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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 companys CSR policy. The report analyze this impact with help of Morrisons 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 100s of supplier coming together to make a product has introduced delays 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 100s 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.

1A
Mobile Industry vendor in mid to late 1990s 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 vendors 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.

1B
Responsiveness 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.

2A
Any 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. Morrisons super market is no exception to this. Morrisons initiated green movement under the slogan Great Taste Less Waste (IGD, n.d.). Morrisons 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. Morrisons 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 centres location helped Morrisons to serve chilled foods and grocery for South Wales area (Morrisons, 2012). The distribution centre Willow Green at Bridgwater in itself was very much green (Morrisons, 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 Morrisons working along with Kerry Noon even increased the shelf life and the forecast accuracy by 6% (IGD, n.d.), this helps Morrisons to get the right food in right quantity at right time which helps reduce waste. Morrisons uses vertically integrated supply chain model (Alex Lawson, 2013). This helps Morrisons reduce waste. Although the Initial investment for this model is high (Alex Lawson, 2013) but it supports green movement by allowing Morrisons to reduce time for bringing in the products into store. Through this model Morrisons 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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2B
In 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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3A
Supply 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 Hondas disruption the company felt auto parts shortage. The companys 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.

3B
Lean 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

4A
According 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) 4. It is consistent as same dataset will always calculate the same trend (Wiki Answers, n.d.)

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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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Sales 800 1450 1350 1270 2000 2600 2500 3100 3750 4250 4500 4750 Forecast 639 1013 1386 1760 2133 2507 2880 3253 3627 4000 4374 4747 5121 5494 5867 6241 Table 1: Actual and Forecast Values Intercept 266.0606 Slope 373.4266
7000 6000 5000 4000 3000 2000 1000 0 1 2 3 4 5 6 7 8 9 10111213141516 Sales Forecast

Figure 3: Graph of actual sales and Forecast

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.
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5B
The 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

Figure 3: Centroid Formula (F Robert Jocob, 2009) Applying this formula to the data given in the question we get the following results. S.No. Retail Outlet Coordinates 1 2 3 4 5 6 Manchester Sheffield Birmingham Cardiff Derby 0,10 30,40 20,80 0,120 30,60 X coordinate 0 30 20 0 30 25 15 Y Sales

coordinate Volume (V) 10 40 80 120 60 80 62 1200 800 1500 750 400 450

Loughborough 25,80 Centroid

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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.
140 120 100 Birmingham 80 60 40 20 Mancehster 0 0 5 10 15 20 25 30 35 Leeds New Place Loughborough Derby Sheffiled Cardiff 0 30 20 0 30 25 0 15

Figure 4: Centroid Method Result

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References
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<http://www.sciencedirect.com/science/article/pii/S0166218X06000473> [Accessed On 14 May 2013] 3. Alex Lawson (2013) Analysis: Why Food Retailer Morrisons opted for Vertical Integration, Available at <http://www.retail-week.com/in-business/supply-

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