Operations and Supply Chain Management Extracting knowledge from the 1990s and the 2000s Christoforos Mitsios | December 12, 2016
In today's competitive markets, changes in technology and other business areas, force many organizations to give great attention on their supply chain management (planning, implementing and controlling the operations of supply chain) to satisfy customer requirements as efficiently as possible. That efficient and effective flow of physical items, in the form of materials from suppliers through the production chain, to the customer, in the form of a finished product (Greasley, 1999), can provide a major source of competitive advantage over competitors.
Effective management of supply chain activities in manufacturing and distribution requires an integrated information system and one of the challenges has been the successful implementation of ERP (Enterprise Resource Planning), as there has been increased reliance on IT (Information Technology). Mainly, the benefits of an ERP (Hamilton, 2004) are:
Manufacturing and distribution companies share many similarities in their supply chain activities and ERP system requirements, but for all the steps between the origin of the product/service and the customer to be successful, every system input and output must meet pre-defined sets of fitness for use performance criteria established with users (Wasson, 2006).
Over the last years, there has been an unprecedented Information Explosion to the fact that it has become a major enterprise resource, especially when it is shared among the whole supply chain to ensure end-users' needs are met (Hill, 2005), and hence its value is increased (Kiountouzis, 2000, p. 32).
Before most communications took place via technology (Khorsrowpour, 2003), there were more meetings and more time was spent at the work centres, enabling information to be exchanged and relationships to develop naturally. Today, with all the technological advantages, information thunders through the communication channels established among the the supply chain and hence productivity has been increased. However, information is not shared easily in the current environment.
Moreover, the specialization has driven many firms to outsource large portions of their business and consequently, the reputation of the companies increasingly depend on those or their suppliers. Total commitment to exceptional standards of performance is always acquired, in order to establish a long-term successful partnership. Effects of working together are significant for both parties. Production lines are set up quickly, easily and without high costs associated with building a new factory or logistical complexities.
As operations evolve, human requirements focus on performance and how it is affected by quality management in various contexts. Alan Larson (Larson, 2003) one of the original divisional quality directors at Motorola was charged with developing training and and deploying the culture and methods of Six Sigma. Costs were reduced, efficiencies were improved and customer satisfaction was maximized. Within the manufacturing operations, costs of the sales was reduced by 30% and in 1990 and 1991 his division was used as the internal benchmark for service and administrative quality.
Today's and tomorrow's global markets, require successful businesses with PLM (Product Lifecycle Management) implementation, as it is a competitive necessity and not an option. Significantly, shorter life cycle and lead times improve business' supply chain efficiency and provide a lots of benefits by increasing an enterprise's flexibility and agility to respond swiftly to changing market pressures and competitors. High products are obliged to have a shorter life cycle than they were in the past, as today they are developed and replaced at a high rate. This cycle of replacement is driven by the exponential performance achieved by researchers in the improvement of existing technologies.
Organizations (Brassington & Pettit, 2006) must take under serious consideration not only the fact that existing products live profitable and efficient lives, but also that they are deleted at the most appropriate time, basically after the maturity stage. Shorter product life cycle means penetrating the market more frequently with better and innovative products, and hence all the supply chain steps from supplier to customer must be under revision, as innovative quality always brings radical change to a market where one new product drives away others.
The adoption of lean production as a strategy was widely adopted by many manufacturing firms in the 1990’s. Reduction of variety and flexibility in order to be achieved greater efficiency is argued to be lean production’s target. However, one of the benefits of IT is its ability to provide more flexibility and product variety (Bruun & Mefford, 2002).
In assembly line production systems managed by lean production concepts, the directives for production are provided by means of kanban from downstream processes. Suppliers are often required to deliver parts on a daily, or in some cases on hourly basis, and parts are never inspected until installed. Mutual trust between suppliers and manufacturing firms plays a major role, as suppliers must ensure that that no defectives are found (Chaudhuri & Iyengar, 2004). By adopting Just In Time Systems, the mass waste along the supply chain is eliminated. Furthermore, unneeded or defective parts, excessive inventories at each stage, and excessive movement of parts between the stages of the supply chain are eradicated. There will be no waste waiting for scheduled service, trips and time wasted in traveling to transmit corridors, time wasted transferring between lines, stations and vehicle capacity wasted during non-peak travel periods, and energy wasted by accelerating and braking heavy vehicles over short distance (Dunning & Richert, 2001).
Physical storage and movement of product in the supply chain includes inventory management within a location, the handling of an inbound and outbound shipment, issuing components and handling output related to production orders, and quality management considerations such as incoming inspection. Today, Vendor Managed inventory (VMI), is one of the most widely used partnering initiatives for improving multi-company. It enables suppliers to utilize information provided by the customer to monitor and replenish inventory levels at customer facilities. Supplier managed inventory, makes it less likely that a business unintentionally become out of stock of a good and reduces inventory in the supply chain. Furthermore, supplier representatives in a store benefit the vendor by ensuring that the product is properly displayed.
Close trading partner relationship between suppliers and customers, is essential in addition to integrated information, in order to ensure that current orders and project requirements along the supply chain are fulfilled in a timely manner by adequate inventories. This information is also needed to make efficient use of storage facilities and plant capacity.
Supplier consignment inventory gives firms the ability to modify specific combinations of suppliers and items as it extends the purchase order process, by providing new transactions to receive material and identify it as consigned. Thus financial transactions on consignment inventory can be delayed until it is consumed, but the material still remains visible for planning. When consumption is reported back to the supplier (QAD, 2003), the supplier can transfer liability for the material in its system and issue an invoice if self-billing is not being used.
Risk sharing is the basic factor that makes VMI work. In many cases, it is repurchased from the retailer by the supplier, if the inventory is not sold. In other cases, the product may be in the possession of the retailer but not owned by him, until the sale takes place. This successful business model has been used by many retailers, as VMI helps foster a closer understanding between the supplier and manufacturer by using EDI (Electronic Data Interchange) and other statistical methodologies to forecast and maintain correct inventory in the supply chain. Suppliers have more control of displays and more contact to impart knowledge on employees; retailers benefit from reduced risk, better store staff knowledge is gained on inventory (which builds brand loyalty for both the supplier and the retailer), which results in better customer sales service, as staff are familiar with manufacture / supplier and can help the customer choose among competitive products for items not suited to them.
As products and information are becoming commodities, more attention is given on the design in order to have more useful, cheaper and innovative products to meet customers’ needs and requirements.
The paradoxical effect of the internet is that there is a plethora of available information that in many times holds no real economic value. Everyone can have access to different types of information, and in some cases no one can gain competitive advantage of this. Electronic exchange takes places more and more today with e-marketplaces, as firms register as sellers or buyers to communicate and conduct business over the Internet. For example, firms representing each section in a supply chain could join an e-marketplace to transfer information and purchase products. E-marketplaces offer:
All these, have a profound influence on the way in which organizations manage their supply chain. Web based trading systems enable companies to buy, sell and manage their supply chain processes on a global scale more efficiently.
To sum up, today’s operations and supply chain are driven by the changing needs of customers. All the above trends are being used more and more from current firms and this has led to a better coordinated system of organizations, people, activities, information and resources. Furthermore, globalization, outsourcing and IT have enabled many organizations to successfully operate supply networks, and create new forms of organization, the inter-organizational supply networks which have also helped not only the firms that have created them, but poor countries around the world to develop as well.