MAN6573 Midterm Study Guide
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6573
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Industrial Engineering
Date
Dec 6, 2023
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Introduction to SC
1.
Supply Chain Overview
2.
What Is A Supply Chain?
○
A
supply chain
is the system of suppliers, manufacturers, transportation, distributors, and
vendors that exists to transform raw materials to final products and supply those products to
customers.
■
The portion of the supply chain which comes after the manufacturing process is
sometimes known as the distribution network.
3.
Process View (Cycle View)
○
Cycle view clearly defines processes involved, the owners of each process and specifies the
roles and responsibilities of each member and the desired outcome of each process.
○
Each cycle occurs at the
interface between two successive stages
■
Customer
- customer order cycle (customer-retailer)
●
Involves all processes directly involved in receiving and filling the customers
order, customer arrival, customer order entry, customer order fulfillment, and
customer order receiving
■
Retailer
- replenishment cycle (retailer-distributor)
●
All processes involved in replenishing retailer inventories (retailer is now the
customer), retail order trigger, retail order entry, retail order fulfillment, and retail
order receiving
■
Distributor
- manufacturing cycle (distributor-manufacturer)
●
All processes involved in replenishing distributor (or retailer) inventory, order
arrival from the distributor, retailer, or customer, production scheduling,
manufacturing and shipping, and receiving at the distributor, retailer, or customer
■
Supplier
- procurement cycle (manufacturer-supplier)
●
All processes necessary to ensure that materials are available for manufacturing
to occur according to schedule, manufacturer orders components from suppliers
to replenish component inventories, however, component order can be
determined precisely from production schedules (different from retailer/distributor
orders that are based on uncertain customer demand), and important that
suppliers be linked to the manufacturer’s production schedule
4.
Intro to Push/Pull
○
Difference between push and pull push is customer demand and pull is everything after that
5.
Conflicting Objectives
○
There are multiple
goals
for SCM as it is concerned with the
efficient integration
of suppliers,
factories, warehouses and stores so that merchandise is produced and distributed
in the right
quantities, to the right locations, and at the right time
in order to
minimize total system cost
and to satisfy customer service requirements (i.e. responsiveness, customization, etc.).
○
Supply chain
optimization
is hard because it is complex, different facilities have conflicting
objectives, the supply chain is a dynamic system (power structure changes), and the system
varies over time.
■
Suppliers objectives- stable volume requirements, flexible delivery time, little variation in
mix, large quantities
■
Manufacturing objectives- long run production, high quality, high productivity, low
production cost
■
Warehousing objectives- low inventory, reduced transportation costs, and quick
replenishment capability
■
Customers objectives- short order lead time, high in stock, enormous variety of products,
low prices
6.
Uncertainty and Trade-Offs
○
The
uncertainty
that comes with SCM is hard to deal with because matching supply and
demand is difficult, forecasting does not solve the problem, inventory and back-order levels
typically fluctuate widely across the supply chain, and demand is not the only source of
uncertainty (i.e. lead times, yields, transportation times, natural disasters, and component
availability)
■
How to deal with uncertainty
: pull systems, risk pooling, information centralization,
postponement, strategic alliances, and collaborative forecasting.
SC Strategy
1.
Supply Chain Strategy
○
Competitive strategy
defines the set of customer needs a firm seeks to satisfy through its
products and services
○
Product development strategy
specifies the portfolio of new products that the company will try
to develop
○
Marketing and sales strategy
specifies how the market will be segmented and product
positioned, priced, and promoted
○
Supply chain (or operations) strategy
determines the nature of material procurement,
transportation of materials, manufacture of product or creation of service, distribution of product;
consistency and support between supply chain strategy, competitive strategy, and other
functional strategies is important
○
Corporate strategy
is the organization’s positioning in terms of responsiveness, cost
leadership, and product differentiation; collectively, all these strategies seek to exploit (external)
opportunities and (internal) strengths, neutralize (external) threats, and address (internal)
weaknesses.
■
LECTURE NOTES: If you want a responsive supply chain you are going to need to
make some decisions that can create higher costs (trade off: cargo shipping via plane
versus boat) or a company can have a differentiated product. A company cannot switch
between the two overnight there is an evolution which utilizes the corporate strategy.
2.
Strategic Fit
○
Strategic fit
is the consistency between customer priorities of competitive strategy and supply
chain capabilities specified by the supply chain strategy. Competitive and supply chain
strategies have the same goals.
○
A company may fail because of a lack of strategic fit or because its processes and resources do
not provide the capabilities to execute the desired strategy.
○
Evolution of competitive process (typical product life cycle) and correlates with marketing above
the line and then operations below the line
■
Ex: intel when they had different chip sets they reduced the variety consciously so they
do not have a lot leftover in the decline to prepare for a new viable product and its life
cycle
○
On one side of the spectrum we have an efficient supply chain that is conscious about costs and
then on the other side is responsive; to be in the zone of strategic fit determine your
responsiveness in regards to your demand:
■
a certain demand should have an efficiently run supply chain
■
an uncertain demand should have a responsive run supply chain
3.
Push vs. Pull vs. Push/Pull
○
Push strategies (older)
include production decisions based on long-term forecasts and
ordering decisions based on inventory and forecast; but there are some
problems
with push
strategies like the inability to meet changing demand patterns, obsolescence, and the bullwhip
effect (excessive inventory, excessive production variability, and poor service levels).
○
Pull strategies (newer)
include
production being demand driven
where production and
distribution is coordinated with true customer demand and firms responding to specific orders.
Pull strategies
result in
reduced lead times (better anticipation), decreased inventory levels at
retailers and manufacturers, decreased system variability, and better response to changing
markets.
However
, pull strategies have a harder time leveraging economies of scale and it does
not work in all cases.
■
Example in class airplanes (made to order are all examples)
○
To determine whether or not the supply chain process is either push or pull depends on the
timing of their execution relative to customer demand.
■
Pull
: execution is initiated in response to a customer order (
reactive
).
■
Push
: execution is initiated in anticipation of customer orders (
speculative
).
■
Push/pull boundary separates push processes from pull processes.
○
As we know that push strategies is an older paradigm, there has been a shift from this view
where production decisions are based on forecasting to the
push-pull system
where the initial
portion of the supply chain is replenished based on
long-term forecasts
. For example, parts
inventory may be replenished based on forecasts. Final supply chain stages are based on
actual customer demand, for example, assembly may be based on actual orders.
■
Ethan Allen
■
LL Bean
4.
Transportation
○
The role of transportation in the supply chain includes factors affecting transportation decisions,
modes of transportation and their performance characteristics, and transportation in a global
environment.
