cost and more chances of damage (Sunil Chopra and Meindl, 2007). Responsiveness can be achieved through fast and flexible transport model such as trucks and airplanes proven to be used most by companies that sell products through catalogues or on the Internet such as Amazon. They are able to provide high responsiveness by using transportation to delivering within 24 hours through FedEx, Sky Net, DHL and UPS as they provide high responsive. In addition, Amazon operating its own transportation services in high volume markets to be more responsive to customer desires. Efficiency can be emphasized through transporting products in larger quantities and less often preferably using ship, railroad, and pipelines. In addition, more efficient can be achieved if it is originated out of a central hub facility as compared to many separate branch locations.
In addition, joint routs planning can be a more responsive and effective transportation approach for manufacturing firms. The manufacturing firms will continue its transportation function in collaboration with the third party service provider outsourced transportation function or horizontal cooperation with other transportation service providers. This will lead to economies of scale by reducing distribution cost. Joint route planning concept save 30.7% costs in comparison with traditional transportation system (Cruijssen et al., 2007).
Performance of transportation activity can be increased by a model of smart transportation management system which includes smart freight, smart vehicle and smart infrastructure. Smart freight refers to, instead of using traditional identification of barcodes for individual products the firms must develop and use new technology that identify the whole freight unit. This will bring automatic identification software, integration of organizations and data exchange, decentralise information setup and enabler’s technology. Smart vehicles refers to, the organisation’s needs to develop special smart vehicles in which management information channel installed. Information system automatically provides information at database about goods in vehicle loads and unloads. This concept can be managed by developing goods identification system in vehicle and the vehicle system. The smart infrastructure, this concept of smart infrastructure can be achieved by the collaboration of physical infrastructure and digital infrastructure (Stefansson and Lumsden, 2009).
Information Technology (IT) Infrastructure
As IT grows stronger every year there is need for IT investment since they will be a need for better technology for collecting and sharing information becomes more wide spread, easy to use, and less expensive. Investment in IT infrastructure will help the company to aggregate push versus pull (demand information transmitted quickly throughout the supply chain), coordination and information sharing, forecasting and aggregate planning, avail enabling technologies such as EDI, Internet, ERP systems and Supply Chain Management software plus the overall trade-off on responsiveness versus efficiency.
New technologies such as robots, drones, artificial intelligence and 3D printing are making big impacts on how supply chains operate. And yet after all is said and done, these new technologies can be employed to do one of two things that is increase efficiency or increase responsiveness or some blend of the two. A case in point is on Zara Clothing Company offering big competitive advantage through IT that enables the company to sell unique clothing products in a constantly changing market compounded with popular fashion and new customer desires.
Information is very useful commodity since it can be applied directly to enhance the performance of the other three supply chain drivers. High levels of responsiveness can be achieved when companies collect and share accurate and timely data generated from operations of other three supply chain drivers. For example, a supply chain that serves the electronics market – they need the most responsive in the world. All players in this supply chains (manufacturers, distributors and retailers) all collect and share data about customer demand, production schedules and inventory levels. This improves responsiveness and efficiency to all players quickly to situations and new market demands in the high-change and unpredictable world of electronic devices such as smartphones, sensors and home entertainment.
IT Infrastructure will lead to information availability that provides customer taste to supplier that leads to supplier’s responsiveness and efficiency because supplier forecasts customer demand and only supplies required product (Sunil Chopra and Meindl, 2007). A case in point is on Swedish post office that started a programme to involve their customers in developing new transportation services. The company was losing its customers and wanted to know about needs and wants of customers to satisfy them. Managers decided to conduct direct meetings with their customers to provide services in accordance with customer demands. This process was done through exchange information between company and customers. After knowing the customer demand they started their transportation services and use one vehicle instead of five and pollution problem also reduced that resulting in increased efficiency (Lundkvist and Yakhlef, 2004).
Improved cost efficiency of a firm can be achieved through direct information sharing between firm and customer. Continuous conversation with customers plays a vital role in strategy development that resulting in creation a planning team for company. A company can identify its customers for strategic planning input through:-
Use 80/20 rule – the company must in conversation with specific top 20 percent customers that generate 80 percent of company income.
Choose the companies in different conversation channels.
Choose that company that considers company’s products for different applications.
Continue with companies that want to continue with.
The conversation in above four steps can be done through following Marketing department, Customer service manager, Sales staff and CEO’s conversation
Over the long run, the cost of one driver — information — continues to drop while the cost of the other three drivers continues to rise. Companies that make effective use of information to increase coordination internally and externally with their supply chain partners will gain the most customers and be the most profitable. The table below summarises what can be done to guide the supply chain drivers toward responsiveness or efficiency.
Source: AuthoursWhen to be Efficient and When to be Responsive
Efficiency is good — Efficiency drove the economy of the 20th century. The push for efficiency increased productivity and lowered the prices of products from automobiles to home appliances thus making them available to a wide segment of the population. Efficiency requires predictability and stability.
Efficiency is best when producing relatively simple commodity products and services that sell in more predictable and stable markets.
