Critical Analysis: Supply Chain and Logistics Management - IKEA - Case Study Example

CRITICAL ANALYSIS: SUPPLY CHAIN AND LOGISTICS MANAGEMENT Name: Tutor: Course: Institution: Date: TABLE OF CONTENTS 1.0 Introduction…………………………………………………………………… 2.0 Supply Chain Efficiency………………………………………………………. 2.1 Supply chain efficiency and continuous improvement………………… 2.2 Supply chain efficiency, Innovation and Information sharing…………. 2.3 Supply chain efficiency and Customer relations…………………………. 3.0 Supply Responsiveness…………………………………………………………… 3.1 Supply Chain Responsiveness and Continuous Improvement…………… 3.2 Supply chain responsiveness, Innovation and information sharing………. 3.3 Supply chain Responsiveness and Customer relations……………………. 4. Interrelation and comparison between Responsive and efficient supply chains……. 5. Recommendations…………………………………………………………………… 6.0 Conclusion………………………………………………………………………….. CRITICAL ANALYSIS: SUPPLY CHAIN AND LOGISTICS MANAGEMENT 2.0 Introduction The advent of electronic commerce and the increase in complexity in competitive business, firms are looking for ways to create long lasting relationships with both suppliers and consumers to improve the supply chain agility. The supply chain performance indicators and practices combined have facilitated many successful outcomes in ensuring value creation is ensured in various transactions (Borgström 2005). The supply chain encompasses activities starting from the transformational of raw materials, all through to the end user. Two of the most successful supply chain performance indicators demonstrated by IKEA are efficiency and responsiveness of the management. These two are often distinct and they tend to contrast but to a changing market, identifying the issues that create better response and those that are overall efficient is the first step towards achieving a competitive advantage (Gosling, Purvis, and Naim 2010). IKEA’s growth has been tremendous to the extent that today, it opens up to 10-20 new stores every year as their goals double with each new initiative. This shows that considering the pace of growth in sales ensures the business maintains the right supply chain plan. Looking at the differences and similarities between responsiveness and efficiency with relation to IKEA and the Australian post therefore, will help create a better understanding of these indicators as well as the practices that facilitate their success. 2.0 Supply Chain Efficiency Supply chain efficiency is the certainty that in the course of business, no resources are wasted and that all activities carried out by the company is value adding. Increased inventory levels tend to reduce the efficiency of the supply chain as it adds to the costs in terms of storage and the use of capital. Secondly, in an efficient supply chain, the management carries out all relevant changes to meet demand at the lowest costs and may rely on independent ordering process. Among the three common practices that facilitate the efficiency of the company are continuous improvement, good customer relations and information sharing. 2.1 Supply chain efficiency and continuous improvement Continuous improvement in a business refers to the ability to handle a business in such a way that the environmental, social and corporate governance issues are maintained in a way that ensures sustainability of the business (Mishra 2012). The main objective of sustainability is to create a long term environmental, social and economic value that considers the interests of the shareholders when bringing products and services to the market. Image showing the steps to ensure sustainability of a company Source: https://www.google.com/search?q=Supply+Chain++SuStainability&ie=utf-8&oe=utf-8#q=Supply+Chain++SuStainability%2C+pdf There are various principles that are considered when protecting the viability of a business and securing a social license to operate. In the case of efficiency, the company is certain that by following these principles the probability of suits and other issues that may arise causing the business loss are minimized. This is because the employees and the customers are kept satisfied by the services offered. The key principles include: The protection of the internationally recognized Human Rights. This means that every business should make sure that their operations are in compliance with the right rules that discourage human rights abuses. The labor Principle. i. This refers to the duty of every company to uphold freedom of association while recognizing the right to collective bargaining. ii. Likewise, all business should eliminate any form of forced labor, child labor and discriminatory tendencies at the work place. iii. Labor and office conditions in businesses and other sites. It is the responsibility of every management to ensure that areas such as mines, activities in the development sectors and international working conditions are safe. iv. The working hours and treatment should be as per the regulations such that there are benefits in case of harm, retirement and sickness among other things.Likewise, businesses should ensure that all others such as