○
Transportation modes include
■
Trucks (which account for over 75% of shipping costs in US and TL/LTL);
truckload
has
a medium average cost per ton-mile, average haul = 274 miles, average capacity =
42,000 between 50,000 lb., low fixed and variable costs, and with
major issues being
utilization, consistent service, and back hauls.
On the other hand,
less than
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truckload
, has a higher average cost per ton-mile, average haul = 646 miles, higher
fixed costs (terminals) and low variable costs, and with
major issues being location of
consolidation facilities, utilization, vehicle routing, and customer service.
■
Rail has a low average cost per ton-mile, average haul = 720 miles, average load = 80
tons, and with key issues being scheduling to minimize delays/ improve service, off-track
delays (at pickup and delivery end), yard operations, and variability of delivery times.
■
Air is the most expensive with a very high average cost per ton-mile, limited weight for
cargo, and with key issues being location per number of hubs, location of fleet bases per
crew bases, schedule optimization, fleet assignment, crew scheduling, and yield
management (these issues are only prevalent if the company is running their own fleet).
■
Package carriers
■
Water is best for low cost apparel since there are limitations to certain geographic areas,
including oceans, inland waterway systems, and coastal waters, have very large loads at
very low costs, is the slowest, and is dominant in global trade (autos, grain, apparel, etc.)
■
Pipeline
■
Bikes
○
The
choice of transportation mode
comes down to a manager who must account for inventory
costs; a mode with higher transportation costs can be justified if it results in significantly lower
inventories.
○
Companies can be
intermodal
where they use more than one mode of transportation to move a
shipment to its destination with the most common examples being rail/truck and water/rail/truck
or water/truck. This idea has grown considerably with increased use of containerization and
increased global trade has increased use of intermodal transportation. This is more convenient
for shippers (one entity provides the complete service); however, the key issues involve the
exchange of information to facilitate transfer between different transport modes.
○
There are logistics to consider between international and domestic transportation like it being
riskier and more complex, attention now being paid to cultural, political, and economic factors,
interpersonal management tasks are more difficult, inventory costs are higher (pipelines are
longer and slower, uncertainty increases safety stock, product proliferation meaning more
SKUs, and pilferage and risk which increases carrying cost). Also, international transportation is
more difficult and costlier since there will be multiple modes of transportation, manager has to
deal with new terms, different intermediaries, complex documentation, as well as need for
consolidation of large shipments, slower costlier service, and international facilities networks
difficult like possible lack of infrastructure.
Sourcing
1.
Overview
○
There are multiple roles of sourcing in a supply chain
■
Purchasing
, also called
procurement
, is the process by which companies acquire raw
materials, components, products, services, or other resources from suppliers to execute
their operations.
■
Sourcing
is the entire set of business processes required to purchase goods and
services.
■
Outsourcing
is the supply chain function being performed by a third party.
○
One of the purchasing department’s most important functions is the initial evaluation and
selection of suppliers
.
50% of a firm’s quality problems result from poor selection and
management of the supply base.
It is important to select only those suppliers that can meet a
purchaser’s requirements in many different performance areas.
○
The supplier selection criteria entails (Sydney Quit Cold Turkey)
■
Speed
■
Quality (good quality will help and bad quality will kill)
■
Cost
■
Technology (suppliers may help introduce new technology and will help with product and
process design)
○
There are also supplier attributes that make them more attractive including overall personnel
capability, cost structure (think of it as public vs. private company), quality management
philosophy, process and technological capability, including design capability, environmental
regulation compliance (very important nowadays since this information is more readily and
would be a huge PR hit), and financial capability and stability. Additionally, good suppliers have
a good production schedule and control systems (delivery), information systems capability,
supplier purchasing strategies, policies and techniques, and potential for long-term partnership.
○
There is a
scoring model to evaluate suppliers and the selection process
. The model
gathers quantitative data to determine which supplier to go with and it is a selection process. It
works by managers deciding how much they want to weigh each of these categories, then they
give a number for each of the suppliers, and lastly add up the scores.
○
Carillo thinks this is a useful way to sort by looking at the suppliers quantitative when there are a
lot to look at but does not work when there are a few because there is some qualitative data that
would be needed so she does not love it but could be used in addition to another thing.
○
KEY POINT
: Supplier performance should be compared based on the impact on the total cost
of ownership. In addition to acquisition costs, ownership and post-ownership costs should also
be considered. In many instances, a higher acquisition cost more than compensated for by
lower ownership and post-ownership costs.
■
There is a lot more than the cost per unit when deciding this data. TCOO (total cost of
ownership) refers to the additional costs of doing things with a certain supplier, programs
and benefits.
○
You can decide on a single or multiple source.
Single sourcing is more favorable if
long term
prior commitments prevent the possibility of splitting the order, the supplier owns exclusive
patents or know-how, a given supplier has outstanding quality, the order is small, concentrated
purchases offer higher quality discounts, the supplier will be more cooperative, deliveries may
be more easily scheduled, effective supplier relations require considerable time/effort (i.e. one
stop shopping), single sourcing is a prerequisite to partnering, and may be appropriate for JIT
(just in time) or EDI (electronic data interchange).
■
Toyota used to do single sourcing but there was a fire at the plant and it showed that
anything can happen like this including political or environmental disruptions so it is
better to source from multiple suppliers to mitigate the risks.
2.
Outsource?
○
Insourcing versus outsourcing or make versus buy.
○
There are multiple
advantages of insourcing
including the buyer keeps control of the required
technology and it allows a firm to spread its fixed costs over larger volumes. However,
disadvantages of insourcing
include the level of investment required (risks increase with
dedicated plants and semiconductor industry since the average cost of a ship fabrication plant is
between $15 and $20 Billion as of 2022 and the life of the process equipment is only 6 months).
Another disadvantage is the lack of flexibility if a firm tries to change the product in accordance
with market needs.
○
Outsourcing advantages
include how it allows buying firms a greater degree of flexibility and
improves cash flows through less upfront investment in plant and equipment. For example, Dell
supports $3B in annual sales with $60M of fixed assets by using contract manufacturers.
Another advantage with outsourcing are the cost savings. However, there are
disadvantages
of outsourcing
that include, other than the advantages of insourcing, the risk of choosing the
wrong supplier and the risk of losing key skills and technology which may weaken a company’s
competitive position.
