Integrated Supply Chain Risk Management via Operational Methods and Financial Instruments - Literature review Example

Supply Chain Management

Question 1 (20 marks) (700 words)

There is a consideration that the supply network side of an organization should challenge the view of supply boundaries as separate entities. Critically evaluate this point and provide various examples from the academic literature to underpin your arguments.

Boundaries present significant boundaries in the daily operations of any business organization. Mass-customization, SKU proliferation, and e-business are all part of the boundaries that are presenting challenges to the success of business organization. In recent times, there have been demands for business organizations to reduce inventory, enhance efficiency and adapt to the constant changes in supply chain requirements. An increasing number of business organizations are competing on the global scale and in real time. Such scenarios reveal how much supply chain management is presenting real boundaries (Alexander, Walker & Naim, 2014). It is becoming a necessary requirement that organizations need more than they can offer in order to achieve competitive advantages in the marketplace (Ellram & Cooper, 2014). It is time for business organizations to challenge the view of supply boundaries as separate entities using their supply network side. The supply network side of organizations allows businesses to move beyond supply chain management and embrace the concept of supply chain synthesis. In a process that is holistic as well as continuous, the supply network side of an organization unites and synthesizes the various supply chain links thus maximizing customer satisfaction (Beske & Seuring, 2014).

Currently, supply chains are either centralized or decentralized in terms of decision making and they are associated with various economic agents thus establishing a complex network. The implication is that the success of any formal organization in modeling supply chains to gather quantifiable insights and measures must have focus on supply networks. Additionally, organizations can best examine issues such as stability and resilience of supply chains from the supply network point of view (Bourlakis, Maglaras, Aktas, Gallear & Fotopoulos, 2014). The reality of using supply networks to challenge the view of supply boundaries as separate entities is that it improves competition and promotes cooperation. The rationale for promoting cooperation is that stakeholders to the decision making process interact to make decisions regarding product flows as well as pricing to ensure that customers are satisfied (Fawcett, Ellram & Ogden, 2014). At the same time, the process of decision making consists of parties that have individualized objectives other than maximizing profits. In most cases, decision-makers are concerned with minimizing risks and incorporating business decisions that are conscious of the environment (Chakraborty, 2016). This can best be achieved using the supply network approach (Marchi, Erdmann & Rodriguez, 2014).

Organizations focus on supply boundaries as separate entities when they aim at optimizing links. However, this is a selfish move that can be compared to cheering to a football team and booing at the defence simultaneously. That does not make any sense because a successful team needs every member to work together to win the game (McCormack & Johnson, 2016). In the same context, establishing boundaries as separate entities kills team work and members of the organization are unable to work together towards achieving organizational goals. However, it is important that the supply network side of an organization challenges supply boundaries as separate entities to achieve team work. It allows organizations to move beyond supply chain management and adopt supply chain synthesis. Supply chain synthesis is highly integrated and does not condone selfishness. It includes the elimination of silos and focusing on satisfying customers (Watson, 2013). When eliminating silos, organizations synthesize its operations from the original link to the final consumer. Consequently, organizations can focus all links on continuously improving the supply chain (Oliveira & Gimeno, 2014). When organizations record such an achievement, they achieve supply chain synthesis and establish a supply chain that lacks any form of boundaries because boundaries delay decision making and limit team work (Coyle & Coyle, 2009).

The best example of challenging the view of supply boundaries as separate entities is going beyond considering the resources and activities owned by the company to consider the resources, activities and actors they control in a network (Nagurney, Yu, Masoumi & Nagurney, 2013). According to Turkey and Altuntas (2014), “firm’s competitive advantage resides not only within the frontiers of what is owns and controls, but also on the idiosyncratic interfaces that it develops with other firms, e.g. suppliers.” Firms that are less integrated feel the pressure to expand their resources by accessing and controlling the resources of their suppliers. They can only control suppliers if they develop a network of external resources or a network with the suppliers (Lowson, 2003). It is for the same reasons that organizations consider that the supply network side of an organization should challenge the view of supply boundaries as separate entities. Such a consideration opens new opportunities for organizations to enhance their competitiveness in the market through team work and collaboration (Martel & Klibi, 2016).

