Expensive Plant and Machinery: Phenomenon of a Supply Chain

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Introduction

Looking into the issue of managing supply chains we must first make a distinction between a supply chain and supply chain management. We begin with the definition of the two terms. A supply chain is a set of companies, which can be three or more, and they are linked directly by one or more of the upstream or downstream activities in the flow of goods, finances and information, flowing to from the producer to the last consumer (Lambert 2008, p.2).

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Supply chain management is coordination of the business functions that is systematic and strategic, in a company and across businesses within the supply chain (Mentzer 2001, p. 2; Hugo 2006, p. 3). Supply chain management is seen to benefit the players in the supply chain. It is the art of how the flow of products and materials from the source to the user is managed (Copacino 1997, p. 7; Wisner, Keah-Choon & Keong 2008, p. 6; Kulkarni & Ashok, 2008, p.1).

In this case we will adopt it to mean, a set of approaches used in the integration of manufacturers, suppliers, stores and warehouses in a manner that is efficient so that products/ goods are produced and distributed in the right quantities, to the right destinations, and at the right time for minimization of related costs in the system, and with satisfaction of the required standard level of services to the respective customers (Simchi-Levi, Philip & Edith, 2003, p.1; Guines, Elif, Panos, Edwin & Shen, 2005 p.121).

From these definitions we can therefore conclude that a supply chain extends from the source, supplier to the ultimate consumer. The goals of a supply chain management will be the same in all the fields. These goals can be broken down to: how a supply chain looks like and what it encompasses, identification of specific challenges that are slowing down the movement of goods, services and information, putting of the right process(s) in the right place for the delivery of the right products to the right places and on time, and empowering of the right people for the accomplishment of the named goals.

Supply chain management also takes into consideration the facilities that impact on the products and services to ensure that they are of the required standards. Also its (supply chain management) objective of efficiency and cost-effectiveness across the system is looked into (Simchi-Levi et al 2003, p.2).

The overall picture that should come into the mind of a manager concerned with supply chain management should be: the end-to-end thinking in the organisation from the point of sale backwards to the factory (source), development of flexible infrastructures (logistics) which are cost effective for the movement of products from the source to the end consumer, information flow within the system, and managing time, services and cost drivers as a way of managing the supply chain (Leeman 2010, p. 9; Ross 2008, p.125).

Discussion

For the company of our discussion whose operations are located in a remote place, it means that the infrastructure in terms of communication and transport must be of good quality for the achievement of its goals. The materials (machinery and spares) needed for its operation to commence and be maintained would be vital if they were to have an easy access to the location of the operations of this company. This will greatly reduce the costs associated with transportation and distribution of the required materials for repair and maintenance. This discussion will concentrate on four major elements in supply chain management. They are: levels of activity in management and support system decisions, logistics management, integration and key elements in supply chain management.

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Levels of activity in management and support system decisions

According to Harrison, Hau and John (2005, p.15), supply management revolves around the efficient integration of suppliers, manufacturers and stores (where the consumer is affected). This, therefore, encompasses activities in a firm at the strategic, tactical and operational levels.

  • The strategic level. This level deals with decisions with a long lasting effect on the firm. These decisions regard the location, number and capacity of warehouses and manufacturing plants. Also they are about the flow of materials, in this case machinery and repair parts, through the logistic network. The location being in a remote place, for our case, it requires a number of warehouses which must be located in strategic locations for easier access of the machinery needed and the spares too. This means that the producing company and the buying company must have a well structured network of warehouses that are accessible at all times.
  • The tactical level. These are decisions which are typically updated from the span of one week, a month or on yearly basis. These decisions regard purchasing and production, inventory policies and transportation including the frequency of customer visitation. The purchasing and the supplying firms need to have a good flow of information. The reason for this is to enable the availability of the relevant information regarding the needs of the buying firm so that the supplying firm can avail the needed products/ or services in the right order, quantity and quality, and at the right time. This information will enable adequacy in production of the needed machinery and availing of the spares. Again the fact that the policies on inventory are reviewed occasionally, there will be a continuous flow of operation and service provision in the case of this firm as they will be able to avoid stock-out which may result to stoppage of operations and this will prevent the firm from suffering huge amounts of losses and loss of customers.
  • The operational level. These are daily decisions. They are basically about scheduling, lead time quotations and loading of trucks. For the purchasing firm which is located in a remote place it would mean that the right scheduling of work at specified times will not be missed due to delays caused by lack of the appropriate machinery or spares incase of breakdowns. The services will be provided to their customers in good time and this will increase their efficiency and competitiveness.

