Supply Chain Management in the Computer Industry - Coursework Example

Operations Management Executive Summary The use and application of operations management represent a system that consists of the input moving to operations and processes that result in output. Whilst this is seemingly straightforward, each segment represents a highly complex and coordinated set of actions, The process of moving from input to output also entails the efficient operation of supply chain management that is a coordinated process to convert raw materials, parts, and components to result in the timely completion of a product. It takes both systems working in conjunction with each other where operations management serves as the control system and supply chain management is the functional process by which things are accomplished and completed. This was found to be particularly the case in the computer industry where a diverse line of models, in terms of specifications, is required to meet marketplace demands and stave off competitive product updates. This report uncovered how the efficient use of supply chain management results in a company having the potential to secure additional market share by end product price savings generated by internal cost reductions. This exploration of supply chain management also uncovered its contribution to demand and forecast, competitor aspects, as well as supplier contributions and importance, As an example of best practice, Dell’s system of producing finished products on an as-needed basis for direct customer delivery was selected due to its innovative introduction of supply ch\ain management in the computer sector that has since been copied by all of its competitors. The complexities of producing the right product model mixtures to meet consumer demands is a critical aspect of saving on excess warehousing and distribution costs to help achieve a competitive edge. Table of Contents Executive Summary 2 Introduction 4 Supply Chain Management in the Computer Industry 5 The Dell Example as Best Practice 10 Conclusion 13 References 14 TABLES AND FIGURES Figures Figure 1 - Operations Management Basic Diagram 4 Figure 2 - Operations Management Input- Transformational – Output Process 5 Figure 3 - Supply Chain Diagram 7 Figure 4 - Supply Chain Hierarchy 8 Table Table 1 - Computer Industry Product Complexities 12 Introduction The field of operations management is an area that represents the control and design of business operations concerning the production of products or services (Slack et al, 2010). It covers a broad range of business operational processes that can include but is not limited to, production, design, the efficient use of resources, the delivery of components and producing products or services to fulfill market needs (Barratt et al, 2011). Operations management is a critical aspect that aids a company to achieve profitable bottom line results through its control and overseeing of resources, ordering processes for raw materials, components, production line functions (supply chain) and supplier costs (Bozarth et al, 2008). Operations management uses a hierarchy that represents the analysis of situations and then issues instructions that utilise the operations of the company to accomplish objectives (Bozarth et al, 2008). Figure 1 - Operations Management Basic Diagram (Wiz IQ, 2017, p. 1) Supply chain management is the transformational process where raw materials and components are converted to finished products. Figure 2 - Operations Management and Supply Chain Management Transformational Input – Output Process (Wiz IQ, 2017, p. 1) The core of this exploration delves into supply chain management as it represents the means by which a company manufactures products to meet marketplace demands. It is a highly complex operation that entails balancing supplies (raw materials and components) to meet at timed points in the production cycle (Burns and Stalker, 2011). Supply Chain Management in the Computer Industry Supply chain management is the method, systems, processes and structure by which raw materials and component part deliveries are planned and timed in order to keep a supply chain production system moving (Jacobs, 2014). The computer industry is a prime example regarding the use of supply chain management. The first reason is due to the diversity of model configurations consumers can purchase (Krichen, and Ben Jouida, 2015). A singular model can vary in terms of RAM, disk storage, graphics card type and other areas (Tayur et al, 2012). This may seem simple enough, but the slight variations in terms of screen size, desktop versions portables, access ports, and other components can result in a broad array of models and configuration types (Tayur et al, 2012). The other characteristics of the computer industry are that models change almost yearly (Purdue University, 2018). This means that companies have to estimate the demand for these varying models to be placed in distribution points for delivery to department and outlet stores (Rushton, 2014). The problem is compounded by the fact these variations regarding inventory stock levels can change in the marketplace due to shifting consumer demands, or competitor innovations (Khajavi et al, 2014). These factors mean that computer companies have to change their production output runs during the course of the year to meet these shifts in demand (greendaymbg3bm0741s1, 2017). This can represent component part changes in terms of ordering lots to meet new output configurations that