Question 2 (20 marks) (700 words)

Critically evaluate the aspects that you think are relevant in relation to distribution operations management. Also consider the appropriateness of mechanization and full automation in the distribution centre. You MUST provide various practical examples from the academic literature to underpin your arguments.

Distribution operations management relates to overseeing the operations of shipping, receiving and storing products (Rowbotham, Azhashemi & Galloway, 2012). I think that the following aspects are relevant in distribution operations management:

• Return on assets

Successful distribution operations management should keep an eye on the working capital the company invests in inventory as well as infrastructure (Hayya & Harrison, 2010). The most important thing is that common sense should be applied at all times because sometimes companies take it too far thus affecting their operating profits. Return on assets allows an organization to measure its efficiency with regards to how it is utilizing its assets to generate profits (Gao, Thomas & Freimer, 2014). One of the aims of distribution operations management is to ensure that an organization achieves the highest level of efficiency in its operations. It streamlines the way the organization receives its inventory and how the same inventory gets to the final destination (Shim & Siegel, 1999). Thus, improving distribution operations management boosts returns on assets by affecting both assets and profits. For any business, the biggest benefit of effective distribution operations management is controlling orders and inventory (Christopher & Ryals, 2014). Companies need to have enough orders in their distribution centers to meet customer demand. Product sell out would turn away customers thus distribution operations management ensures that there is always enough stock to meet customer demands (Melnyk, Narasimhan & DeCampos, 2014). At the same time, distribution operations management should ensure that companies do not distribute more than what is necessary. The reason is that it is very expensive to store and some of the goods may be rendered obsolete (Morton, Cambiaghi & Radcliffe, 2015). Therefore, effective distribution operations management focuses on ensuring that inventory maximize returns for the company (Wild, 2003).

• Minimal working capital on managing inventory

Effective distribution operations management should minimize the amount of working capital invested in inventory. Cash-to-cash cycle is one of the factors that influence the success of distribution centers and it relies on fast inventory turns (Manzini, Accorsi & Bortolini, 2014). Therefore, effective distribution operations management should ensure that organizations achieve inventory accuracy to enhance inventory turns. In the event that such information is inaccurate, the company may compensate by overbuying thus overstocking the distribution centers (Mahadevan, 2010). One of the best approaches is to adopt trading partner collaborations programs because they are effective at increasing inventory returns. For instance, vendor managed inventory (VMI) is a model that allows organizations to shift the responbility of inventory management back to the supplier. The organization share information on their sales levels and the supplier is tasked with replenishing inventory when necessary. The rationale for such an approach is that vendor have better skills at reducing inventory assets that the customer. The vendor only needs to monitor specific items on their distribution list (Panda & Mohanty, 2011). In most cases, effective distribution operations management ensures that the company spends minimal amounts of capital on managing inventory by outsourcing such tasks (Chae, Olson & Sheu, 2014). One of the benefits of VMI is that it minimizes stock outs thus ensuring that both the supplier and the customer have adequate supply of the product without delays. Consequently, it enables distribution operations management to enhance sales for the company in the long run (Chen, Preston & Swink, 2015).

• Investment in technology

One of the most common practices of distribution operations management is the use of technology. Most of the organizations view technology as a solution to inefficiencies and poor performance. However, it is important that distribution operations management focus on technology as a means to an end rather than an end in itself (Bandaly, Satir & Shanker, 2014). It does not make any sense for companies to manage simple distribution operations using expensive technological tools. In fact, companies that achieve effective distribution operations management do not invest large sums of capital to deal with problems that require simple methods to the solution (Chen, Preston & Swink, 2015). It is for this reason that effective distribution operations management ensures a combination of both automation and mechanization at the distribution center (Rowbotham, Azhashemi & Galloway, 2012). Simple tasks require mechanization whereas large and complicated tasks will require full automation (Chae, Olson & Sheu, 2014). For instance, full automation is appropriate when distribution centers have high throughput volumes or the operations are labour intensive. It is also appropriate if distribution requires minimal changes in the supply chain (Dey, 2014). On the other hand, distribution operations management considers mechanization to save on costs and maximize flexibility. Mechanized processes are cheaper to design and can be altered when necessary (Corominas, 2013).