In addition to this, it has been discovered that in the last couple of years, many companies have laid emphasis on strategy improvement and decisions that regard operations and have achieved this through decisions support systems. Some of these support systems are: network designs models, and routine and scheduling amongst others. Firstly, on network design models, which focuses on key strategic decisions, they are involved in the determination of the appropriate number of plants and warehouses, location of each facility, size of these facilities, allocation of space for the products in each warehouse, and determination of which products are to be received by customers from the ware houses and the place where these products are made (Harrison et al 2005, p.15).

The over all objective for coming up with network designs is to have a logistics network that will minimize costs associated with production and purchasing, holding of stock, storage, handling and fixed costs in the facilities (warehouses) involved, and costs of transporting the merchandise. In addition network studies are also very vital relating to changes related to business such as demand increase, new constructions and changes in suppliers.

This will help the firm(s) to keep track of the availability of the machinery spares that it needs because if the firm decides to change the machinery with the current trend of changes in the tastes of other customers it will suffer huge losses as the initial installation was expensive. Again, regarding the nature of its work, it has to keep trend of changes in the demand of its services so that it can have profitable operations and stay in business for the time it has projected to operate in this remote place of Queensland.

Secondly, routing and scheduling. Automation of complex tasks such as scheduling and routing can significantly improve performance. Transportation costs are reduced as routes are improved and utilization of transportation capacity is effective. This is through increase in the ability to handle changes and by assisting the management in tracking the equipment and staff (Harrison et al 2005, p.16). This focuses on the logistics management. This is very much related to the next subtopic which focuses on logistics in more broad terms.

Logistics management

The logistics basically deals with the medium it (firm) uses to transport its required machinery and spares to the intended location (Hines 2004, p.353; New and Roy, 2004, p.29). Effective management of logistics will provide the following value added roles which are added utilities for the firm (Coyle, John & Edward 2009, p.36-9).

  1. Form utility, which is the value added to products through an assembly or manufacturing process. This will apply in our case because the original equipment manufacturer will assemble the machinery or the spares to a form that we can utilize. The different components that it will use will add value to the products that the remote located firm purchases. They not only break the bulk but also change the sizes in which it transports it for our required size and quantity(s).
  2. Place utility, this is by moving of goods from their places of production to warehouses where we need them. This is basically though transportation. The overall advantage will be the reduction of prices due to increased competition, which is an added advantage to our firm and this will mean increased productivity. For our case good transportation avenues that are well organized will make sure that the equipment and the spares are at the places where they are needed at the right time and in the right quantities.
  3. Time utility, which means, not only are the products that we need available where we need them but also at the point (place) where we need them. This translates to added economic value. Time utility is created, by logistics, through appropriate maintenance of inventory, strategic location of the product and transportation.
  4. Quantity utility, which addresses the need for the products needed, being delivered in time, right location and in the right quantities. Logistics create quantity utility through production forecasting, scheduling in the production process and good control of the stocks.
  5. Possession utility, which is created by marketing and promotion of the products. Possession utility is the most vital for the rest of the utilities to make meaningful sense in that there must be demand for the product. This will be handled by the original equipment manufacturer to the benefit of the purchasing company, which in this case is our company.

Integration

Careful and effective management of the supplier allow firms to screen out poor-performing suppliers in a selective manner. This allows them to build successful and trustworthy relationships with the remaining strong suppliers, who can provide great benefits to the buying firm and the whole supply chain. This is due to timely availability of spares and in this case the original manufacturing company will be always in a position to provide or supply the needed machinery for spares in good time and of the right quality.

