Strategic Management Procurement - Assignment Example

Strategic Management Procurement Name Institution Course Date Strategic Management Procurement Question 1 How product characteristics influence logistic and supply chain costs Friendly Grocer is a grocery store located in Australia. It sells groceries and general products. Examples of products offered include fresh juices, and candy and snacks. Characteristics of these products can influence logistic and supply chain costs. The production of products having different characteristics sustains two supply chain costs including production costs and market mediation costs (Qi, Boyer and Zhao, 2009). Mediation cost occurs as a result of market variability and they include opportunity costs, inventory holding costs, as well as product mark-down costs. On the other hand, production costs comprise of material, labour, technological investments and manufacturing. When choosing suitable logistic and supply chain strategy, manufactures often consider characteristics of products such as product variety, forecasting error, distribution intensity, product life cycle length and product demand (Bruce, Daly and Towers, 2004). From a supply chain perspective, with regard to product characteristics, products can be categorized as either uncertain/innovative or certain/functional. A product can either be functional or innovative. Functional products include those that people buy frequently in retail outlets with more predictable and stable demand and long life cycles (Mason-Jones, Naylor and Towill, 2000). On the other hand, innovative products have fluctuated and unpredictable demand coupled with shorter lifecycle. Most of Friendly Grocer’s products are functional. Effective management of flow of materials from supply source to end users is a major challenge to the company. In order to ensure success, there is need to develop effective supply chain strategy (Qi, Boyer and Zhao, 2009). Supply chain strategy depends on product characteristics. The three logistics and supply chain strategies include agile, lean and agile/lean. The purpose of lean supply chain is to minimize cost at the same time improve efficiency by eliminating wastes in organisational processes. On the other hand, agile supply chain is aimed at offering customer-driven products so as to boost competitive advantage (Qi, Boyer and Zhao, 2009). Decreasing product life has led to supply chain challenges involving provision of products in a responsive and quicker way (Bruce, Daly and Towers, 2004). Agile supply chain strategy is able to enhance speed, flexibility, innovation and profitability. Agile/lean supply chain operates in a lean manner in the market upstream or in agile manner in the market downstream. Companies such as Friendly Grocer which offer functional products need to implement lean supply chains since its products have long lifecycles, high predictability and low vitality. When there is a great match between product characteristic and supply chain strategy, there is high probability of good performance due to cost effective supply chain. The three supply chain strategies have different features (Bruce, Daly and Towers, 2004). For instance, lean chain requires manufacturers to make cost reduction the ultimate priority. Friendly Grocer has adapted lean strategy through adoption of activities including mass production, long-term supplier relationship as well as just-in-time. Approaches for managing inventory Just in Time (JIT) Just in time inventory management method illustrates that item is ordered if required for shipping and manufacturing (Aghezzaf et al., 2001). A product may be ordered subject to delivery time indicated by the supplier. Just in time approach require proper proof of identity for each product before manufacturer requires it. This approach ensures timely delivery of product ordered due to its order before needed. The delay of delivery of an item may lead to delay of production process. Just in time inventory management assist in reducing the size of inventory and the storage costs (Aghezzaf et al., 2001). For this approach to be effective there should be early identification and order of products. This inventory management technique encourages production in smaller quantities rather than bulk production since bulk production takes a lot of time and requires more storage space. Just in time approach encourages high quality in delivery. Due to the fact that items are produced in smaller quantities, companies are able to inspect all of its products which ensure that high quality standard is maintained (Aghezzaf et al., 2001). Friendly Grocer can use just in time approach maintain inventory of fresh juice. This approach is able to ensure excellent preventative maintenance. It is possible for Friendly Grocer to implement excellent preventative maintenance strategy. Fresh juices go bad very easily and therefore they require to be produced in smaller quantity. Due to their features, fresh juices need to be delivered as soon as they are ordered (Riddalls and Bennett, 2002). However, in order for this approach to be effective, it is important for the company to research buying habits and seasonal demands by the customers. Dropshipping Dropshipping is an inventory management technique that involves a seller company entering into a dropshipping contract with a third party company. Dropshipping inventory management has the ability to eradicate the costs incurred when holding inventory since dropshipping agreement is able to transfer customer orders as well as shipment details to a wholesaler who is involved in shipping the goods to the end users (Aghezzaf et al., 2001). This inventory management strategy will be effective for snacks. When using this strategy, Friendly Grocer will not bear the risks associated with holding unsold goods and will have the ability to offer variety of products. The demand of snacks keeps on changing with time and season which makes it a complicated process to deliver to customers (Aghezzaf et al., 2001). To prevent delivery and inventory risks, there is need to transfer the shipping obligation to a third party company. In addition, the company will transfer the cost of inventory to the dropshipping company (Aghezzaf et al., 2001). This technique offers flexibility in terms of commitment delivery of goods to customers. However, with this technique, the company will not have control over shipping and will be unable counter check the quality and quantity of items. In addition, margins can be very low due to selling of products at lower prices. Question 2 Reasons for engaging in