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I have read and understood the rules on cheating, plagiarism and appropriate referencing as outlined in my handbook and I declare that the work contained in this assignment is my own, unless otherwise acknowledged. No substantial part of the work submitted here has also been submitted by me in other assessments for my degree course, and I acknowledge that if this has been done an appropriate reduction in the mark I might otherwise have received will be made Signed: SHUANG ZHOU
1131812 H
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Table of contents
1. Question 13 1.1 Group the sourced components.3 1.2 Effect of their characteristics to the design of the sourcing processes4 1.2.1Characteristics of Items......................6 1.2.2Effect on sourcing process..7 1.3 Analysis of single and/or dual/multiple sourcing....8 1.4 Conclusion to Sourcing Process..8 2. Question 5..9 2.1 Key Performance Indicators & Inventory Management....9 2.2 KPI defined in Inventory Management..10 2.3 KPI in NordicPhone Company Supply Chain...12 2.4 KPI for LCD supply chain of NordicPhone13 2.5 Information exchange in the supply chain....14 Reference.16
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1. Question 1
Categories of Supply
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with suppliers and establish joint design team. And to joint design can reduce the risks in supply chain, such as risk of redesign. - Procurement: Using Kraljics Model to classify all the items, and conduct a market analysis, then define the strategic position of items and finish the purchasing planning. (Laura Canez, 1997, p. 31-44) The Following figure is created by Laura Canez in 1997.
Figure - Kraljics Approach (Laura Canez, 1997, p. 31-44) - Supplier Evaluation: Its to assess the performance of suppliers. There are some evaluation criteria presented by Kraljic. Evaluation Criteria on Supplier Strength 1 2 3 4 5 6 7 8 9 10 Market size vs. supplier capacity Market growth vs. capacity growth Capacity utilisation or bottleneck risk Competitive structure ROI and/or ROC Cost and price structure Break-even stability Uniqueness of product and technological Entry barriers (capital and know how requirements) Logistics situation
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1.2.1 -
Characteristics of Items
Leverage Items Products with optional suppliers in the market and which Can bring big profit. Usually, these products have the standardized quality criterions. Buyers take the initiative position. Low interdependence. Recommended procurement strategy: procurement bidding to selection supplier.
Strategic items Products which is crucial to buyers production processes Also bring high profit. With high supply risk: maybe due to the scarce of supply or difficult transportation. The balance of power for buyers and sellers. High interdependence. Recommended procurement strategy: a strategic alliance, close contact with suppliers, design together with suppliers, adopt vertical integration, focus on longterm value. Normal items Also called non-critical projects. Low financial impact. Abundant supply: easy procurement. The balance of power for buyers and sellers. Low interdependence. Recommended procurement strategy: by improving the production processes to reduce the investment on procurement of such items. Bottleneck items Supply by a particular vender or inconvenient transportation. Low financial impact. Sellers take the initiative position. General interdependence. Recommended procurement strategy: ensure the number of insurance contracts, vendors managed inventory, ensure safety stock (additional inventory), looking for potential suppliers.
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1.2.2
a. Power supply, Power cords (leverage items): Firstly, there are many suppliers for these two products. So its a competition for suppliers. For NordicPhone Company, these two components can be sourced globally, and both ship to the Denmark production center and Thailand production center. Secondly, these two production centers are located at Europe and Asia respectively. Therefore, dual sourcing or multiple sourcing could be applied here. The selection of suppliers for each production center is based on the principle of short distance. That is to say to source power supply and power cords near shore in order to reduce the cost of transportation and to ensure the timely supply as well. b. LCD Screens, Electronics (strategic items) These two kinds of items represent the core part of a telecommunication product. They are the highest value added parts. But due to the high risk of supplier capability, a stable and close contract is needed to build up a long-term relationship with suppliers. To establish a long-term relationship is also a good way to ensure the quality of products supplied. And in this case, suppliers can join into the whole production earlier, like participating the design of product. Only both sides, suppliers and manufacturers, trust each other to build a mutual credit atmosphere, a situation of win-win could be realized. c. Covers, Plastics, and Print Shop (normal items) All of them have a small value per unit and there are many alternative suppliers. Therefore, for these products, the management direction for procurement is to reduce their costs meanwhile maintains their quality. To select a nearby suppliers can much reduce the cost of transportation, and to reduce the cost of procurement and inventory, the integration of suppliers can be taken into consideration. d. Circuit Board (bottleneck items) For these kinds of bottleneck items, a secure continuous supply is mostly needed. Actually, the circuit board is not a bottleneck items in the telecommunication product chain in modern society. It is attributed to the bottleneck items just because of comparing with other components in this case. As we known, the circuit board is composed of the components of electronics. Thus, the suppliers of circuit board can be integrated with the suppliers of electronics components.
