Supply Chain and Competitive Advantage - Autoliv Company, Pepsi - Case Study Example

Supply chain and competitive advantage Name: Tutor: Course: Date: CASE STUDY 1: AUTOLIV 1) Autoliv’s bases of competition The bases of competition at Autoliv Company are; safety, price, schedule, prestige and superior cost position. These are bases of competition that give firms an upper hand or advantage over its competitors (Colins & Porter, 2003). To start with, before 1998, the airbags were regarded as a luxury item for high-end vehicles but with time the basis of competition changed safety to ‘hygiene factor’. By so doing, the airbags ceased to be specialty items and became commodities for the mass market. Second, airbags experienced a sudden price reduction owing to the effect of big automotive makers. Third, the independent processes and systems at Autoliv could not keep up with the scheduled production and deliveries. Fourth, the superior cost position enjoyed by Autoliv was challenged by reduced levels of demand and price reductions. Due to increased competition from big automakers, the company realized that there was need to cut costs without compromising on technical performance and quality of airbags. Finally, prestige was a selling feature to up market car buyers who saw safety as an additional element in car purchase. The business units took advantage of this aspect to make huge sales. However, Government regulations and change in marketing strategies of major car manufacturers such as Chrysler and Volvo changed safety as a basis of competition to a hygiene factor. But that is about to change. Change in tactics and actions of competitors led to shift in the basis of competition in the company. After 1998, the basis of competition changed to continuous process improvement, collaboration with suppliers, standardization and investment in mergers. On continuous improvement, Autoliv made a decision to innovate and established the Autoliv Production System (APS). Innovation and continuous improvement helped the company to reduce lead time, labor minutes per part, increase inventory turns and reduce defect rates. Collaboration with customers such as Toyota enabled the company to meet their requirements and also create efficiency in their systems. Collaboration with suppliers such as Greening Donald helped to reduce variability in products, quality and delivery times. This was aided by adopting the Autoliv Partner Portal that allowed suppliers to understand the material flows, terms and conditions, production forecasting, standards and purchasing requirements. Small batch system was created to reduce costs associated with producing for stock and instead developed clusters of manufacturing cells that were customer oriented. This was derived from the kanban system from Japan so as to have a picture and flexibility of the assembly line and the product. Standardization of products became a major goal as the company pursued quick changeovers based on standard interfaces. The rationale was to reduce cycle time and take down costs. This went well with collaboration with engineers and cross-functional teams to reduce rejects to landfills. Over investment is a possibility after the company purchased Enterprise Resource Planning (ERP) systems, $15 million worth of automated Autoliv equipment. 2) Contribution of Harada-San to Autoliv Toyota deemed it critical to cooperate and collaborate with its suppliers to ensure Total Quality Management (TQM) of its supply chain. By sending Takashi Harada to Autoliv, it confirmed that the company was serious in improving the efficiency of its supply chain and quality of its products. The objective was to share knowledge and information about best practices in lean manufacturing as seen in the Toyota Production Systems. While on assignment to align Autoliv production to those of Toyota, the latter continued paying him salary for the two years. Indeed, Harada achieved his objective of helping Autoliv to adapt and adopt best practice in manufacturing, and also transforming the manufacturing process within three years. Some of the changes that Harada brought to Autoliv include; 1. Reshaping the extended and internal supply chain of Autoliv 2. Tooling up assembly lines in Ogden to meet needs of specific customer and grouped by customer 3. Reduction of assembly line into clusters of U shaped, 20-foot manufacturing cells 4. Assembly lines now supplied with tuggers that deliver totes in small quantities 5. Assembly line activities build to order and not stock 6. Increased efficiency as small-cell production allows visual cues Earlier, Autoliv assembly lines were made for large batches which brought in difficulties in determining the materials in the floor, fulfilling customer demand and visually looking at the process. Harada brought changes that allowed production managers and workers to see problems as they arise and act immediately. He helped Autoliv to monitor materials and set standard time to each cell. Management at Ogden were able to use the management style of ‘management by walking around’ to identify faults and problems in the system. Autoliv managed to invest in ERP systems which helped management to do real time reporting instead of daily reporting. Through Harada, the company managers were able to monitor materials and provide for a flow of production data which is integrated with planning and forecasting modules. The design of components and sequencing of production cells was also improved meaning that there was more standardization than creation of special batches of work. Moreover, prospective suppliers were carefully qualified and their performance carefully monitored. However, the supply chain needed to evolve not just in performance and cost tracking but also monitoring information and flow of goods (Leigh, 2013). Collaboration with suppliers helped to improve and make substantial savings. Finally, to reduce the cost of production, Autoliv consolidated design and manufacturing into one structure which allowed for more savings despite increased costs in the final product. The company was able to invest more in staff