Due to globalization in business environment, organizations are shifting to supply chain management in a bid to attain competitive advantage, with the need for customer-based approaches gaining popularity. In this case, companies are required and even forced by circumstances to initiate and implement the most effective strategies that will lead to customer satisfaction and growth.
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In this view, integration of supply and logistics components enables a company to align its goals more productively to its suppliers and customers’ needs. Trento is one company that is facing numerous challenges due to lack of an integrated logistics system. This has seen the company lose two of its clients, and possibilities of losing the third client are evident.
To avert this situation that may not auger well to the company, it has been established that developing and implementing a successful integrated logistics system will save the company.
Throughout this report, problems of Trento are established, discussed within the perspectives of supply chain management and subsequently the need of developing an integrated logistics systems evaluated. Benefits of the systems are outlined, which will contribute to better performance of Trento as a company if it adopts the developed integrated logistic system.
The global business environment is changing at a fast rate, exerting pressure on different firms to remain dynamic both in operation and strategy. Part of this dynamism has been contributed by globalization, which is fast revolutionizing how business is conducted both locally and internationally (Power, 2005).
Some of the areas experiencing profound changes as a result of these forces include logistics, supply, distribution and procurement of products and services. Today, organizations are under constant pressure to adopt the most efficient and effectively logistic, supply, and distribution systems that meet customers’ needs and demands, firms’ objectives and also business environmental challenges (Stock, Greis and Kasarda, 2000).
It is anticipated that, as globalization continues to influence overall business and market environment, firms have no alternative but to adopt and implement supply and distribution management systems in order to compete more effectively (Power, 2005).
Effective supply and distribution management system being advocated for should be integrative in nature, whereby, different parts of the firm are unified in a system that answers the needs of the organization in the most productive way (Gunasekaran and Ngai, 2004).
This report looks at the logistic, supply and distribution problems facing Trento, how effective they can be resolved through an efficient, integrated supply and distribution system and subsequently, advice its client Elle Sport Company whether to halt or continue its cooperation with the company.
Background and Problem Identification
Elle Sport, a sports and accessories retail firm in Australia cooperates with Trento as one of its main manufacturing suppliers, specifically in the supply of women shoes. Trento’s supplies to Elle’s outlets; however, its inadequate capacity becomes a hindrance in meeting the contracted lead-time of 10 days. Due to this problem, Trento in the recent past has been evaluating the possibility of modifying its entire logistics and distribution channels that would see the company effectively meet its customer’s needs more efficiently.
Trento has only five purchasing personnel who have to multi-task in such areas of facilitating ordering of all the company’s items (both stationary and equipment). At the same time, the company is yet to computerize its ordering system, a situation that customers want changed.
Ordering is largely done orally, although written purchase orders are sent later, a situation that sometimes results in errors such as incorrect writing and ineligible work, hence the need to be redone. Moreover, “there is a “logistics” group that is responsible for distribution, warehousing, and inwards freight,” where it works largely independently, while “procurement, marketing, and other departments operate on their own procedures” (Gunasekaran and Ngai, 2004).
This scenario has become alarming, especially to the management team of Trento, specifically after cancellation of orders by two significant clients, and Ellen likely switch to another supplier soon.
Management of companies in modern world is changing speedily especially with realization that new forms of competitive advantage have to be identified and innovated continuously, thereby creating unique capabilities that propel a company to greater heights (Mentzer, 2001).
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As a result of this, companies’ strategic management aspects need to remain flexible individually as globalization continues to effect new challenges. One area that companies need to pay attention to is the area of logistics, specifically the one to do with logistic leverage, which is perceived to have the ability of enabling a company to achieve competitive advantage while effectively meeting the needs of its customers (Mentzer, 2001; Kersten, 2006).
As competition continues to increase in all sectors of business, focus on customers is turning out as the source that companies are exploiting to better increase their competitive leverage. This brings in the idea of customer-focused approach, which explains the need for companies to give attention and satisfy customers’ needs. The focus of this approach is on customer satisfaction (Mentzer 2001), which in return leads to establishment of customer loyalty for long-term cooperation.
