Supply Chain Management: Early Supplier Involvement - Essay Example

Supply Chain Management PART CASE UNDER STUDY: Deere & Company, based in Moline, Illinois, is one of the world's oldest business enterprises with 150 years of history, with operations spanning more than 160 countries. Its core business is in the manufacture, distribution, financing and servicing of agricultural equipment, as well as other technological products and services. They had pioneered the Skid Steer loader market around 35 years ago .In the process, they contracted the engineering and manufacturing activities of Skid steer loaders to one of their competitors, a company called New Holland, who agreed to sell their excess capacity to Deere & Company. Since Deere & company was getting the same product as sold by New Holland (with some minor aesthetic changes); they had no technical or commercial advantage over their competitor. Till 1995-96, the market share of Deere & Company for Skid steer loaders was between 1-3%. Market data showed that the growth rate of the demand was becoming attractive at 15-20%, and projections were indicating a requirement of around 60,000 units, which would amount to sales worth $ 1.2 billion per annum within 5 years. In order to capture this market Deere & company decided to engineer and manufacture their own version of high quality Skid steer loaders, with a target cost 20% lower than their best competitor and by improving upon other 'order winning' criteria such as product range, features, costs and delivery schedules. A comprehensive proposal was sought for establishing an integrated supply chain for achieving the desired target. PART 2 Supply chain management Nowadays, organizations can no longer compete solely as traditional individual entities. This is because the products and services demanded by customers require a higher degree of value addition, which in turn requires multiple technologies and capabilities to be incorporated in the products and services. This can be successfully achieved by operating collaborative supply networks, where each business partner focuses on only a few key strategic activities. This inter-organizational supply network has now become a new form of organization. This concept of business relationships extends beyond traditional enterprise boundaries and seeks to organise entire business processes through a supply chain of multiple companies. As corporations strive to focus on their core competencies and become more flexible, they have reduced their direct involvement in all the functions of the business process. These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively. The effect has been to increase the number of companies involved in satisfying consumer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners has led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners The term ' Supply chain Management ' (SCM) was coined by consultant Keith Oliver of strategy consulting firm ' Booz Allen Hamilton' in 1982. Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. Operating an integrated supply chain requires continuous information flows, which in turn assists to achieve the best product flows. As the range and complexity of a product or service grows beyond a particular level, it is sometimes necessary to develop the supply network into a multitiered structure where primary level suppliers have their own sub-network of second and third level chain components, who in turn supply them specialised subassemlies or service support. In this case a high level of integration is required with the combination of central and local involvement. Strategic decisions are taken centrally while controlling the day to day logistics and monitoring of supplier performance are left to the local lower level supplier components. Advantages of SCM : 1. Better operational efficiency is achieved as the Management responsibility is distributed among Supply chain partner. 2. Lower costs 3. Reduced design and production time cycle, hence faster response to market changes. 4. Win-win situation for both supplier and purchaser. 5. Burden of investments shared by chain partners. Key factors affecting SCM Efficiency : 1. Good coordination among chain partners, which requires an efficient communication system. 2. Shared vision and long term goals , mutual trust and commitment levels. 3. Well documented design, specifications as well as Operation Process flow. 4. Performance monitoring , especially regarding quality and time schedules. Problems in implementing SCM : 1. Economic interdependence 2. Duplication of capital resources 3. Conflict of interests. It should also be noted, that these supply networks evolve gradually, when new product development (NPD) is initiated. A business enterprise may decide to introduce supply chain partners at different points of time, in phases, depending upon its studied plans and policies. Early Supplier Involvement Early supplier involvement is generally defined as a form of vertical cooperation in which manufacturers involve suppliers at an early stage in the product development and/ or innovation process (Bidault et al., 1998). Involving suppliers in NPD is one way of gaining strategic flexibility through reduced cost, reduced concept-to-customer development time, improved quality, and access to innovative technologies that can help firms gain capture market share (Handfield et al., 1999). A generic NPD process and activities can be analyzed in three stages: planning, design, and production. The planning phase activities refers to the functional specification of the new product such as general product definition, lead time requirements, definition of interface specifications, platform/ architecture design specifications, and outsourcing decisions. The design and production stages are often referred to as the detailed engineering1 phase where bill of materials (BOM) and blue prints are generated, prototypes are built and tested, manufacturing processes and equipment are selected and qualified, and so on. Supplier involvement in the NPD process can take place at all three stages".