Chain Supply of the Company and Product Innovation - Case Study Example

Kmart Supply Chain Name: Course: Tutor: Date: Chain supply management is a trivial subject in business. It plays a pivotal role in determining how the product and service flow from the provider to the customer at the right time and in the correct format. Product innovation in away affects the chain supply. This essay analyses the Kmart chain supply and how product innovation affects chain supply. Kmart company was founded in 1962 has it’s headquarter in the United States. It has chain discount stores in Guam, U.S. Virgin Islands, Australia, Puerto Rico and United States. Kmart introduced a new logo to change the image of the company after their sales dropped drastically. They also remodeled the stores to improve its outlook and maintain the customers (Chopra & Meindl, 2001). Kmart failed to install computer technology, which helps in managing the supply management. Supply chain management is the act of transporting the right items to the right customer at the right time by the most efficient means. A hundred and ten stores of Kmart were closed in 1994 because of poor management of the stores. The corporation too failed to create a coherent brand image of the company. This saw the company fall behind their competitor Wal-mart which had a synchronized and automated chain supply and management of the stores (Geunes & Pardalos, 2005) The immense challenge that has faced the Kmart retail company is the issue of offering the lowest prices in the market and at the same time making a profit. The company has had to cope with falling sales in the poor economy. The solutions that have been suggested are focusing on the volume buying, reducing on the price and increase reliance on cost efficient direct sourcing. The existing Merchandiser’s infrastructure that dialed directly with manufacturer has not been changed. The manual processes that depended on spreadsheets and redundant administrative work had many manual processes. The IT infrastructure in Kmart chain supply lacked the clarity, visibility and efficiency to enable direct buying from its zone of more than a thousand suppliers. The poor coordination in the chain supply and feedback did cost the large discount stores leading to its bankruptcy (Hugos, 2003). The head of operation for Kmart Australia sourcing, Michael Fagan, overhauled the international supply-chain in order to revamp the system processes for the management of cargo from the overseas freight forwarders to the companies 187 stores in Australia and New Zealand. There was the need to tackle the life cycle of the products as they moved from supplier to the retailer (Neef, 2004). Kmart did not understand the value of designing their chain supply that could meet their business strategy needs. It did not develop a network of regional and local distribution centers, captive fleet for store delivery, cross docking and a data link from the stores to the head quarters thus delay in communication about the demand. Kmart invested in acquisition to grow their top line and not reducing the cost to create a more efficient supply chain. Kmart concentration was on marketing and merchandising instead that did not reduce the cost thus an inefficient chain supply. Failure for Kmart to align its functionality to their business strategy and incapability for direct cost reduction led to its downfall (Blanchard, 2010). Kmart management was opposed to capital investments in technology and by extension building their chain supply capabilities. It had taken the management a long time before it started installing computers in the stores. The merchants often broadened the variety of the products rather than narrowing on the ones that sold best. Poor organization made the business analyst unable to produce a report that projected a complete picture of Supply and demand. They ran multiple reports and brought result together in a spreadsheet (Frazelle, 2002) Kmart appointed Core Solution to centralize its sourcing and merchandising related information after it had witnessed how their competitors had made a tremendous growth in their business just by having an improved chain supply management. The application enabled good communication with all the users in the native language possible. Kmart company has been determined to eliminate middlemen wherever possible thus sourcing directly from the manufacturers (Boyer & Verma, 2010) The Kmart has strategized and called for tight control over elements such as supplier price quotation, selection, quality and ethical behavior checks, export licensing and shipment tracking and product allocation. Core's CBX was to provide the means of achieving all this aspects. Kmart has acquired an enterprise resource planning system designed for the sourcing unit. Kmart’s goal was to unify the buyers, merchants and other departments through a single system where information is shared freely among user and time zones, offices and automated entire process. The process has eliminated the time wasted on the phone calls and emails which we needed previously to reconcile data disparities among various functions. The price –quote and the products are uploaded in real time. The plan allows the company to have easier access to critical information such as profiles, performance and accreditation. The company minimizes the problem of dealing with software upgrades, bandwidth limitation and patches. The sourcing process has been reduced by three weeks. Direct sourcing has grown from 40 percent to 60 percent in terms of volume. The retailer has streamlined its operations and laid emphasis on improved quality assurance. Kmart has placed decision making closer to the source thus looking forward to an international processing. The main focus of Kmart was to deliver exceptional value to their customers (Mentzer, 2001). Transparency has increased in effect to unifying and automating the company’s sourcing function. The process enabled controlling the performance and finding out the cause of shipment delays. It is crucial for a company to innovate its product for a number of reasons. The fundamental transformational in the world design industry. Design has moved from being tactical device to a strategic business