gscm case studies

Leeds Metropolitan University: GSCM

Global Supply Chain Management

Individual Assessment

Semester 2 2012/2013

Submitted to

Dr. Alfred Chinta

By

Kaustubh Lohiya (77125239)

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Executive Summary

Supply chain management deals with all the issues relating to the development of logistic

operations, inventory control, procurement strategies, operation management, supplier

relationship and sustainability as well as contemporary issue that affect these areas. This

report deals with different supply chain management issues in various sectors of industries

ranging from supermarket, automobile, mobile handset to large aerospace organisations

which are as follows

The new product development have always had supply chain strategy based on demand

forecast however recent short product life cycle especially in mobile handset vendors have

forced vendors to rethink the impact it has on the scheduling of operations and supply chain

management. The reports analyzes mobile handset vendor Blackberry and how this scenario

impacts the scheduling of operations and how can blackberry ensure effective supply chain

management by means of 3-DCE model.

Further ahead the report discusses about supply chain managers who until recently has to face

a new strategic move by majority of the organisation throughout the world, who are now

going green. The green movement has forced manager to rethink and redesign the supply

chain activities so that it can be integrated with the company’s CSR policy. The report

analyze this impact with help of Morrison’s who environmental free strategy of “Great Taste,

Less Waste” has made impact on supply chain which also includes the alteration to

transportation requirement due to local sourcing in this sector of industry

On the other hand aerospace companies face a very different problem and situation with

respect to supply chain. The time consuming process which utilize 100’s of supplier coming

together to make a product has introduced delay’s to fulfilling the rising demand in aviation

sector. The aerospace manufacturer like Airbus, Boeing which dominate the sector and know

to have monopoly are continuously thriving to improve the efficiency of supply chain and to

reduce the cost. New supply chain theories like Supplier Integration and Collaboration

Model and Outsourcing Model can be considered a solution to this problem. This report

highlights these models and the role of association in keep the integrity and flow between the

100’s of supplier to optimize and integrate their supply chain.

Finally the report discuss on one of the key topics in supply chain which deals with supply

chain planning to forecast the demand and relocation. The report through an example

highlights on forecasting by means of simple linear regression which utilizes the previous

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sales data to forecast for future and also on the Centroid method which is used for relocation

to enhance the logistics in supply chain.

1AMobile Industry vendor in mid to late 1990’s experienced an unprecedented growth. The

expansion in the mobile phone vendors like blackberry forced the firm to develop supply

chain management system to optimize their operation. The system concentrated on internal

integrating however it relied on traditional mode of demand forecasting (S. David Wu et al,

2000). The operations were executed based on unit forecasting produced by customer

projections (S. David Wu et al, 2000). The mobile vendors more inclined toward fuelling

demand led to negligence towards the accuracy of the data for forecasting.

Innovation has led to a short product life cycle and thus a long production lead time can

hamper the vendor’s ability to respond to the change in forecast due to the volatile market

and heavy competition and slower decision making process. This adds to interchange cost

and buffers viz. intermediate storage buffers are used to re-sequence the jobs.

Ow et al. in his paper talks about distributed scheduling system to overcome the change in

demand forecast (n.d. in Agnetis et al, 2006). To have an optimal scheduling it is necessary to

put in place JIT supple chain strategy which helps to coordinate between different stages and

punctuality is one of the most important factors. Guruprasad Pundoor in his paper talks about

integrating productions with the distribution scheduling to achieve optimal flexibility for

fluctuating demands. The challenge lies in this is to achieve this without excessive inventory

(S. David Wu et al, 2000).

One other new model that is specifically addressed for short product life cycle is the BASS

model (XU Xianhao, n.d.). Improved BASS Model is suitable to forecast the demands of the

short life cycle products and has been shown to achieve better results (XU Xianhao, n.d.). To

predict the demands in products with short life cycle multiple models should be used which

utilizes both quantitative and qualitative data. Thus combining BASS Model for forecasting

along with distribution scheduling may help Blackberry to cope up with fluctuations in

demand.

