Managing Integrated Global Supply Chains - Case Study Example

Managing Integrated Global Supply Chains This report is about a clothes manufacturing company Rolland manufacturers. The company wants to increase profitability by supplying clothes to Wal-Mart but in UK so they aim to supply to Wal-Mart’s UK subsidiary ASDA. The company itself is not up to the mark and does not come up to ‘world-class’ standards and they wish to achieve that. The senior management visited a company in China that has agreed to increase the company’s production facilities. The company also aims to be one of the preferable suppliers to Wal-Mart because it will increase their profits. They wish to supply to Wal-Mart in USA as well. But they might not be able to achieve these goals because already they are unable to meet deadlines and produce best quality. This report is will help the management to take this strategic decision. Current Working Conditions in the Company The Company is rather disorganized and poorly managed. The workforce is not motivated to work because of the continuous pressure on them to increase productivity. The supervisors can not control the batches and disturb productivity. Work in Progress (W.I.P) increases day by day and there is no proper system to manage the wastes. It is a common sight to witness the supervisors pushing a batch that is under process to get the urgent batches completed first and this is down even if it requires the workers to physically move material and reset the machines. The best excuse to give to the dejected workforce is that consumer is the King! The completed units are sent to the warehouse to dispatch them but still a number of orders have been lying there since weeks. The employees believe that only the highly intelligent deserve to be supervisors and the factory workforce is somewhat mentally retarded. The management encourages jealousy, rivalry and competition among workers because they have set bonuses for increasing production and all they want is more supply. The workforce is not happy with the way things are managed and they hold the management responsible since they are highly disorganized. The situation in the company is not good. Implications of becoming a Wal-Mart supplier If Rolland gets into a contract to supply to Wal-Mart for the next five years then it will lasting implications on Rolland. Wal-Mart is huge and it has certain commitments with their suppliers. Diversity, respect for the individual, service for the customer and striving for excellence are key drivers at Wal-Mart. Diversity is the most important aspect of commitments to their suppliers, customers and associates. They treat all with respect and they are fair, they are their advocates, they are sensitive to their concerns, value their differences and support them in every way. Their mission statement is “to enhance and integrate our supplier diversity programs into all of our procurement practices and to be an advocate for minority- and women-owned businesses.” Wal-Mart expects competitive prices, financial stability, proven success in the marketplace, and offer excellent products/services from all its suppliers. Wal-Mart is a leader in the retailing business and it has an immense effect on its suppliers. According to Gary Gereffi a Duke Professor Wal-Mart has life or death decisions on consumer goods because it is the leading retailer dealing in all consumer goods. Wal-Mart has always pushed its suppliers to produce at the most competitive prices and the way it has managed to instigate suppliers to produce the same products at lower and lower prices is incredible. An example is Lakewood Engineering and manufacturing that produced a 20 inch box fan which cost $20 to the consumers. Wal-Mart forced the company to reduce prices and the company got its production automated. In return the company forced its own suppliers to reduce prices. But then in 2000 Lakewood established a company in China that employed workers for as less as 25cents per hour. By 2003, the price of the fan fell to $10. Only Wal-Mart can afford to do this because it is huge and businesses often find it easy to sell through them. Being a supplier for Wal-Mart is considered to be prestigious as well. Wal-Mart has influence beyond the small suppliers and also over the large corporations. Wal-Mart affects businesses like Coca-Cola and Pepsi Co. Coke did the most unexpected and unusual at Wal-Mart’s request because it shows the literal influence of this retail giant over a CSD giant. Coke along with its largest bottler Coca-Cola Enterprise decided to change the way they deliver their drink PowerAde in USA. In 2005, Coke launched a new drink Coke zero that was a new kind of diet drink. But at Wal-Mart’s insistence Coke changed the name Coke zero to Diet Coke with Splenda. They launched Coke zero separately. Pepsi also came up with a line of diet drinks like Slice One and sold them initially at Wal-Mart. This retail giant has an incredible control and influence on all its suppliers. New suppliers have to fill out forms through their website or get the form from their head office. They have separate forms for minority/woman-based businesses because these are given preference but these businesses must have a certificate