Global Supply Chain Management - Bridgestone - Case Study Example

Global Supply Chain Management Part 2 Introduction The recommendation for Bridgestone is two-fold: First, adoption of distributor storage with last mile delivery chain design, and second, setting up plants in regions which are the main sources of raw materials for tire manufacture. The delivery chain design involves tailoring the “last mile” to market density; in any form, it is a strategy which introduces retailers to the distribution network, and as a result helps the company reach out to customers. The bulk delivery supply chain strategy will work best in the European market because it consists of dense local markets, which lowers transportation costs. The current distributor storage with carrier delivery supply chain design will work best in sparsely-populated markets such as the African markets. International dispersion of some manufacturing supports both supply chain strategies by reducing the physical distance between raw materials, production, and markets, thus further reducing costs. Distributor Storage/Last Mile Delivery Chain In the context in which it applies to Bridgestone, “last mile” delivery means delivery to the location of the customer’s choosing – an automotive dealership, tire specialty shop, or local repair shop. The term is usually used in the context of “home delivery” (Agatz, Fleischmann & van Nunen, 2008; Minguela-Rata & De Leeuw, 2013), but quite obviously, retail tire customers require the services of a mechanic to properly install the tires on the customers’ vehicles. The choice of strategy is a decision based on the product and customer characteristics. Tires are not a perishable product and they are not customised to individual customers, therefore they do not require a direct distribution channel. Tires are also not a complex product requiring aftersales attention, although of course they require the services of properly equipped and skilled technicians to install on a customer’s vehicle. That being the case, a direct distribution channel is not really necessary, unless it is the only way Bridgestone could ensure proper handling of the product at the purchase and installation stage. As stated above, Bridgestone has different market densities in different parts of the world; for greatest efficiency, it can adopt somewhat different strategies for areas where customers are highly concentrated, as in Europe, and areas where they are more dispersed, such as in Africa and areas in Asia. The two different strategies are direct distribution using Bridgestone’s own delivery system in high-density areas, and using delivery intermediaries between Bridgestone’s regional warehouses and customers in lower-density areas. In terms defined by Goffin (1999, 10-11), the former would be considered a direct after-sales network, while the latter would be considered a network using channel intermediaries. For the high-density areas, a model developed and tested with food delivery systems by Galván, et al. (Galván, Robusté, Estrada & Campos, 2005) found that efficiency has to be balanced between low-capacity vehicles which have a fast response time – in their study, these were small vans or autos with a capacity of approximately 10 customer orders, but the ideal capacity for Bridgestone’s needs would have to be assessed – with distance from the distribution point to the delivery points. As distance increases, delivery time increases, which increases the delivery cost per unit delivered. In both high- and low-density markets, three main factors affect customer satisfaction: Personnel contact quality, ordering procedures, and order discrepancy handling (Mentzer, Flint & Hult, 2001, 95-96). In high-density markets where the delivery system is handled by Bridgestone directly, the assumption is these factors would be handled appropriately according to company specifications; the main concern then is that those same specifications are met in low-density markets where the delivery system from Bridgestone’s regional warehouses would be handled by third-party logistics (3PL) providers. Selecting appropriate 3PL providers is an opportunity cost assessment of the capabilities of the provider (capacity in terms of number of vehicles, amount each vehicle can carry), delivery time (which is a function of distance and environmental conditions), and the capacity of Bridgestone’s distribution points, that is, whether they are close enough to the factories that they can use an available-to-promise model, which reduces warehousing costs, or should use a fill-from-stock model, which increases warehousing costs but reduces transport costs (Agatz, et al., 2008). Further Dispersing Manufacturing As noted in the first part of this study, Bridgestone is fairly well-dispersed with 75 facilities in 22 countries, but significantly, none of the manufacturing facilities are located in the regions where raw materials are obtained, Africa and Southeast Asia, primarily Malaysia, which is a key source of rubber (Bridgestone Corporation, 2013). The option to set up manufacturing facilities in these regions can be considered first in terms of the OLI (ownership, location, and internalisation) framework, and second in terms of its impact on the supply chain. A new manufacturing facility provides an ownership advantage because it preserves Bridgestone’s proprietary technology, and because Bridgestone’s intangible organisational assets – its brand and reputation – are unique and not possible to duplicate (Dunning, 2000). It provides an obvious location advantage and a benefit to the supply chain because it decreases the distance between resources and production. There is an additional location advantage because in most of the new areas, the market will not require the full line of Bridgestone products; there is not, for example, much use for winter tires in Africa. This will simplify production requirements, and help to reduce costs. The