Executive Summary
The primary goal of the paper is to evaluate the efficiency of the accounting system components in my organization XXX. In this instance, the issues of the maintenance of supply chain were identified due to lack of the variety of suppliers, long-term contracts, and necessity of the Purchase Order procedure. As for the recommendations, the critical solutions imply increasing the number of suppliers per raw material or service, establishment of the long-term contracts with the clear identification of suppliers’ responsibility and price freezing, and creation of safety stock to compensate the potential delays of the suppliers. Lastly, the evaluation of various costs and benefits of recommendations related to the purchasing of brass cups, various chemical and paints, raw materials, and assembly components was provided to prove the advantages of the application of the solutions in the context of the chosen issue.
Problem Identification
The primary goal of the paper is to access the accounting-related system and its components in my organization, which is called XXX. The company specializes in manufacturing and focuses on the delivery of the high quality of the services on time. Nonetheless, many organizations face the issues related to the maintenance of the supply chain due to the complexity of interactions and misconceptions of the flow of products and services (Shah, 2009). In this instance, supply chain management is one of the most critical aspects of the manufacturing company, as it is highly dependent on the suppliers and the delivery of the goods to the final customer on time. It remains evident that supply chain management defines company’s success on the market and profitability due to the necessity of the sufficient maintenance of the assembly line.
Nonetheless, the company XXX is not an exception, as it faces the delays from the overseas supplier of the critical raw materials and components such as brass cups, various chemical and paints, raw materials, and assembly elements. This issue takes place due to the absence of long-term contracts with the suppliers, as the company prefers to orders the required materials via Purchase Order (PO). Consequently, these conditions are not clear enough to oblige the suppliers to take the responsibility for the delays and other issues. Lastly, the company XXX does not have a well-established network of the suppliers, as the organization does not have multiple suppliers for each material or components. For instance, the company has two suppliers for the raw materials and only one for the assembly components. It could be said that the combination of these aspects questions the company’s reputation and commitment to the customers. Additionally, it is the primary reason for the late delivery of the products to the products to the final consumer and the vehement enforcement of penalties on the company XXX.
In the end, the problem can be formulated as the necessity to improve the quality of the processes within the supply chain to deliver the goods to the final consumer on time. In this instance, the improvement of the relationship with suppliers is one of the critical factors, as the manufacturing is highly dependent on it. Nonetheless, the next section will provide the clear recommendations, which will enhance the quality of the services within the supply chain and find the solution to the each issue in the supply chain.
Recommendations to Solving the Situation
Furthermore, the recommendations and suggestions have to be provided to improve the condition of the organization XXX. One of the potential solutions is to increase the number of suppliers by qualifying three or four providers for each component and raw material. In this instance, the dependency on the suppliers will be decreased, as the number of the risks related to the lack or absence of the necessary raw materials will be minimized.
Additionally, the utilization of the long-term contracts will be efficient that using the POs, as the contracts will define clearly the responsibilities of both parties. Consequently, the potential delays in the raw materials will be avoided. Furthermore, the negotiation of the freezing prices of some raw materials and components such as brass cups will be applicable due to the terms and conditions, which are present in the contract. This approach will assist the company XXX in avoiding the fluctuations of rates for the raw materials in the stock market. Moreover, this feature will reduce costs while making purchases in high quantities.
Moreover, the company should constantly monitor the changes in the market of the raw materials and other necessary components for the manufacturing as the prices might be different for various suppliers. In this instance, this aspect contributes to the efficient negotiations to establish the relevant prices for the raw materials. Additionally, the application of the efficient ERP system to monitor the flow of the goods and products in the supply chain will assist in finding the origins of the problems rapidly. Consequently, the products will be delivered on time.
Furthermore, higher attention has to be paid to the quality of the raw materials and the final product, as this feature will contribute to the higher customer satisfaction and minimizations of costs and waste. In this instance, the quality control within the supply chain will help improve the company’s performance and maintain its reputation on the high level (Leeman, 2010). This approach creates and establishes the distinct competitive advantage by creating the image of the customer-centered company.
Lastly, despite being highly not recommended by the Finance Department and being frozen money, the establishment of the three months safety stock might be one of the potential solutions due to the manufacturing nature of the company. Nonetheless, this method will be beneficial for my company XXX to minimize and compensate delays from the suppliers and deliver the high-quality product to the customers on time.