families related to the business are not infringed upon. v. The regulations of equal pay, healthy working conditions and centering the focus on gender equality and awareness on matters that involve access to further education or health is also a step to the right direction. The Environmental principle. i. A precautionary approach to environmental challenges should be considered in every business for the safety purposes of the employees and the surrounding neighbors to the business. ii. It is also important to undertake initiatives that promote greater environmental responsibility such as the encouragement of the development of environmentally friendly technologies. In most cases, environmental impacts from supply chains are often severe as they can include toxic waste, water pollution, and loss of biodiversity, deforestation, long term damage to ecosystems, hazardous air emissions as well as high greenhouse gas emissions and energy use. The Anti-corruption Principle. i. All forms of corruption should be avoided especially the concept of extortion, blackmail and bribery. ii. There are also major corruption risks that may arise from issues such as fraud and the direct cost to any business arte considerable in terms of quality of products or services, legal liability and reputation. iii. Following worthwhile anti-corruption programs ensures that there are reduced risks due to the honest business. In addition, the growth is ascertained especially in the creation of sustainability for the sake of the future of the business. IKEA is one of the businesses largely focused on sustainability and enhancement of supply chain efficiency in Australia hence has taken consideration of these principles in a number of ways. Firstly, it looks at all the relevant environmental issues that are avoidable. As the company looks forward to high returns, it has developed ways of minimizing recycling of products as illustrated in the development of the dishwasher which saves a lot of water (Mishra 2012). In addition to this, the company has looked at energy saving tactics by creating refrigerators and other electronic that facilitate these objectives. 2.2 Supply chain efficiency, Innovation and Information sharing There are various types of information sharing based at different levels, such as the inventory level, at the sales data, at the order status for tracking, at the sales forecast, and at the production level. In other instances, the respective parties are subject to anti-trust regulations but where two retailers and a supplier are involved; one retailer may forge fake information to win the tender. This is by lowering their prices and coming up with fake forecast signals that show that there is a competitive advantage over the other. Looking at innovation and information sharing in an efficient supply chain, the two practices ensure that there is proper evaluation of the inventory reduction and cost sharing associated with the business. This shows that information sharing and innovation brings in two advantages, brings to the supplier, such as the reduction of inventory and the reduction of the expected costs. Fisher, an author on the supply chain management concerning IKEA identifies that sometimes, the changes identified in these two performance indicators is based on whether the business is for innovative products with a short life cycle or a functional lifestyle product that has a much longer demand. In the shorter product life style ones, such as electronics and fashion items ensuring the inventory are controlled such that it only suits the demand is the most important solution to avoid wastage. 2.3 Supply chain efficiency and Customer relations This refers to the practice in supply chain management that involves the customer accommodation aspect whereby, several areas in relation to the demand and supply of the products is attributed to the relationship. In the Australian post for instance, various actions have been take to modernize post offices across Australia so as to keep up with the consumers and the advancement of technology (Pande, Raman, and Srivatsan 2006). There are a number of areas where these customer relations foster the efficiency of the supply chain. Firstly, in creating of a customer focused market, the supplier and the retailer put themselves in the customer’s position and work on what the customer would want achieved and to what extent based on their personal experiences. The main advantage of this under efficiency in a supply chain, costs of wastes and excessive products will be reduced hence better management of company finances. Secondly, the customer service and evaluation of success boosts the business even further due to the ability to respond to the consumer concerns and offer services in relation to a product. Generally, Good customer service will benefit the efficiency of the supply chain as it is possible to address issues of consumers and seek redress in due time to avoid suits and other issues. 