training, organizational development and millions of dollars to support Autoliv Production Systems. More interestingly, employees were incentivized and encouraged to make suggestions to areas that required improvement in the company. CASE STUDY 2: PEPSI COLA INTERNATIONAL (PCI) a) PCI Distribution channel PCI delivers and sells the concentrate to 12 licensed bottlers in Ukraine. However, the channels of distribution have not been fully exhausted or utilized. The methods of Pepsi distribution in Ukraine include trucking, warehouse, shipping, direct purchase from factory and rail transport. Bottlers sell Pepsi ex-works after bottling for a number of reasons. The distribution channels are full of risks and uncertainties that prevent the company from taking control of its network (Handfield, 2014). Trucking involves both state and private owned trucks while warehouses involve any existing space such as shipping containers, basements and spare rooms in buildings. Shipping is not good because the port facilities are old and inefficient. The rate of inflation catches up with port operations which prohibit importers from making further import requisitions. On the other hand, rail transport is slow, does not secure the quality and taste of Pepsi while on transit and is also vulnerable to banditry. Rail service is not sufficient since it requires negotiation and signing of contracts which includes armed security to protect the goods once in transit. Besides, the wagons have to be heated to prevent the product from freezing. A number of measures should be taken by Pepsi in order to increase its market share in the Ukrainian market. First, trucking should be used a major means of distribution of Pepsi. Pepsi should buy its own trucks or outsource trucks in good condition to undertake its distribution work. The trucks should be specialized for freight of Pepsi products only. Second, warehouses should be situated in major towns such as Kiev and Odessa. These trucks will then transport the goods to the warehouses using safe routes not prone to theft and banditry. This will help the company to reach local distributors in smaller cities such as Ternopol who will then sell to kiosks, stores and small villages. Third, Pepsi should take control of its distribution network since the returns will be more than if local distributors will buy from the factory. Many markets and outlets around Ukraine have not been reached with the product because the company has been hesitant in getting too much involved in a highly risky nation. Too many people in the distribution channel make the product expensive as evidenced by the difference in factory price and final selling price to far flanged consumers. When Pepsi takes control of its distribution business, it is able to generate more sales and revenue from a larger market. Many inland cities experience stockouts and irregular supply which hurts loyalty and brand power. The demand is high but the distribution channel is not catching up with this demand. b) Risks in the Ukrainian supply chain Supply chain risks and challenges can affect the ability of the company to create competitive advantages and claim of a sizeable market share. Since PCI involvement in Ukraine, it faces a number of challenges and problems in the supply chain and distribution. This has prevented the company from being felt in the local town streets and small villages. Some of the problems and challenges identified with Pepsi supply chain in Ukraine include inflation, physical security of goods, lack of guarantee on safety and quality of goods, lack of available space, lack of specialized vehicles and poor infrastructure. To start with, inflation remains high are port operations is ineffective making importers lethargic and unable to clear their goods on time. Moreover, importers have been forced to prepay custom’s fees before goods are delivered into Ukraine which has also affected the purchasing power of importers. Vandalism of coins meant to be used in currency circulation poses another challenge to purchase of the product at the customer level through Pepsi vending machines. Secondly, lack of physical security of goods has not been guaranteed due to increased theft and banditry. Often, transporters have been forced at gun point to hand over their goods. When rampant theft occurs, insurance companies become reluctant to cover the costs meaning more losses to the company. Thirdly, poor infrastructure especially roads, ports and the railways systems reduce the cycle time required to reach the customer and back. The company will have to spend more money protecting the goods, meeting the cost of fuel and compensation to drivers. Fourthly, lack of space in the port and warehouses inland has made the situational difficult. There are no conventional warehouses specifically built to store such goods under the right atmospheric conditions. Due to lack of port handling machinery and equipment such as forklifts, containers are hand loaded which wastes a lot of time. Lack of heating and refrigeration systems in the railway and road transport has led to occasional losses, especially during winter. Even after thawing, it is difficult to maintain the original quality and taste of Pepsi product. The current conditions of railway facilities do not guarantee refrigeration and safety of goods. Similarly, most of the distribution equipment is old and dilapidated. Fifthly, violation of terms and conditions of contracts is evident in the manner in which landlords can renege on contracts for storage of goods. This means that the company will spent more money on litigation and renegotiating contracts than actually delivering the products to customers. Ukraine’s legal systems have not developed to cover contracts especially regarding private property. References Colins, J. & Porter, M.E. (2003). Strategy and competitive advantage. New York: Free Press. Handfield, R. (2014). Leading change in supply chain management. Poole College of Management. Leigh, R. (2013). How can an organization manage change and innovation in an optimal way? University of Phoenix: Demand Media. Read More