○
Factors that drive outsourcing
:
a third party may be able to provide a sustainable growth of
the surplus
by aggregating to a higher level than the firm itself; the growth in surplus comes
from aggregating the following items to a level that the firm cannot achieve on its own: capacity,
inventory, inbound or outbound transportation, and warehousing; a growth in surplus may also
occur if the third party has lower costs or higher quality because of specialization or learning.
■
Within the factors that drive outsourcing are the factors that influence growth of surplus
by a third party (Sweet Sydney Ure)
●
Scale- a third party can achieve further scale economies and increase the
surplus
●
Specificity of assets- if assets required are specific to a firm, a third party is
unlikely to increase the surplus
●
Uncertainty- if requirements are highly variable overtime, third party can increase
the surplus through aggregation
○
KEY POINT
: A firm gains the most by outsourcing to a third party if its needs are small, highly
uncertain, and shared by other firms sourcing from the same third party.
○
SUMMARY OF THE
8
OUTSOURCING RISKS
: the process is broken, underestimation of the
cost of coordination, reduced customer/supplier contact, loss of internal capability and growth in
third-party power, leakage of sensitive data and information, ineffective contracts, loss of supply
chain visibility, and negative reputational impact.
○
Third party logistics (3PL) include the outsourcing of freight operations, storage, order
preparation, and final delivery. The annual growth rate of 3PL providers is about 50% and also
may provide management services like with contracts.
■
Benefits of 3PL
include: cost savings, improvement of service levels and flexibility (in
geography, workforce size, additional services, and resource flexibility), improvement in
inventory management, enabling access to new marketers, reducing financial investment
risk of owning logistics assets, and access to new technologies and innovation solutions.
3.
Purchasing Basics
○
Over the years purchasing has moved from a clerical activity to a managerial activity. It is a
strategic/tactical function that provides significant support to the overall strategy and it has
become the biggest bang for the buck since improving the purchasing function. The
manufacturing industry spends between 50 to 70 cents of each dollar of revenue on purchased
materials. Reducing materials cost reduces CGS (cost of goods sold) and improves profits.
○
The
objectives
of purchasing include providing an
uninterrupted flow
of materials while keeping
in mind that shortages may be extremely costly. Also,
keeping inventory investments at a
minimum
since uninterrupted flows with high inventories are unacceptable. Additionally,
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purchasing should
maintain or improve quality
through corrections subsequent to production but
can be extremely costly. Purchasers should also
find and develop competent suppliers
since
suppliers must be around to honor their quality and service commitments. It is important to
standardize where possible
since standardization leads to higher volume purchases, lower
price, and lower inventory investment. Moreover, purchasing objectives include
reducing
administrative costs
,
supplying information to product/process design about new technology and
substitute parts/components, and eliminating non-value adding activities
like extra storage and
inspections. Lastly, these purchasing objectives include
working with other functional areas to
improve overall operations
like design engineers (to improve product design and shorten the
product development cycle time), marketing/ sales (to serve on the new product design teams,
improve forecasting, and getting a better understanding of customer needs and requirements),
and accounting/finance (to make sure the suppliers are paid on time).
HOWEVER, THE
OVERALL OBJECTIVE is to improve the competitive position of the organization.
○
With purchasing there are some
organizational issues
so there are responsibilities to mitigate
these issues including downsizing, global sourcing, concurrent design, heightened attention on
quality, global competition and vertical disintegration resulting in added responsibilities for the
purchasing function. Common issues include developing new supply sources, conducting value
analysis, make-or-buy decisions, selecting inbound transportation carriers, and controlling
(inbound) inventories.
○
To determine the
placement of purchasing authority
, the organization will answer questions
pertaining to the structure of decision-makers, whether or not purchasing should be centralized
or decentralized, centrally or locally or at the HQ level or plant level.
■
Decentralized: low-leveraged volumes, high degree of specialization, low degree of
coordination, low degree of part number standardization, high duplication of purchasing
effort and skills, low ability to centrally train personnel, high speed and responsiveness,
and high degree of product support.
■
Centralized: high-leveraged volumes, low degree of specialization, high degree of
coordination, high degree of part number standardization, low duplication of purchasing
effort and skills, high ability to centrally train personnel, low speed and responsiveness,
and low degree of product support.
○
You can also
classify purchasing requirements
through the following:
■
Strategic items: high profit impact, high supply risk
●
Main tasks
: accurate demand forecasting, detailed market research,
development of long-term supply relationships, make-or-buy decisions, risk
analysis, contingency planning
●
Required information
: highly detailed market information, long-term supply and
demand forecasting, competitive analysis, industry cost curves
●
Decision level
: top level (VP of Purchasing)
■
Bottleneck items: low profit impact, high supply risk
●
Main tasks
: volume insurance, control of vendors, security of inventories,
contingency planning
●
Required information
: medium-term supply/demand forecasts, very good market
data, inventory costs, and maintenance plans
●
Decision level
: higher level (department heads)
■
Leverage items: high profit impact, low supply risk
●
Main tasks
: exploitation of full purchasing power, vendor selection, product
substitution, targeted pricing strategies, contract/spot purchasing mix, order
volume optimization
●
Required information
: good market information, short to medium term demand
planning, accurate vendor data, price transport rate forecasts
●
Decision level
: medium level (chief buyer)
■
Non-critical items: low profit impact, low supply risk
●
Main tasks
: product standardization, order volume optimization, efficient
processing, inventory optimization
●
Required information
: good market overview, short term demand planning, EOQ
inventory levels
●
Decision level
: lower level (buyers)
4.
Purchasing Cycle (procurement cycle)
○
1. Need identification
■
The most common watt to inform purchasing of a requirement is with a routine purchase
requisition: description of material, quantity and date required, estimated unit cost/last
price paid, operating account to be charged, date, and authorized signature
○
2. Analysis of possible sources of supply
■
Are there preferred suppliers or do we need to generate a list of potential suppliers
(utilizing information databases and trade journals)
○
3. Source selection
■
Request for quotation, competitive bidding, and negotiation
○
4. Preparation and placement of purchase order (PO)
■
PO represents the physical transmission of the purchase requirements to the supplier.
Once confirmed by the seller the PO becomes a contract. It should contain all the terms
and conditions, price, timing of delivery (partial, full) and payment terms,
■
EDI is a computerized system for transferring purchase documents (PO) between the
buyer and the seller. Cycle time implications
■
Internet procurement systems can also be used
○
5. Follow-up and expedite the order
■
Check the order status to ensure timely delivery
■
See if expediting is necessary (early delivery, speeding up the late orders)
○
6. Receipt and inspection of goods
■
Confirm that the order arrived with the right quantity and quality and forward the
shipment to its next destination (storage and/or inspection)
○
7. Invoice verification
■
Making sure that the invoice arrived on time; the quantity on PO, invoice, and received
goods all match; if the invoice was late make sure discount opportunity is not missed;
and with reputable partners/suppliers some companies pay with the invoice without
receiving and inspecting
○
8. Payment
■
Most of the documentation can be automated via Enterprise Information Systems
○
Purchasing documents/ electronic forms
: purchase requisition, request for quotation,
purchase order, blanket purchase order, material purchase release, material packing slip, bill of
lading, receiving discrepancy report
5.