Logistics is a concept that is becoming a necessity in most organizations and can no longer be designed and implemented in the usual traditional way. As it was seen earlier, the business world is changing and this can be associated to different changes taking place in the business environment. As a result, an integrated component of logistics management is required to meet the increasing demands a company is subjected to.
The purpose of integrated logistics, as envisioned by Swamidass (2000) is to support a company’s competitive strategy that, in turn, enables delivery of high levels of customer satisfaction.
Integrated logistics constitutes a component that combines diverse logistics activities such as inventory management, transportation, order processing, demand forecasting, documentation, packaging, parts support, warehouse management, and reverse distribution, where the aim is always to make these diverse parts more cohesive and function in unity (Swamidass 2000).
Integrated logistics, therefore, perceives the different activities of logistics as interrelated components that involve a single value-added system, which in nature has to include facilities, equipment, people and necessary operating policies and procedures (Swamidass, 2000).
In this way, integrated logistics is able to fulfill all needs, ranging from acquisition of raw materials to production and distribution. It must further be remembered that, in designing and implementing an integrated logistic system, key factors have to be put in consideration, which include customer demands and overall expectations, the magnitude of logistic costs for the company and all aspects that may influence the operation and function of the integrated system.
Therefore, the concept of integrated logistic system and management can be perceived to have the paramount role of aiding, increasing and coordinating decisions across various departments of a company, with an aim of providing a unified vision for the company’s activities.
Integrated supply chain management system
The truth that must be accepted in the modern world is that traditional logistics methods and practices are largely inefficient and inadequate in addressing the new needs of supply chain management. Due to this, it is essential for companies to embrace the idea of creating and adopting new logistics practices and technologies that link production and logistic processes including suppliers and customers in different locations (Stock, Greis and Kasarda, 2000).
This calls for Trento Company to create logistic strategies that comprehensively address the issues of market, processes and information and be able to link them to customers’ needs and overall available company resources. Therefore, the logistic strategy to be created has to fulfill vertical integration aspects and also be able to positively establish relationships with members of the supply chain.
What Trento Company should realize is that, apart from physical aspects that delivery system performs, there is need for enhancement of delivery of the desired quantity and quality of products to clients.
To achieve this, critical role of coordination should be established in the company and this will require integration of information flow between supply-chain members (Porter and Miller 1985 cited in Stock, Greis and Kasarda, 2000). Information integration is evolving as the key aspect that is influencing workability of supply chain systems in different organizations, and this constitutes an element Trento cannot forego or ignore.
The emergence of information integration as part of supply chain system revolves around the need to meet customers’ demands satisfactorily (Handfield and Nichols, 2002).
As such, organizations are required to initiate ‘customer linking capabilities’ that enable an organization to communicate openly with different partners and clients, solve problems as a team, exchange vital supply management information through internet, effectively coordinate production planning and replenishment scheduling and work together to improve the supply chain system in the company (Harrison, Leung and Neale, 2005).
Power (2005) observes that integrated supply chain process requires massive investment in cooperative arrangement and technologies, and at the same time has to be part of organizational strategy and implementation process.
Problems that Trento faces revolve around inability to meet Elle’s orders in 10 days, too short lead time for finished shoes, hence inability to serve Elle Sport adequately, inadequate personnel to carry out supply chain needs, lack of computerized ordering system, hence numerous errors, and lastly, absence of coordination among various department which in turn affect entire supply chain system of the company.
Arising from Trento problems is the pressing need to develop an integrated supply chain system that comprehensively will address various identified needs. Given that the management has realized this problem, it is prudent for fast-tracking of the process in order to save on the deteriorating problem of clients canceling orders with the company.
To deal with the concept of an integrative supply chain system, it is essential to first outline what integration of supply chain is. According to Putzger (1998), integration of supply chain involves “attempts to elevate the linkages within each component of the chain, to facilitate better decision making and to get all the pieces of the chain to interact in a more efficient way and to create supply visibility and identify bottlenecks” (Power, 2005, p.2).