Transactional and Relationship Purchasing Selecting a supplier can be challenging and therefore, there is need to establish working relationship between customers and suppliers (Grundey and Daugelaite, 2009). Transactional relationship involves exchange of goods and services at a settled price. However, there is little trust between parties. On the other hand, relationship purchasing involves establishing trusted relationship with the suppliers. Companies engage in transactional relationship purchasing as a way of making one-time purchase (Gadde and Snehota, 2000). Businesses using transactional relationship purchasing are focussed on closing a purchase quickly instead of establishing a lasting relationship. Relationship purchasing is aimed at maintaining suppliers and creating transparency and trust. The reason for relationship purchasing is to create joint problem solving and learning. Suppliers and companies can work together to find solutions for industry issues (Ford, 2011). In contrast to transactional purchasing, relationship purchasing is carried out in order to keep the existing suppliers instead of attracting new ones (Ford, 2011). Doing this enable companies set quality standards and specifications for raw materials. Doing this will ensure manufacturer of quality products. It is difficult to maintain high quality products through transactional purchasing. In addition, relationship purchasing is used by many companies due to its ability to reduce purchasing cost. When a company establishes a close relationship with the suppliers, it is able to bargain the costs of supplies due to supplier’s loyalty (Ford, 2011). Transactional purchasing is also used in order to avoid the costs of retaining suppliers. To attract suppliers, companies are required to make some efforts. For instance, training and education of suppliers is used as a strategy to retain them which requires additional costs (Ford, 2011). In relationship purchasing, there is some additional costs incurred in retaining suppliers. Transactional purchasing is founded on the notion that a favour will be returned in kind. It is based on fear and scarcity of resources. Companies resort to this relationship in order to have control over supply decisions (Ford, 2011). On the other hand, relationship purchasing is based on mutual agreement where trust is established to ensure the satisfaction of both parties. The Importance of Early Supplier Involvement Early supplier involvement is beneficial to businesses. It is able to create several benefits for buyers. For instance, early supplier’s involvement leads to improvements in the end product (Wynstra, Weele and Weggemann, 2001). The qualities of products are improved and the speed of products to the market is improved. Also, involvement of suppliers in the development stage lead to reduced development cost as well as decreased cycle time. Moreover, early supplier involvement creates learning effect. Since suppliers are experienced in their area, thee companies will be able to gain economies of scale as well as scope of learning even with no time investments (Mikkola and Larsen, 2003). For instance, the suppliers of clothing company in Australia have been incorporated into the company’s design team and can frequently attend design reviews and changes. As a result of this, the suppliers have offered learning which has reduced lead-time. Early supplier involvement is important since it ensures risk reduction through spreading of risk of product development (Wynstra, Weele and Weggemann, 2001). For instance, various automotive companies have established risk-reward sharing strategy with the suppliers which mean that most of the development risks are transferred to suppliers of sub-assemblies. In addition, early supplier involvement creates technology and innovation roadmapping (Wynstra, Weele and Weggemann, 2001). Companies are able to get access to suppliers’ technology and innovation roadmap. Innovation and technology road map highlights the direction for suppliers’ products. This enables the companies to plan and integrate suppliers’ technology in their product easily and quickly. Woking closely with suppliers also enable companies have access to new capabilities which they may not have access to in ordinary situations. For instance, a plastic and moulding company is also to offer capabilities in plastic technology to automotive companies, which is able to reduce lead-time considerably (Wynstra, Weele and Weggemann, 2001). Potential Problems of Early Supplier Involvement Although early supplier involvement is beneficial to the buyers, it may bring a number of problems (Mikkola and Larsen, 2003). Early involvement of suppliers is not often appropriate. It is not always beneficial to involve every partner in product development. For instance, it will not make any sense for an automotive company to involve the exhaust suppler in product development process even before the engine construction is stabilized (Mikkola and Larsen, 2003). Early involvement of suppliers may lead to loss of bargaining power. Suppliers may be unable to bargain for better prices and other terms. This makes it difficult for them to deliver the best possible products to the buyers. Early supplier involvement also results to financial burden on manufacturing. Close relationship between a suppliers and companies is considered a time-consuming as well as resource-incentive undertaking. Involving suppliers in the operations of a business without proper sustenance for areas affected may be detrimental to their performance (Mikkola and Larsen, 2003). Therefore, early supplier involvement often places extra load on the manufacturing division which may already be trying to keep up with the latest manufacturing technology or to take in hand outsourced production. In addition, early supplier involvement leads to leverage of key information. Many suppliers in different industry often trade with several companies which compete with each other (Martinsuo and Ahola, 2010). ESI involves working closely with suppliers and exchanging sensitive information, which when leaked to the competitor’s will lead to performance difficulties. Suppliers may share the plans and product specifications with competitors. Therefore, companies should take care in order to manage these risks (Martinsuo and Ahola, 2010). For instance, they can establish a confidentiality agreements and physical security of documentations. Companies can be locked into wrong technological trajectory with early suppliers’ involvement. Choosing the right technology is very important for companies. ESI illustrates