Reverse Auctions
○
Web based procurement applications market
include the buy side of procurement which is
designed for purchasing organization, the sell side of procurement which is designed for
manufacturers and distributors, then there are trading communities.
○
Survey on benefits of internet procurement for early adopters:
○
It is important to know when to use reverse auctions and the trick is to use these
conditions in
order for it to be successful
:
■
Clearly defined specifications for the good or service, existence of a competitive market
(3-6 suppliers), understanding of market conditions (appropriate pricing expectations),
and buyer and seller familiarity with auction technology. Additionally, there should be
clear rules on how the auction will be conducted, buyer is prepared to switch suppliers if
necessary, and buyer believes that the current price is sufficiently high enough to justify
the use of the auction.
○
There are important
ethical issues
with reverse auctions. On behalf of the buyers, buyer
knowingly accepts bids from suppliers with unreasonably low prices, buyer firm submits
phantom bids, and buyer includes unqualified suppliers to increase price competition. And then
ethical issues on behalf of suppliers include suppliers acting in collusion, suppliers bid
unrealistically low prices in an attempt to renegotiate afterwards, suppliers participate but do not
bid like “bird watching” practice, and suppliers submit bids after the auction is over.
○
With reverse auctions there are a few potential problems including the risk of interrupting good
supply relationships and the development of a poor reputation with the supply base. Additionally
there are costs of running the auction versus expected savings and then the cost savings
potential of auctions versus traditional sourcing. Further, there is significant up-front preparation
and actual versus bid price discrepancies.
Articles
Triple A Supply Chains
Summary
: The article explores the limitations of highly efficient supply chains in maintaining sustainable
competitive advantages, emphasizing the focus on efficiency and cost-effectiveness. These supply chains
often struggle with unexpected market changes, resulting in excess inventory and disruptions during product
launches. The article underscores three crucial attributes for effective supply chains: agility, adaptability, and
alignment among participating companies, which collectively contribute to long-term competitiveness.
Efficiency-centric supply chains, prioritizing speed and cost, are ill-suited to address shifts in market dynamics
and demand fluctuations, leading to inefficiencies like surplus inventory and missed opportunities. To mitigate
these issues, the article stresses the importance of building supply chains that are agile, adaptable to market
shifts, and aligned for mutual benefit. The article showcases Seven-Eleven Japan as an exemplary case of
successfully implementing these principles, resulting in a "triple-A" supply chain and remarkable profitability. It
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highlights the growing significance of agility in responding to disruptions caused by events like natural
disasters, terrorist attacks, and epidemics. Additionally, it outlines six key rules for integrating agility into supply
chains, including real-time data sharing and collaborative relationships with partners. In summary, the article
underscores the role of agility, adaptability, and alignment in achieving robust and responsive supply chains,
supported by relevant case studies.
What do each of the A’s stand for? Name them and describe the objectives of each.
The "A's" in the context of supply chain management stand for Agility, Adaptability, and Alignment. Each of
these terms represents a fundamental concept with distinct objectives:
Agility in supply chains refers to the ability to respond quickly and effectively to changes in demand, supply, or
external disruptions. The primary objective of agility is to ensure that supply chains can swiftly adapt to
unforeseen events, such as natural disasters, market fluctuations, or unexpected shifts in customer
preferences. The goal is to minimize the impact of these disruptions, maintain business continuity, and seize
competitive advantages during uncertain times.
Adaptability: Adaptability involves the capacity of supply chains to evolve and adjust to changing market
conditions, industry trends, and business strategies. The key objective of adaptability is to proactively modify
supply chain structures, processes, and networks to align with new requirements and opportunities. It allows
companies to stay competitive by responding to evolving customer needs and optimizing operations for
efficiency and effectiveness.
Alignment: Alignment pertains to creating a unified purpose and shared interests among supply chain partners,
including suppliers, manufacturers, and distributors. The primary goal of alignment is to ensure that all entities
in the supply chain work harmoniously towards common objectives. This includes information sharing, role
definition, and incentives designed to promote collaboration, reduce conflicts, and enhance overall supply
chain performance.
In summary, the three "A's" in supply chain management represent essential principles aimed at fostering
resilience, responsiveness, and cooperation in supply chains to achieve sustainable competitive advantages in
dynamic and unpredictable business environments.
What methods can companies utilize for each of these A’s? List and describe them.
Companies can enhance Agility by adopting real-time data sharing, enabling quick response to market
changes. To achieve Adaptability, they should conduct scenario planning, implement modular product designs,
and explore alternative sourcing options. Alignment can be achieved by defining shared objectives, promoting
information transparency, and redesigning incentives to encourage collaboration among supply chain partners.
These methods collectively help companies build responsive and adaptable supply chains that ensure
long-term competitiveness.
Describe the supply chain characteristics and techniques of 7-11 Japan.
Seven-Eleven Japan (SEJ) operates with a supply chain characterized by real-time systems for monitoring
customer preferences and sharing data across its stores, distribution centers, and suppliers. It utilizes an
adaptable transportation system, employing various vehicle types like motorcycles and helicopters to ensure
on-time delivery. SEJ aligns its interests with partners, including suppliers and carriers, through shared
incentives, trust-based relationships, and joint accountability for service quality. The company customizes its
supply chain to match product characteristics and market conditions, offering tailored solutions for different
consumer segments. Overall, SEJ's "triple-A" supply chain combines agility, adaptability, and alignment to
maintain outstanding stock-out rates, high inventory turnover, and profitability.
How to Negotiate with Powerful Suppliers
Summary
: The article discusses strategies for dealing with powerful suppliers in the context of changing
market dynamics, such as supplier consolidation. The main points are:
●
Supplier Consolidation: The article starts by highlighting how supplier consolidation has reduced
choices for buyers in various industries. It mentions reasons for this consolidation, including cost
reduction, technology disruption, and demand-supply dynamics.
●
Strategic Approaches: To address the challenges posed by powerful suppliers, the article suggests a
four-step strategic framework, in order of ascending risk.