can shift rapidly. If a computer company is not able to shift their production runs to meet these demand, they will lose sales to competitors that are keeping pace with marketplace dynamics (Fisher et al, 2015). This is where the supply chain fluctuates in terms of components needed (Carvalho. Et al, 2012). This is a function of supply chain management reconfiguring the number of component parts needed to produce models to meet demand (APICS Insights and Innovations, 2017). It is a balancing process of aligning suppliers with production outputs by model configuration types. The problem is to have these components delivered to the supply chain in the quantities needed at the right time in order to meet the output numbers established for the different models (APICS Insights and Innovations, 2017). In some companies, supply chain management is referred to as just-in-time delivery whereby raw materials or parts are fed into th\e supply chain system to eliminate potential bottlenecks (Muta et al, 2010). This is also known as the theory of constraints which refers to the planning function exceeding the flow of components or raw materials (Srinivasan, 2012). If the needed components are not delivered to the supply chain on time or in the needed quantities, the operation of the supply chain is constrained by the needed parts (Ptak and Schragenheim, 2016). It is a logistical flow of raw materials, component parts, and timing that moves the chain from inputs to output: Figure 3 - Supply Chain Diagram (Rutgers University Libraries, 2016, p. 1) In the diagram below Supply Chain is the operative label as the hierarchical control: Figure 4 - Supply Chain Hierarchy (Pundoor and Herrmann, 2016, p. 1) The issues that can cause bottlenecks (theory of constraints) represent a broad range of aspects (Jacobs et al, 2014). An example is poor forecasting processes where a computer company under or overestimates the model types needed to meet market demands (Stadler, 2015). In terms of this it is important to understand that consumer preferences regarding RAM, storage space, video cards and other components represent a fast shifting series of expectations (Ahamed et al, 2013). These are guided by competitor introductions, pricing, distribution availability as well as press releases (Ahamed et al, 2013). This results in the marketplace shifting model and configuration demand that occurs rapidly (McGrath, 2010). This refers to companies in the computer sector introducing new models and configurations at least once a year (Ahamed et al, 2013). When this is multiplied by the number of competitors such as Sony, Hewlett-Packard, Apple, Acc, Alienware, Asus, Hitachi, Lenovo and a host of others the extent of the issues can be seen. All of these companies conduct extensive research and model sales analysis to determine which configurations and new models to introduce as a means to gain sales by anticipating new consumer expectation trends (Trappey and Wu, 2008). This demanding process represents a forecasting method to ascertain the components (RAM, video boards, sound cards, and other parts) that are meshed into supply chains (Trappey and Wu, 2008)). This competitor aspect has a direct correlation on suppliers that adjust their production runs to meet the orders placed by the computer companies they supply (Stadler, 2015). From a supplier perspective, the order volumes and delivery schedules placed by computer companies represent a complex task of coordinating their own individual supply chains to schedule the delivery of raw materials and component parts to produce models. This means that if suppliers run into delays or supply chain system issues, it impacts the entire computer supply chain (Waters, 2011). This means suppliers require long lead times to be able to schedule for such issues (Waters, 2011), The task is made more complex by the fact that the forecasting process shifts quickly in the computer sector due to changing demands as well as competitive models (Stadler, 2015). When the demand forecasts are calculated correctly, it represents a successful meshing of computer supply chain lead times with supplier supply chains. When the demand forecasts are incorrect, it means a rapid shift to change component part orders that affect suppliers. This is why consumers see special discount offers in outlets for older or discontinued models that cause computer firms money in lost margin revenues (Maddox et al, 2013). In terms of a historical basis, in the past the computer industry was plagued by the demand forecasting aspect since rapidly changing demand aspects could basically cause supply chain forecasts to become outdated in favour of new model configurations (Nahmias and Cheng, 2009). This was further compounded by the delay in receiving marketplace model sales data from department stores and outlets to adjust demand and forecast calculations (Nahmias and Cheng, 2009). This outlet sale foundation for the computer sector represented a demand ‘ forecast weakness in the supply chain sector for this industry (Chao et al, 2008). It also represented a system that generated waste in terms of models that no longer were in demand that were still being produced when their production runs should have been halted (Wittstruck and Teuteberg, 2102). The above exploration of the computer industry supply chain represents a post and current look at its operation. The past aspect is demonstrated by the factors that comprise the computer industry supply chain prior to the Internet, and