that suppliers’ technology are integrated in the company’s products at the product design stage (Martinsuo and Ahola, 2010). Many products often fail due to the fact that technology has advanced before the product reaches the market. This is often an issue as companies delay to make technology selection decisions in time. Question 3 a) Given the nature of this industry, how would customers typically judge the quality of a hotel? It is very difficult to judge the quality of products offered by hotels (Yang and Fu, 2007). One dimension used to measure the quality of a hotel is customer service and behaviour of the employees. Employees need to express kindness to customers, should have good manners and offer personalized customer service to every customer. Customers can determine the quality of a hotel by examining its customer service and employee’s behaviour toward then (Yang and Fu, 2007). In addition, another dimension of measuring the quality of a hotel is the standard of the products and services offered. For instance, since customers access hotel services during holidays or leisure time, they require a place where they can be confortable and can relax and enjoy their time. Hotels should therefore have quality room-service delivery and guest reservations and should enjoy services that are above standard (Yang and Fu, 2007). This differentiates between a high quality hotel and a low quality hotel. The quality of a hotel is judged by the standards of the products and services. In addition, the customers can judge the quality of a hotel by the level of service and amenities offered (Jones and Lockwood, 2004). Many customers focus on availability and features of rooms, lobbies as well as amenities. Extra services such as swimming pool, huge parking, gym and breakfast in bed among others can differentiate between a high quality hotel and poor quality one. In addition, quality of a hotel can be judged by accommodations emphasis on cleanliness. Cleanliness and appearance of a hotel can determine its quality. An attractive and clean hotel is considered high quality (Jones and Lockwood, 2004). b) The Golden Chain has successfully won the MBNQA twice. What measures did it adopt to achieve success? By applying the lean principles, discuss why might it cost the Golden Chain less to “do things right” the first time? The Golden Chain Hotel is known worldwide and is made up of high-end boutique hotels. The company has succeeded as a result of its efforts to improve and eliminate customer problems. The company carried out a self-study in order to determine the factors that make the customers happy and those that do not. The study made some measurements in areas like room service delivery, housekeeping efficiency, and parking reservations. In order to foster customer loyalty, the company implemented Customer Customization which has enabled the hotels anticipates the expectations of returning guests. In addition, the chain of hotels have invested money in ensuring that the guest’s problems and complains are handled effectively. Employees are also considered integral part of the hotel and are given the freedom to design their own jobs and roles. In addition, to promote customer service, employees undergo training which has reduced the hotel’s employee turnover rate. The hotel put the interest of the employees above everything else. This has enabled the hotel succeed in terms of delivering quality services and products to the employees. According to the lean principle, the value for customers is created using fewer resources. The core idea for ensuring success of any company is to maximize customer value and at the same time minimize waste (Jones and Lockwood, 2004). A company is considered lean when it understands the values of customers and work towards increasing it. The main goal of a lean company is to create more value for customers through a strategy that has zero waste. It is important for any company like Golden Chain Hotel to eliminate waste throughout the whole vale steams. Processes should require less time, less capital, as well as less human effort (Jones and Lockwood, 2004). Lean companies have the ability to respond to customer’s needs and expectations with high quality, fast time and low cost. Golden Chain Hotel should use lean principle to change their strategy of offering value to customers. In order to avoid excessive use of resources, it is important to do things right the first time (Jones and Lockwood, 2004). Lean principle supports this notion since it is focussed on moving from the old way of thinking that illustrates that it is necessary to invest more on resources in order to be successful. However, lean thinking suggests that it is important to ensure that value for customers are created the first time to minimize waste (Jones and Lockwood, 2004). It will cost Golden Chain Hotel less to do things right the first time due to the ability to minimize waste and overspending. c) The Golden Chain was applying the total quality management (TQM) practices, and was planning to replace it by Six Sigma. It is a good idea for Golden Chain to replace total quality management with six sigma technique. Six Sigma is a better technique compared to total quality management. Companies using TQM are only focussed on attaining pre-set quality levels which may enhance efficiency but may deter the ability of an organisation to realize its full potential (Linderman et al., 2003). Six Sigma is focussed on making consistent quality improvement until the full potential is realized. As soon as a specific quality level is realized, a company shifts gear to another quality goal. I would recommend the shift to Six Sigma since it assists in increasing customer satisfaction and building loyalties. Competition has increased considerably in the business world and companies need to offer better quality products and service in order to gain competitive advantage (Linderman et al., 2003). Six Sigma assist in doing this since it allows companies to attain better quality products which result in greater customer satisfaction and loyalty. This boosts competitive advantage. Six Sigma is a data driven approach. The approach is based on the use of statistical tools for enhancing quality and at the same time reducing defects (Antony and Banuelas, 2002). Dependence on data is able to ensure that decisions made will have a positive impact on quality of goods and services. For instance, manufacturing manager may be the right individual to make quality-improvement decisions (Antony and Banuelas, 2002). 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