The Role of Supply Chain - Coursework Example

Information technology has changed the world; it has become infused with life and business. In fact every aspect of business requires technology. E-commerce is an outcome of advanced technology which has helped business to come close to customers. Today the internet is aggressively used as a channel for businesses both new and established ones. Internet exchanges are beneficial not just for the customers or end users but it helps businesses to exchange and grow together. It is a platform to transact business, known as business-to-business (B2B) or business-to-customer (B2C) and has definite advantages over the traditional way of transacting business. The different processes in the supply chain can now be transacted at minimum cost, reached to the maximum number of people in the lowest possible time, due to the new internet technologies and software available. The online market place provides information on logistics, transportation, and selling facilities; they also assist in the buying and selling process. Ecommerce would mean an online market place where goods and services can be bought from a wide range of suppliers. As customer expectations have changed the seller needs to look beyond a simple website or direct sales. The websites have to be interactive and guide the user or the customer through the entire process of making purchases online. Ecommerce includes virtual online market places and the most common and successful examples in the field are Amazon.com (B2B) and eBay (B2C). The shopping experience is personalized and all data of the visitor or the customer is stored so that whenever the customer comes back. He can retrieve his own details. It helps the seller or the company to analyze data and follow up with the customer. Ecommerce helps in inventory management, production planning and order fulfillment which speed up the entire supply chain process. The Web also strengthens B2B and B2C relationships as product information is available through multimedia such as sound and active pictures. The web also enables to manage the supply chain as stronger relationships are developed with business partners. Dell Computers, the no 1 PC makers, is based on the concept of bypassing retailers and selling computers directly to the customers. It uses technology for its direct sales model where the PC’s are made by electronic order and supplied directly to the customers. They have eliminated the middlemen in their supply chain and are an outstanding example of an innovative business model through effective SCM (Chou, Tan & Yen, 2004). Today Dell generates a new manufacturing schedule for its plants every two hours that reflects actual orders received. It therefore follows the built-to-order (BTO) technique in inventory management (Copeland, Dunn & Hall, 2005). They do not follow the traditional model of manufacturing all of the components. New technology is being churned every day and products lines are changing, Dell maintain excellent relationship with its suppliers and they also did not want that their suppliers hold much inventory. The inventory is owned by suppliers but charged to Dell indirectly through component pricing. Since the cost of holding inventory is included in the final pricing of the computers, Dell insists that the suppliers should hold minimum inventory for the benefit of the customers. Low inventory also means better product quality because Dell is able to detect any quality problems faster than it would if it held high inventory. Dell has a special vendor-management-inventory (VMI) with the suppliers where Dell sets the target inventory levels and records suppliers’ deviation from the targets (Kapuscinski, Zhang, Carbonneau, Moore, & Reeves, 2004). Dell chooses an inventory target of 10 days’ supplies and sources from one supplier for a few days before switching to another supplier. With their inventory management technique they are able to supply to the customers the latest technology at minimum cost. Apart from the BTO used by Dell, other inventory management techniques include the sense and respond method and the build-to-stock (BTS) technique (Wikipedia). Saturn Corporation, a major US automobile maker, is an example of sense and respond supply. It has a service supply chain strategy which matches the urgency of the customers’ needs (Dawson, 2004). Saturn Corporation has a jointly managed inventory that involves sharing inventory with Saturn dealers. Its ability to match the parts supply critical to the customers’ needs has increased after sales satisfaction. Since the demand for parts is highly unpredictable in nature, Saturn has adopted the pull system. It does not position inventory for parts as per forecast but replenishes the stocks at the retailers on one-for-one basis. To reduce inventory and increase flexibility, some firms have adopted the BTO production systems which is beneficial in sectors where customers are not willing to wait for the product. BTO is the automobile industry is also considered optimal because it reduces the cost of carrying out transaction and helps to keep the overall prices under control. BTS on the other hand is mass production against sales forecast where