Lead-Time in Supply Chain Management - Assignment Example

Student Name Tutor Title: Question Answers Institution: Course: Date: Question One Lead-time in supply chain context Lead-time in supply chain management is the time taken when the customer places his order to the time the products or the goods are delivered the customer. Lead time can vary from several hours to many months. Lead-time in publishing is the amount of time that a journalist gets the writing assignment and submission of the written. In manufacturing, in the absence of work in progress inventory or finished goods; it is the time it takes in manufacturing the order without any inventory apart from raw materials. Lead time is the time from when the process starts until when it is completed (Chen, 2000, p.437). For retailers, it describes the time they places the order to the manufacturers until when the ordered goods are delivered to the premises of the retailer. For a manufacturing company, lead time will involve the time for supplies to arrive from suppliers, the processing time and the moment of delivering of the good to the customer. When a retailer orders goods from the manufacturer, the manufacturer produces the goods and delivers them to the retailer according to the specifications. The manufacturer’s lead time is the time it takes to secure supplies, process the goods, and deliver the goods to the customer (Movahedi, Lavassani & Kumar, 2009). On the other hand, lead time of the retailer is the time when the retailer places the order to the manufacturer until when he received the ordered goods as specified. Desire for lead-time reductions in the supply chain by companies Value creation is a result of successful supply chain management. Lead time reduction is one of the goals that are at by a company that what to realize value creation in supply chain management. Accomplishment of value creation means that there is efficiency in production and shipment of products to the customer in the market. Companies desire to reduce lead time in supply chain with the target of reducing costs (Lee, 2010, p.7). When the lead time is longer it means that cost of holding raw materials or unfinished products within the warehouses of the company will automatically increase. Expanses that accrue owing to holding work in progress, inventory or finished goods bring down the profit of the company. For companies which want to increase its profit, there should be an aim of reducing the lead time. Goods have to be delivered in the market on time to pave way for other goods to be manufactured. Companies that want to increase their turnover ratio aim at reducing lead time. Reduction in lead time indicates efficiency in production of the company processes. The chances or risks of products getting spoilt while still in the hands of the manufacturer are great when the lead time is long. In order to reduce expenses and provisions for unnecessary contingencies, companies strive to ensure that their lead time is shorter (Cox, 1999). Short lead time indicate efficiency in production which leads to high profit margins being realized. A competitive advantage is realized when the company reduces its lead time. Five ways of reducing lead-time within the supply chain There are ways which companies can use in ensuring that there is reduction in lead time. It is upon the management of the company to implement effective ways that can be used to reduce the lead time. Products have to be delivered on time without being delayed after they have been manufactured. Some of the ways that a company can use in reduction of lead time are as follows: Lowering costs of inventory holding The company has to ensure that it improves in contract, leased or public warehouses. The company does not have to incur costs for storing inventory that is not ready to be processed into finished products. When there is substantial money allocated for warehouses in the budget, there will be a likelihood of encouraging storing of inventory in warehouses which increases lead time. Supplies for manufacturing have to be used directed for producing the intended products. The more a product or inventory is held by the company, the greater the lead time for that product. This will translate into increased prices on the side of the customers (Selwyn, 2008, p.156). In order to realize price cutting, costs for holding inventory have to be reduced and channeled to other departments of production, for instance, marketing and product promotion. Reducing order transaction costs Computers can be used in generating purchase orders for customers. When the speed of ordering is increased, the cost of ordering will also automatically go down. There should adequate pre-planning in manufacturing. Work-divisions and team work should be used adequately in ensuring quick processing of the product to be delivered in the market (Newbold, 1998, p.127). When the ordering costs are lowered, customers can increase since it will act as an incentive to them. When there are many steps to ordering of a good, the good takes a long time to reach the consumer and its costs increases to cater for the prolonged lead time. Efficiency in production can be realized by reducing transactions costs. Forecasting demand Overproduction happens when the company does not know how much of the product should be produced. Consequently, the products that are unsold will be held in the company as closing stock. The inventory that is held in the company increases the lead time and the holding costs. The company loses its market share when it passes the increased costs to the customers. When demand is correctly forecasted, the company will produce goods that meet the prevailing demand without there being large amounts of inventory in the company’s warehouses (Cannella & Ciancimino, 2010, p.6740). Lead time can be reduced by predicting demand and producing goods according to the amount demanded. When demand is forecasted, the company knows how long it will take to hit the target in a given financial period. Improvement of reliability of supply When supply is not reliable, there is the likelihood of the company holding stocks for safety reasons. The company can fear running out of stock of important supplies and hence hold more stock of these supplies. By worrying about running out of stock, the management may end up ordering more supplies that they can use in any given period. Consequently, the company has to look for a reliable supplier and pay