of their business National Minority Development Council or the Women's Business Enterprise National Council. Wal-Mart’s No. 1 commitment is customer satisfaction that is derived through best quality at the most competitive prices in towns. Their suppliers go through a tough time to meet their exact standards. They have a separate form for businesses that wish to supply in 5 districts or more and a different form for off-shore suppliers that is a direct import program. They then study the company and if it does not come up to their standards they decline them the chance to work with Wal-Mart. Rolland will have to have an effective and efficient supply chain unlike the current one because Wal-Mart wants suppliers to meet tight deadlines and have competitive prices. They will have to organize the company and manufacturing capabilities. Even efficiently automating production will help to organize and drive down prices. The company’s workers are dejected with the working conditions because the company does not provide proper machinery and tools. Their manufacturing process is a huge mess. They will have to organize to avoid pushing out batches in the middle of the process in order to process the urgent ones. Often, the production results in low quality clothes that go to waste or these clothes are sold in the lower end of the market. Now the company is in an agreement to increase its production capacity with the help from International Garment Manufacturer (IGM) which is a company in China. This way they can improve their supply chain and increase productivity. But IGM produces low quality garments and Wal-Mart will not compromise on quality. So Rolland has got the price right but quality is still a problem they need to handle in order to come up to exacting standards if Wal-Mart. Rolland will have to improve its inbound supply chain that includes their manufacturing process since it involves processing raw material into a finished product. Inbound supply chain includes receiving a purchase order, determining the external demand, advanced shipping notification, installing a delivery monitor and yard management (checks cars, trucks etc that whether they have brought in or delivered on time). Rolland lacks a proper inbound supply chain and will have to adapt to it to improve it and come up to Wal-Mart’s standards. The company will also have to improve its outbound supply chain. Outbound supply chain is the basis for goods issue posting. The goods issue document includes the following: Warehouse stock is reduced by the delivery quantity. Any value changes are posted in the balance sheet of the inventory accounts. Requirements reduced by delivery quantity. Serial number is updated. Goods issue posting is recorded automatically in the document flow. Stock determination is executed for the vendor’s consignment stock Work list as a proof of the delivery is generated. Rolland would have to look into all these operational issues and bring their manufacturing capabilities up to the mark. But there are ways through which they can come up to Wal-Mart’s exact standards. Lean operation in manufacturing and supply and the growing need for agile responses to market demands. Lean operations will improve their manufacturing capabilities and total supply chain. This will also enable them to respond quickly to market demands. Lean means elimination of waste and things that do not add value to the product. Types of wastes in Rolland and generally are as follows: Time spent waiting for tools, parts and raw material.  Time spent transporting equipment and parts required to complete a repair.  Inappropriate processes like mistakes in entering data etc.  Inventory or queue problems since obselete inventory must not be stored and hidden inventory occupies space.  Pace of people and machines.  Defects or errors.  Overdesign like excessive repair or uneccassary work.  Poor utilisation of space. They can have a maintenance department that should be automated with a Computerized Maintenance Management System (CMMS). This will make work more efficient. A value stream map will help identify waste and improvement opportunities. The data (time, errors, distances, queues and key issues) available from the CMMS must be analysed to check for any discrepancies and any opportunities for improvement. Rolland needs workplace organization and the five ‘S’ philosophy must be adapted to organize the workplace. They are as follows: Sorting: distinguish between the needed items and the unwanted items. This helps to organize. Straighten: To keep all the needed items in their right place. This helps to make things orderly. Sustain: discipline is essential. Operations must flow in a manner as decided upon or organized. Sweep: the workplace must be regularly swept and cleanliness is essential. Standardise: to exercise control and all the policies must be intact. There must be no break in the set standards of the system. Strategies for managing Quality in every element of Rolland's supply chain, internal and external, inbound and outbound. Rolland’s can improve the quality of their supply chain internally, externally, inbound and outbound with the following: TQM is a method designed to prevent errors, such as poor quality products, from