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This will then mean high volumes of purchases from the purchasing company translating to lower costs of purchase, due to economies of scale, and increasing the profits for the firm. The firm will, therefore, be providing services of high quality and delivering these services in an excellent manner. This increases its overall competitiveness and performance. As for the supplier, there will be long-term and high volume in sales (Wisner et al 2008, p.18). This translated to high profits throughout and a sustained market for its products

For a supply chain to be counted as a top performer, the management must attack inventory problems with a lot of aggression, commit resources to improve its customers’ level of services and partner with key suppliers so as to take control of its supply chain (Blachard, 2007, p.14). Some of the key things that the management should do are:

  1. Aim at balance. A company must be consistently good enough in all areas leading them to be the best. This does not necessarily, however, mean that the company must be the very best in all the categories but the aim is to strike a balance so as to be counted as one of the best in the entire supply chain.
  2. Increase demand visibility. The management must have a high level of forecast and accuracy. They therefore reach order fulfillment and by so doing they achieve in satisfaction of the customer services.
  3. Isolation of high costs. The manager should be aware of the parts or places where the firm holds its highest costs and the reason behind this. This enables them to concentrate on focusing their best practices and investing in technology(s) (Blanchard 2007, p.14).

From the above mentioned three points we can, therefore, deduce that the management must have the ability to respond quickly to changes in demand with innovative services and products.

Key elements

In supply chain management there are key elements which managers should consider for effective management. These elements are: operations, distribution and integration elements as these are the key elements that make up the supply chain of most firms

First, we look at operations element. These are the internal elements of a firm. This entails the assembling of the items into finished products. This is to ensure that the products that are produced meet a specific quality, cost, and the requirements of customer service. This is in line with the fact that after the supply management has done its part, the operations management is second in line, as a crucial component in the supply chain.

The firm should also have a clear forecast on the demand changes for the entire operations period. This will be vital so that it can have the right combination and amount of stock at all times to avoid stock-out. In this case the rate at which the machinery requires repair is vital so that there will be no time when the firm will have no spares for its equipment leading to loss of business translating to huge losses and loss of potential customers in the future.

To minimize on these costs the firm will have to rely on demand management strategies more often. This is with the objective of matching its demand of machinery and spares to the available capacity. This would be by improving on production scheduling, increasing capacity, or curtailing demand. This will be given by the magnitude of their service provision to a specific number of customers (Wisner et al 2008, p.18). Another aspect in operations elements is in the control of inventory. This is vital in the prevention of a stock-out or excess inventory. For effective and efficient operations there is need for the right amount of inventory to be available.

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The best way to maintain the inventory would be to have a software application for managing the inventory. There is another common form of inventory management, called the lean production. This results in faster delivery times, lower levels in inventory and better quality. An important aspect of the lean system is the quality of the incoming items purchased the quality of the assemblies as they move through the production process. This results from low stock levels of the purchased products and having low levels in the progressing work in the firm. The firms and supply chains have total quality management strategy in place that ensures continuation of quality compliance among suppliers and facilities of internal facilities (Wisner et al 2008, p.19).

Secondly, we look at the distribution elements. This entails the timely dispatching of the right quality and quantity merchandise to the customers. It requires high level planning. Cooperation between the firm, customers and various distribution elements is also required (Wisner et al 2008, p.20).decisions to distribution involves a trade-off between delivery timing or service to the customer and cost. The desired outcome of distribution is service to the customer. Requirements must be identified in order for the firm to provide the desired level of services to the customer. To build and design a network of distribution is one of the methods of ensuring product delivery in a successful manner.

Lastly, we look at the element of integration. The processes in the supply chain management are integrated. This is when members of the chain work together when making delivery, inventory, quality, production and decisions of purchasing. For a supply management to be successful the participants realize that it must become part of the firm’s strategic planning process. This is because the objectives and the policies are jointly determined based on the needs of the end consumer and what it can do well. Firms act together to maximize the profits in the supply chain by the determination of optimal quantities they need to purchase, availability of the products, levels of the services, quantities of production, and product and technical support at each stage in the supply chain (Wisner et al 2008, p.23).

