Term Paper: Business Logistics and the Supply Chain

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Business Logistics and the Supply Chain

In order for manufacturing companies to be successful in the emerging e-business environment, it is necessary for companies to establish strong relationships within their supply chain. A significant part of this process is improved information sharing on all levels of the chain, and the Internet allows for this integration of communication and information technologies, from the factory floor to the top office, and including the company's vendors and suppliers.

Online purchasing has provided the impetus for many manufacturing firms to move from a build-to-stock to build-to-order business model. In addition to upgrading technology, companies must work with their vendors to create win-win relationships with a special emphasis on information sharing. This requires a drastic change in manufacturer/vendor relations, which generally tends to be antagonistic and competitive instead of cooperative. In the current business environment, manufacturers tend to dictate the circumstances of their supply needs, and leave it to the vendors to meet those needs, which often incurs unnecessary costs (such as premium shipping).

Implementing supply chain collaboration provides a great opportunity to take the empty costs out of the supply chain. Collaboration of this nature must involve real two-way communication between supply chain partners. An example of this idea in practice is joint capacity planning, where supply chain partners share in calculating capacities across multiple suppliers and tiers.

Some companies try to push inventory up or down the supply chain, which has the effect of minimizing local costs, but has the long-term effect of destabilizing the supply chain. In effect, the benefit of this practice lies only with the partner firm that is pushing the inventory up or down the line. The costs of storage and shipping begin to accrue and effect the bottom line for all the business partners involved.

Manufacturers must therefore begin the development of a trusting relationship with the vendors. Trust can be built through initiating programs that treat the suppliers as partners in a cooperative relationship. The supply chain partners must share information in a collaborative fashion, and encourage individuals to show initiative in acting on that information from both sides of the supply chain.

The importance of these supply chain relationships cannot be overestimated. Industry leaders predict that the top companies of the future will succeed or fail based upon the relationships that they foster with their supply chain. These relationships will allow manufacturers to produce customizable products made to order at a competitive cost and delivered on time consistently.

Experts stress the importance of working with the suppliers instead of trying to "squeeze" them for a lower price. The long-term benefits of an equitable relationship outweigh the short-term gains of forcing a lower price out of the suppliers.

In addition to saving the company soft dollars, it also allows the manufacturer to apply lean business techniques with regard to inventory.

Lean manufacturing has at its core the principles of increasing speed, removing waste and serving the customer better. Lean business practices does not literally apply to inventory in all cases, but to business operations and processes. For instance, instead of fighting change and trying to create a steady-state supply chain, come up with ways to better respond to change faster and more efficiently-even if that means building up inventory.

In this way the manufacturer maintains flexibility and is more resilient in the face of setbacks and unforeseen problems.

Manufacturing companies gather inventory for two main reasons: a lack of information from up or down the supply chain, and the variability of demand. If a company is unaware what its suppliers and clients are going to do, they will build up inventory to make sure that they have the needed product to continue building product. The variability of demand is influenced by factors such as spikes in demand driven by customer orders, manufacturing processes and logistical upsets that disrupt the flow of commerce (such as blackouts).

Projected demand can fluctuate greatly day-to-day.

One reason for such high variance is the proliferation of options, such as in automotive manufacturing. Limiting available options allows a company to improve their ability to forecast accurately.

Better market analysis also allows for the company to better establish the customers' wants and needs.

Over the years companies have employed a variety of techniques to apply lean business practices to inventory. Some companies manage inventory through what is called VMI (vendor managed inventory). This method applies service-parts technology to the inbound supply side. All the inbound supply side inventory is maintained by the vendors. The computer manufacturer Dell is an example of a company that uses this method.

Another method that has seen popularity is known as Just-in-Time (JIT) manufacturing. JIT is a supply chain environment that was pioneered by Toyota in the early 1970s. Jit is a production process that attempts to get the right quantity of quality parts to the assembly line at the exact time they are needed for production. This method in its most basic sense is a continuous process aimed at eliminating waste and solving problems throughout the supply chain.

While subsequent studies have shown the various benefits of JIT, many companies that attempt to initiate the process encounter problems. Proper Implementation of a JIT program is one of the major trouble areas for companies making the transition. One of the fundamental principles of JIT is the sharing of information throughout the entire supply chain.

Without a steady flow of information throughout all levels and tiers of the supply chain, JIT loses its efficiency and results in increased waste. Therefore, JIT intrinsically encourages communication and partnership between the vendor and the customer. Therefore, communication is essential to the proper implementation of JIT business processes.

Product delivery logistics is another factor critical to the success of JIT manufacturing. Tuning of shipments and supplies can make or break a company using JIT. A manager must pay close attention to this issue to ensure that production delays do not turn into obsolete products and lost sales, both costly to the firm. Companies have tended to adopt one of two stances on this. Some prefer to gather there suppliers close to them geographically, to reduce travel distances and create what is known as a "milk run." This idea seems practical enough- if the supplier is within a hundred miles of the manufacturing firm then supplies can be ordered and delivered the same day. However, studies have shown that greater physical distances have actually shown to be beneficial to JIT programs, possibly because the greater distance required increased communication between the supply chain partners. The recommendation was made that companies interested in implementing or improving JIT systems performance should invest in communication and information technologies rather than pull suppliers closer to them.

E-business can help manufacturers cut costs through a variety of ways, such as more accurate demand forecasting and planning, streamlined production scheduling, higher quality and fewer errors as information moves from one business process to another. Manufacturers already using the Internet see annual cost savings of 6% across the value chain, from procurement to Web-based supply chain management and after-sales service. According to some experts, it may be possible to cut costs by as much as 8% to 10%.

Some experts maintain that this move in business models is inevitable, and companies that are slow to make the adjustment risk going out of business.

E-business customers are demanding more customized products, faster delivery schedules and instant access to order status. Some businesses that have made the transition to e-manufacturing (particularly semiconductors and computer manufacturers) have required their primary suppliers to connect their plant floors to the Internet so that the manufacturing firm has a better idea of what their supply chain is doing.

Connecting the plant floor with the net allows for the information to flow to needed areas. This provides a new… [END OF PREVIEW]

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