internalisation advantage comes from decreasing the distance between the direct control the company can exercise and the responsibility that has to be given to 3PL providers to carry out the “last mile” supply model. Even though Bridgestone is using an indirect channel, it can be managed and monitored at the regional level – similar to Bridgestone’s existing processes, meaning that the new facilities will not require a significant change in operational planning – which reduces risks of service quality reductions. In a sense, the above recommendations are simply suggestions for Bridgestone to do more of what it already does, but to expand its existing operational and supply chain models into new areas. Since the company has experience in this kind of strategy, the potential pitfalls should be easy to identify and avoid. Possible Implementation Issues Service quality performance might become inconsistent: Because Bridgestone will be using a multi-channel distribution approach (“last mile” supply handled directly in dense markets, and handled by 3PL providers in less-dense markets), the quality of service in the three key areas – personnel contact quality, ordering procedures, and discrepancy management – might not be the same in both channels (Mentzer, et al., 2001). This is critical, because service quality is associated with the company’s brand reputation, and therefore is a vital part of the company’s intangible assets; if these decrease in value, the ownership advantage to setting up facilities in new areas is reduced (Dunning, 2000). To avoid issues in this area, Bridgestone must focus on the infrastructural capabilities of its networks, namely proper performance training and monitoring, quality control, and performance-based incentives (Makadok, 2001). For example, 3PL providers could be offered incentives for meeting objectives of order accuracy and delivery time to ensure that Bridgestone’s standards for service quality are consistently met. The supply chain must be designed to maintain performance as it expands: The company would quite obviously seek to expand its market in any area in which it operates, but this presents a challenge to make sure the distribution approach can “keep up” with growth. For instance, a 3PL provider would be contracted to manage delivery from distribution centres to customer locations based on the best estimates of demand, and would consequently determine the number of vehicles and personnel it needs, scheduling, and other functions to meet that demand. But if there is growth in the market (which Bridgestone certainly hopes would happen, and would be working towards), the 3PL provider must have the ability to expand its capabilities as well to prevent service quality from decreasing. The way to avoid this problem is first, to make an accurate assessment of potential delivery providers – and in areas with dense markets where “last mile” supply is handled directly, this includes a critical assessment of Bridgestone’s own capabilities – to ensure they have sufficient growth capability. In some cases, this might lead to an investment in the 3PL provider on Bridgestone’s part, or in other words, funding the necessary growth; that should probably not be a priority objective because it outside the scope of the company’s core competencies, but if it occurs, it provides the benefit of giving the company greater direct control over the supply process without deploying many physical resources (such as its own vehicles and personnel), and provides a little diversity in Bridgestone’s investment portfolio. Conclusion A “last mile” supply strategy and expansion of manufacturing capabilities into new areas of Asia and Africa work together to provide greater competitive advantage for Bridgestone, as long as a multi-channel distribution perspective is applied to appropriately serve its markets. The “last mile” strategy provides greater responsiveness to customer demand, making it as convenient as possible for the customer to obtain the Bridgestone tires he wants quickly; this is in turn strengthens the intangible assets of brand reputation which support the ownership advantage of entering new markets through the establishment of new manufacturing facilities. The key challenges, however, are maintaining consistent service quality across locally-different supply frameworks, and ensuring service quality can be maintained in market growth. By focusing on infrastructural capabilities in the supply chain from Bridgestone’s points of distribution to the delivery points, service quality can be maintained at a consistent high level. References Agatz, N.A.H., Fleischmann, M., and van Nunen, J.A.E.E. (2008) “E-fulfillment and multi-channel distribution – A review”. European Journal of Operational Research, 187(2), 339-356. Bridgestone Corporation. (2013) “Locations”. Available from: http://www.bridgestone.com/corporate/locations/index.html. Dunning, J.H. (2000) “The eclectic paradigm as an envelope for economic and business theories of MNE activity”. International Business Review, 9, 163-190. Galvan, D., Robusté A., Francesc, E.R., Ángel, M., and Campos Cacheda, J.M. (2005) “Modeling e-Logistics for urban B2C in Europe”. E-prints UPC -Universitat Politecnica de Catalunya. Available from: http://www.temoa.info/node/131177. Goffin, K. (1999) “Customer support: A cross-industry study of distribution channels and strategies”. International Journal of Physical Distribution & Logistics Management, 29(6), 374-398. Makadok, R. (2001) “Toward a synthesis of the resource-based and dynamic-capability views of rent creation”. Strategic Management Journal, 22(5), 387-401. Mentzer, J.T., Flint, D.J., and Hult, G.T. (2001) “Logistics service quality as a segment-customized process”. Journal of Marketing, 65(4), 82-104. Minguela-Rata, B., and De Leeuw, S. (2013) “Managing the last mile of the supply chain for spare parts”. Universia Business Review, 3rd trimester, 104-117. Read More