Importance of Supply Chain Planning - Assignment Example

 International Operational and Logistical Strategies Table of Contents Table of Contents 1 Capacity Planning 1 Supply Chain Game 4 Agile concept 6 Capacity planning and the concept of lean and agile strategies 6 Supply chain and logistical tools and techniques Application in 7 Coca-Cola Company 7 Global supply chain: Coca –Cola Company 8 Logistics/supply chain plans 11 Supply Chain Management 12 Importance of supply chain management 13 Supply chain plan and global supply chain 13 Conclusion 13 Bibliography 14 Capacity Planning Capacity planning involves determining the production capacity needed by a firm in order to meet the changing demands of its products. Demand for any good is a derived demand in the sense that the consumer has to be willing and able to buy a particular product. The will and the ability play an important role for effective demand to take place. If the consumer has the will to buy, yet the ability is not there, there will no be effective demand. On the other hand, the ability may be there, that is the purchasing power, yet the will to purchase the product is not there. In such a scenario, still there is no effective demand. The text will examine the role of capacity planning in response to demand (Jones and Roos, 2000). Although price is one of the determining factors for demand, there are other underlying factors that determine demand. Such factors include income, the price of complementary goods, substitutes, taste and preference and advertising among others. These factors can influence demand either positively or negatively. The capacity of the organization should match the demands of its customers. When there is a difference between the two it results into inefficiency. The inefficiency comes in when either the resources of the organization are under- utilized or the customers are unfulfilled. The resources are underutilized when they are not utilized fully for production. The customers are unfulfilled when their demands are not fully satisfied. Capacity planning is therefore supposed to minimize the discrepancy that can exist between production capacity and demand. There are three broad classes of capacity planning: lead strategy, lag strategy and match strategy. Lead strategy means increasing the capacity with the hope that there will be increased demand. This strategy is aimed at attracting customers to buy a firm’s products since quantity produced is enough. In the event that the products are not consumed as expected, then there firm will have a lot of inventory. This may happen when demand decreases may be due to decreased income, the price of complimentary, shift to substitutes or consumers have no taste and preference of the product (Jones and Roos, 2000). Lag strategy means increasing the capacity after exhausting what the organization has produced. The increase in capacity is done after a realized increase in demand. Increase in demand maybe due to increased income or taste and preference in favor of the product. This is conservative strategy that can create a gap between demand and supply. Hence, some customers can shift to an alternative and in the long-run, a firm can lose such customers. Match strategy means increasing capacity according to the market demand. Match strategy therefore responds to the immediate change in demand in the market. Capacity planning is therefore a long-term decision to help the firm to establish the firm’s resources and plan for them effectively. For a firm to make a lucrative business, they have to plan well so that they do not waste their resources, which are supposed to be a source of their income. It may be difficult to determine when to increase the capacity and by how much (Haag et al. 2006). On discussing the topic capacity planning, the group looked at the role of capacity planning in chain supply in any given firm. Supply chain involves a number of parties, and therefore needs high networking and cohesion so as not to break the supply chain. For instance, the supply chain starts with the suppliers and goes all the way to the final consumer. Any miscalculation will affect the supply, either it will be too much or less. Hence affecting the firm or the customers and therefore breaking the chain. The three broad classes of capacity planning present the evident that the firm should be able to employ the right strategy at the right time. The match strategy seems to be the best strategy as it responds to the demand in a gradual process. This strategy enables the firm to run its business smoothly, ensuring that their customers are needs are fulfilled. As such, there is continuity in the supply chain (Mentzer et al. 2001). Conclusion Capacity planning plays an important role in determining the full utilization of a firm’s resources in order to meet the demands of its consumers without necessarily creating a gap in the supply chain. It may not be easy to determine when there will be either increased or decreased demand. The firm therefore needs to evaluate all factors that determine demand. The firm should also make a follow up of demand of the same products and substitute products offered by their competitors (Cooper, Lambert & Pagh, 2007). Supply Chain Game