Global Supply Chain Management Issues for a Product Launch - Coursework Example

Global Supply Chain Management Issues for a Product Launch 0 Introduction 1 The product The product is a novel handheld device offering from a Japanese company that combines the advantages of laptop, mobile phone, PDA and GPS device. It has full voice recognition capabilities obviating the need for the standard keyboard. It surpasses all benchmark sizes for a laptop measuring only 123 mm long, 100 mm wide and 18 mm thick, at just about the size of a PDA. What’s more, it comes with the processing power of a normal PC. However, it scores over normal laptops in terms of battery life between recharges as it is equipped with only a power-saving solid state memory in place of the usual power-guzzler CD drives. The 4G capabilities ensure that it functions as a mobile phone and as a GPS device. The GPS functionalities would not only enable one to find out the user’s exact location at any time, but it also would help furnish navigational directions by subscription to private mapping software. Communications with other devices like printers, cell phones and laptops are made feasible through Bluetooth and USB ports just as in a normal laptop. The bill of materials that make up one unit is represented in the figure-1 above. This is a master data that would go into materials requirements planning. 1.2 Manufacturing and sales plan A truly global manufacturing and distribution strategy is envisaged. The product will be assembled at two places in the globe, namely, in Thailand and in Mexico. The components for the product come from different sources in China, Malaysia, Mexico and Brazil. The global markets will cater initially to innovators, early adopters and business users in the developed countries; in the developing countries the product will find favour with the top brass in business and government. The channels of marketing will be through distributors and retail outlets. The retail outlets are the computer and mobile phone shops and outlets of telecom service providers. The product is planned to be launched in fifteen months’ time. 1.3 Invoicing and cash flow The central office in Osaka will undertake all invoicing, purchasing, and cash flow management. In order to make effective management of relationships with suppliers and customers, the central office must be connected to a real time management information system to track all material movements. The pricing will be such that it would be bracketed with the high-end laptops. After all, it is justified to price that way since it does all the functions of a high-end laptop albeit more efficiently. An indicative price of a unit in the UK is about £1,100. The turnover and cash flow projections are as follows. Total sales anticipated in the first six months after launch is half a million parts. The sales trend is expected to pick up and reach a figure of four million units an year after two years. Correspondingly the anticipated cash flow is £1.1 billion in the first two years growing to £4.4 billion in two years time. The window of opportunity is perceived as one and half years after which competitors are expected to catch up giving rise to a price pressure: but the sales revenue is not expected to drop as the product will then be more affordable and the increased volumes would compensate for the reduction in selling price. 1. 4 Challenges The challenges, as perceived by the management, are the following. 1. Supply chain management to ensure timely supplies and deliveries 2. Fool-proof customer service and support 2.0. Supply chain diagram The supply chain is schematically shown in the figure-2 below. The basic guidelines in making the supply chain diagram are the geographic proximity of suppliers and customers in relation to an assembly unit. This argument helps to let the assembly shop in Thailand to receive parts from China and Malaysia and supply to markets in the continents of Asia, Europe, Africa and down under. Similarly the assembly line in Mexico receives parts from China, Mexico and Brazil while the markets in America and Europe can be supplied from here. In accordance with the above supply chain diagram and based on the anticipated product turnover, the capacities of the various plants can be fixed. The demand assumed for the calculation of capacities is 5 million units per year, which allows the plants to operate at 80% capacity utilization corresponding to the anticipated annual sales of 4 million units. It is also assumed that the American markets will absorb 50% and the rest accounted for by Europe (30%) and other markets. Since the American and part-European markets are catered to from the assembly unit in Mexico, its capacity is taken as 60% (50% American and 10% European market share) of five million, namely, 3 million units per annum: the remainder 2 million units per annum ought to come from Thailand. The production plan such that all the components are outsourced and assembly is done by the manufacturer. 3.0. Planning and communications: supply chain and logistics management As the project is a global one with multi-plant and multi-location dimensions, the planning and communications are very critical to the success of the project. Modern manufacturing does not allow for stockpiling of inventory beyond the sales pull. The retailing plan envisages a certain volume of sales by the classical made-to-stock plan. Although customer order booking can be taken, long wait times are not advisable: it is certainly preferable to satisfy a buyer’s initial desire then and there by having a certain stock readily available at the counter. This leads to the task of making the product available at all outlets in sufficient numbers in tune with the demand pull. The flexibility of the manufacturing and supply chain should be such that it should respond to rapid upward trends in the demand rather quickly. At no point should the components or the assembled finished goods pile up as inventory beyond the minimum required quantities for maintaining the supply chain. At the same time, there should not be any stock-out situation which would manifest in lost sales. 