for supplies over a reliable period that will ensure continuity of production without interruption (Mason-Jones et al, 2000, p.42). When the reliability of suppliers is doubted, there would be a problem of procuring many supplies will the notion that supplies can run out. The company has to ensure it has all the material required for processing products in time in order to produce goods in reduced time. Lead time can be reduced drastically if there is a clear way of securing suppliers and transporting them to the company. Estimating reserves accurately A company orders supplies when it realizes there is reduction in the reserves. If the reserves are 8underestimated, there will be more procurement for the same type of supplies. Supplies will have to be kept in warehouses as they way their turn in the processing plant. Accurately estimating the amount of reserves helps in making sure that the company does not order more than it require. The company will instead concentrate on producing goods to reach customers on time and thereby reducing lead time (Disney & Towill, 2003). Question two Fundamental reasons for Dell’s past success Dell’s past success was propelled by efficiency in its marketing strategy. The company used direct marketing which identified customers of the company’s product and delivered the goods to them. Pre-orders helped in reduction of the lead time. The company produced goods that had already been ordered by customers. Once the products were produced, they were shipped directly to the customer without storing them. Direct marketing enabled the company to have a direct connection with the customer. In this case, there was delay in ordering or delivery of goods once they were manufactured. The company invested more in having a direct connection with the company. The process of marketing creates a ready market for the company’s product. Dell did not get involved in the retail chain that includes many processes of the goods moving through the chain of distribution. Direct marketing allows the company to deal directly with the consumer. Lead time was drastically reduced through this method. Quick delivery of high quality goods to the customer increased the loyalty of the customer to the company. Dell perfected the direct marketing in reaching to its customers. Dell also reduced the time for assembling of its products by using experienced engineers and other skilled experts. It took a record time to assemble computer equipment that was being needed by a client. Increase in effective of production was an advantage that made Dell to realize success in its processes. The products were assembled for orders that had been received; consequently all the specifications were factored in quickly during the assembly of the equipment. Effective production of products ensured that the turnover and profitability of the company remained very high. The company prepared in advance for supplies for manufacture of its products. Having well equipped research centers helped in quick innovation of advanced products that were received well in the market. Efficiency in production was realized through experienced and skilled manpower. Moreover, the company put up manufacturing factories closer to its customers in different countries in Europe to ensure that there was reduced lead time as much as possible. Dell Company anticipated change and encouraged innovation. Investment was done in research and development. Market research forecast the possible markets that allowed factories to be built near those markets. Anticipation was change made the company to stay ahead to competition as it produced new products from time to time. Reduction of size of products and increase of efficiency made the company to realize huge profits. Evaluation from time to time of the production strategy of the company increased the adaptation of the company to new technologies. The company took advantage of disruptive innovation to produce superior products. What should be done by Dell to maintain its competitive advantage? Dell has to maintain efficiency of its production to have competitive advantage. The supply chain of the company has been shortened by the company through dealing directly with the customers. The company has to increase the excellent support services to attract more customers who will lead to increased turnover of the products of the company. Marketing and promotional activities have to be increased. Consumer behavior has indicated that customers buy products which they are familiar with. In there is increased product advertising through media and direct promotional activities, the products’ manufactured by Dell will find more market. Direct marketing has to be maintained but the company has to look for more ways of reaching out to the customers. A well elaborate marketing strategy that is supported by a budget allocation ill allow deliberate effort of coming up with a marketing team. Efficiency in production through reduction of lead time will ensure that the company stays on top. Dell formula is applicable to other product categories The formula of direct marketing using by Dell cannot be used for other categories of products. Computer products are easier to forecast demand or advertise for product that is yet to be assembled. Pre-orders are easier to be picked for computer products before assembling of the products is done. Many categories of goods cannot use direct marketing since their nature cannot allow production of a prototype to be shown to the customer before the real product is produced. Bibliography Newbold, R. C., 1998, Project management in the fast lane: applying the theory of constraints, Oxford: Oxford press. Chen, Y. F., et al., 2000, Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times and Information. Management Science, 46, 436-443. Cannella S., & Ciancimino E., 2010, On the bullwhip avoidance phase: supply chain collaboration and order smoothing. International Journal of Production Research, 48 (22), 6739-6776. Lee, H.L., 2010, Taming the bullwhip. Journal of Supply Chain Management 46 (1), pp. 7–7. Mason-Jones, Rachel; Towill & Dennis R., 2000, "Coping with Uncertainty: Reducing "Bullwhip" Behaviour in Global Supply Chains". Supply Chain Forum (1): 40–44. Disney, S.M., and Towill, D.R., 2003, On the bullwhip and inventory variance produced by an ordering policy. Omega, the International Journal of Management Science, 31 (3), 157-167. 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