A supply chain is a system of organizations, people, technologies, activities, information and resources involved in moving a product or a service from the supplier to the customer. Activities that are involved in the chain supply transform natural resources into finished products that are finally consumed by the consumer. A supply chain can be viewed as a supply and demand network (Wieland and Wallenburg, 2011). Lean concept The leans concept is a production process whereby resources are used to create value and not for any other reason. It is the added value that the end customer is interested in and therefore ready to pay it. The concept holds that whatever product is produced, it should be produced from the perspective of the customer. The lean concept was developed from Toyota Production System (TPS) (Jones and Roos, 2000). This system focused on reducing waste commonly known as Toyota seven wastes. Lean therefore has its focus on efficiency. This efficiency is attained by increasing efficiency and reducing waste. The change of strategy by Toyota, form waste to improving customer value has seen Toyota company rise to the heights, from a small company to a large company (David, 2008). Many look at lean as a set of tools used to help in identifying and eliminating the waste. Once waste is reduced, the quality of the product improves automatically; meanwhile production time and cost are reduced. When Lean and TPS are closely examined, it can be concluded that they are a set of systems whose objective is reduce cost and eliminate waste. These principles can be identified as waste minimization, continuous improvement, building and maintaining a long-term relationship with suppliers. There are other two concepts that are associated with TPS. These are the concepts of Just-in-time (JIT) and automation. These are associated with the smooth flow of delivery. Smooth flow of delivery means that the products are available on time and have the desired value, which is what the customers want. Once the customers consume all the products, it means that there is no inventory. Consumption of the products means that the customers are comfortable with the product features hence the issue of product design is simplified (Mentzer et al. 2001). Agile concept The agile strategies consider traditional strategic planning approaches as costly, slow and ineffective. The agile strategy therefore seeks to replace them with the following agile strategies: Flexibility: the agile strategy seeks to move one from the current level to the next level. Practical: it puts emphasis on translating ideas into action immediately. Fast and adaptive: involves developing a strategic plan and executing it without delay. Low cost with remarkable returns: this involves linking and leveraging assets. Simple yet sophisticated: this means having a simple strategy that must be adhered to as a matter of discipline. Powerful, Replicable and Scalable:  Agile strategies open the door to the "network effect", where the value of the network goes up exponentially with the number of connections. Resilient and Sustainable: this calls for having a strategic plan that will go a long way, in that it engages the personal experiences of people. Such strategies are never boring and enable people to net work very well.  Capacity planning and the concept of lean and agile strategies The first initiative of Capacity planning is to determine the production capacity of a firm. This is geared towards meeting the changing demand of its product. The greatest concern of the lean concept is creating value for customers at a very minimal cost. This is possible by eliminating waste, which means that you do not have to produce what is not needed. For the lean concept, the producers have to find out what the needs of the consumers are and give them exactly that. The agile concept concentrates on developing strategies that are geared to actions without delay, therefore everything is done immediately. The lean and agile concepts seem to be advocating for change within the supply chain as pertains the satisfaction of the end user of the product. They exhibit the element of being in touch with the consumer who is the end user of the product as such the producers have to find out what are the needs and how much is needed. Supply chain and logistical tools and techniques Application in Coca-Cola Company Globalization has made it possible for potential revenue gains. If products have to be delivered on time then there is need to shorten the supply chain and increase accuracy of forecasting and planning. With global supply, it means the supply chain never rests hence the need for constant communication with constant problems arising and therefore need for solutions every time. The text will look at global supply chain and its management with reference to Coca- Cola Company’s supply chain (Hines, 2004). Global supply chain management looks at the company’s interests worldwide and that of the suppliers. There is increased globalization and therefore global supply management is an issue of concern for many businesses. Underlying factors behind this management are reducing the cost of procurement and decreasing the risks that are related to purchasing activities (Hines, 