This definition brings to limelight three elements that define an effective integrated supply chain system – information system management, inventory management and supply chain relationship management.
Observed from Trento Company’s scenario is a situation that demonstrates little cooperation with its clients such as Elle Sport, lack of collaboration among its departments and lack of computerization systems. This calls for an integrated supply chain system to be created to address these aspects (problems) in a way that meets demand and needs of customers.
In this way, the integrated supply chain system should be “characterized by cooperation, collaboration, information sharing, trust, partnerships, shared technology, and a fundamental shift away from managing individual functional processes, to managing integrated chains of processes” (Akkermans et al., 1999 cited in Power, 2005).
An integrated supply system has to enable reduction in response time (lead time) required to meet clients needs, whereby, there is need to develop a system that encourages direct distribution channel between Trento and its various customers (Poirier, 1999).
Moreover, communication channel in the system needs to provide timely information between Trento, its suppliers and customers in a relationship that is collaborative in nature. Lastly, a computerized system has to be part of the integrated supply chain system, as this will ensure that transmission of data among departments, suppliers and clients is done in a speedy manner (Min and Eom, 1994).
Resolving Elle Sport dilemma
Elle Sport can be described as a dilemma, where the company has no clear picture on what to do on the Trento case. Trento Company is failing in its timely order delivery and the problem may persist given the manual ordering system at Trento coupled with lack of computerized system. It should be remembered that when Trento fails to meet targets and when errors occur in its delivery system, then Elle is likely to be affected enormously.
The ever increasing completion in the market place forces business entities to value their customers. Thus, Elle would not want a situation where its customers get disappointed, or loyalty reduces. In this scenario, Elle has two options to undertake. The first is decision to continue cooperating with Trento, especially after Trento management realized the present problems and subsequently developing desire to change. The second option available is for Elle Sport to change (switch) to another supplier.
Adoption of these two options requires cost-benefit analysis, from which Elle will be able to make a decision whether to maintain Trento or switch to another supplier. Switching suppliers in subjective view will be more costly given the need to establish cooperation with a new and totally different supplier.
In an event of switching, Elle will have to invest in the relationship before genuine trust and integration of the company’s needs are effectively captured by the new supplier. As a result, it would be beneficial for Elle to embrace the desires of Trento to change and adopt a more efficient distribution system, computerize its systems, re-shape its supply management team and integrate its departments.
Through participating in an effort to help Trento develop the modernized integrated logistics system cum supply management system, Elle would become part of an effective and efficient integrated supply system that address its needs appropriately. At the same time, by being part of the new integrated system, Elle would ensure a flexible system is created that can meet its changing needs more effectively with fewer problems. In other words, the two organizations can develop integrated supply chain systems that are linked and interdependent, making it possible and easy to fulfill the needs of two companies in a more productive and cooperative way.
Developing an integrated logistics system for Trento
Given that Elle Sport will participate and be part of a team that should see changes at Trento, it is envisioned that there will be development of an integrated logistics system that has features of reliability, maintainability and supportability. This will largely focus on customer requirements while benefiting from coordination of supply support elements of the company (Sople, 2007).
This idea is informed by the fact that the required integrated logistics system will operate interdependently with various logistic functions, which will need coordination of input from various departments. As a result, the current autonomy of departments at Trento will have to change and the departments integrated.
This aspect is reinforced by Russell (2007), who observes that manufacturing, procurement, logistics, marketing and suppliers have to operate synergistically in cross-functional ways. Therefore, the integrated logistics management system should reflect aspects of “internal integration of functions” at Trento while at the same time encouraging “upstream and downstream involvement of supply chain partners” (Russell, 2007).
Development of an integrated supply system will need to go hand in hand with restructuring of the procurement and supply team at Trento Company. This will require increasing the number of staff and also employing the right people with skills and capabilities to live up to new challenges.