happening. The business is organized so that the manufacturing process is investigated at every stage. TQM includes quality chains (Integration of the series of suppliers and customers), company policy and accountability (Starts at the top and spreads down to every employee in the business who is individually responsible for anything he/she does.), control (quality audits) and monitoring the process (to find possible improvements through a statistical process control that collects data and presents it in diagrams or graphs. It reduces variability in production). Kaizen is another such method used for the same purpose. It means continuous improvement. The important aspect in this theory is “muda” which is eliminating all kinds of wastes to beef up continuous improvements. All kinds such as time wasted by employees before starting a task and waiting for material to arrive, when workers move unnecessarily in the workplace, irregular use of machines and excessive demands from machines and workers (overtime). The most important approach in Kaizen to eliminate waste and encourage continuous improvements is Just-in-time approach that requires the suppliers to deliver orders “just-in-time” i.e. a few hours or less before the material is needed for further production. Kanban is yet another approach that is used to control the transfer of material between different stages of production. The word Kanban is a Japanese term and it means signboards or cards. It can be any sign to inform employees in the previous stage of production that a particular part must be taken from stocks and sent to a specific destination (conveyance kanbans), to tell employees in a particular operation that they can begin production (production kanbans) and to instruct external suppliers to send raw material to a destination (vendor kanbans). Time-based management is yet another approach for management that involves reducing the time businesses take to complete certain tasks like launching new products, etc. Empowerment is another approach that aims to give employees the power to make decisions in a business. This motivates employees and results in dedicated and loyal workers. Team working is another approach that introduces working in teams in organizations since teams are more productive than single workers. Cellular manufacturing is also an approach used by business with variety of products. This divides the workplace into “cells.” Each cell focuses on the production of a particular product family. Managing by Numbers is yet another approach that includes five basic steps: 1. Are we achieving superior customer relationships? 2. Do we know what we are really good at, and how to obtain the utmost mileage from that excellence? 3. Are we sharing the rewards among those who created the achievement? 4. Can we respond flexibly to political, economic, sociological and technological change? 5. Do we make expert use of external 'expert partners'? Strategies for developing additional capacity through global supply thinking The strategies for developing additional capacity through global supply thinking are as follows: Cross Functional enterprise applications cross the boundaries of traditional business systems in order to re engineer and improve vital business processes all across the enterprise. Enterprise Application Architecture illustrates the interrelationships of the major cross-functional enterprise applications used by companies. This architecture shows the roles business systems play in supporting the customers, suppliers, partners and employees of a business. Enterprise Resource Planning comes under this architecture and it mainly focuses on the efficiency of a firm’s internal production, distribution and financial processes. It links all internal business processes like supply chain management, customer relationship management, partner relationship management and knowledge management. Transaction processing system processes data resulting from the occurrence of business transactions. But it does not have an online transaction processing system since it does not deal in e-commerce. The transaction processing cycle begins with data entry (Point-of-sale-terminals), transaction processing (Real-time processing used by Shell), Database maintenance, document and report generation and inquiry processing. Enterprise Collaboration Systems that enhance communication (email, messaging, faxing etc), coordination (data, voice and video conferencing, discussion forums and chat groups) and Collaboration (Scheduling, Task and project management, workflow management, knowledge management etc). The benefits of cross functional approaches within and between organisations These systems help communicate within the organization and with partners, suppliers and customers through the internet, intranet and extranet. The ERP, customer relationship management (CRM), supply chain management (SCM) are all integrated through Enterprise Application Integration (EAI) systems and they make the supply chain and logistics much efficient and automated. Rolland’s can adapt to the cross functional systems to improve their manufacturing capabilities and improve their supply chain. ERP is the business backbone and CRM is the business focus. SCM