2004). Global supply management involves many countries hence there are a number of new challenges that have to be dealt with. Such challenges include: Cost: consider overall cost; labor, cost of space, tariffs and other expenses related to business overseas. Time: Time is an issue that has to be addressed when dealing with global supply management. For instance, the productivity of the overseas employees may be different from the locals. The extended shipping times may affect positively or negatively. Extended shipping time affects the lead-time. Time has to be figured into the procurement plan. Other factors include weather, customs clearance, and government’s regulations (Hines, 2004). The company has to look at the supplier selection. It should think of who to consider as a supplier and how many suppliers will be needed. Fewer suppliers are better although it has its own disadvantages. Fewer may be unable to deliver in case of leverage to obtain price concessions (Hines, 2004). Global supply chain: Coca –Cola Company The world of business is changing and for any company to succeed it is imperative to understand the trends and forces that will shape their business. This will help them to be proactive in the market and be ready for any eventualities. The Coca – Cola Company is a multinational company operating business in many parts of the world. Companies are formed with the intention of maximizing profits and therefore they have to set their vision and mission right. The vision of the coca – Cola Company there include refreshing the world, inspiring moments of optimism and happiness and creating value to make a difference. The vision of the company acts as the framework for the roadmap and guides all the aspects of the business. The vision describes what the company needs to accomplish if it has to continue achieving sustainable quality growth. Their vision therefore is: People: Be a great place to work where people are inspired to be the best they can be. Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people's desires and needs. Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value. Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities. Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities. “Building a competitively advantaged demand – driven global supply chain, will enable the Coca – Cola Company to drive sustainable growth and ultimately deliver.” This was a remark made by Rick Frazier, VP, and Global Supply Chain, delivered during keynote remarks at Gartner's 2011 Supply Chain Executive Conference in Scottsdale, Ariz. In the same conference, the vice present of Coca – Cola shared insights into how the Company is partnering with bottlers, suppliers, customers and NGOs to anticipate opportunities and speed time to market in a world where populations are growing, natural resources are stressed, customer and channel demands are increasing, and consumer expectations are expanding. As part of managing the global supply chain, the company considered to operate the lowest-cost manufacturing and logistics operation while maintaining high quality standards and creating a highly efficient business. This is an efficiency will help us bring innovation to market faster, he explained, and help us to "think and act like an integrated global enterprise that is a leader in sustainability in water use, packaging, energy and climate protection." Building a demand-driven supply chain means moving from a "push" to a "pull" system. "It means sensing signals of demand as close as possible to the end consumer and customer, and translating that information into a system-wide set of requirements to shape and respond to that demand in a profitable way. This is a strategy that the coca – Cola Company applies as part of their global supply chain. The coca – Cola Company’s global supply chain strategy is centered upon five interconnected strategic priorities: 1) Growth: Building portfolio competitive advantage 2) Productivity: Driving bottom-line savings to fuel top-line growth through Operational Excellence (OE) and other initiatives 3) Sustainability: Earning our social license to operate and driving reputation equity 4) Governance: Synchronous global execution against an agenda focused on building brand trust. 5) Capability: An ongoing commitment to building future-critical capabilities by investing in our people, promoting collaboration and building a culture that values learning Logistics/supply chain plans Supply chain planning (SCP) refers to a companies being able to forecast accurately their demand in the near future. SCP should order a given amount of sales and order enough of what is required to produce the sales. If the reality is that the sales are few, the company may end up having excessive inventory. The implication of excessive inventory is decrease in profits. Excessive inventory means there are goods being held, either raw materials or finished products. This holds money in that they are not in circulation. On the other hand, excessive sales may impact negatively on the company. Too many sales may require the company to ask for additional goods the last minute. In turn, the vendors will require additional materials and extra money to pay for the extra labor. Too