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a. Single Sourcing: Single sourcing means procurement with the sole supplier. The supplier can provide the entire requirements of buyers. From the view of competitive situation, the purchaser is at an adverse position. Disadvantages for purchaser: May increase the cost of procurement. Bad position in the negotiating process. Reduce the cost of purchasing administration. Less time on re-negotiating prices but more time on developing partnership.
Hence, this kind of sourcing usually used in the emergent situations, such as timeless. b. Dual/ multiple Sourcing: Dual/multiple sourcing is to purchase from several suppliers. It means none of each supplier can provide the entire items. It is suitable for when there are many different kinds of materials need to purchase. But in this sourcing way, it may increase the cost of procurement, and even sometimes have negative impact on the accuracy of delivery. Therefore, it needs more precise procurement plan in this situation. There is an advantage of dual sourcing that its better for the quality of product due to the competition in different suppliers. Like the sourcing case of Mazda Seat, Mazda has two suppliers for providing seats. One is Delta Kogyo, and another one is Toyo Seat Company. There are 33% of the total seats volume are distributed to each supplier. And the remaining 33% is used as award to the supplier who has a better performance in the previous year. (Hines, 1995) Besides, multiple sourcing can reduce some unexpected risks in the supply chain, such as some disasters occurred in the suppliers plant.
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by Kraljics Matrix, there are some relations in the materials. For instance, the plastic is also the raw material of covers, and both the circuit board and LCD Screen can be assembled by the components of electronics. Therefore, some of the components suppliers can be integrated. And in this way, its more beneficial to improve the whole supply chain service level. Following is the sourcing process recommended to the NordicPhone Company.
Denmark
Electronics Components Circuit Board In Europe Power Supply & Power Cords
Print Shop
Thailand
2. Question 5
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management is to keep the stock at a best level to control the funds employed by inventory to accelerate cash flow.
From the formula we can see that the higher Number of Orders Delivered On Time will have higher customer service (availability). To satisfy the customer service, the following three aspects should be done. Monitor service level regularly Choose a suitable measurement Set practical targets
Academically, there is a KANO Model to assist the customer satisfaction. KANO model defines three levels of customer needs: basic needs, expectations based needs and excitement based needs. These three requirements defined in the performance indicators are classified as the basic factors, performance factors and motivators. The basic demand refers to the features of product that customers think must have. The expectation of demand request product or service is good not just must product. Sometimes customers themselves are not very clear about what they expect, but they will satisfy with this level of service. And for the excitatory items, it needs to provide some service behaviour that completely beyond customers expectation. The following figure shows the Kanos idea.
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Figure - Kano chart (Kano,1996) b. Stock Value Stock value is the total inventory value. Usually, it is calculated in the end of every month. It includes the value of raw material, work in progress and finished goods. This indicator reflects the stock capability of a company. It should be combined with sales, stock turnover and other factors to analyse the operating status of a company. c. Stock Cover & Stock Turnover Stock Levels
Formula:
Stock Cover =
Stock Turnover =
Stock Cover is an indicator to reflect how long the inventory can satisfy the current usage. And Stock Turnover is to reflect the liquidity of inventory level. It is an indicator for managers to judge whether the funds employed by inventory is rational. Both of these two factors are the key performance indicators in inventory management. And they are the description of stock levels. In addition, to improve inventory turnover is to accelerate cash flow so that improve the utilization of capital, contributing to a positive effect on the companys liquidity. The higher the inventory turnover ratio is, the faster the speed of inventory turnover is. Conversely, the slower turnover speed means the excessive inventory and the backlog phenomenon. There is no absolute standard for the evaluation of inventory turnover. It is usually compared with the other companies in the same industry or business area. In the inventory performance evaluation and analysis, inventory turnover is the most important
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content. Besides, this ratio also can reflect the speed of sales achieved. The higher ratio indicates the shorter time from funds invested to sales return. (Reynolds Dennis, 1999) d. Safety Stock & Review Level & Average Stock Stock Control Formula:
CSF: Customer Service Factors MAD: Mean Absolute Deviation LT: Lead Time
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In NordicPhone Company, it has three different product lines. Firstly, an accuracy market research should be processed. It is not only based on the historical data, but also combined with the current demand in the different markets. Meanwhile, it is necessary to notice different demand of different product lines in different regions. Then it can be clear how much and what kind of products should be distributed into every distribution center. Second is about the quality of products. It is said that there are many problems with its operating system and the prices of some high tech component are above the average market level. Therefore, it is necessary to review the performance of the suppliers who provide these components. They need to negotiate with the suppliers about the quality of the components of operating system and implement to monitor suppliers activities regularly. Also looking for more potential competitive suppliers is needed. After all, to get a better partner is a long-term considered way for better development. In addition, for the prices level, it needs to figure out why the companys price level is higher than average market level. Thirdly, the company has B2C shop. The on-line sales are not as stable as distributors for B2B channels. But B2C system can provide accurate customer information that who buys the product, when and how much the customer purchase. This data can help the enterprise know more the market trend. For B2C shop, the key performance indicator is the delivery accuracy, including the type of product ordered and the accurate delivery time. For entire supply chain, the measurement of its performance can be divided into several processes, such as procurement, inventory, production, transportation, customer satisfaction and so on. Usually, the key performance indicators include inventory turnover, the life-cycle time of products, and inventory obsolescence rate. The products life cycle is the life of product in the market, referring to the whole process from when a new product starts to enter the market to be out of the market. Due to the time gap and different technology level, the life cycle of same product in different countries is different. It determines changes in international trade and investment. The inventory obsolescence refers to the defects in the stock, including crushed raw material and unqualified finished goods.