vast amount of stocks are held in anticipation of demand. This in today’s business environment is not practical especially where technology changes frequently. In the case of Dell the inventory is managed by the vendor although indirectly the price is paid by Dell but in the case of sense and respond system the inventory is jointly managed by the manufacturer and the dealer and hence the cost too is shared by them. Demand is unpredictable and hence in the sense and respond system the stock is replenished on one-to-one basis while in the case of BTO some stock is always there with the vendor although minimum inventory. While BTO helps in product customization, it is not beneficial for all products. Besides, even a slight delay can end up in losing the customer and if there is long lead time this system becomes infeasible. The success of online companies like Dell, Amazon.com and Wal-Mart suggest that effective management of supply chain through technology can lead to competitive advantage. Low inventory is considered good in high technology market and where customers value customization. Nevertheless firms face threats specially those that break away from industry norms. While the executives at Dell understand the inventory replenishment concepts they do not understand its impact on operations. Several factors can hinder smooth delivery in the supply chain. The inventory necessary to maintain smooth operations depends upon three factors – demand, replenishment time and shipping frequency. Both Dell and the supplier should carry some safety stock as Dell has a forecast error. Dell forecasts its inventory needs in two stages. In the first stage it forecasts an aggregate number of final products and in the next stage it estimates the mix of components (Kapuscinski, Zhang, Carbonneau, Moore, & Reeves, 2004). There are errors in both the stages and besides, Dell takes material from competing suppliers in batches rather than a fixed percentage from each one. The suppliers’ inventory thus differs from forecast. The executives wanted to be very cautious and preferred to overestimate rather than underestimate the inventory needs. They did not want to risk damaging customer supplies and deliveries due to unavailability of components. British Telecom had a savings of about 90% in transaction costs by going online. They adopted the BTO approach through e-replenishment. According to PricewaterhouseCoopers (2002), e-replenishment is the seamless automation of the buyer’s procurement and vendor’s fulfillment process (cited by Robinson, Sahin & Gao, 2005). It saves time and money as it replaces the manual activities and paper catalogs by electronic drawings and computer assisted requisitioning, electronic workflow management and electronic payment. The e-commerce marketplace has grown to be intensely competitive where no competitive advantages exist. Firms in e-commerce face constant challenges, threats from competitors and the need to innovate. Customer satisfaction seems to be the keyword for success. Inventory in supply chain has to be strategically managed to avoid customer dissatisfaction while maintaining economies of scale. It is not always practical to hold safety inventory in the high technology industry as technology becomes obsolete very fast but each method of inventory holding has its own trade off. In less than a decade, amazon.com expanded from being a book retailer to a virtual marketplace where all sorts of buyers and sellers of rare, used, and collectible items found a platform. Multi-threading allows amazon.com to apply multiple processors to complex analytic tasks. They constantly evaluate the new product page layouts and new search technology (Success Story, 2002). Wal-Mart used electronic data exchange (EDI) with suppliers which reduced transaction costs associated with the ordering of products and it also allowed mw a high degree of control and coordination in the scheduling and receiving of product deliveries. This ensures a steady flow of the right products at the right time. Each organization using the supply chain technology tries to maximize performance at the least costs without compromising on quality of products or services. Towards meeting this efficiency level companies now try to determine their core competency and to ensure smooth operations, they try to outsource certain operations or supplies. Therefore, companies need to assess their entire supply chain and determine their economies of scale. References: Chou, D. C., Tan, X., & Yen, D. C., (2004), Web technology and supply chain management, Information Management & Computer Security Vol. 12 No. 4, 2004 pp. 338-349 Copeland, A., Dunn, W., & Hall, G., (2005), Prices, Production and Inventories over the Automotive Model Year, 22 Oct 2007 Dawson, A., (2004), Supply Chain Technology, Work Study, Vol 51 No. 4 pp. 191-196 Kapuscinski, R., Zhang, R., Carbonneau, P., Moore, R., & Reeves, B., (2004), Inventory Decisions in Dell’s Supply Chain, 22 Oct 2007 Robinson, E. P., Sahin, F., & Gao, L., (2005), The impact of e-replenishment strategy on make-to- order supply chain performance, Decision Sciences, Vol 36 No. 1 Success Story (2002), 22 Oct 2007 Wikipedia, Built to stock, 22 Oct 2007 Read More