1BResponsiveness and Agility are two attributes which are now considered as important factor

to add competitive advantage along with quality, variety and price (Eduardo Castellano et al,

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2010). Due to this many organisations started competing in the products, process and supply

chain domain. This maximizes the supply chain performance. Famuyiwa and Monplaisr

(2007) stated that, recent increase in competition at global level and the increasing demand

which has led to shorter product life cycle, has forced many of the manufacturing firms

including mobile vendors to move from tradition mass production strategy. The new theories

suggest mass customization which is achieved via agility and flexibility. Agility can be

achieved only by means of rapid product design adaptation and the development processes in

order to cater to the needs of the consumers. The main difficulty here lies in moving product

from initial design phase to arrival, it is a time consuming process as it needs lots of decisions

making. Fisher (1997) suggested innovative product which have unpredictable demand like

blackberry new products Z10 and hence should have responsive supply chain, which is to

respond quick to change in demand and minimize stock outs.

Figure 1: 3-Dimensional Concurrent Engineering (Ellram et al, 2006)

3-DCE (Eduardo Castellano et al, 2010) can help blackberry to achieve this by helping design

product and process simultaneously. By use of 3-DCE, the modularity or supply chain in

blackberry which includes blackberry organisational process, contracting procedures will be

utilized to accommodate the modular products (design boundaries such that feature and task

are independent at each module). Thus by integrating the product, process and supply chain

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blackberry can effectively manage its supply chain during launch of new innovative product

which has short life cycle and unprecedented demand.

2AAny organisation whether it is local shop, business or a multi brand conglomerate has some

kind on impact on the environment (Waste Watch, n.d.). The impact on the environment is

the result of the resources it consumes and the waste it generates. However significant

amount of this impact is also dependent on the transportation the organisations choose which

basically is a part of supply chain of an organisation. Recent consumers awareness and

support to reduce the impact on environment, have forced organisations top executives to

think about sustainability and their CSR policies. Morrison’s super market is no exception to

this. Morrison’s initiated green movement under the slogan “Great Taste Less Waste” (IGD,

n.d.). Morrison’s focused on many aspects to achieve green motive which even had an impact

on the supply chain of the super market chain.

A part of the supply chain is the distribution centre. Morrison’s green initiative led Morrison

to develop new distribution centre which were green in nature. The place was optimally

selected to reduce the transportation and cost. The centre’s location helped Morrison’s to

serve chilled foods and grocery for South Wales area (Morrison’s, 2012). The distribution

centre Willow Green at Bridgwater in itself was very much green (Morrison’s, 2012)

One of the suppliers to Morrison is Kerry Noon. They supply mostly Indian meals to the

Morrison (IGD, n.d.). By working together they reduced packaging of up to 20% on certain

products and reduced waste by 33% at the manufacturing point (IGD, n.d.). Not only this but

Morrison’s working along with Kerry Noon even increased the shelf life and the forecast

accuracy by 6% (IGD, n.d.), this helps Morrison’s to get the right food in right quantity at

right time which helps reduce waste.

Morrison’s uses vertically integrated supply chain model (Alex Lawson, 2013). This helps

Morrison’s reduce waste. Although the Initial investment for this model is high (Alex

Lawson, 2013) but it supports green movement by allowing Morrison’s to reduce time for

bringing in the products into store. Through this model Morrison’s is able to buy fresh food

directly from farmers. This provides freshest food and also helps reduce waste in supply

chain. It helps Aligning the production schedule with the order timing.

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2BIn order for the organization to serve in a better possible way to the customers the

organisation constantly move and flow the material and information. This flow which links

the organizations or units is known as supply chain or supply networks (Wikipedia, n.d.).

Networks as compares to chain are more complex structures which have two way exchanges

and cross links (Wikipedia, n.d.). A supply chain network is thus a collection of physical

location, transportation vehicles and the systems which support which help manage

(Wikipedia, n.d.). Transportation modes in network can vary from trucks, trains, cargo planes

or container ships.

