Executive Master in Supply Chain Management - Assignment Example

Executive Master in Supply Chain Management Post-Module Assignment Purchasing By (Name) Course Tutor: University Date 1a). Information is one of the flows in SCM. Describe the role of purchasing in the information flow. What is the impact of the information flow on purchasing activity and performance? Supply chains are made up of activities that are interrelated within and without organizations boundaries. Organizations develop supply chains by simply being connected to each other by virtue of the upstream and downstream activities involving their business flows (Monczka et al 2009). Supply chain Management (SCM) is a process that ensures effective management of the business flows right from the suppliers of raw materials, to the production process through to the end user (Jones & Riley 1985). This process therefore, calls for proper and holistic management of the business flows which extend from one organization to the others in the supply chain. Forrester (1958) identified five business flows which are; information, money, manpower, capital equipment and materials. In SCM, the running of information flows is very critical since the movement of the other business flows is highly dependent on how the associated information flows are managed (Sweeney 2006). The supply chain business processes that are connected through intra and inter-firm boundaries are developed from the business process. According to Sweeney (2002), most businesses can be described in regard to the five functions of; purchasing and procurement (buying), production planning and control (making), warehouse management (storage), transport management (moving) and customer relationship management (selling). This definition by Sweeney is further supported by Monczka et al (2009) who argue purchasing involves five functions which are; acquiring the right quality, in the right amounts, at the right time, for the right value and from the right supply. Monczka et al (2009) further indicates that purchasing is a functional activity and a functional group that is part of the product development team in an organization. This group carries out a number of activities driven towards achieving maximum results for an organization. Purchasing acts as the link between suppliers, manufacturers, distributors and retailers and plays an important role in the product development and improvement process (Lambert and Cooper 2000). Purchasing plays an important role in the information flow when it functions as an organizational entity that supports the strategic goals of an organization (Cousins et al 2008). This purchasing function of an organization achieves its functions once it is integrated into the organizations decision making process. In this regard, the purchasing function is highly concerned with supply chain management and in this case. According to Quayle (2006), purchasing is involved in the establishment and management of a commercial relationship. Quayle further ascertains that this relationship should be maintained and the parties involved (suppliers, purchasers, customers) need to work together for them to achieve competitive advantage. On the other hand, a growing number of firms make efforts to scrutinise their suppliers thereby reducing expenses at their supply phase (Van Weele 2005). Lambert and Cooper (2000) argue that operating an integrated supply chain requires continuous information flows which later assist to create the best product flows. The customer is the main focus of the process. Realising a good customer-centred system requires processing information both accurately and in a timely manner for quick response systems that require frequent changes in response to fluctuations in consumer demands (Zhao et al 2002). Monitoring uncertainty in manufacturing processes, customer demand, and supplier performance are critical to effective SCM. For example, to facilitate the growth of commercial relationships in the financial institutions, the supply managers are integrated within the strategic business unit and they are primarily a contact point between the organizations and suppliers (Monczka et al 2009). In this role they are able to identify problems and create solutions to them. All these processes highlight the important role of purchasing in the information flow. According to Handfield and Nichols (1999), information flow is a major component of the supply chain, and it is very important to share the information with all the entities across the supply chain. The contents of information flow include: storage, processing, transmission, collection and analysis (MBA lib 2012). Information flows in a supply chain are bidirectional. Information serves as a bridge between the stages of the supply chain and this facilitates the harmonious organization of activities, thus making it easy to achieve the advantage of maximizing profitability (Chopra & Meindl 2001). For example an online grocery store that offers delivery services for its customers, benefits greatly from efficient information flows. The management has to design a system that ensures the customer’s order is quickly communicated to the store and in turn, the delivery team is ready to transport the groceries to the consumer within the shortest time possible. Finally the system is able to record and indicate the levels of inventory available to facilitate faster stocking. Information management along the supply chain requires the partners involved to provide correct and consistent information (Solis 2001). Therefore, it is essential that a company handles its information flow carefully in order to avoid potential risks in material flow during its purchasing activities. Poor management of the information flow often results into the phenomenon commonly known as the bullwhip effect which is simply the result of poor information management, which leads to unnecessary inventory levels (Forrester 1958). The bull whip effect results in lost revenues and poor customer care services (Sweeney 2006). For example a company specializing in the manufacture of animal feeds has outlets in different parts of the country. Every outlet sends in their orders depending on how their sales are and as a result, the purchasing function sources for raw materials from their suppliers. If any outlet indicates wrong information regarding their inventory levels, then the whole supply chain is affected resulting to either low or excessive levels of inventory, which tie up capital and may lead to spoilage. Finally Quayle (2006) insists that the sustainability of a supply chain is dependent on proficiency, people and performance. This is highly dependent on the management of information flows and is a clear indicator that information flow has an almost direct effect on the performance of a business entity. 