○
Bring New Value to Your Supplier: This involves offering additional value to the supplier, such as
long-term contracts or access to new markets, in exchange for price concessions.
○
Change How You Buy: This strategy focuses on modifying the way you procure goods, which
can involve consolidating purchase orders, forming purchase consortiums, or rethinking
purchasing bundles.
○
Create a New Supplier:** If existing options fail, you can explore creating a new supply source,
potentially by enticing a competitor from an adjacent market or through vertical integration.
○
Play Hardball: As a last resort, you can resort to aggressive tactics like canceling orders,
suspending business, or threatening litigation to compel the supplier to comply.
●
Real-life Examples: The article provides real-life examples of companies that successfully implemented
these strategies to negotiate with powerful suppliers.
●
Considerations: It emphasizes the importance of understanding the problem, cross-functional
collaboration, creative thinking, strong analytical capabilities, and senior executive commitment when
implementing these strategies.
●
The article concludes by highlighting that companies facing powerful suppliers have several options to
redefine their relationships and improve their negotiating positions. The key is to choose the right
strategy based on the specific circumstances and challenges faced with the supplier.
How can companies implement each of these four strategies?
Companies facing challenges with powerful suppliers can deploy a range of strategic approaches to improve
their negotiating positions. The first strategy involves bringing new value to the supplier, often through
long-term contracts and financial analysis to determine mutually beneficial pricing structures. Access to new
markets and attractive incentives can also rebalance the relationship. The second approach entails changing
how the company procures goods, which includes consolidating purchase orders, forming purchase
consortiums with industry peers, and rethinking purchasing bundles to enhance collective bargaining power. In
cases where existing options fail, the third strategy is to create a new supplier, potentially by enticing a
competitor from an adjacent market or through vertical integration. This is a more significant commitment and
involves careful planning. Finally, as a last resort, the fourth strategy is playing hardball, which can involve
canceling orders, suspending future business, or even threatening litigation. The choice of strategy should
align with the specific circumstances and risk tolerance, and it requires cross-functional collaboration, creative
thinking, and a clear assessment of potential risks and benefits.
It’s Up to Manufacturers to Keep Their Suppliers Afloat
Summary
: Many governments have introduced stimulus and relief programs to counter the economic fallout
from the Covid-19 pandemic, but these efforts may be insufficient and untimely to rescue numerous suppliers
who are on the brink. The primary saviors for these suppliers, who are vital to the major manufacturers they
serve, must be the manufacturers themselves. While some manufacturers have taken action, many more
should follow suit, as it is in their best interest. Suppliers across various industries have been hit hard by
production cuts and closures due to the pandemic. Even well-capitalized companies like Aptiv are struggling.
Some large manufacturers have responded to this crisis by financially supporting their supplier ecosystem,
including BHP, Vodafone, and Lockheed Martin. Emergency supply chain financing during a crisis is not new,
as companies like LG and Cisco did so during the 2008-2009 financial crisis, gaining loyalty and rewards from
their suppliers. To address the current situation, major manufacturers should employ several best practices
immediately. These practices include assessing suppliers' financial health, prioritizing support based on their
impact on revenues, and choosing appropriate support options for suppliers in need. The interconnected
nature of supply chains necessitates urgent action to prevent their collapse, as the long-term success and
even survival of major manufacturers are at stake. In conclusion, major manufacturers must step up to support
their struggling suppliers, as government programs may not be sufficient. The pandemic's impact on the
supplier ecosystem is severe, and prompt action is essential to ensure the stability and continuity of these
supply chains, ultimately benefiting the manufacturers themselves.
What policies should manufacturers consider undertaking to aid suppliers in a crisis?
Manufacturers can implement several key policies to aid suppliers during a crisis. First, they should assess the
financial health of their suppliers, both publicly traded and privately held, and prioritize those in need. Next,
manufacturers should rank suppliers based on their impact on revenues and the difficulty of finding
replacements, even considering lower-tier suppliers for critical components. To provide immediate support,
manufacturers can offer different options based on the supplier's significance. For major suppliers, advance
orders can be placed to help them secure financing. For medium-sized suppliers, upfront payments or equity
investments may be considered. Small suppliers can benefit from loans, grants, early payments, or relaxed
service-level agreements. Ultimately, manufacturers should understand that their supply chains are
interconnected ecosystems, and the survival of suppliers is essential for their own long-term success. By
implementing these policies, they can mitigate the crisis's impact and strengthen their supplier relationships for
the future.
Reducing the Risk of SC Disruption
Summary
: In the early 21st century, supply chain vulnerabilities have been exposed by global disruptions,
such as natural disasters and unforeseen events. Supply chain managers recognize the need for safeguards,
but conventional solutions like increasing inventory, adding capacity, and diversifying suppliers often conflict
with cost efficiency goals. Financial performance often takes precedence, given its direct impact on the bottom
line.Supply chain efficiency focuses on cost optimization, while supply chain resilience aims to reduce risk.
These goals can coexist by segmenting or regionalizing supply chains based on volume, product variety, and
demand uncertainty. Segmentation minimizes risk and lowers costs, while regionalization localizes production
and distribution, especially in the face of rising transportation costs. Reducing supply chain fragility involves
treating predictable and unpredictable aspects of demand separately. In response to disruptions, managers
should follow a three-stage response: detecting the disruption, designing a solution, and deploying it.
Leveraging information technology systems can help contain the impact of supply chain disruptions. A strategic
approach to supply chain resilience yields both cost efficiency gains and effective risk mitigation. Achieving a
quicker response to disruptions involves proactively screening and developing contingent recovery plans.
Overestimating disruption likelihood leads to better decisions, while balancing the concentration of resources is
crucial for risk management. Executives must be willing to invest in supply chain resilience and implement
global mechanisms to address disruptions. In the long run, the cost of inaction can outweigh the benefits of
investing in resilience.
What’s the difference between recurrent and disruptive risks?
Recurrent risks are frequent and predictable events that supply chain managers encounter regularly, such as
demand fluctuations or supplier delays. These risks can be managed through established practices and
processes. Disruptive risks, on the other hand, are rare and unexpected events like natural disasters or
geopolitical crises that can have a severe impact on the supply chain. They are challenging to predict and
require specialized strategies for mitigation and recovery. While recurrent risks can be addressed through
efficiency and optimization, disruptive risks demand resilience and flexibility in the supply chain to minimize
their impact.
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How can a firm reduce its risk and improve its performance? List and describe several of these.