Supply chain networks are undergoing transformation due to the advances in technology. As

compared to tradition way of managing supply chain the new automated technologies such as

RFID, GS1 and GLN (Global location number) are making the network more sophisticated

and efficient locally as well as globally.

Recent hikes in fuel prices and labour cost the cost of transportation seems to be rising and

more and more companies are shifting from Global Suppliers to Local Suppliers. The benefits

of local suppliers are more advantageous. The local suppliers but naturally offer cost benefits

(Liz Morrell, 2010), this is due to the fact that supply chains are shorter as compared to

global supplier. The shorter supply chain offers greater certainty and predictability with

respect to the delivery of the goods. Local sourcing in this sense can be better suited for

organisations having just-in-time strategy.

Reaction time in local sourcing is higher (Liz Morrell, 2010); basically this means that in

event of an unpredicted spike in the demand, local sourcing can prove it of faster approach as

the reaction time and lead time for international or global supplier will make it harder for

them to react. Also Risk management can be better integrated with local supplier because

natural disaster half way across globe can impact supply chain.

With the shift from Global to Local Suppliers organisations transport requirements will

change. The use of trucks and rails will be more dominating force as compared to Global

freights of air cargo and ships. Although the trucks and rails are more environments friendly,

dependable and reduce the carbon foot print but needs developed infrastructure. Road provide

additional benefit w.r.t. warehousing management, as goods are bought in smaller quantity,

so warehouse can be optimized to save cost.

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3ASupply chain management (SCM) is defined as a process of designing, planning, execution

and monitoring of the activities related to supply chain. To achieve the objective of SCM

planning becomes an essential process in supply chain management. The global supply chain

faces a very unique problem; the business is at risk from natural disaster (Admin, 2013). The

example of Japanese earthquake and tsunami can be best fit for this which caused disruptions

for many automobile manufacturing like Honda in USA (Admin, 2013).

Honda followed a lean strategy to manage its supply chain. Supply chain planning is

basically involved in future predictions to meet the demand of customer. Supply chain

planning is integrated with scheduling in order to efficiently manage supply chain.

The result of disaster could be seen because demand for the automobile was constant but

because Honda’s disruption the company felt auto parts shortage. The company’s lean

strategy did not create room for back up or alternates, as a result production slowed down in

the United States and elsewhere in the world. Supply chain planning need to take into account

risk as it is inevitable. When faced with such natural disaster it is better to have a proactive

plan. A risk assessment and proactive model integrated with supply chain planning would

have helped Honda to address the problem faster. Few of the models that aid doing this are

Multi stakeholder Opportunity model (Gabriela Alvarez, 1987), Unified multi-stage

stochastic model (Mark Goh et al, 2007).

Alternate to this would be to shift to the new hybrid Leagile strategy for supply chain

(Quirino Barbosa, 2007) in automobile industry, which takes into account innovative

production production plan and high demand. The event taught a great deal that Supply chain

planning should not take into account just one major supplier but more than one and

distributed across geographical area. This planning in supply chain can reduce the risk

associated with such disaster.

3BLean strategy, which was largely developed in the Toyota production system (Quirino

Barbosa, 2007), gained wide popularity in the automobile industries based on demand based

pulling of Good (Quirino Barbosa, 2007) and was adopted by Honda. However the lean

manufacturing is based on demand forecasting and not on the actual sales data, also lean

manufacturing strategy is at risk on its own in case of sudden unpredictable demands like

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natural disaster. Honda faced auto part shortage soon after the natural disaster in Japan due to

its lean manufacturing system.

The other manufacturing strategy is the Agile Strategy which uses wait and see approach.

The agile system is basically a make-to-order process (Quirino Barbosa, 2007) which can be

clearly understood from example of DELL. However this is fairly difficult to implement in

automobile industry due to time it consumes. Certain auto mobile industry like Rolls Royce

can have agile system because they work on make to order policy and offer complete

customized car. New trends in automakers like BMW, Audi who offer ready car as well as

certain customized cars are based on ready to order system. Thus we can combine agile

system into lean strategy and is called Leagile strategy (Quirino Barbosa, 2007).