1b). How does information impact on supply chain risk in “your” company? The company assigned to me is BCD Engineering a Cork based company that has been in existence since 1983. It designs, manufactures, installs and delivers high purity process systems worldwide to the chemical, biotechnology, pharmaceutical, and food & beverage industries. It has particular expertise in clean in place, clean utilities, product formulation, and thermal treatment (BCD Engineering 2013). The company operates in a very competitive environment that is coupled with major risks which threaten the well being of the company. Despite the risks involved in conducting businesses in today’s globalized economy, companies still strive to be competitive by improving their products while reducing the costs involved (Quayle 2006). In addition (Quayle, 2006) argues that the purchasing function of the company strives to minimize the risks that threaten the value chain. Supply chain risk refers to a negative variation from what is expected of a particular performance measure, giving rise to harmful costs for an organization (Handfield 2007). Monczka et al (2009) argues that disruptions in the supply chain may occur due to unforeseen risks and they are often costly to an organization. They further state that these disruptions mainly show up due to factors such as; poor response to changes requested by customers, quality, and production problems. BCD Engineering is a company whose operations have a global presence and since their products are very specialized, a variety of risks are likely to occur along the supply chain especially if the customer needs are not fully understood. Facilitating the flow of information at every stage of product development and in every department facilitates the management of associated risk (Quayle 2006). The supply chain management plays the role of maintaining communication flows and linkages by facilitating direct contact of persons involved (Monczka et al, 2009). According to Quayle (2006), information regarding the risks and opportunities involved should be circulated efficiently along the supply chain and the management should introduce the concept of lean management. The information flow is very crucial in the application of lean management since communication facilitates efficiency in every phase. Being involved in a global supply chain thrusts the company into a high supply chain risk through amplified supply chain disruptions (Monczka eat al 2009). Information sharing across the company’s supply chain ensures that risk is managed efficiently. Borrowing for Handfield (2007), knowledge will be shared regarding the areas where the supply disruptions are likely to occur. This information is then shared and trainings are conducted on when to act and how to act. 1c). Construct an appropriate commodity hedge for the company, using exchange quoted prices (indicate date, time and exchange for all prices). BCD Engineering actively deals with stainless steel and other high alloy materials in the manufacture of their products. The stainless steel industry is very dynamic and is associated with quite a number of risks. Therefore, there is need for companies to carry out hedging in a bid to minimize the risks associated with their pricing. The steel industry records a dynamic trading in futures, which offers BCD Engineering as a market participant a perfect chance for hedging in order to adapt and thrive in this competitive environment. Spot market pricing brings with it higher price volatility and financial risk along the supply chain It is therefore important for BCD Engineering to hedge on the price stainless steel because steel is their major raw material. Drawing from the monthly cost data by the CME group between 31st of October 2013 and 31st of October 2014, we consider a scenario where BCD Engineering had to purchase steel in late March 2013 for high purity process systems to be sold in July 2013. On 30th March 2013 BCD Engineering purchased 100 contracts of HRC steel in at price of $13,000 per contract. On the 20th of April they sell products equivalent to the 100 contracts at a price of 12,998. Being the manufacturer the company makes a loss of $2 per contract of HRC Steel in the cash market. This scenario is played out differently in the future markets given the same quantities. On the 30th of March the company sells 100 contracts of HRC steel at $13,000 per contract and in 20th April 2013, they buy 100 contracts at $12,998 per contract. They make a gain of $2 per contract and this is good hedging. Reference list Chopra, S & Meindl, P 2001, Supply Chain Management: Strategy, Planning, and Operation, Prentice Hall, Upper Saddle River, N.J. Cousins, P, Lamming, R, Lawson, B & Squire, B 2008, Strategic supply management: Principles, theories and practice, Prentice Hall, London. Forrester, JW 1958, ‘Industrial Dynamics: A Major Breakthrough for Decision Makers’. Harvard Business Review, Vol. 38, July-August, 37-66. Handfield, RB & Nichols, EL 1999, Introduction to Supply Chain Management, Prentice-Hall, Upper Saddle River, N.J. Handfield, RB 2007, Reducing the impact of disruptions in the supply chain: A managerial framework based on observations from multiple executives, SAS institute Inc., USA Jones, T & Riley, DW 1985, ‘Using Inventory for Competitive Advantage through Supply Chain Management’. International Journal of Physical Distribution & Materials Management Vol. 15, No. 5, 16-26. Lambert, DM & Cooper, MC 2000, Issues in supply chain management. Industrial Marketing Management 29: 65-83. MBAlib. (2013). Information flow. Accessed on 28th March 2014. Available at: http://wiki.mbalib.com/wiki/Information_flow Monczka, RM, Handfield, LC, Giunipero, LC & Patterson, JL 2009, Purchasing and supply chain management, South-Western, Mason, Ohio, USA. Quayle, M 2006, Purchasing and Supply Chain Management: Strategies and Realities. Idea Group, London Solis, AO 2001, ‘The Importance of Information Flow in Supply Chain management’. The Criterion, El Paso Sweeney, E 2002, The four fundamentals of supply chain management: Logistics Solutions. The Journal of the National Institute for Transport and Logistics, Vol. 5, No. 1, pp.14-17 Sweeney, E 2006, Managing information flows: the key to effective supply chain integration. Logistics Solutions, the Journal of the National Institute for Transport and Logistics, Vol.9 No. 3, pp. 18-21. Van Weele, AJ 2005, Purchasing and supply chain management: analysis, strategy, planning and practice (4th Ed.), Thomson, UK. Zhao, X, Xie, J & Zhang, WJ 2002, The impact of information sharing and ordering co-ordination on supply chain performance. Supply Chain Management: An International Journal, Vol. 7 No. 1, pp. 24-40 Read More