the post system represents what is still a part of current day supply chain management that the Internet has changed. This difference between the two is the data information availability (meaning model sales data process) that occurs today (Galaskiewicz, 2011). Prior to the Internet, computer companies were subject to the post-computer supply chain aspect where model sales arrived in a slower manner (Galaskiewicz, 2011). The Internet helped to change this as computer companies could receive sales data from outlets and make model run adjustments in a more rapid and efficient manner. Dell meshed this Internet age phenomenon into a supply chain innovation where it conducted all of its sales over the Internet (Teece, 2010). This represented real-time model sales data which the company could use instantly to modify supply orders and its own supply chain runs. The next section provides an explanation of this new approach. The Dell Example as Best Practice Before Dell entered the computer industry, the above example of computer company supply chain issues to meet changing consumer model demands or competitor changes represented the system that governed this sector. This meant that at times, outlets were out of stock on particular model configurations that required special orders and the waiting time this entailed (Pokharel and Mutha, 2009). Dell approached the industry from a customer-centric perspective of customisation (Desouza et al, 2009). It meant that consumers would place an order on the Internet for the model and configuration they wanted, pay the price and then have their specially built computer delivered within five days (Teece, 2010). This also permitted Dell to charge lower prices that consumers found attractive in terms of waiting five days for their specially built computer (Agrawal et al, 2001). Dell was able to lower prices by approximately 20 percent since it eliminated the middlemen (stores) and warehousing distribution points. This meant that there was no need to warehouse millions of models to fill demand (Agrawal et al, 2001). The company struck deals with suppliers on a long-term basis for components and introduced new models only after the new component parts were ready for delivery to the company’s manufacturing assembly (supply chain) (Stein et al, 2013). Dell took the step of having the needed model configuration parts on hand for the custom order which was a fraction of the cost of warehousing finished computers at distribution points around the country (Stein et al, 2013). This centralised manufacturing supply chain point lowered costs by having the components in one place since finished products were shipped directly to customers (Stein et al, 2013). Dell’s approach reduced the potential for bottlenecks since the company knew from customer orders what models and configurations were selling quickly and the ones that were slow moving (Lee and Lee, 2011). This permitted Dell to adjust supplier manufacturing runs as needed, which helped the company to forge better supplier agreements (Stein et al, 2013). This was because suppliers had longer lead times to manufacturer component parts that lowered their operating costs. The following summaries this process: : Table 1 - Computer Industry Product Complexities (Nahmias and Cheng, 2009) The above provides an example of the unique approach taken by Dell to become one of the leading computer companies. Dell is hailed as the modern-day innovator in supply chain systems when it pioneered customisation in computer ordering and delivery that enabled it to establish the company in the sector (Nahmias and Cheng, 2009). Although Dell products are now sold in outlets and department stores, at the time it began operations it devised the system of direct consumer delivery using orders taken only over the Internet (Nahmias and Cheng, 2009). Conclusion The operations management function in this example serves to illustrate its linkages with supply chain management in the computer sector. Operations management provides the means to communicate what is needed from the supply chain and suppliers to meet output in conjunction with marketplace demands. The important element is that companies that effectively utilise supply chain management, as per the Dell example, can reduce costs and potentially gain market share. This marshaling of resources in a cost-effective and efficient manner represents the foundation and purpose behind operations management and supply chain management. Both of these systems are based on a hierarchical framework of inputs (orders, scheduling, use of resources, timing and allied functions) to result in output. The computer sector has basically paved the way for this new approach to supply chain management that has been adopted by other industry sectors. It is the rapid input of computer model orders and supply chain management that is paving the way for innovative new production outputs that serve corporate social responsibility, sustainability and market needs in light of finite resources. References Agrawal, M., Mercer, G., Kumaresh, T. (2001) The false promise of mass customization. The McKinsey Quarterly, Summer, p. 62. Ahamed, Z., Inohara, T., Kamoshida, A. (2013) The servitization of manufacturing: An empirical case study of IBM Corporation. International Journal of Business Administration. 4(2), pp. 14-23. APICS Insights and Innovations (2017) Examining remanufacturing in supply chain and operations management. 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