Integrated Studies in Procurement and Acquisitions Management - Case Study Example

Report to Directors 1. Synopsis of Inventory and Supply Chain Management Problems The inventory and supply chain management problems are intricately linked. The first observable problem is the lack of standardization between the four plants with respect to marketing, manufacturing, supply chain management and financial reporting. This is particularly problematic for inventory problems as the shortfall or oversupply of inventory at one plant is linked to inventory costs at all other plants. Coordinating inventory under a one-size fits all supply chain management system is desirable for both reducing operating costs and ensuring customer satisfaction (Thomas & Griffin, 1996). The inventory problems are exacerbated by the fact that communication is disorganized and may not consist of real time communications. This lack of real time information is particularly problematic in an industry where inventory moves quickly. This lack of real time information sharing can increase supply cost unnecessarily. For example, a plant running short of supplies may communicate this shortfall to headquarters while another plan with excessive supplies may not communicate the excessive supplies to headquarters on time or too late to have any benefit to the business. As a result, the business is bound to purchase supplies for the plant that has a shortfall and increase inventory unnecessarily when the same supplies are available at another plant. To this end, it has been reported in the literature that real time information serves two primary purposes: processing an order to the customer’s satisfaction and sharing inventory data “quickly” throughout the supply chain (Cachon & Fisher, 2000). Relying on information exchanges between the four plants and headquarters through facsimile and email communications have proven to be inadequate for facilitating real time information sharing objectives. There is significant room for improvement through information technology which allows for the sharing of information between the four plants and headquarters “quickly and inexpensively” (Cachon & Fisher, 2000, p. 1032). The use of facsimile and email information sharing between the four plants and headquarters is complicated by the confusing reporting system adopted by the staff at headquarters. Information technology can be adopted for resolving all of these problems and especially the problem with forecasting and planning. A lack of coordinated and shared metrics for measuring inventory and manufacturing process and effectiveness is also problematic. This is especially important for management at headquarters who need to know inventory status and manufacturing and operating effectiveness from a remote location. As Lambert and Pohlen (2001) suggest, a “supply chain metrics” is important for increasing management’s “line of sight over areas they do not directly control, but have a direct impact on their company’s performance” (p. 1). I would therefor recommend that two core changes be made to improve inventory and supply chain management. First the company should invest in information technology upgrades and adopt some form of instant messaging that should be managed by an information manager at headquarters. This instant messaging should also be adopted by headquarters for reporting inventory data communicated from the four plants. A supply chain manager should be installed at each of the plants for the purpose of monitoring and reporting inventory to headquarters. Secondly, in addition to adopting a standardized metrics system for measuring effectiveness of supply chain management, a standardized method of marketing, manufacturing and financial reporting should be adopted. However, in order for these changes to be implemented, it is necessary for the company to adopt an organizational change system to counter the organizational resistance to change. Such an organizational change system must ensure that staff and managers understand and accept the need for change and are therefore willing to go along with it. Otherwise an attempt to force organizational change on the members of the organization will likely fail (Sturdy & Grey, 2003). 2. Strategies for Addressing the Five Goals Goal 1: Allow Orun to minimize costly inventory The key to minimizing costly inventory is “avoiding uncertainty” (Fisher, 1997, p. 115). In order to avoid uncertainty it is important that inventory is checked accurately and communicated to headquarters with a view to understanding consumer demands, current supplies, and forecasting and planning supplies, production and distribution. This information must be gathered in real time from the point of sales to the production floor. Information technology can facilitate the gathering of and sharing of this information in real time beginning with point of sales scanners and with electronic methods between the four plants and headquarters (Fisher, 1997). This approach is consistent with multiple attribute utility theory which contemplates lean management for reducing risks and eliminating uncertainty and in turn reducing costs (Kainuma & Tawara, 2006). Goal 2: Improve Overall Supply Chain Management In order to improve overall supply chain management I will adopt a theory of supply chain management theory in practice. In this regard, supply chain management theory focuses on reducing uncertainty and strengthening relations with suppliers, manufacturers and consumers (Storey, Emberson, Godsell, & Harrison, 2006). The best approach is to reduce or ideally remove uncertainty and the best method for reducing or removing uncertainty is to focus on the overall impact of supplies and manufacturing on customer service. In order to understand and respond to uncertainties regarding suppliers, manufacturing and consumers and its impact on customer service, each source