3.1 Planning The planning function connects the product demand from sales orders to the materials requirements and triggers timely procurements, manufacturing and assembly operations. These operations are so complex that only a computerized Enterprises Resources Planning programme (ERP) such as SAP can be relied upon. Starting from the supply chain diagram and the capacities discussed in the article 2, the next level of planning must account for the logistical aspects such as the frequencies and quantities of purchases and shipping. The market pull activates the shipping from the assembly shops while the buying decisions are based on an economically and logistically viable lot size. For the beginning, the demand is derived from the sales forecast in the absence of field data, which is one million units per annum. In order to arrive at the components required for the assembly an MRP programme would be implemented, which will suggest appropriate quantities and schedule of purchase in economic lots. The planning is schematically represented in the figure-3 below, which shows the requirements of the assembly plant at Mexico, namely 60% of one million units per annum or 600,000 units per annum. Let us discuss the Mexico plant to illustrate the planning method. The other parameters of importance are the lead time for the supply and the economic lot quantities. For the purpose of simple illustration, let us assume that the lead time for chips is one month while that of the other components is two weeks. The economically viable order quantities (EOQ) are arrived at considering the cost of logistics, inventory holding cost and economies of scale. Assume that 50000 chips is the EOQ quantity, which then translates to a buying decision of one lot every month in this case since the lead time and consumption rates match. In other words, an order for 50000 chips would take month to arrive on account of the supply lead time of one month, which is also the time for consuming 50000 units of chips for the forecasted assembly of 600,000 units per year. Where the lead time and consumption rates differ, calculations are made automatically in the ERP programme to schedule the purchases. 3.2 Communications The communications would form the backbone of an efficient ERP system. This is made possible by the integration of multi-site and multi-plant integration of operations. What this means is that the entire gamut of operations will be seamlessly managed by real time data input and online alerts and e-mails. For example, all the sales orders booked and sales forecast figures are input into the computer at the central office in Osaka or at any of the computers in the network using access authentications. The demand data is used to run the MRP programme, the output of which appears as the purchase orders and production orders. The purchase and production orders can be authorized by designated persons whereupon they are firmed up as final and are released for actions in the companies and sites where they are intended for use. Let us take the above example of 50000 chips to be ordered from China for the Mexico plant as illustrated in the preceding article 3.1. The purchase order is computer-generated and would be confirmed if the authorized personnel, for example the materials manager, approve mandatory check points like the rates, special packing or quality instructions. A confirmed order would trigger planning operations at the chip manufacturing plant in China almost instantaneously. There is not even the need for sending an e-mail or calling up anybody! In effect, these communications flow using authorizations. The computer-generator purchase order placed on the chip factory can be accessed only with the passwords assigned to that plant. Physically though, any computer in the network could be used as a gateway to access the pending orders of any plant. Communications would not only be generated in the form of an MRP output as in the above example, but it can be using the pull system triggers as well. Pull triggers are called kanbans, which are basically the equivalent of a status tag corresponding to ‘empty bin’. In a Kanban system, purchase or production orders are generated from the user of the parts only when his stock is empty or has reached a calculated buffer level. A judicious mixture of kanbans and MRP is preferred over any one system per se. For example, one thump rule is to use kanbans within a location of a plant, where the logistical uncertainties are absent, and to resort to MRP calculations in multi-location cases. 4.0 Customer support system 4.1 Technical support for new users It is anticipated that the novelty of the product would entail a large number of customer enquiries primarily for clarifications on the usage. Although the customer is quite anxious and tries to contact the company in a mood of aggression, the basic issue is not one of product fault; it is, rather, only the teething problem of getting to know the nitty-gritty of the device. The new client wants to get up and running the soonest. The usual and accepted methods of customer support are provided in the form of user manuals and online assistance. For the nitpicking and no-so-savvy customer, the company ought to give voice responses from call centres which would guide him in fixing his problems. Additionally, it is preferable to have a few service camps organized in the vicinity of all major towns on routine basis in the first year of launch. 4.2 Defects and warranty Another type of customer response originates from genuine concern for the product’s poor quality. Since quality of the product is a closely monitored feature, it is to be expected that customer quality complaints are a minimum. However, in the beginning, there can, of course, be very rare cases of genuine complaints in the form of a faulty system. Since it is not possible to test each assembled unit by ‘burning in’ by a fixed number of hours of operation to eliminate failure modes attributable to infant mortality, the customary practice followed is to offer a warranty. The warranty, in fact, covers the cost of testing that the company ought to have done in the first place, which, by extension, the customer is deemed to have done in the case of a legitimate complaint. It is, therefore, highly prudent on the part of the company to treat every complaint as genuine and take steps to redress the same by way of repairs or even free replacements, neglecting, of course, that some cases of fraud also might pass off in the process. All said and done, warranty is not to be taken as a shield to protect the company from its ills of mismanaging the quality aspects. Any real feedback of a product quality problem should be taken way up the company ladder to the board of directors and the design team to initiate failure studies and to implement corrective actions in the form of design or process modifications. 