A firm can reduce risk and enhance its performance by adopting a strategic approach that focuses on both
supply chain efficiency and resilience. This can be achieved through measures such as supply chain
segmentation and regionalization, which help isolate disruptions and localize production. Overestimating the
likelihood of disruptions can also lead to better decision-making, as investing in resilience can pay off in the
long run. Additionally, proactive monitoring of material and information flows using information technology
systems can expedite responses to supply chain disruptions. By balancing the trade-offs between efficiency
and risk management, companies can achieve a more robust and responsive supply chain that enhances
overall performance while minimizing vulnerabilities.
How can a firm reduce its risk although it may be more costly? List and describe several examples of
these.
A firm can reduce its risk, even at a higher cost, by prioritizing supply chain resilience. This can involve
investing in redundant resources, backup suppliers, and contingency plans, which may incur initial expenses.
However, such proactive measures provide insurance against disruptions, minimizing the potential long-term
losses due to supply chain breakdowns. By overestimating the likelihood of disruptions and committing to risk
reduction, a firm can enhance its overall stability and reputation. While this may entail higher costs in the short
term, it often proves to be a cost-effective strategy in the long run, as the price of inaction during disruptions
can be significantly greater.
Global Supply Chains in a Post-Pandemic World
Summary
: The COVID-19 pandemic has exposed vulnerabilities in global supply chains. The resulting
economic nationalism, coupled with the US-China trade war, has increased the pressure on manufacturers to
enhance domestic production, reduce dependence on risky sources, and rethink lean manufacturing. While
firms must adapt to these changes, they still face the challenge of delivering low prices and efficient operations.
To build more resilient supply chains, companies should identify vulnerabilities in their supply networks,
categorize suppliers by risk, and assess their capacity for riding out supply shocks. Diversifying the supply
base by adding sources in less vulnerable regions is essential, as is holding intermediate inventory to counter
disruptions. In addition, process innovations such as automation, new processing technologies,
continuous-flow manufacturing, and additive manufacturing can help improve supply chain resilience by
increasing flexibility and reducing dependency on distant suppliers.
What strategies does the author advocate to mitigate supply chain risks in a post-pandemic world?
List and describe at least three of these.
In a post-pandemic world, the author advocates several strategies to mitigate supply chain risks. First,
companies should identify and address hidden risks by thoroughly mapping their entire supply chain, including
distribution facilities and transportation hubs. This comprehensive approach allows them to categorize
suppliers as low, medium, or high-risk based on metrics like the impact on revenues if a source is lost,
recovery time for suppliers, and the availability of alternate sources. Such analysis helps companies
understand their vulnerabilities and how long they can withstand a supply shock without halting operations.
Second, diversifying the supply base is crucial to reducing dependency on high-risk sources. Firms should add
more suppliers in locations less vulnerable to the same risks, promoting geographic diversification to mitigate
region-wide disruptions. This "China plus one" strategy can help spread production across different countries
and regions, enhancing supply chain resilience.
Third, holding intermediate inventory or safety stock is essential when alternate suppliers are not immediately
available. Companies must determine how much extra stock to maintain during disruptions, weighing the costs
of holding inventory against the financial impact of a disruption.
Finally, embracing process innovations is vital for improving supply chain resilience. Companies can make
significant process improvements when relocating parts of their supply chain or bringing production back
in-house. Innovations like automation, new processing technologies, continuous-flow manufacturing, and
additive manufacturing increase flexibility, reduce dependencies on distant suppliers, and promote resilience.
These strategies can help companies navigate the challenges of a post-pandemic world, ensuring a more
resilient and adaptable supply chain while maintaining competitiveness and efficiency.
Cases
Wal-Mart
List and describe major characteristics of Wal-Mart’s supply chain strategy.
Walmart's supply chain strategy is marked by several key characteristics. Firstly, it emphasizes a highly
efficient and cost-effective distribution system, utilizing a vast network of distribution centers and cross-docking
to minimize inventory holding costs. Secondly, the company places a strong emphasis on technology and data
analytics to optimize inventory levels, demand forecasting, and transportation management, ensuring products
are always available to meet customer needs. Additionally, Walmart's supply chain focuses on sustainability,
aiming to reduce its environmental footprint by implementing green logistics practices and supporting
sustainability initiatives. Lastly, it places a significant emphasis on supplier collaboration and partnerships to
ensure reliable and cost-efficient sourcing. Overall, Walmart's supply chain strategy is built on efficiency,
technology, sustainability, and strong supplier relationships.
Describe their retail strategy.
Walmart's retail strategy is characterized by a commitment to offering "Everyday Low Prices" (EDLP) to
consumers. They achieve this by leveraging their extensive supply chain and efficient logistics to keep costs
low and pass on savings to customers. Walmart also focuses on a wide product assortment, providing
everything from groceries to electronics under one roof, which promotes convenience and attracts a broad
customer base. Additionally, they invest in online retail to compete in the e-commerce market. Walmart's retail
strategy centers on providing value, variety, and convenience, aiming to serve the diverse needs of customers
and maintain a strong market presence.
How does Wal-Mart utilize information systems to support their supply chain and retail strategy?
Walmart harnesses information systems extensively to bolster their supply chain and retail strategies. For
supply chain management, they employ advanced data analytics and inventory management systems to
optimize product flow, minimize costs, and enhance demand forecasting. Their Retail Link system links
suppliers' data directly to Walmart's inventory, improving supply chain efficiency. For retail, Walmart uses
information systems to track inventory levels in real-time, ensuring product availability, and to personalize
marketing efforts through customer data analysis. Additionally, their online platform and app enhance the
shopping experience, offering easy ordering and delivery options. In essence, Walmart leverages information
systems to enhance supply chain efficiency, optimize inventory, and create a seamless, customer-centric
shopping experience.
What are the Remix and RFID initiatives?
Walmart's Remix and RFID initiatives are integral to its supply chain optimization efforts. The Remix initiative
involves redesigning its distribution centers and delivery routes to enhance inventory management and reduce
transportation costs. It aims to increase efficiency by redistributing goods to be closer to stores, minimizing
restocking lead times. In contrast, the RFID (Radio-Frequency Identification) program involves tagging
products with RFID chips for real-time tracking, enabling accurate inventory monitoring, reducing stockouts,
and improving shelf availability. These initiatives collectively improve supply chain agility, cost-effectiveness,
and product availability, aligning with Walmart's commitment to providing customers with quality products at the
best prices.
How can Wal-Mart meet its targets for growth?
Walmart can meet its growth targets by focusing on several key strategies. Firstly, it should continue expanding
its e-commerce presence and digital capabilities to capture a larger share of the online retail market.