3.0 Supply Responsiveness Responsiveness can be defined as the ability of a business to respond within a reasonable time to the demands of consumers, suppliers or the changing market space in a way that the success of the business is maintained. Therefore, when considering the responsiveness of a company based on inventory or finished goods, the more they are the more certain it is that the customer demand is ascertained. In responsiveness supply chain however, it may require a flow of more information and policies from a wider area of the market place so that the business can meet the uncertain demand. The above analysis shows that improving responsiveness may incur two primary costs that affect the businesses. They are; the maintenance of the excessive capacity and inventories and securing investments that reduce lead times. Woolworths, and particularly the Masters chain stores in Australia is one of the companies that has been affected by mismanagement ion this particular area (Lummus, Duclos, and Vokurka 2003). This is in response to the indulgence in the home improvement industry with excessive inventory without taking time to analyze the variability demand and competitive advantage in the industry. 3.1 Supply Chain Responsiveness and Continuous Improvement From the principles discussed, that is the human rights principles, the labor principles and the anticorruption principles the responsiveness of a business is affected in a number of ways. The first instance is that having rules and policies that set out the particulars of any transactions creates a restrictive boundary to the business that allows all businesses to operate on a level playing field. This means that suppliers are able to estimate the extents that cannot be exceeded and work within them to foster mutual understanding with competitors. Looking at the demand for products while considering the green environment IKEA has been able to attract numerous attention to their business ensuring the sustainability of operation. IKEA support for the World Wildlife Fund and also contribution to charities also shows their ability to respond to needs that may interest investors and consumers to their course. Overall, IKEA’s ability to commit, carry out assessments, come up with suitable implementation has created better opportunities for the stakeholders, the consumers and the suppliers. 3.2 Supply chain responsiveness, Innovation and information sharing On the other, innovation and information sharing in a responsive supply chain scenario makes it difficult to automatically assure an individual that the company will have profits or experience losses because in most cases, it is found that partners to transactions are often skewed (Tan, Kannan, and Handfield 2008). This is because one cannot align the incentives of those involved as it mainly affects suppliers and retailers that are in partnerships. This analysis shows that if each party were to be assured of a positive gain in return for information sharing, it would make the process much easier and honest. In terms of innovations however as demonstrated under IKEA, where there is a longer product life cycles contrary to the shorter life cycles under the efficiency supply chain, the inventory is made with the expected demand at the back of the mind (Trebilcock 2011). 3.3 Supply chain Responsiveness and Customer relations Creating a customer focused market is important because to foster responsiveness in a supply chain, it is important to have ways to communicate to the customers and have a collective analysis of the preferences and the issues with certain products and services. This creates a sense of the amount of inventory to prepare in relation to demand. In addition to this, under customer service, creating a relation with the customers is also beneficial as the business gains customer support and loyalty. Customer loyalty is a major facilitator of establishing the responsiveness of the supply chain as the business is aware of the target market and the extent. Lastly, it is important to evaluate customer success whereby customer success refers to the ability to have customer retention, to attract new individuals and to have a steady balance of the demand that meet the supply. In this case, the company estimates or rather calculates the value added services and identifies ways that may improve or weaken the same (The Times 2013). Collection of this data could be done as a survey where questionnaires are filled and interviews carried out to both loyal customers to identify what makes them like the products and others to know what they do not like. In this case, businesses are able to forecast and plan ahead, as well as, prepare for any issues that may bring both profits and losses as far as consumers are concerned. 