4.3 Handling the customer ‘contact’ A customer would attribute the problems of his product to the link in the supply chain that is closest to him, who is the retailer. The contact is then established with the retailers in many cases. The major retailers have to be trained to implement polite and efficient service in tune with the company’s policies of replacement and repairs. The customer may like to go to the retailer with a complaint or doubt but, be that as it may, it should be the company’s policy to solicit customer feedback and complaints to itself. The advantage of doing this is to have a uniform way to deal with the complaints and doubts rather than leave it to the individual retailer to settle sporadic cases. This can be done by using toll free numbers and designated e-mail addresses that would be prominently displayed on product covers and all the electronic, outdoor and print advertisements. A declaration printed on the product covers asking the customer to contact the company’s service personnel by e-mail or on a toll free number would be a great relief right at the point of purchase. Although statistics are wanting, it may be assumed that sales would increase if confident offers of help are emblazoned across the product cover itself. 4.4 Example of customer support in Indian context The special problems of the impecunious and upstart clientele from underdeveloped markets are that the customers are likely to be angered to an extent disproportionate to the magnitude of the defect or problem, and in keeping with his own perception of a potential economic loss. The company would be treating a problem of enlarged ego in many cases where the client happens to be working hand in glove with political and bureaucratic bigwigs. As for-profit companies are frowned upon by many, it is prudent to institute maximum mentoring and customer support in countries like India. 4.4.1 Call Centres and toll free numbers Call centres would be set up in four regional centres of Delhi, Kolkatta, Mumbai and Bangalore where regional language assistance should also be offered. The call centre executives would be able to deliver practical lessons over the telephones in making adjustments and altering settings. 4.4.2 Franchisee customer-care outlets It is necessary to set up franchised customer-care outlets in all prominent towns with special drive to carry out configurations and troubleshooting. 4.4.2 Online assistance Assistance would be available on company’s web site in the form of FQA and also as a support centre for e-mail queries. 5.0 The big question of quality of service Quality of Service (QoS) is essentially translated as degree of satisfaction of end user. This covers the performance of the hand-held device as well as the company’s responses to queries or service calls. While the former is a product-related issue, the latter is concerned with the mechanism to tackle customer support calls. Let us consider a few tools and techniques that may be employed to ensure that world-class QoS can be delivered. 5.1 Quality management techniques – six sigma and TQM Six sigma is a technique to reduce product or service complaints to very low level or nil. The name six sigma was adapted from the normal distribution curve in statistics where 3.4 defects per million opportunities is represent a process variation of six times the standard deviations around the mean. It is a continuous improvement tool using the five techniques, namely, define, measure, analyze, improve and control. Each defect is carefully studied to improve the feature so as to avoid the root cause. This technique can be applied to the design process as well as to manufacture or service sectors. In the case of the hand-held device, adherence to six sigma practices is beneficial in the supply chain management and service spheres. Total Quality Management or TQM is another management technique whereby the quality system is built into the ethos of the company. In a typically TQM-compliant company, everyone is responsible for quality: quality is assumed to be a part of the work culture. This contrasts with the so-called ‘quality policing’ or measurement of parameters and taking decisions to accept or reject. The TQM management technique may be implemented in the company whereby the quality of the product and the services can be expected to maintain world-class standards. 5.2 Quality Assessment Tools Appropriately designed quality assessment tools are very essential for ensuring world-class quality of service. Quality assessment helps to assess the effectiveness of sales or service and to respond to potential problems in a timely manner. The three tools that are suggested here are based on questionnaires from customers and employees and on statistical measures relating to the service. 5.2.1 Customer feedback forms and scatters diagrams The customer feedback forms are mailed customers who register the product online. They are encouraged to fill-in the forms with a promise to a free upgrade of memory or some other device to randomly selected respondents. The type of questions are related to the quality of service such as the overall satisfaction of the customer with specific points pertaining to the various features of the product. The feedback may be simplified to specify a value in a scale of one to five, one denoting ‘poor’ and five ‘excellent’. The results of the feedback forms may be used to fill-in scatter diagrams. An example of scatter diagram is shown below. FIGURE – 4: SCATTER DIAGRAM AS A QA TOOL Characteristic feature assessed: overall customer satisfaction Scale of 1-5: 1-poor, 5 - excellent 5 4 X X X X 3 X X X X 2 1 CUSTOMERS 1 2 3 4 5 6 7 8 5.2.2 Employee feedback and scatter diagrams This feedback exercise is aimed at gauging the mood of the employees and their engagement to the company’s objectives. Of the many parameters that may be studied, some are working atmosphere, satisfaction with working methods, peer relations, command structure, communication, remuneration and incentives, etc. 5.2.3 Statistical run chart from customer calls data This is a type of run chart prepared from data generated in customer calls. For example, each call is classified as minor complaint, moderate complaint requiring attention of service personal and fatal complaint requiring replacement of parts. Each call centre employee’s statistics would form the basis of his run chart. The chart would show the number of each type of complaint on a daily basis, which will be an indication of the trend of the product’s overall quality improvement. Works Cited Juran. Quality control Handbook. Supply Chain Management.16 Apr. 2007 . McNamara, Carter. 1997. Operations Management. Free Management Library. 16 Apr. 2007 . Operations Management. 13 Apr. 2007. 16 Apr. 2007 . Six Sigma. Wikipedia, the Free Encyclopedia. 16 Apr. 2007. 16 Apr. 2007 . Enterprise Resource Planning. Wikipedia, the Free Encyclopedia. 16 Apr. 2007. 16 Apr. 2007 . Read More