Two-Level Supply Chain as an Integral Component of Any Business - Term Paper Example

?Information Sharing in Supply Chain Information Sharing in Supply Chain Introduction Supply chain is one of the most defining pillars of the business today. In today’s brisk paced world where the business dynamics are determined by the ever powerful consumers, the marketers cannot afford to take a step in the wrong direction. No matter how strong a company’s management is or how creatively it executes its marketing and communication campaigns, if it fails to supply the right product, to the right consumer, at the right place, in the right quantity, at the right time then it will not be able to survive in the market place for a sustainable period of time. Globalization and regulator threats in industries have tend to empower the customer a great deal and it is more often than not the customer who dictates terms to the businesses operating in the market place. Under such complex and intriguing scenarios the role of supply chain becomes ever more challenging, decisive and vital for the growth and nurturing of a company (Fisher, 2000). The entrepreneurs, having studied the market trends and being well acquainted with the consumer culture, can determine certain variables that are almost impossible to discover otherwise. The entrepreneurs can determine future demand of a particular product that they are selling to a particular segment. A company that needs to become the top of the mind company for its consumers must lay stark inventory management plans that are based on industry dynamics and reliable data obtained from various sources. Indeed managing inventory requires immense amounts of vigilance. However this vigilance is not to be maintained by the producer alone as this is not pragmatic and on the other hand there are several parties involved in the value chain of every product. The producer, supplier, wholesaler and retailer all need to collaborate with one another and share information regarding the level of inventory that each one is required to hold at every stage in the entire process. This is being done and practiced in almost every company today. For sharing information companies spend hundreds of thousands of dollars every year to develop and upgrade their information sharing systems that keep all the involved players in the cycle onboard with minute to minute information regarding inventory levels. This keeps everyone a breast of the levels of inventory required to be maintained at any particular time in the chain (Fisher, 2000). The Value of Information Sharing in Inventory With the introduction of more and more products by the companies and entrance of giant companies that offer products that serve to cater to similar needs and target the same set of consumers have actually helped to make the market place a battle field. Today customers have so many options and choices to choose from. In fact making a buying decision has become a Herculean and specialized task for the customer. Where on one hand intricacies at the end of consumer have increased then on the other the customer has become very powerful as well, and one cannot repudiate the fact that products and brands that do not meet customer expectations are either ousted or kicked out of the market and become forgotten history. Here inventory management becomes a key concept that needs to be discussed and highlighted to limelight. As we talked about the concepts of “customer expectations” and “consumer culture” so we also need to understand that they are very closely linked to inventory management. Finding the product on the shelf is one of the most significant customer expectations, significant yet basic. “Finding the product on the shelf” implies that the product must be available to the customer at the right place in the right quantity at the right time. This is where Inventory management comes into play. Inventory management has gained more and more significance in organizations during the past decade and this is because of the consumer expectations and strong consumer culture that has risen globally. Continuous Replenishment Programs (CRP) and Vendor Managed Inventory (VMI) are two methods that can assist managers in managing their inventories. CRP refers to the consistent collaboration of a manufacturer with retailer to ensure that information is shared between the two in a transparent manner and both have perfect inventory information at points in time in the supply chain. For instance at Mc Donald’s the outlets are linked to supply chain through digital media like internet, shared information systems, real time information display screens and e mails. With such interactive modes of collaboration used all the points in the supply chain are always active and ready to respond to any situation at any particular hour. This has only become possible by means of great intercompany collaboration system developed inside all the outlets of Mc Donald’s. All the employees are aware of the needs of the hour and they take decisions accordingly and transfer information to the relevant component in the supply chain and in this manner even a panic situation is dealt with easily without costing the company any dissatisfaction on behalf of the customer. Hence Mc Donald’s is able to