4. Interrelation and comparison between Responsive and efficient supply chains Many authors have identified that responsiveness and efficiency are distinct strategies but at the same time, they are strongly linked such that achieving both of them at the same time is close to impossible (Borgström 2005) Figure 1: Showing the interrelations between responsiveness and efficiency at a glance Source: (Minnich and Maier 2006) https://scholar.google.com/scholar?oe=utf-8&um=1&ie=UTF-8&lr&q=related:yjnYqrsKPviWYM:scholar.google.com/ It is certain that in every business, there are players in the supply chain and each address aspects of demand, supply management, production, distribution and planning. These interactions are the same ones that form loops that give feedback on what to change in the supply planning process of any business (The Times 2013). The feedback loops may make the problem solving process more difficult as they make companies try to align policies but it is not always obvious that the desired effects will be achieved. Table 1: Showing the differences between and efficient supply chain and a responsive one SUPPLY CHAINS Efficient Responsive Primary Goal Lowest Costs Quick Response Product Design Strategy Minimum Product cost Modulated to allow postponement Pricing Strategy Lower Margins Higher Margins Manufacturing Strategy Higher Utilization Capacity Flexibility Inventory Strategy Minimal inventory Buffer inventory Lead time Strategy Reduced but not at expense of greater costs Aggressively reduced even if costs are significant Supplier Selection Strategy Cost and Lowest Quality Speed, Flexibility, Quality Transportation Strategy Greater Reliance on low costs modes Greater reliance on responsive modes Source: https://www.google.com/search?q=efficiency+and+responsiveness&source=lnms&tbm=isch&sa=X&ved=0ahUKEwisj4ekivXMAhVIthoKHd9gAS8Q_AUIBygB&biw=1366&bih=635 From the above table, there are certain methods that can be adopted to balance a business. Looking at the product characteristics, there are other options that may outperform others on the dimension of efficiency or responsiveness. This means that a move can be taken to improve the time it takes for the supply chain to satisfy the change in demand and at the same time look at the safety of the inventory because of the said improvements that have led to the reduction (Trebilcock 2011). This will show that when both or either the responsiveness or efficiency of chain planning is improved, the willingness to invest drastically shifts. This makes the loop between these two aspects reinforced such that, investing on the achievement of one goal will lead to the achievement of the other. 5. Recommendations Despite the fact that efficiency and responsiveness highly contradict, there are certain methods that can be adopted to balance a business based on the supply chain practices discussed above. The following are the recommendations; i. The company can use lean methods such as eliminating wasteful decisions to ensure efficiency of the company while at the same time, increase inventory in a way that avoids production processes leading to waste but facilitating responsiveness (Pande, Raman and Srivatsan 2006). In IKEA for instance, furniture is sourced through Swedwood which is IKEA-owned wood based furniture where third parties provide the required bulk when there is an increase in demand maintaining the flexibility of the business (Trebilcock 2011). ii. Adopting a good innovation and information system. This will be an important step as it will help the supply chain performance to look at both the conditions of supply and demand of other companies offering the same services or using similar planning systems. This is possible through adopting a good information sharing process iii. Balancing out available options. Providing the right amount of responsiveness can come at a cost of reduced effectiveness of the business and vice versa hence it is important to have revised planning approaches that achieves both goals simultaneously. This is by understanding the customer base to estimate the preferences that boost the demand and the probability of such demand deteriorating. iv. It is important to understand which business cycle is best for either better efficiency or responsiveness. For instance, when dealing with shorter life cycles, the main focus is on sustaining the responsiveness of the business while on the longer cycles, ensuring the efficiency of the business is crucial. Generally, the uncertainty of innovative items such as the designer clothing demand shows that responsiveness is less predictable than those of necessity such as sugar. Conclusion The interrelation between supply efficiency and responsiveness show that decision makers are able to identify and test policies for an efficient and responsive supply chain. This is because it will allow the business to set up supply chain structures that ensure optimal levels are reached in both responsiveness and efficiency in any particular industry. It is important when decision making to integrate the retailer into the manufacturing company such that analysis is made in relation to how the supply chain costs and responsiveness change. The adaptation of a supply chain management strategy that favors these two areas will help launch greater yields to a business and facilitate the overall supply chain management process. This is because it will foster the link between the theoretical considerations and the experiences that already exist in the company. References Alldredge, K., Allen, J., Howe, A. and Kelly, G., 2005. 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