Additionally, Walmart can explore international expansion opportunities in emerging markets. Investing in
sustainability initiatives and ethical sourcing can also resonate with environmentally conscious consumers.
Furthermore, strengthening its supply chain and data analytics capabilities will enhance operational efficiency
and customer experience. Lastly, Walmart should adapt to evolving consumer preferences and market trends
while maintaining its commitment to offering value and convenience, which are core to its success. These
multifaceted approaches can enable Walmart to sustain and enhance its growth trajectory.
Crocs
What are Croc’s core competencies?
Crocs' core competencies revolve around their vertically integrated supply chain, strong brand image, and
innovative use of materials. They excel in controlling and owning their means of production, from
manufacturing to distribution, allowing them to be highly responsive to changes in demand. Their unique
Croslite material, lightweight, odor-resistant, comfortable, and easy to clean, provides a competitive advantage.
Crocs also have a positive relationship with retailers, allowing them to place smaller pre-booked orders and
order more if products sell well, reducing the risk associated with predicting fashion trends. Their ability to
extend their product line efficiently and explore new materials and shapes further demonstrates their core
competencies in product innovation and diversification. Additionally, their push-pull supply chain strategy and
efficient warehousing model contribute to their strengths. Overall, Crocs' core competencies lie in their
integrated supply chain, innovative product materials, and brand recognition.
How do they exploit these competencies in the future? Consider the following alternatives: Further
integration into materials, Growth by acquisition, Growth by product extension
In the future, Crocs can exploit their core competencies by pursuing a multifaceted approach. Firstly, they can
continue to further integrate into materials, exploring new options like leather, canvas, suede, and enhancing
the sustainability of their Croslite material. This would allow for diversification and responding to changing
consumer preferences. Additionally, growth by acquisition can help them secure new technologies and material
suppliers, reinforcing their vertical integration strategy. Finally, they can expand their product range by
introducing new shapes, clothing, and accessories to cater to a broader audience. By leveraging their existing
strengths, Crocs can stay ahead in the market, adapt to evolving trends, and sustain their growth.
To what degree do each of the alternatives listed in Question 2 fit the company’s core competencies?
To what degree do they defocus the company away from their core competencies?
Each of the alternatives listed in Question 2 aligns with Crocs' core competencies to varying degrees. Further
integration into materials aligns well with the company's strengths, as it builds on their existing expertise in
materials like Croslite and enables them to innovate and diversify within this realm. Growth by acquisition can
also complement their core competencies by bringing in new technologies and suppliers, enhancing their
control over the supply chain. On the other hand, growth by product extension, while still related to their core
competencies, may defocus the company to some extent if it leads them too far away from their traditional
footwear offerings. However, judicious expansion can still leverage their brand recognition and supply chain
efficiency. The key is to strike a balance between diversification and staying true to their core competencies.
Analyze Croc’s current supply chain. Give recommendations on how they should improve their supply
chain.
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Crocs' supply chain, already efficient due to vertical integration, can be improved through investments in R&D
for faster machinery, better forecasting accuracy, and the implementation of a Croslite recycling program.
These steps would enhance sustainability efforts, lower material costs, and expedite delivery times.
Maintaining transparency with consumers about sustainability initiatives and offering incentives for repeat
purchases can strengthen brand loyalty. Regular process optimization ensures continued efficiency and
adaptability. These recommendations would not only maintain the core competencies but also further reinforce
the company's competitive position in the market.
Uniqlo
Identify and discuss Uniqlo’s supply chain strategy.
Uniqlo's supply chain strategy centers on affordability, quality, and customer feedback. They employ a
counter-current approach by outsourcing production to China, using a Just In Time model with a short lead
time, and aggressively expanding their store network. Uniqlo follows the Specialty Store Retailer of Private
Label Apparel (SPA) model and focuses on agile supply chain management. They embrace a customer-centric
approach, gathering direct feedback and utilizing in-store technology. Uniqlo's global expansion, unique brand
identity, and commitment to innovative, affordable, and high-quality products give them a competitive edge.
This strategy differentiates them from competitors like Zara, H&M, and GAP.
What are Uniqlo’s key sources of competitive advantage?
Uniqlo's key sources of competitive advantage lie in their commitment to innovative, affordable, and
high-quality products, setting them apart from competitors. They have established a unique brand identity and
successfully expanded globally, adapting products to local preferences while maintaining a diverse consumer
base. Uniqlo's agile supply chain and customer-centric approach, which includes direct feedback gathering and
in-store technology, enhance the overall shopping experience. Their global reach, non-vertical integration, and
focus on price and quality contribute to their strong market position, distinguishing them from rivals in the
fashion industry.
Compare and contrast Uniqlo’s supply chain strategy with its competitors.
Uniqlo's supply chain strategy differentiates itself from competitors through its focus on price and quality,
steering clear of volatile fashion trends, and a commitment to the Just In Time model. While Uniqlo outsources
production to China, Zara, H&M, and GAP employ more vertically integrated models. Uniqlo's global expansion
and diverse customer base reduce reliance on a single market, a stark contrast to the more traditional retail
strategies of Zara and GAP. Uniqlo emphasizes customer feedback and in-store technology for efficient
inventory management, whereas Zara and H&M focus on in-season, trendy clothing with less monitoring of
quality. Uniqlo's counter-current approach and SPA model set them apart from their competitors in the apparel
industry.
What should Uniqlo do next? Give recommendations as to how they should improve their supply
chain.
Uniqlo can further enhance its supply chain by implementing several key recommendations. Firstly, they should
establish a two-way platform to collect real-time feedback and suggestions from customers, encouraging app
usage and social media engagement. This data can inform product development and help resolve issues
promptly. Secondly, Uniqlo can develop an AI-driven demand forecasting model to create more accurate sales
and production plans, optimizing inventory distribution and reducing lead times. Additionally, integrating
physical stores with e-commerce platforms can offer seamless shopping experiences, while unified inventory
systems allow customers to pick up online purchases in stores. Lastly, digitalizing store operations and
enabling immediate communication among employees would improve efficiency. These steps can elevate
Uniqlo's supply chain to even greater heights.
Ashmark
What were the key issues with (a) Red Star, (b) Ashmark and (c) their relationship that led to this
situation?
The key issues with Red Star included poor leadership and a lack of financial transparency, leading to an
overreliance on Ashmark for 90% of their business. Ashmark, on the other hand, faced challenges due to
changes in leadership and supply chain team, operating in a high-stress environment, and depending on Red
Star for 75% of their product components. Their symbiotic relationship suffered from disrupted supply chains,
poor communication, and a lack of contingency planning. This situation was exacerbated by the OEMs' limited
involvement and awareness in the supply chain, making them ill-prepared for disruptions. In summary, the key
issues revolved around leadership, communication, overreliance, and a lack of contingency planning within
both Red Star and Ashmark, ultimately straining their interdependent relationship.