Costs and Benefits of the Recommendations
Lastly, costs, which imply taking into account fixed, variable, and opportunity costs, and benefits of the recommendations are provided to prove the efficiency and beneficial intentions of the proposed solutions. Firstly, it has to be mentioned that the following list of the raw materials will be used by the company XXX for the production. Figure 1 displays the information about each product, its cost, and benefits of the application of the recommendations.
Figure 1. Cost-benefit analysis
Firstly, one of the recommendations states that several providers for each material and component have to be defined to avoid the delays in production. In this case, the company can switch between the suppliers after the evaluation of the quality of the materials. Consequently, the opportunity cost will be aimed towards choosing the most relevant company to maximize profits.
Additionally, making long-term agreements and negotiation of the prices will help the company to reduce the initial cost of brass cups by 10 %, as the freezing of the prices will contribute to the increase of the revenues by 5 % due to the absence of the costs’ increase. This approach is applicable due to the possibility of the moderate price increase for the raw materials by approximately 10 % in the following five years (Sedgwick, 2014). Furthermore, the existence of this fact contributes to the revenue increase only by approximately 5 % for each component of the material.
Furthermore, the price freezing can be applied to any raw materials and components, and this aspect will contribute to the direct cost reduction by 5-7 %. Additionally, the price freezing will reduce the variable costs by 5 % as they are dependent on the price of the raw materials. In this instance, the saved money can be devoted to the research and innovation of the existing product lines. Consequently, choosing to devote financial resources to something different (opportunity cost) will contribute to the development of the company’s success on the market.
ERP remains one of the important components of the supply chain management due to the developing trend of the integration of IT with the business processes and necessity of quality monitoring to maximize revenues and allocation of the resources (Akkermans, Boger, YĂĽcesan, & Wassenhove, 2003). Moreover, the establishment of ERP system and research will contribute to saving indirect costs on quality control and production supervision by 10 %, as the number of the employees required to monitor the supply chain can be reduced by 20 %. Lastly, the revenues will be increased by 20 % due to the higher productivity, efficiency, higher quality, and lower costs (Qutaishat, Khattab, Zaid, & Al-Manasra, 2012).
As for the safety stock, it implies storing some products or materials to avoid the consequences of the delays to the raw materials and components. Nonetheless, adjusting it to the particular time and amount remains an essentiality (Golmakani & Malek, 2014). In this instance, this approach will increase the revenues by 15 % due to the sufficient flow of products and manufacturing. Nonetheless, the company can find a location for storage for the lower price by 5-7 % to reduce the costs for rent.
In the end, it remains evident that the application of the following applications will be beneficial for the company XXX as they will increase company’s revenues and reduce some costs. The establishment of sufficient ERP system and research will contribute to the development of the new products lines and monitoring of the existence of the possible delays in the supply chain. Nonetheless, it remains evident that fixed costs would not be highly affected expect for the rent. However, it could be said that the profitability of the company XXX will be dramatically increased due to the significant reduction of variable, direct, and indirect costs.
References
Akkermans, H., Boger, P., YĂĽcesan, E., & Wassenhove, L. (2003). The impact of ERP on supply chain management: Exploratory findings from a European Delhi study. European Journal of Operational Research, 146(2), 284-301.
Golmakani, M., & Malek, M. (2014). Safety stock adjustment in supply chain storage units. International Journal of Engineering Research and Applications, 4(11), 154-162.
Leeman, J. (2010). Supply chain management: Fast, flexible supply chains in manufacturing and retailing. Dusseldorf, Germany: Institute for Business Process Management.
Sedgwick, D. (2014). Poll: Raw materials costs to rise; more suppliers offset price hikes by indexing. Automotive News, 88(6625), 42.
Shah, J. (2009). Supply chain management: Text and cases. New Delhi, India: Dorling Kindersley (India) Pvt. Ltd.
Qutaishat, F., Khattab, S., Zaid, M., & Al-Manasra, E. (2012). The effect of ERP successful implementation on employees’ productivity, service quality and innovation: An empirical study in telecommunication sector in Jordan. International Journal of Business and Management, 7(19), 45.