Responsiveness is what drives continuous innovation in products and technology and continuous change in the ways we organize businesses and serve customers. Customers want products and services that respond quickly and meet their needs and desires. A case in point is on Apple and Starbucks who don’t sell lowest priced phones, laptops or cups of coffee, but people value and pay for the quality and experience offered by those products. Home delivery of everything from clothes to groceries costs a bit more, but people value and pay for the responsiveness and convenience of those services. Responsiveness is best when producing more complex and unique products and services that sell in continuously changing markets shaped by evolving technology and new customer needs and desires.
The write up was done to explore the drivers of supply chain performance and give a framework that how organizations can manage these drivers on responsiveness and efficiency for their survival. These drivers include; Facility Network, Inventory, Transportation, location and Information Technology Infrastructure.
1b.Identify and critically evaluate logistics collaboration and integration issues and further provide how Information and Communication Technology manages those issues. 7 marks
Logistics collaboration and integration is when two or more autonomous firms working jointly to plan and execute supply chain operations. It can deliver substantial benefits and advantages to its partners. It has been known as a cooperative strategy when one or more companies or business units work together to create mutual benefits. This can be either vertical collaboration and integration or horizontal collaboration and integration ( HYPERLINK “https://www.sciencedirect.com/science/article/pii/S2092521216300049” l “bib0220” Simatupang and Sridharan, 2002, HYPERLINK “https://www.sciencedirect.com/science/article/pii/S2092521216300049” l “bib0155” Mason et al., 2007). Vertical collaboration is the collaboration when two or more organizations 0from different levels or stages in supply chain share their responsibilities, resources, and performance information to serve relatively similar end customers; while horizontal collaboration is an inter-organizational relationship between two or more companies at the same level or stage in the supply chain in order to allow greater ease of work and cooperation towards achieving a common objective.
Through integrating and collaborating with partners and customers downstream as part of a Lean strategy for supply chain strategy, one actually open a window into his or her future and even for the past. It’s like having the ability to time travel.
But before we travel through time, let’s define the subtle differences between integration and collaboration.
Integration of supply chain components started in the 1970s when Electronic Data Interchange created a business-to-business communications standard, followed in the 1990s by Enterprise Resource Planning systems with common databases. Then came the introduction and growth of the Internet.
The physical integration of supply chain processes can be facilitated, to varying degrees, for example, by appropriate contractual arrangements (such as joint ventures, strategic alliances and licensing) that lay out protocols for resources sharing, performance measurement and revenue distribution between the supply chain partners.
But true supply chain collaboration is more than just integrating information among business functions and partners. Yes, it is companies working together to improve data sharing, but it is also an interactive process that results in joint decisions and activities and often in multi-company teams from various disciplines in each organization.
Furthermore, supply chain collaboration is not easy to accomplish for many reasons, including a tendency to rely too much on one technology, failure to understand when and with whom to collaborate, and a propensity for distrust among partners.
Collaborative programs, such as Quick Response, Efficient Consumer Response, Vendor Managed Inventory, and the most recent iterations of Collaborative Planning, Forecasting, and Replenishment, have been around since the late 1980s. They all involve getting a more accurate downstream picture of the supply chain, using information such as point-of-sale data, retail store and distribution centre inventory balances and withdrawals, and current and future events such as promotions, discounts, or advertising.
These types of solutions reduce the bullwhip effect resulting in progressively larger inventory swings in response to changes in customer demand the result of which is supply chain volatility, inefficiency, and waste.
Through a structured integration and collaboration process, it is possible for manufacturers and distributors, in essence, to time travel and see potential causes of future disruptions before they occur. While an initial investment in resources may be required, opportunities for fewer stock outs on store shelves, up-selling, and cross-selling may be worth it.
Collaboration and Integration brings in facilitates benefits such as innovation, resource sharing and access to economies of scale, is a strategy that is increasingly being advocated ( HYPERLINK “https://www.sciencedirect.com/science/article/pii/S2092521216300049” l “bib0070” Eisenhardt and Martin, 2000, HYPERLINK “https://www.sciencedirect.com/science/article/pii/S2092521216300049” l “bib0075” Fawcett et al., 2008). Collaboration is a valuable dynamic capability such that more agile companies can then reap the advantage ( HYPERLINK “https://www.sciencedirect.com/science/article/pii/S2092521216300049” l “bib0010” Barney, 1991, HYPERLINK “https://www.sciencedirect.com/science/article/pii/S2092521216300049” l “bib0115” Helfat and Peteraf, 2003).
However collaboration is often seen as being unsuccessful and costly ( HYPERLINK “https://www.sciencedirect.com/science/article/pii/S2092521216300049” l “bib0080” Fawcett, Magnan & Fawcett 2010). Additionally working closely with another organisation can require a change in managerial thinking and practices to see the value in working together. Consequently an organisation will also have internal enablers and inhibitors that impact the driving forces to collaborate ( HYPERLINK “https://www.sciencedirect.com/science/article/pii/S2092521216300049” l “bib0085” Fawcett, Fawcett, Watson, & Magnan, 2012).
Logistics collaboration and integration issues how Information and Communication Technology manages these issues are illustrated below:-
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