maintain its image of “a happy place”. Vendor Managed Inventory is a modern day Inventory management concept and here the vendor keeps track of the inventory on shelves and in the pipeline and then make orders accordingly. VMI is practiced very commonly and successfully at Wal-Mart. The Value of Information Sharing in a Two Level Supply Chain A two level supply chain comprises of a retailer and a manufacturer. Such a structure of a supply chain is very important to study and understand because it is found everywhere in the world. The critical success factor of the two level supply chain is the ordering decisions made by the retailer and the manufacturer to cope up with the dynamics of demand and supply efficiently. There are two particular ways of sharing information in such a supply chain. One where the manufacturer has all the information regarding the lead time and the error term from retailer’s end while the other where manufacturer makes an assumption regarding the top order quantity. With the use of information sharing at all points in time throughout the supply chain Inventory Reduction is one of the most prominent outcomes. The amount of inventory that a retailer carries is reduced by multifold and hence efficiency of the business is increased (Tang, 2000). Lead Time is also an important concept that adds value to the supply chain and the costs involved. Reducing the lead time shall have eminent impact over inventory holding and transportations costs not only for the retailer but also on the manufacturer. This is because the manufacturer aligns his storage and transportation scheduling as per the demands of the retailer. Even the smallest of changes in the decision making process shall create complexities for both the parties involved in the process. Information sharing in a two level supply chain is equally and mutually beneficial for the retailer and the manufacturer alike. Information sharing becomes extremely vital in cases where lead time is longer than usual. In such cases the ordering decision of retailer can be a defining factor for the entire value chain of the business. What the retailer orders, to a huge extent, determine the decisions to be taken by the manufacturer and in order to get things right at both ends information sharing and coordination is a must. At the end of the supplier information sharing helps the supplier in making decisions regarding reorder frequencies of retailer and also to identify the retailers that require frequent replenishments and anticipate the quantity rendered on frequent basis. This entire methodology keeps the supply chain integrated and fruitful for all the members involved (Tang, 2000). The value of Information Sharing in Retail Supply Chain In retail supply chain the demand for goods is non stationary and is subject to fluctuations and seasonality. The demands for goods pertaining to certain a period or phase of the year is forecasted based on the past trends. This could be misleading at times because too much guess work is involved. Moreover the variation in demand varies with marketing efforts of the industry; this is a prominent trend to be noticed in the FMCG sector worldwide. The framework based on predictions, speculation and anticipation is not reliable and may back fire big time any time. A solution to such a dilemma is information sharing. With the retailers coordinating with the suppliers and manufacturers to keep them updated of the inventory levels players in the supply chain can operate efficiently in a profitable manner (Mahajan, 2011). The bullwhip effect is what scares the members in the supply chain the most. In a bullwhip effect the magnitude of repercussion multiplies as it moves on from one member to another in the chain. This means that if a retailer incurs a loss of $100 because of lack of inventory then this $100 loss will not be the same for every member of the chain in fact it will multiply to a greater extent as the distance increases from the point of origin, and hence the bullwhip effect can be visualized (Sivabrovornvatan, 2006). There is a slight difference in the working of a supply chain with and without information sharing. In the supply chain without information sharing the order quantity is conveyed from the retailer to the supplier, here the risk of avoiding seasonality and other defining external factors looms high on the entire chain. However a supply chain with information sharing, to a great extent, avoids the risk of avoiding the random factors. In case of information sharing the retailer shares with the supplier not only the required order quantity but also the trends observed in the past and the impact of marketing efforts and other factors in the demand of a particular item for a particular period of time. With various studies conducted and models created by various analysts the impact of information sharing on the costs associated with a supply chain are phenomenal. In the first place supply chains based on information sharing are able to reap more profits simply because they meet customer demands more often than not and on the other hand the players in the chain do not end up over spending their resources on inventory holding costs, wastage, returns and logistics. Supply chains based on information sharing principle