Conclusion and Recommendations

For a firm to operate efficiently it must take into consideration the management of supply chains that it is involved in. from the products and services it avails to its customers to the initial starting point of the manufacture of the equipment and spares it uses in its operation. This is imperative so that it can be able to operate full time without breakdowns, resulting to huge losses, but also to its profitability from effective management.

To be able to achieve this it must be a team player in the supply chain so that it can provide adequate and appropriate information to the original manufacturing company so that even in the case of changes in the production of the initial/ original equipment, its needs will have been put into consideration. The needs of this company will be provided in advance. Activity levels comprising of: strategic, tactical and operation levels should be considered as it aids in effective decision making for the proper functioning of the firm as a team player in the supply chain management.

Again when it comes to logistics and all the benefits associated with good management of logistics as explained in the discussion is a vital consideration to consider. Integration will look into the issue of linkage, from the source to the end consumer, and cost effective approaches for all of them for meaningful and holistic supply chain management.

On the part of recommendations, the concerned manager should have the following strategies for adequate and up-to-date information for effective operation.

  • There should be a very strong internal control system on the operation of the firm (mining), in the service provision to the relevant customers and the appropriate information concerning the inventories. This will ensure that the three participants, the producer of the equipment and spares, the firm itself, and the customers of the firm are all well linked and integrated for the smooth flow of relevant information that guarantees continued operation at all times and mutual benefit from all the three.
  • The manager should also devise a medium of communication between the firm and its customers so that there can be clear understanding of the needs of the needs of the customers so that their needs can be well provided for. Again with the concerned original equipment manufacturer so that even on the verge of changes in the manufacturing of the end product (equipment) the firm will have secured enough supplies for the entire operation period, either being manufactured in advance or it will secure a deal for continued supply of its spares.
  • The distribution channels and transportation to the respective destination, in good time would be essential to avoid suffering of huge losses by the firm.

Reference list

Blachard, D., 2007, Supply Chain Management: Best Practices. New Jersey: John Wiley and Sons, Inc.

Coyle, J. J., John, L. C., & Edward, J. B., 2009, Supply Chain Management: A Logistics Perspectives. 8th Ed. Mason: Cengage Learning.

Copacino, W. C., 1997, Supply Chain Management: The Basics and Beyond. Florida: St. Lucie Press.

Guenes, J., Elif. A., Pamos, M., Edwin, H., & Shen, Z., 2005, Application of Supply Chain Management and E-Commerce Research. New York: Springer.

Harrison, T. P., Hau, L. L., & John, J. N., 2005, The Practice of Supply Chain Management: Where Theory and Application Converge: New York: Springer.

Hines, T., 2004, Supply Chain Strategies: Customer Driven and Customer Motivated. Oxford: Elsevier Betterworth-Heinemann.

Hugo, M. H., 2006, Essentials of Supply Chain Management. New Jersey: John Wiley & Sons, Inc.

Kulkarni, S. & Ashok, S., 2008, Supply Chain Management: Creating Linkages for Faster Business Turnaround. 6th Ed. New Delhi: Tata McGraw-Hill.

Lambert, D. M. (Ed)., 2008, Supply Chain Management: Processes, Partnerships, Performances. 3rd Ed. Florida: Supply Chain Management Institute.

Leeman, J. A., 2010, Supply Chain Management. Dusseldorf: Institute for Business Management.

Mentzer, J. T., 2001, Supply Chain Management. California: Sage.

New, S, & Roy, W. (Ed)., 2004, Understanding Supply Chains: Concepts, Critiques and Features. Oxford: Oxford University Press.

Ross, D. F., 2008, The Intimate Supply Chain: Leveraging the Supply Chain to Manage the Customer Experience. New York: CRC Press.

Simchi-Levi, D., Philip, K., & Edith, S., 2003, Designing and Managing the Supply Chain: Concepts, Strategies, and Case studies. 2nd Ed. New York: McGraw-Hill.

Wisner, J. D., Keah-Choon, T., & Keong, L. G. (Eds.)., 2008, Principles of Supply Chain Management: A Balanced Approach. Mason: Cengage Learning.

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