More so, the manual system of ordering will need to be phased out, since it has demonstrated weaknesses in terms of limitless errors. This will pave way for establishment of an electronic data interchange system that is more efficient. This will also allow sharing of decision-making information among partners both up and down the supply chain.
There are various advantages of paperless transaction. For instance, it will be possible to send documents among the various partners with regard to purchase orders, order confirmations, invoices and advanced shipment messages, all of which will all be standardized during the transaction process.
More so, interpretation and processing of transmitted messages will be channeled through the same data communication protocols via a communication network to the intended destination without incurring delay. At the same time, integrated supply chain system will see the development of computerization of the systems in the company by establishment of electronic ordering systems (Chiu, 1995).
The electronic ordering system will minimize the numerous errors currently witnessed in the company from verbal ordering. This will also result in automation of stock ordering and placement by the various partners of the company. Through this, it will be possible to reduce the waiting time before product is either delivered or manufactured (Russell 2007).
ISCM Systems Architecture
This would constitute the ideal integrated logistics system that Trento can develop and implement. This logistic system has the features of enabling the company, its suppliers and customer, access to information of supplies and distribution through the use of Web portals (Lan and Unhelkar, 2006).
Web services subsequently establish common graphical interface that enables access of supply chain data by the company, its suppliers and clients. In this way, information about supplies of products and overall supply needs can be viewed more easily. In more related way, the system can enable both customers and suppliers to customize their needs, whereby, it becomes possible to order and monitor the specific product desired as it moves from the manufacturer to warehouse to retailer and subsequently, as it enters distribution channel.
As a result, the customer is able to relay any information to the company’s system and appropriate action is taken promptly. Moreover, Trento is able to coordinate its suppliers and updating them on time; and in return, the suppliers have the opportunity to be integrated in the system, allowing the decision-making process to be aligned to the needs of customers in the system.
This particular system is supported by a messaging infrastructure, which provides link to the underlying applications in the system (Lan and Unhelkar 2006). The applications system contains the company’s business and data access aspects that are critical in performing operations. This may include access to SCM functionality, ERP systems, and decision support system (Lan and Unhelkar 2006).
Functionality and success of this system will depend on critical aspects that Trento Company will need to adopt. The first is the need for creation of shared vision to integrate divergent opinions for successful implementation of the supply chain system (Lan and Unhelkar 2006).
Other aspects to adopt include the need to create a cross-organizational implementation team, integration of internal information system, re-engineering of inter-organizational business processes, and improvement of overall internal infrastructure conditions (Lan and Unhelkar 2006).
Benefits of integrated supply chain systems
Trento will accrue numerous benefits from the integrated logistic systems upon implementation. This will, in turn, translate to overall organizational change with regard to meeting customer demands. Some of the anticipated benefits from integrated systems include increased communication speed and decrease in cost of communication, as well as improved inventory and customer service (Beyer, 2010).
At the same time, the systems will be able to reduce distortion effect that may arise as a result of unplanned demand forecast, since appropriate information is available regarding supply chain. Moreover, the systems are going to initiate and sustain long-term relationships between Trento and its suppliers and clients, as only a few, if any, problems will be manifested unlike before. Lastly, integrated supply systems will improve customer service delivery as feedback will be timely retreated and acted upon.
As dynamism continues to impact businesses, it is evident that traditional supply and logistics strategies need redress. This can be evidenced in the numerous problems Trento has exhibited. Nevertheless, by deciding to undertake a comprehensive design of its distribution system, Trento realizes the need to remain competitive in the market. Clients’ needs and the overall goal to satisfy customer efficiently requires the company to adopt the most efficient integrated supply chain system.
The input provided by Elle Sport should ignite Trento to stay abreast to the changing needs in supply chain management; and through this, the company will be able to cater adequately to the needs of its clients and suppliers. Therefore, the report has observed that Elle needs not to switch suppliers, as this will be costly; instead, it can dedicate part of its resources and capacity into helping Trento design an effectively integrated supply chain system. The long-term benefit of this will see Elle realize numerous opportunities at reduced cost.
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