What is the role of the OEMs in this situation?
In this situation, the Original Equipment Manufacturers (OEMs) play a critical role as they rely on Ashmark for
the supply of complex automotive engine components. The OEMs are concerned about potential supply
disruptions and product availability, as it directly impacts their ability to distribute diesel engines. However, the
OEMs were largely left in the dark and had a vague and non-existent role in the development of this situation.
They were dealt with changing and adverse news at a later stage, highlighting the need for more proactive
involvement and information sharing in the supply chain to better prepare for disruptions and maintain smooth
operations.
What were some of the actions taken by Ashmark immediately after the bankruptcy? Explain why these
were effective or not.
After the bankruptcy decision, Ashmark took several actions to address the supply chain disruption effectively.
They actively managed Red Star to maximize output, sought new suppliers, and duplicated high-volume
tooling for production at another source. Ashmark employees working at Red Star also organized tooling and
ensured immediate shipment. These actions were effective given the circumstances as they aimed to minimize
production downtime and secure alternative sources for critical components. By diversifying suppliers and
ensuring quick tooling transfer, Ashmark took proactive steps to mitigate the disruption's impact. However, the
long-term effectiveness depends on maintaining these strategies and avoiding overreliance on a single supplier
in the future.
What should Ashmark do next? Give recommendations as to how they should proceed in the future.
Ashmark should take several crucial steps to secure its supply chain in the future. First, they should diversify
their supplier base to reduce dependence on a single source. Implementing contingency plans for alternative
suppliers and inventory management systems will help ensure a steady flow of critical components. Improving
organizational communication, structure, and culture is vital for effective response to supply chain disruptions.
Additionally, incentivizing employees and customers, emphasizing high product quality, and engaging in open
financial discussions with business partners will foster resilience and long-term stability. Overall, Ashmark
needs to shift from a reactive approach to a proactive one, prioritizing supply chain preparedness and strategic
partnerships.
Medicom
What is the difference between supply chain agility and supply chain resilience? Can companies
develop both capabilities simultaneously?
Supply chain resilience and agility are crucial in supply chain management. Resilience focuses on a supply
chain's ability to withstand and recover from disruptions, emphasizing redundancies, alternative sourcing, and
contingency plans. Its goal is to minimize disruptions' impact. Agility, on the other hand, centers on adapting to
market changes swiftly through flexible processes and rapid decision-making to optimize opportunities.
Resilience and agility complement each other, as agile supply chains are inherently more resilient. Enhancing
both involves diversifying suppliers, implementing technology for real-time visibility, and regularly updating
strategies and contingency plans, ensuring a streamlined supply chain management system to tackle dynamic
business challenges effectively.
How long will it take before the priorities of Medicom’s customers shift from product availability to
cost?
During the early stages of the pandemic, Medicom's top priority was meeting the urgent demand for medical
supplies, including personal protective equipment and ventilators. They responded with agility by ramping up
production and distribution. However, as we transition into the post-pandemic era, customer priorities are
changing. Healthcare facilities now face budgetary restrictions and seek cost-effective solutions to maintain
operations. Shortages during the pandemic have prompted a shift towards more efficient inventory
management. Additionally, healthcare providers are exploring supply chain diversification and localization to
reduce costs. Changing government rules and policies influence purchasing decisions. Medicom has adapted
by offering a broader product range, catering to diverse financial constraints and emphasizing
cost-effectiveness alongside product availability, recognizing the evolving needs of healthcare providers in a
post-pandemic world. The adaptability of companies like Medicom will play a crucial role in shaping the future
of medical supply priorities.
Consider the pros and cons of building a new plant to manufacture the melt-blow.
COVID-19's impact on Medicom included raw material supply limitations, particularly melt-blown
polypropylene, due to increased demand. COO Guillaume Laverdue considered building a new plant for
vertical integration into melt-blown manufacturing, offering several benefits. Firstly, it would create a more agile
supply chain by reducing reliance on external suppliers, decreasing the risk of delays, and allowing quick
supply adjustments based on market changes. Secondly, it promises price stability, eliminating the risk of price
fluctuations, resulting in better control of production costs. Lastly, building a plant allows Medicom to spread
fixed costs over larger production volumes, lowering manufacturing costs and boosting profitability.
However, there are obstacles, including the substantial upfront investment cost of over $7 million, affecting
cash flow and potential growth investments. Moreover, Medicom lacks experience in melt-blown
manufacturing, a complex process requiring expertise for quality assurance, posing a significant challenge
given their primary focus on surgical mask production.
Consider the pros and cons of working with suppliers to further develop viable sources for the
melt-blow.
Medicom faced a crucial decision between working with multiple melt-blown suppliers or establishing their own
production plant, considering various factors. They were pressured to secure raw materials for their 11 mask
manufacturing facilities. The disruption in supply chains due to the pandemic and foreign governments seizing
mask manufacturing plants led them to consider self-sourcing melt-blown.
Pros of continuing to work with suppliers include maintaining flexibility in deploying capital and not tying it up in
a facility. The personal protective equipment industry experiences feast-and-famine cycles, so this approach
allows Medicom to adapt to changing production demands. Working with suppliers increases cash flow, global
sourcing options, and potential for leverage in long-term agreements. Suppliers can also scale quickly during
crises.
However, cons involve the risk of supply disruptions if the wrong supplier is chosen, potentially impacting
Medicom's mask production. Losing key technology and skills weakens Medicom's competitive position,
especially when forced to source melt-blown at higher prices. Dependence on suppliers during shortages
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exposes Medicom to supply chain risks, with limited control over pricing and supply during industry demand
fluctuations.
Give recommendations on how they should improve their supply chain.
Medicom should focus on simultaneously enhancing supply chain resilience and agility to address changing
customer priorities and pandemic-related disruptions. They can achieve this by diversifying their supplier base,
developing comprehensive contingency plans, and investing in real-time visibility technology. Furthermore,
optimizing their product portfolio to accommodate varying customer needs and improving cost efficiency in
internal processes is crucial. Regular risk assessment and proactive mitigation strategies should be
implemented, particularly for critical materials like melt-blown polypropylene. This proactive and adaptive
approach will help Medicom effectively navigate the evolving supply chain landscape and maintain its position
as a leader in the medical supply industry while meeting customer demands efficiently.