Supply Chain Management under Porters Five Forces Model - Research Paper Example

 Restructuring supply chain In the automotive supply chain, the bargaining power of suppliers is relatively low under Porter’s Five Forces model. This gives major auto companies the ability to dictate quality standards such as those in ISO and QS9000. Now that Homer Manufacturing has received the contract for certain assemblies for auto companies, the business maintains more bargaining power in the supply chain. Now that the switching costs for supplier materials is increased, Homer can first use negotiating tactics as a means to establish more dominance in the supply chain for key materials which should be conducted by sales and executive leadership. This will reduce prices to assist in meeting the goal of 30 percent cost reduction. There is a system in inventory control referred to as the two-bin system, consisting of a bin for producing materials and a back-up containing these same materials. By adopting a just-in-time methodology, when the main production bin becomes depleted, it is quickly replaced by the back-up. It is at this point when materials are reordered to replenish the main bin. What this will do is reduce the carrying costs of raw inventories, moving from a monthly replenishment system to a daily system that would streamline ordering of raw materials and subsequently allow for better predictive procurement. Implementation of an appropriate BRP system, such as SAP, would automatically calculate movement of materials for production, thus offering a model for procurement based on tangible, quantitative inventory usages. BRP as it relates to the two-bin system would provide the flexible feedback mechanism required for accurate inventory control (Thomas & Griffin, 1996). HMC should also work on developing relationships with the supplier corporate culture through transverse coordination innovation. This is a relationship marketing concept designed to remove communication barriers between up-stream suppliers and down-stream buyers with a focus on more coordination and partnership (Kleijnen & Smits, 2003). HMC needs to establish mutually-beneficial alliance functions and negotiations throughout the supplier network to provide production/operations training to other corporate cultures and work together to develop a more responsive supply chain and supporting contract negotiation. The four drivers of supply chain management The four drivers of SCM include outsourcing, globalization, supply and demand risk, and product life cycle in the sales market. With new automotive contracts, the product life cycle is limited due to model changes and new structural best practices for automotive products. Thus, assembly will require a continuous adjustment methodology to existing assembly lines and machinery standards. This will somewhat limit the ability to consider long-term procurement and maximize production space and efficiency. This should be recognized when conducting quantitative quality planning, procurement models and predictions, and process controls. In many ways, HMC is not in control of these customer-driven aspects and must be flexible and adaptable to changing production design. However, globalization provides new opportunities for reducing pricing in the supply chain by considering supply alternatives and negotiating contracts with foreign manufacturers for non-automotive production (since these are guided by ISO or QS9000 standards). HMC is in a position to outsource assembly. For non-automotive parts, HMC could consider researching assembly partnerships for semi-finished assembly that can occur in foreign countries with lower labor standards and lower fair wage practices. This would reduce a percentage of labor costs, procurement costs, and allow for production space maximization in certain assembly areas. Human factors of analysis and supplier design activities One tangible reality of relying on partnered supply networks is the recognition that each supplier maintains their own corporate culture, with some suppliers being bureaucratic or supportive (Heyes, 1992). Bureaucratic cultures do not generally support innovation, which could complicate the process of establishing cooperative alliances within the value chain. Thus, when attempting to create a model of procurement linked with JIT objectives, there could be resistance to change stemming from the bureaucratic supplier organization. In addition, HMC must work with change resistant employees within its own business divisions when attempting to establish a TQM system that relies heavily on evaluation of process, outputs and inventory control. There may be a requirement for additional training or through establishment of a new corporate vision to gain commitment in performing adequate, continuous audits and quality control expectations absolutely necessary with a JIT philosophy and when shortening production cycle times is being reworked essentially from the ground up. As part of supplier design activities, HMC will require closer relationships with supplier partners during product development phases and prototyping to ensure that there is a supplier understanding of process and outputs. Involving suppliers during these phases through technology-based information exchanges and experiential (hands-on) involvement in-house at HMC will ensure training is provided and opportunities for discussion between key partners (e.g. executives, production management, etc.) have a clear understanding of supplier costs, cycle times, product design and development and other critical areas impacting supply products and timelines required to meet quality standards. Experts from suppliers, especially those familiar with automotive industry standards, can also apply their technical knowledge to assist in reducing cycle times by identifying key quality and output improvements. This type of knowledge transfer will assist in reducing the cycle time for production and also reduce expediting costs after establishing a cooperative supply methodology that allows suppliers to better plan for JIT needs. Periodic adjustments to these predictive schedules and models can also be facilitated in a knowledge sharing environment through inter-connected software technology. Rapid prototyping and examples of quality supply chains HMC should also develop a rapid prototyping system, using CAD technology (computer aided design). CAD will satisfy the ability of developers and suppliers to interface, which again improves more predictive supply methodology to ensure suppliers can meet demand. By involving them early in the prototyping process, suppliers will understand the mechanisms of product assembly processes. Figure 1 illustrates the inter-dependencies in rapid prototyping. Figure 1: A Typical Rapid Prototyping Model Source: http://www.guyboulet.net/pages/docs/Rapid_prototyping.pdf Rapid prototyping reduces risk in both supply and manufacturing, by identifying potential defects or assembly needs that might not have been originally anticipated during NPD. Using CAD would also avoid making several engineering changes post-production and will serve to reduce costs in research and development. Rapid prototyping methodology would allow for maximization of production space through scenario testing and can even identify potential opportunities for reducing labor costs through efficiency provided by CAD. HMC should take its supply chain management philosophy by examining the successes of Whole Foods Market, Air Asia and Dell Computers. All of these companies, though operating in different industries, have developed lean manufacturing and lean procurement models that continue to meet with efficiency outcomes and cost reduction. Air Asia has found considerable synergies by establishing procurement partnerships with foreign suppliers with an emphasis on relationship marketing to meet inventory carrying costs reduction. Dell Computers “views their supply chain as a strategic competitive asset to be maximized and not as a fixed-cost liability on the balance sheet” (Business Week, 2005, p.2). Thus, there is ample focus on relationship development with suppliers and outsourcing to lower wage production overseas. Whole Foods Market maintains superior supply chain management by continuously scanning the external environment and locating organic food producers sustained by corporate investment to build their own superiority in the supply chain. HMC can gain more power in the supply chain and raise switching costs of suppliers by using direct foreign investment in emerging countries to produce needed products in supply at a much lower price. References Business Week. (2005). “Supply Chain Excellence: Today’s Best Driver of Bottom Line Performance”., Retrieved September 2, 2012 from http://www.businessweek.com/adsections/2005/pdf/0515_supply.pdf Heyes, F.H. (1992). Reform Corporate Culture. Yuan-Liou Press. Kleijnen, J.C. & Smits, M.T. (2003). “Performance Metrics in Supply Chain Management”, Journal of Operational Research Society, 54(2), pp.507-514. Thomas, D.J. & Griffin, P.M. (1996). “Coordinated Supply Chain Management”, European Journal of Operational Research, 94(1), pp.1-15, Retrieved September 1, 2012 from Proquest Database. Read More