tool. The consumption culture has also transformed, thus brand s are being used to satisfy people who have developed endless needs arising from access to the global market. The creativity in the economy and the hyper competition companies calls for innovation of the product to enable differentiation from the competition in the customer’s eyes (Shapiro, 2001). According to Ayers, (2001), there are various innovation types among them business model innovation and incremental innovation. Business model innovation involves strategic changes that create a new value while incremental innovation involves finding low risk opportunities for business growth. Innovation is identified by the decision made. Example of the target market can be the source for the product innovation. Similarly, the brand strategy can lead to brand innovation decision. The different types of innovation include disruptive, product, application and platform innovations (Ayers, 2001). A successful chain supply is one that is aligned to the company’s strategy. The chain supply should be able to optimize sense changes, adapt and operate within the context of the business strategy. It should also complement the business strategy. The chain supply should evolve in order to create capabilities mandated by the strategies thus providing a competitive advantage. Kmart lacked all these qualities in the management (Bowersox, Closs, & Cooper, 2002). Operation strategy is a set of competitive priorities coupled with the supply chain structural and infrastructural design choice that supported set of values and capabilities that aimed at addressing the needs of the customer. A company must always consider their strategy in terms of how they should compete, support the SBU structure and infrastructure, the operation strategy, business strategy, finance and marketing in order to have prosper. Kmart lacked a common supply language thus considerable variation in the results. The company management was also process and functional oriented thus did not give attention to the value of multiple drivers model. The company cut extended chain supply that caused delays in delivery of the goods at the right time thus poor production and service delivery to the customers. The company simply lacked ownership in the traditional sense (Zuckerman, 2002). Innovation refers to incremental and radical changes in the process and the products. It helps create new demand for the company thus the need to increase the chain supply. Creation of new and improved products enables a company to appeal to new market segment and also take business from the competitors. Innovation responds to the emerging customers needs and at the same time creates new needs. Example of an iPod, where the Apple Company combined existing technologies in a way that created a new business that enabled selling of music and other contents online (Krueger, Kicked, Gundry, Verma, & Wilson, 2005) At every level of supply chain, five basic dimensions must be addressed. The delivery reliability, responsiveness, cost, flexibility, and asset management efficiency are the five dimensions. The company must ensure the product is delivered at the correct place, in the correct condition, a t the right time, in the correct quantity, right documentation and good packaging. The customer demand should be addressed respectively according to the demand curve (Tsai, Schmidt, and Verma, 2007) The organization as well must manage its assets that support the demand satisfaction. The supply chain starts from the supplier to the manufacturer to the distributor to the retailer and finally to the customers. Supply chains are networks of manufacturers and service providers that work together to move goods from the raw material to the end user (Verma, 2001) The innovation types indicate a modified version of an existing product range, or a new model in the existing product range, or a new product in the existing product range, or a new product outside the existing range but in a similar field of technology, or a totally new product in a new field of technology. Since innovation is a leading source of competitive advantage, it is vital to understand how and why the supply the connection between the company’s levels and the chain supply. The innovation supply has a number of stages that can be distinguished. It starts from research and development, commercialization and finally diffusion into the market (Bozarth and Handfield 2006) The introduction of a new product into the market requires the company to change the production process thus the chain supply. Product innovation leads to a different configuration of changes in rewards and costs. There is no gain to the innovator if the market is perfectly competitive and in the absence of the IPRs over the new product. With no gain, the chain supply can either slow down, or maintain its level. The new product creates a consumer surplus. An example is where a new powerful drug that cures serious disease is sold at a higher cost to patient than production marginal cost. This means that patients who could have afforded the drug if priced at the marginal cost of production would be unable to access it. Innovation of a product creates steeper slope in the demand curve. For a new product, the consumers still pay the high price and buy more resulting to a consumer surplus (Simchi-Levi, Kaminsky, and Ravi 2008). In conclusion, product innovation has a direct impact on the chain supply of the company. When the chain supply is not aligned to the business strategy of the company and the main goal, then the results are disastrous. In the case of Kmart, the company had a misalignment in its business strategy, its goal and the chain supply management. As a result, the company went bankrupt and fell behind its competitors. A strong supply chain strategy when linked with operational excellence can provide success to the customers, the partners and the company involved as well. Bibliography Chopra, S., & Meindl, P. (2001). Supply chain management: strategy, planning, and operation. Upper Saddle River, N.J.: Prentice Hall. Geunes, J., & Pardalos, P. M. (2005). Supply chain optimization. New York: Springer. Hugos, M. H. (2003). 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