of uncertainty must be measured and eliminated or reduced (Davis, 1993). Obviously the uncertainties can only be avoided in ORUN when information about inventory and consumer demands is shared in real time and used for managing, planning and forecasting demands and supplies. Goal 3: Ensure Demand Requirements are Met The primary goal of a supply chain management is to ensure that demand requirements are met. This means balancing consumer demands with available supplies and competencies. One approach to ensuring demand requirements are met is to avoid stock outs and at the same time avoiding overall cost. In order to avoid stock outs it is important that ORUN ensure that inventories never run out and in order to avoid overall cost ORUN must ensure that inventory is not excessive or wasted (Croxton, Lambert, Gracia-Dastugue, & Rogers, 2002). Thus coordinating information about customer demands and inventory is imperative and should be managed more efficiently and effectively. Goal 4: Standardize Business Practices Lean theory maintains that the best practices for eliminating waste and establishing and maintaining quality is to standardize business practices (Kainuma & Tawara, 2006). Standardization in this regard should and will involve adopting tried and true procedures for assessing demands and balancing demands with available resources and supplies. These standards will be adopted and measured for effectiveness at all plants. 1. Goal 5: Increase supplier efficiency with real time information on firm planned orders and forecast Drawing on Cachon and Fisher’s (2000) argument that inventory and supply chain management is improved through real time information, I will introduce information technology that facilitates real time information for improving planned orders and forecasting. An information coordinator shall be installed at each of the plants and at headquarters. 3 Identify and Measure Effectiveness A number of metrics will have to be adopted and standardised as there are several aspects of supply chain management that require monitoring to overcome the problems identified and the achievement of the five goals. Therefore the following metrics will be used for identifying and measuring effectiveness: Perfect Order: Perfect order as a metric identifies and measures whether an order is on time, perfect, complete and accurate. This means avoiding stock out, late delivery, under value of goods, damages and erroneous shipping. Demand Forecast Accuracy (DFA): DFA facilitates a balance between “forecasted and actual demand” (Hoffman, 2004, p. 3). Cash-to-Cash Cycle Time: Cash-to-Cash cycle time measures and identifies “the length of time between when a company spends cash to buy raw materials to the time cash flows back” into the firm’s account from consumers (Hoffman, 2004, p. 3). This metric includes measuring shipment to consumer delivery time or the time it takes to ship finished goods and the time of delivery. The time it takes after receiving raw material to payment is also measured. Inventory is also measured. This metric also measures the time it takes to collect cash after invoicing. Supply Chain Management Cost: Supply chain management cost measures operating costs, manufacturing costs, cost of transportation, distribution cost, “inventory holding cost”, and “customer service operating cost” (Hoffman, 2004, p. 3). Essentially, the metrics chosen are calculated to ensure that all aspects of demand and supplies are visible. By keeping an eye on cost of the key features and drivers of supply chain management, the company will always know what consumer demands are and can forecast that they will likely be and will also know the company’s ability to meet those demands. In the meantime, the company will be able to plan how to meet those demands and improve the company’s ability to meet those demands efficiently and effectively. The metrics chosen will also ensure that the company has a set of standards and that using metrics to identify and measure solutions and observe weaknesses in current solutions, the company can take steps to improve current supply chain management strategies and practices. In order for the metrics to contribute to an efficient and effective supply chain, it will be necessary for all plants and headquarters to communicate in real time and to adopt a standardized method of supply chain management. Bibliography Cachon, G.P. and Fisher, M. (2000). “Supply Chain Inventory Management and the Value of Shared Information.” Management Science, Vol. 46(8): 1032-1048. Croxton, K.L.; Lambert, D.M.; Garcia-Dastugue, S.J. and Rogers, D.S. (2002). “The Demand Management Process.” The International Journal of Logistics Management, Vol. 13(2): 51-66. Davis, T. (Summer 1993). “Effective Supply Chain Management.” Sloan Management Review, 35-46. Fisher, M. (March-April 1997). “What is the Right Supply Chain for your Product?” Harvard Business Review, 105-116. Hoffman, D. (18 February 2004). “The Hierarchy of Supply Chain Metrics: Diagnosing Your Supply Chain Health.” AMR Research, 1-7. Kainuma, Y. and Tawara, N. (May 2006). “A Multiple Attribute Utility Theory Approach to Lean and Green Supply Chain Management.” International Journal of Production Economics, Vol. 101(1): 99-108. Lambert, D.M. and Pohlen, T.L. (2001). “Supply Chain Metrics.” The International Journal of Logistics Management, Vol. 12(1): 1-19. Storey, J.; Emberson, C.; Godsell, J. and Harrison, A. (2006). “Supply Chain Management: Theory, Practice and Future Challenges.” International Journal of Operations & Production Management, 754-774. Sturdy, A. and Grey, C. (November 2003). “Beneath and Beyond Organizational Change Management: Exploring Alternatives.” Organization, Vol. 10(4): 651-662. Thomas, D.J. and Griffin, P.M. (October 1996). “Coordinated Supply Chain Management.” European Journal of Operational Research, Vol. 94(1): 1-15. Read More