( Global Journal of Flexible Systems Management, Oct-Dec 2003 by Mikkola, Juliana H, Skjoett-Larsen, Tage) Relevance of SCM to the case under study A proposal is sought by the management of Deere & company to develop a supply network, in order to realise it's goal of capturing a large share of the skid steer loader market, by producing high quality value added versions of skid steer loaders at considerably lower costs as compared to it's competitors. Hence the general principles of supply chain management will have to be applied in this case. PART 3 Draft Proposal The following draft proposal for setting up a fully functional product development and production facility for skid steer loaders. Since our target time is two years starting now, time will be the essence of all the activities we undertake. The product : Under this proposal, we are considering the ' skid steer loader ', It should be a versatile land moving equipment which is going to be used for construction and ground care purposes. A loading capacity of 1000 to 3200 lbs should be a good range for the equipment. I am enlisting the important criteria for our new product development. 1. Product features : We must incorporate user friendly controls, easy manouverability, low maintainance parts,and a high efficiency engine having low running cost in our design. 2. Product range :Our product should have different models depending upon the loading capacity. To increase the versatility of the machine various attachments have to be developed like auger chain and planetary drives,backhoe,bale spears, snow and utility blades,breakers, angle and pickup brooms.multipurpose buckets, cold planers,dozer blades,grapples , power rakes rotary tillers , toothbars, vibratory rollers trenchers etc. 2. Cost : The pricing of the equipment is to be at least 20% lower than our nearest Competitor. For this we must choose optimum designs and keep our operational costs at minimum . 3. Delivery : demonstration of the functionality as well as delivery at site are other criteria which are desired. Firstly, we will need the following actions and approvals: Strategic policy decision to be taken regarding product range and accessories to be included in the product mix. Formation of a central project team responsible for activities such as design and documentation of process flow, internal and external liasoning , infrastructure development, resource planning ,quality control,and monitoring supply management. In order to have a long term edge over our competitors, and in keeping with modern and superior management methods, it is suggested that we build up our chain of suppliers, so as to enjoy the advantages of special capabilities ,expertise and other resources of our partners at lower costs. Initially, we will need to involve a few key suppliers during product development phase.I am presenting my views on early invlovement of suppliers and ways to integrate them with our organisation. Identification of components and services that could be outsourced at an early stage. A) High efficiency engine B) Accessories as listed C) Electrical control components D) Body building components The supplier selection criteria: Modern researchers have indicated the following selection criteria for suppliers. Dickson,G.(1966) : Ours being a techonlogy oriented product(TOP), The main operational criteria relevant to us will be : 1) cost, 2) delivery performance, 3) quality, 4) service, 5) technical capability and 6) flexibility I am presenting the justification for selection of suppliers keeping the above factors in Mind : 1) Cost : a) The cost of the outsourced component as a percentage of final product value will be a deciding factor. For a high percentage cost component like high efficiency Engine and body building, we may prefer a single source supplier with along term agreement, so as to maintain commitment levels. b) Cost of production tooling. Here we need suppliers from the development stage who are willing to make long term investments in production tooling. 2) Time to do production tooling : "Development of tooling and fixtures is on the critical path between product design and manufacturing. Efficient, accurate tooling design is essential to meeting overall time-to-market schedules"-UGS solutions. As such,we should have 4 to 5 suppliers with proven delivery performance having capability and expertise in design and development, innovation and tooling, because we propose to have a large range of accessories Distribution of work load will help in reducing development time for tooling as well as production. 3) Impact on final product reliability :The quality conciousness, technological capability and service support are essential criteria impacting the final product reliability.We should not only apply these to our key suppliers but also identify reliable sources of high quality components like mechanical and electrical components, as failure of these can damage our reputation. Integration process for the suppliers : We will have to : Negotiate long term agreements with the key component suppliers , taking into Consideration the interests of the supplier as well as our company, and also the commitment levels from both sides. Organise an efficient communication link between supplier and our Company, So that information flow regarding development and production issues iseasily shared and taken care of. . This will result in transparency of operation, build mutual trust and feedback regarding performance and other problems can be duly assimilated in the development process. Set up a central quality monitoring plan and circulate among supply Chain partners . Identify bottlenecks and find their solutions to Prevent time and cost overruns. Set up design and production rewiew procedures in collaboration with key Suppliers so that the manufacturing flow process is reviewed and optimised on a continual basis. REFERENCES 1. Dickson,G.(1966) -Analysis of vendor selection systems and decisions, Journal of purchasing,2(1):5-17 2. Early Supplier Involvement: Implications for New Product Development Outsourcing and Supplier-Buyer Interdependence Global Journal of Flexible Systems Management, Oct-Dec 2003 by Mikkola, Juliana H, Skjoett-Larsen, Tage) 3. Wikipedia "http://en.wikipedia.org/wiki/Supply_chain_management" BIBLIOGRAPHY 1) deere and company - ' WORKSITE PRO ' Skid steer attachments at www.deere.com 2) Supplier selection criteria- www.watlow.com 3) UGS Solutions -Develop & validate : tooling at www.ugs.com/solutions/define/tooling.shtml 4) Wisner D. Joel, Principles of supply chain management with infotrac-A balanced approach, Thomson Learning, February 2004. page 114-116 Read More