provide win, win ends to all the members involved (Mahajan, 2011). Information sharing in supply chains for FMCGs is particularly of more significance than any other industry, though every industry is dependent upon suppliers, because of the non stationary characteristic of demand. The demand in FMCGs is fluctuating and cannot be determined with accuracy. The seasonality of the product and the marketing initiatives taken by the companies serve to make the replenishment decisions for the retailers and suppliers even more complicated. Moreover the seasonality and marketing efforts are random in nature they may or may not occur on a regular basis and this signifies that tracing of patterns and trends shall not be an easy task at all. So the only solution that has been discussed throughout the length of the paper to this enigma is information sharing in supply chains (Dresner, 2006). Information sharing shall not be perceived to be a form of communication that takes place between the supplier and retailer; in fact it has to be an integral of interdepartmental communications of a company, this is easier said than done. Categorically for Multi National Corporations such as Unilever and Procter & Gamble interdepartmental coordination shall not be easy. Conventionally such companies have been following the manual modes of communication and information sharing where each territory had its independent forecasts and replenishment strategies. There is a lot of manual interaction as one can observe. The order quantities are estimated and ordered manually. The supplier gets the information on the phone or through fax then this information is forwarded to the concerned department followed by loading of the goods for transportation and delivery to a remote replenishment or distribution center. After unloading the consignments were checked manually and were dispersed to respective territories. This all sounds tedious and time consuming and actually it is and perhaps more complex than one can imagine. Intercompany collaboration has also become very important when it comes to inventory management. For example Mc Donald’s in Japan have been using the technological giants like Cisco, FeliCa to get rid of all the communication and intercompany collaboration barriers and to deliver the best possible services to its customers. The supply chain is synchronized and linked to different boundaries of the organization that are directly or indirectly dependent upon the supply chain. These factors include transportation, the outlets, the customers etc. This enable Mc Donald’s to have a perfect or at least close to perfect information about the future demand and hence it is able to cope up in a pro active manner with the demands of the customers in Japan. With investment and loads of research companies have resolved the barrier of interdepartmental communication and to speed up the process of information sharing adding accuracy and timeliness to the model along with cost effectiveness. Today companies use bar codes and scanner that are linked to a unified company database for up to the second information updates of inventory levels and replenishment requirements. This has turned the tables in favor of the companies, big time. These company databases are integrated not only with all the departments of the company but also with the manufacturers and suppliers. This technological advancement has empowered the supply chains to be able to make perfect decisions and critical stages and determine the most cost effective in transit methods and lead times (Sivabrovornvatan, 2006). Conclusion Throughout the length of this paper various research studies have been taken into consideration. It shall be concluded that supply chain forms an integral component and pillar of any business in the modern world. Customer satisfaction and thus the profitability of the company are positively correlated to the strength of the supply chain in every industry. Two level supply chains have been the core of this discussion and one can easily figure out the dependence of supply chains on information sharing. Information sharing help supply chains reduce the bullwhip effect and increase the efficiency and profitability of the players involved. With the fair bit of screening, the dynamics of FMCG and related industries were also examined and the relevance of information sharing to such businesses was realized. In all and all one can say that the success of business is dependent, heavily, on the integration of supply chain and the members involved in its functioning and operations. References Ge?rard P. Cachon, Marshall Fisher, 2000, Supply Chain Inventory Management and The Value of Shared Information Hau L. Lee, Kut C. So, Christopher S. Tang, 2000, The Value of Information Sharing in a Two-Level Supply Chain Nilubon Sivabrovornvatan, 2006, The Value of Information Sharing in Supply Chain Management Omkar D. Palsule-Desai, Siddharth Mahajan, 2011, Value of Information in a Serial Supply Chain under a Nonstationary Demand Process Tonya Boone and Ram Ganeshan, 2008, The Value of Information Sharing in the retail supply chain: Two Case Studies Yuliang Yao, Martin Dresner, 2006, The inventory value of information sharing, Continuous replenishment and vendor-managed inventory Read More