many sales may create a gap in the supply chain. All these will affect the profit margin of the company. Therefore, supply chain planning is of paramount importance to a company's success. Poor planning will result in a loss of profits and revenue while accurate planning allows the company to operate smoothly and to minimize expenses. The question then is how to create business forecasts more effectively for supply chain activities (Kouvelis, Chambers & Wang, 2006). It is important for the company to identify the needs of the customers since they are the final/end consumers. Companies get into business because they want to satisfy the needs/wants of the consumers at a cost. The consumers will be willing to pay for the cost if and if only the product satisfies their needs/wants and that the product adds value to their lives. Over and above all, it is important for the company to get feedback from the consumers so as to know on how to improve the product. The feedback can also help company to make forecast accurately reflecting customers’ reality (Kouvelis, Chambers & Wang, 2006). Supply Chain Management Supply chain management is “aimed at managing complex and dynamic supply and demand networks” (Wieland and Wallenburg, 2011) Supply chain management (SCM) involves managing a network of interconnected businesses involved in provision of product and services. These are the products and services that the customers require. For production of a product or service to take place, it involves various processes and in the supply chain, it involves various parties. Hence, it is important for a company to develop and have a good SCM. Supply chain management helps to address some issues such as: Distribution network configuration: this involves location and network of supply chain. Distribution Strategy: this is concerned with the questions of operating control. Trade-Offs in Logistical Activities: it is involved in coordination of the logistical cost. Information: this entails the integration of processes through the supply chain shares valuable information such as: demand signals, forecasts, inventory, transportation and potential collaboration Inventory Management: this checks on the quantity and location of the entire inventory. Cash Flow: This is with the arrangement for the payment terms and methodologies for exchanging funds across entities within the supply chain. Importance of supply chain management Organizations have to look for an effective supply chain. They have to develop what will enable them to compete in the global market even if they may not be a multinational corporation. There is need to shift from old tradition management and embrace new management concepts (Jones and Roos, 2000). Supply chain plan and global supply chain Since Supply Chain Planning refers to companies being able to forecast accurately their demand in the near future, if follows that the global supply chain should have a perfect plan given its vast area of operations. Forecasting makes enables the business to eliminate inventory and in so doing, it can reduce the cost. The supply chain plan determines the company’s profitability to some extent hence an important aspect in global supply chain (Taiichi 2008). Conclusion Supply chain planning is a critical aspect of any business’s supply chain management. Lack of proper planning may result into a business reducing their profits for no good reason. It can also lead into a strained relationship between vendors and distributors. Communication is very important since it keeps all the parties informed. Businesses therefore need to establish communication on a one to one basis with their customers who actually make them to be in business. Being in touch with the customers helps the business to establish supply chain planning. This is because one can forecasts using reliable information. The use of technology is recommended as it assists in the supply chain. Bibliography Cooper, M.C., Lambert, D.M., & Pagh, J. 2007, Supply Chain Management: More Than a New Name for Logistics. The International Journal of Logistics Management Vol 8, Iss 1, pp 1–14 David, B. (24 January 2008). "Automotive News calls Toyota world No 1 car maker",. Oxford: Elsevier. Haag, S., Cummings, M., McCubbrey, D., Pinsonneault, A., & Donovan, R. 2006, In: Production and Operations Management, Vol. 15, No. 3, pp. 449–469. Hines, T. 2004. Supply chain strategies: Customer driven and customer focused. Oxford: Elsevier. Kouvelis, P.; Chambers, C.; Wang, H. 2006, Supply Chain Management Research and Production and Operations Management: Review, Trends, and Opportunities. New York: New York Press Jones, D. and Roos, D 2000, The Machine That Changed the World. London: Springer Management Information Systems For the Information Age (3rd Canadian Ed.), Canada: McGraw Hill Ryerson Mentzer, J.T. et al. 2001, Defining Supply Chain Management, in: Journal of Business Logistics, Vol. 22, No. 2, 2001, pp. 1–25 Taiichi O. 2008, Toyota Production System. New York: Productivity Press. Wieland, A. & Wallenburg, M. 2011, Supply-Chain-Management in stürmischen Zeiten. Berlin: SAGE Wieland and Wallenburg C. M. 2011, Supply-Chain-Management in stürmischen Zeiten. 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