The Leagile strategy can take the following approaches

1. It can make use of the lean strategy which is make-to-stock for products which have

stable demand and are high volume, it can use Agile strategy for everything else

(Martin Christopher, 2000).

2. It meets the surge in demand and to tackle the unexpected requirements it can have

flexible production capacity.

3. The hybrid strategy can make use of postponement strategy (Quirino Barbosa, 2007)

in which products are manufactured as per the forecast estimation however they are

not given final touch till the customer order is received. Thus this offer little

customization for the end consumers and for the manufacturer reduces time as it does

not have to start from the beginning.

This hybrid strategy is very useful for Honda as it offers customizations to implement make

to order while on other hand makes use of lean manufacturing to built the basic structure of

the car as pure make to order will take lot of time because car part suppliers are situated far

away geographical location

4AAccording to the reports by PwC consultant the cash strapped suppliers/manufactures to

aerospace companies, like Airbus, Boeing, Bombardier Inc, Lockheed Martin Group and

Gulfstream Aerospace corp., are the point of weakness for aircraft makers (David Pearson,

2012). Backlogs and delays have risen in aerospace industries which is impacting the overall

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cost of the new products. Many manufacturers are taking initiatives in order to protect its

supply chain (David Pearson, 2012), however in order to reduce the costs and for a more

sufficient supply chains some additional measures have to be taken. One such model is

Supplier Collaboration Model (Patrick Bachet, n.d.)

Supplier Integrations and Collaboration Model talks about integrating and collaborating the

suppliers into the business. Collaboration term is many times misused when business seem to

take using of collaboration by means of emails or 1 to 1 meetings. A true collaboration is

defined as sharing of information, skill, intelligence, competencies as well as the risks. The

benefits the aerospace company can achieve through this are mainly

1. Reduced investment from aerospace manufacturer

2. A variable cost model can be integrated rather than fixed cost

3. Risk is spread with everyone involved.

4. Aerospace manufacturer can focus more on their core capability

However many challenges are associated with this method, especially to involve all business

area and to put in as an end to end process. This model also needs the aerospace manufacturer

to introduce changes in culture, management, technology. Another model that can help

reduce cost and that can be implemented with suppliers is the

Integrated Outsourcing Model (Will Scott, 2009)

Integrated Outsourcing model is a pull system. The request for new part is triggered by the

actual usage thus if any part is used the supply chain itself becomes efficient enough to

replace the part. As the name suggest the model talks about outsourcing the activities

pertaining to local inventory management but the direct relationship with suppliers is

retained.

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Figure 2: Steps in Integrated Outsourcing Model (Will-Scott, 2009)

The advantages of this model are that

1. It maintains supplier relation for long term

2. The suppliers become accountable for their part of the supply chain

3. The right part arriving at right place and in right quantity adds to the cost saving and

also the following can be achieved

o Lower ‘owned inventory’ costs

o Fewer transaction fees

o Decreased shortages and stock outs

o Decreased management costs

4B

Aerospace industry is highly globalized, since majority of the manufactures manufacture

same product and look out for suppliers at global level to meet out the requirement. The

aerospace industry is structured in such a way that the aircraft manufacturer and engine

manufacturer are the major players (Wipro, n.d.). They play a broad role, however there are

numerous other small or medium manufacturers who also take part in this industry. Thus the

value chain is mainly characterised by aircraft and engine manufacturers who have contracts

with numerous other suppliers (Wipro, n.d.). As buyers aircraft and engine manufacturers can

influence a great deal of power for bargaining and concession from the small manufacturers.

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Aerospace associations (Patric Bachet, n.d.) help this wide and broad industry to function

efficiently. The association first and foremost offers a single point of contact for all the

suppliers and the airplane manufacturers (Patric Bachet, n.d.). The association said in creating

a value chain by means of cooperation and trust between small manufacturers. It help small

manufacturer to integrate their supply chain with that of the airline manufacturers and give

them a sense of power so that small manufacturer are not influenced by the bigger one.