Question 3 (20 marks) (700 words)

Use DHL (see assignment brief above) as a case study for a critical review of how information technology in the Supply Network can help the Logistics and Operations Manager achieve their objectives.

Business organizations are increasingly adopting the use of information technology to manage today’s complex supply chains. DHL Express is the global market leader in the transport and logistics industry (Surana, Kumara, Greaves & Raghavan, 2005). The company deals with complex supply chains and has adopted the use of information technology to handle its supply chain processes. DHL uses information technology for the sake of sharing information related to planning including demand forecasts, inventory information, and production capacity information with the intention of enhancing the effectiveness of its supply chain. The reason is that DHL is operating in a highly volatile and unpredictable business environment that requires instant information for effective decision making (King, M. (2012). DHL services more than 140,000 destinations in more than 200 countries across the globe. The company is engaged in the business of delivering packages in all these destinations and this poses a unique challenge (Weele & Raaij, 2014). How does DHL work in unique local environments characterized by different languages and cultures while still manage to deliver these services on a global platform that is time-intense? This is the greatest challenge that DHL has been facing since its entrance to the global transport and logistics industry.

The success of DHL in the transport and logistics industry is based on its ability to think global and act local. Acting local means that the company avail information on packages to their customers and employees in different parts of the world in their local languages. Such packages contain current information and employees as well as customers can see the information on the screens of their computers. DHL acts global by establishing computer systems across its distribution centers and can use the system to check the status of the packages (Chen, Preston & Swink, 2015). Such a system has enabled customers to trace the location and status of their packages thus enhancing the company’s decision making process. During its early days of operations, DHL established data centers in major countries of distribution to coordinate the delivery of parcels in different destinations across the world. These centers facilitated the transfer of data from one country to another and enabled the company’s local partners to gather the relevant information for decision making (Xu, 2011). The company had a common master database that allowed local partners to access relevant information such as shipments, transit times and billing details thus enabling decision makers to prepare for delivers on time. One of the objectives of DHL is to ensure fast delivery of packages at the minimum cost (Jeyaraj & Sethi, 2012). Therefore, the central information database enabled managers of different delivery centers in the world to identify packages that would arrive in their centers and prepare for their delivery on time (Sabherwal & Jeyaraj, 2015). Such an information technology system ensured that the company delivered at the time it had informed its customers (King, 2012).

Despite the efficiency of the system, the company was facing challenges in its decision making. It was decentralized system thus managers from different countries would fly to regional meetings more often thus increasing operational costs. Consequently, the company adopted a new management process (Subramani, 2004). Consequently, the company started a shift from the decentralized system towards a more centralized system (Smirnov, Sheremetov, Sánchez & Shilov, 2013). The shift was to ensure that the company achieved its objectives of minimizing risks, reducing costs, and increasing the speed of delivery. From the start of 2000, the company started focusing its infrastructure in low-cost regions (Straub, Rai & Klein, 2004). The company established three regional hubs for its global information systems and made these regions centers of information processing for a group of countries within the same region (Campo, Rubio & Yague, 2010). Over time, DHL has managed to survive in a competitive business environment because of its ability to successfully align its information technology systems to its business objectives. The company’s clear business objective is to achieve fast delivery of customer packages at the lowest cost (King, M. (2012). The centralization of its information systems has enabled the company to share information across its delivery centers within hours thus ensuring that managers in these distribution centers make decisions with regards to storage and delivery in the shortest time (Sanders, 2016). The overall effect is that the company can deliver parcels within days and maintain low costs in managing its operations (Selviaridis & Norrman, 2014). Logistics and operations managers can access the global information system and identify the relevant information on their locations to use it for decision making (King, M. (2012).