is the business network and its primary goal is to help the company achieve agility and responsiveness in meting the demands of its customers and needs of the suppliers. SCM enables a business to design, produce and manufacture efficiently with a low-cost network of business partners, processes and strategic relationships or simply to improve the supply chain. ERP is essential for a large manufacturer like Rolland’s because it helps in designing the product in the best way, order tracking, supports the revenue cycle from the invoice to cash receipt, managing interdependence of complex materials, supports the process of purchase orders then inventory receipts and then costing, and handles all the accounting. The need for strategic partnerships in modern supply chains According to the Bullwhip effect the fluctuations in orders increase as they move up the supply chain and the demand information is distorted in the process. It is important to have strategic partnerships in modern supply chains they are important because in their absence the company will face problems like increasing manufacturing costs, increasing inventory costs, increasing replenishment lead time, increasing transportation costs, increasing labour costs for shipping and receiving, decreasing level of productivity and decreasing profitability. The impact of modern Information Technology to plan and co-ordinate materials flows across global supply chains. IT has made planning and coordination of material flow across the supply chain much efficient than before. Information is the key driver to an effective and efficient SCM. IT has enhanced the system by reducing information delay, reducing distortions in information, the system is transparent and transaction costs have reduced. SCM has enhanced the coordination of material, information and cash flows. Since information is authentic the material flow is smooth and coordinated. Communication has a bigger role to play in this case. But supply chains have yet to be more powerful, advanced and dynamic enough to change in response to a change in the business environment. Logistical and distribution considerations in developing a global supply situation for a network of retail organisations Retailers understand that logistics and supply chain management has been automated and these new technologies plus methods of business have to be adapted in order to stay one step ahead. Retailers can incorporate the supply chain and logistics for the following reasons: A transparent and synchronized supply chain will enable an automated system that gives signals to suppliers for replenishment of stock. An almost real time system can be implemented to support the supply chain and it enhances relationships with partners as well. It will help in streamlining all retail operations. It will also help in creating the right mix of products to give more importance to high-vale customers and separate them from the low-value or no-value customers. I will save lead times and wastes. Logistics and SCM helps retailers to include the consumer in the supply chains, manage product life cycles, promotional planning, planning for seasonal products, category management, cost-effective supply channels and planning capacities at the store level. The need to manage the environmental impact of manufacturing and supply chain operations and to address other ethical issues affecting organisations operating across international boundaries Supply chain operations lead to a decrease in Co2 emissions as stated by Mr. Morishita who is a supply chain manager in NEC. Companies that globalize have suppliers in their supply chain from all over the world and environmental impacts do occur: During the transport of products. Labour rights, health, safety and ethical expectations have to be met. Any product content restrictions must be obliged to carefully. To strengthen supplier contact and purchasing agreements. Monitoring the production and manufacturing and it should be according to rules, laws and regulations. Regular auditing of suppliers facilities. A system to monitor supplier compliance and confirmation that everything is being done within the legal framework. Performance results to monitor the supplier and supply chains. Conclusion Thus, Rolland’s can adapt certain strategies and come up to Wal-Mart’s standards because the company’s manufacturing and supply system is highly inefficient. They must come up to certain standards become the ‘world class’ manufacturer in clothing. The company needs to motivate its workforce through appropriate human resource planning and strategies. The company still has a chance to achieve its desired results. Bibliography Blatherwick, A. (1998), ‘Vendor-managed inventory: fashion fad or important strategy?’ Supply Chain Management, Volume 3, Number 1, pp. 10-11. Bloom, P. N. and Perry, V. G. (2001), ‘Retailer power and supplier welfare: The case of Wal-Mart’, Journal of Retailing, 77, pp. 379-396. Han, D., Kwon, G., Bae, M. and Sung, H. (2002), ‘Supply chain integration in developing countries for foreign retailers in Korea: The Wal-Mart experience’, Computers & Industrial Engineering, 43, pp. 111-121. Hayes, R. H. and Upton, D. M. 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