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product, most important part to cover a high customer satisfaction is accurate forecasting in order to catch every peak demand. In the case, it is said that the media line phones produced a higher than average demand for 2 year, but due to the dramatically increase demand in Christmas time, leading to shortages in the availability of sufficient quantities of LCDs. From this information, it shows the insufficient inventory in LCDs during a special period but much more stock than demand during last two years. This is definitely caused by the inaccurate forecasting. NordicPhone Company should establish a special team to investigate this event. The team should re-evaluate the forecasting of media line products due to its abnormal demand trend. Forecasting is not just based on the analysis of historical demand, but also based on the understanding of market changing. Besides, seasonal forecasting is important. Seasonal demand is usually abnormal with normal days. Like in this case, during the Christmas time, the demand of media line phones reaches 5 times than average demand so that NordicPhone Company cannot satisfy the demand. In order to avoid this kind of failure in the future, the seasonal forecasting for major products should be calculated alone, combined the deseasonalised forecast and average forecast to get a more precise forecasting.
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which reached up to 5 times than the expected sales. This situation caused shortages with the sufficient quantities of LCDs, which may cause the more obvious 'Forrester Effect' (or called "bullwhip" effect) that increases the instability of the suppliers' production, inventory management and marketing. The cause of the bullwhip effect is that supply chain is based on the orders instead of the customers demand. The information sharing or exchanging is a key countermeasure to Forrester Effect, making use of EDI and other IT-based logistic systems. Based on the customers' actual demand, according to appropriate correction with historical data and sharing information with suppliers timely, the NordicPhone Company can make a more precise production plan to reduce the 'bullwhip' effect. In modern society, many companies begin to implement CSCW (Computer Supported Collaborative Working) to improve their information exchange level. Thus, they need fewer meetings, meanwhile reduce the some administration costs. Also, to implement CSCW is a good solution to the Forrester Effect. CSCW supports any kinds of information, detailed documents, real-time records and so on. It is better for reflecting the changing of market and greatly reduces the preparation time for information exchange so that improve the efficiency and effectiveness. (Salhieh, SaEd M; Monplaisir, leslie; Singh, Nanua, 2001) In addition, to cope with the LCD issues in the case, VMI (Vendors Managed Inventory) strategy can be taken into consideration. VMI means allocate the inventory management job to suppliers. Consequently, suppliers can better join the analysis of real market and distribute products at right time when demand actually happens. Thus, it can avoid the situation like in the case, inventory at a higher volume than average demand but unsatisfied the seasonal demand in Christmas time.
References:
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Canez L., 1997, Outsourcing in the Manufacturing Industry dissertation for MSc in Engineering Business Management, Department of Engineering, Warwick University. Dr. Dawei Lu, Supply chain management, Lecture Notes for MSc in major of logistics and supply chain management, Warwick University. Hines P, 1995, Network Sourcing: A Hybrid Approach, International Journal of Purchasing and Materials Management, Spring 1995, pp. 18-24. Kano, N. ; Seraku, N; Takahashi, F.; Tsuji, S. , 1996, The best on quality. International Academy for Quality,7, pp. 165-186. Kraljic, P, Purchasing Must Become Supply Management, Harvard Business Review, 1983, pp. 109-117. Reynolds Dennis, April 1999, Inventory-turnover analysis: Its importance for on-site food service,vol 40, 2nd,pp54-58 Salhieh, SaEd M; Monplaisir, leslie; Singh, Nanua, 2001, A Flexible Planning Methodology to Support Global Product Development using CSCW Tools, Global Journal of Flexible Systems Management, pp:1-13. Vilko, J., Rumpu, A. & Koivuniemi, J. 2011. Risk management in supply chains: Information exchange, systemic motives and cognitive barriers. Technology Management in the Energy Smart World (PICMET), 2011 Proceedings of PICMET'11:, pp.19. Wang, J.W.J. et al., 2008. Supply Chain Safety Stock Quantity's Fractal Forecast and Study. Audio, Transactions of the IRE Professional Group on, pp.14. Website, http://iphone.91.com/content/2011-11-13/20111113191734196.shtml
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