Question 4 (20 marks) (700 words)

Where do modern methods of inventory management assist the above Case Organization (DHL) in its distribution networks? Critically evaluate this with more traditional models such as re-order point and EOQ.

One of the biggest challenges that DHL is facing in its daily operations is the dynamic nature of customer demand in the market. Customer demands are highly variable and the company’s inability to properly convey such information may result in a bull-whip effect. The bull-whip effect causes either inventory pile ups or stock-outs along the distribution chain. The volatile nature of demand may create a ripple effect that result in inventory problems. DHL strive to minimize inventory problems to improve customer service and profitability (King, 2012). Therefore, the company uses the latest inventory control methods along with establishing an efficient information flow system in its supply chain network. The inventory management methods include:

• ABC Analysis

The ABC analysis method is a selective inventory technique that allows DHL to control inventory on the basis of the importance of an item on the supply chain. An analysis of inventory using the ABC method reveals that 10 percent of the total inventory accounts for 70 percent of usage and 20-30 percent may account for 20 percent of the usage value. The remaining 60-70 percent accounts for the remaining 10m percent of usage value (Gudehus & Kotzab, 2012). Therefore, DHL classifies its inventory on the basis of their usage value. Inventory items with the highest level of usage value are classified as A and items with the lowest usage value are classified as C (Gudehus & Kotzab, 2012). The objective for using the ABC analysis method is to determine the financial evaluation of groups of inventory and determine the level of attention for every group. DHL uses such information to make warehouse decisions when handling its inventory (Gudehus & Kotzab, 2012). The company compares warehouse cost reductions with increases in transport costs to determine items for storage (King, 2012). In its conclusion, the company stores top revenue generating items in decentralized points of distribution and storage of low revenue income items in central points of distribution. In fact, the company has gone beyond the use of ABC to include D items (Gudehus & Kotzab, 2012). Thus, the company’s inventory management method is aligned with an ABCD policy. Below is a summary of DHL’s ABCD policy:

Category

Item Description

A Items

Items with high sales levels are stored in local warehouses

B Items

Items with less strong sales are stored in very few but selected regional warehouses

C Items

Low sale items are stored in the factory warehouse

D Items

Items with very sales are never stored but distributed on order

• Economic Order Quantity

DHL uses the economic order quantity approach to determine the level at which it can replenish its inventory to minimize the cost of ordering and maintaining inventory (Agarwal, 2015). When applying the EOQ approach, DHL assumes that it will experience relatively stable demand as well as costs throughought the year. The company calculates EOQ for individual products thus it does not consider the influence of joint ordering in its calculations (Jeang, 2011). DHL works with the following assumptions while using the economic ordering quantity method:

• There is no interaction among items of inventory
• The price of product is constant and independent of time and quantity
• No inventory is on transit
• The company is updated on the prevailing rate of demand
• The planning horizon is infite
• The company is aware of the performance-cycle time for replenishment
• Re-Order Point

It is always too late to place a new order when inventory is depleted thus DHL pays attenotion to the optimal time for reordeing an item and the quanitity of the item (Toomey, 2000). This is how DHL prevents shoprtages in advance. The company has a myriad of options for implmenting its inventory policies (Axsäter, 2015). The company makes decisions on when and how much inventory it should order in order to minimize ordering as well as wareghousing costs. DHL specifies a definite quantity and date for its inventory. The company has a specific level commonly referred to as level “s” (Axsäter, 2015). An order is made when inventory falls below the level after a predetermined period. DHL has three rules in its reorder policy. First, DHL orders a fixed amount of inventory upon reaching a reorder level. Second, there is maximum replenishement upon ahcieving the reorder point. Third, DHL ensures maximum replenishment upon reaching the reorder date (Toomey, 2000).