Thus Associations like Aerospace Industries Association and Aerospace Suppliers

Association help in strategic future decisions and help coordinate maintain and integrate the

supply chain of small manufacturer to that of the dominating large aircraft and engine

manufacturer.

5A

Forecasting in general is the process of estimation and it is mostly in the unknown situations

(Doctor, 2007). In context for supply chain management it is the process of planning for the

customers demand. It is generally used by sales team as a business planning process (Doctor,

2007). The aim is to develop the estimation for future from previous sales data of demand

which can be then shared with other business department for planning of the inventory and

cash flows. (Doctor, 2007)

It is a challenge which can be overcome by means of statistical methodology like linear

regression method, Double exponential smoothing (Makridakis et al, 1989). Linear regression

is a simple statistical methodology which draws the best fit line i.e the linear relationship

between two variables. The error in this methodology is the difference in best fit line and the

actual sales value line. There are many other methods to predict the future based on time

series analysis or stochastic modelling (Mohammad Anwar Ashek Rahman, 2008) however

linear regression adds the following advantage (Wiki Answers, n.d.)

1. A single trend will generate using this method

2. The data fit is unbiased

3. It minimizes the sum of squared error (SSE)

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4. It is consistent as same dataset will always calculate the same trend (Wiki Answers,

n.d.)

Linear Regression method is not accurate but it is precise and because of the above

mentioned reason the method is suitable for this example.

Steps of Linear Regression

1. Calculate Slope

2. Calculate Intercept

3. Calculate Forecast i.e. Intercept + Slope * Quarter

Using it for the given example we obtain the following forecast data.

Quarter Sales Forecast

1 2 3 4 5 6 7 8 9 1011120

1000

2000

3000

4000

5000

6000

7000

SalesForecast

Figure 3: Graph of actual sales and Forecast

1 800 639

2 1450 1013

3 1350 1386

4 1270 1760

5 2000 2133

6 2600 2507

7 2500 2880

8 3100 3253

9 3750 3627

10 4250 4000

11 4500 4374

12 4750 4747

13 5121

14 5494

15 5867

16 6241

Table 1: Actual and Forecast Values

Interce

pt

266.06

06

12


Slope

373.42

66

Table 2: Intercept and Slope Values

Thus by using linear regression we get the forecasted values for next four quarters as

5121,5494,5867,6241.

5BThe Centroid method (Brian Bass, n.d.) is used my many of the business around the globe for

the manufacturing unit or distribution unit. The main use of this method in production related

aspect of the business is to either reduce cost of shipping or lower the time of shipping but in

relation to the profits. It can be especially essential for business with multiple sites (Brian

Bass, n.d.).

The Centroid method uses the distances between facilities, and the volumes of goods to be

shipped between them to come up with new site which is best fit for all the sites. The

formulae used to achieve this are

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Figure 3: Centroid Formula (F Robert Jocob, 2009)

Applying this formula to the data given in the question we get the following results.

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C = d V

V x

ix i

i

C = d V

V x

ix i

i

Where:Cx = X coordinate of centroidCy = X coordinate of centroiddix = X coordinate of the ith locationdiy = Y coordinate of the ith locationVi = volume of goods moved to or from ith location

C = d V

Vy

iy i

i

C = d V

Vy

iy i

i

S.No

.

Retail Outlet Co-

ordinates

X

coordinate

Y

coordinat

e

Sales

Volume (V)

1 Manchester 0,10 0 10 1200

2 Sheffield 30,40 30 40 800

3 Birmingham 20,80 20 80 1500

4 Cardiff 0,120 0 120 750

5 Derby 30,60 30 60 400

6 Loughborough 25,80 25 80 450

Centroid 15 62


The original distribution channel is located at Leeds (0, 40). Using the centroid method the

suggested new place for distribution channel comes to (15, 62) plot of which is given below.

0 5 10 15 20 25 30 350

20

40

60

80

100

120

140

Mancehster

Sheffiled

Birmingham

Cardiff

Derby

Loughborough

Leeds

New Place Series2

Figure 4: Centroid Method Result

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