Introduction
There are several examples of very successful companies that became the leaders of various industries due to their effective supply chain and operations strategies. For instance, one can mention Wal-Mart and Toyota. These organizations represent different industries, namely retailing and automobile manufacturing, but their performance indicates the optimization of supply chain and manufacturing procedures can assist an enterprise.
This report is aimed at defining operations and supply chain strategies well as explaining how they are applied by businesses. In particular, one should explain how companies like Toyota or Wal-Mart can achieve competitive advantage. Furthermore, it is critical identify the differences between lean and agile supply chain strategy. This paper will include a literature review and case studies showing how these theoretical notions can be used by practitioners.
Literature review
Supply Chain management operations and strategies have evolved since the late 1950’s when few companies or corporations existed. However, today’s corporations utilize myriads of systems to ensure their supply chain management systems have a competitive edge over most of their rivals.
Supply Chain Management (SCM) can be defined as “all systems that work together in a linked chain with the customer at the end through the main purpose of ensuring customer satisfaction.” The concept of supply chain management emerged in the 1980’s when companies were in the need of expanding their customer base. Several supply chain management techniques such as in-time, lean, agile and leagile strategies have been adopted in the market (Mangan 2008).
However, all of these systems stem from the early days of industrialization and globalization in terms of reaching out to the customers. The key factors of supply chain management systems are: operation management, procurement, logistics and information technology. These factors have been constantly applied in the past and currently in the process of delivering value and quality to customers in different sector of the economy.
All these factors have to be organized in a proper manner for the entire SCM to be effective (Leeman 2010). For instance, within a manufacturing firm, if the procurement of raw materials or production tools is flawed or disorganized, then it might affect production considerably. One of the most important factors is distribution which falls under operation management in terms of organization. For instance, how does a company organize the distribution of finished goods or positioning of presence of the company in different locations?
When we look at the distribution strategy, we have to examine if the system is centralized, decentralised or shared. Operation management looks into production facilities, suppliers, warehouses and core consumer markets. How are all these systems organized to ensure that the company is efficient and gets ahead in terms of competition.
Logistics within the SCM cycle is imperative since when it is well co-ordinated it usually leads to the low cost and reduced delivery times. Therefore, when a SCM strategy ensures low cost and short periods, then the consumer can get value and quality. For instance, logistical planning is very important since if consumers get a full truckload or a product it might reduce transportation costs but this might increase holding costs (Arlbjørn 2010).
As a result, warehousing and inventory control comes along with the SCM as these factors handle the last procedures before a sale is conducted. However, all these factors and processes are controlled by flow of information by different agents within the SCM cycle.
For example, information concerning demand, transportation, supply channels and inventory has to be shared and closely monitored to ensure that proper decisions are made within the SCM cycle (Naylor 2009, p. 117). The history of SCM shows that evolution of the process from simple strategies to complex systems as businesses and organizations evolved.
In the early 60’s, SCM processes were handled within organizations through the use of EDI (electronic data interchange) systems that allowed easy control of all processes through integration. This SCM strategy is still deployed today through the use of ERP systems whereby value addition and costs reductions are primarily monitored.
For instance, through this system we could have vertical integration with upstream suppliers and downstream consumers as practised by Tesco. In the 80’s and early 90’s companies came up with a globalization SCM strategy whereby these organizations owned locations or chains across the globe. The main aim of this strategy was to increase competitive advantage, adding value and reducing costs when global sourcing was being undertaken (McCarthy 2010, p. 440).
This strategy was mainly deployed by oil marketing companies and due to the complexities of this SCM strategy, a specialised era came about. During the specialisation era, companies wanted to focus on core functions and outsource certain functions within the supply chain. As a result, companies created manufacture and distribution networks that made sure producers, consumers and suppliers worked together in producing sales and servicing goods (Langley 2008).
This model was improved to the current systems that make use of SCM, as service and supply chain networks are controlled with software. The current SCM strategies work based on leveraged solutions that ensure the supply chain can overcome challenges such as surging oil price or customer care.
These current strategies make use of software systems and outsourced functions whereby companies rely on suppliers to deliver their goods while they concentrate on core functions such as manufacturing (Chopra 2012). Moreover, with growth of web 2.0 technologies, some companies rely on online shopping while delivery is handled by specialised logistic organizations such as UPS or DHL.
Supply chain strategies at Wal-Mart
Wal-Mart is the largest retailer in the world with over 8,900 stores around the world. The company has evolved from a small store in Bentonville, Arkansas to a large multinational corporation that relies on an effective supply chain. SCM strategy adopted by the company has evolved into current system which relies on current technologies and market trends.
The retail chain began with few stores in the state of Arkansas with most of its SCM relying on manufacturers and local supplies in stocking goods. Wal-Mart makes use of agile SCM strategy that allows for fast stocking of goods sold. The company started considering a supply chain strategy when it started expanding in a fast pace within different locations in the United States.
The company’s SCM strategy has always been to source goods directly from producers or manufacturers before they are taken to the company warehouse for being dispatched to its various stores. Wal-Mart has since its inception made use of agile SCM strategy to ensure that consumers get the necessary goods on time (Lambert 2008). As a result, consumers are assured of the value and availability of goods at any time these goods are needed.
Wal-Mart is a retailer dealing in manufacture or export, and therefore they have to develop relationships with their producers and suppliers. These relationships allow for sharing of information to ease the undertaking of logistics and warehousing in the process of developing an efficient supply chain system.
During the late 1970’s, Wal-Mart developed a warehousing and inventory system that allowed for suppliers to supply goods to its major distribution centre in Bentonville. As a result, the company would sort out and deliver these goods to various store locations within the United States (McCarthy 2010, p. 434-438). This system was improved further by development of warehousing in different locations in the US that could serve the different stores.
Wal-Mart leveraged its supply chain strategy through the use of technology and IT systems since the early 80’s. Adoption of distribution centres by Wal-Mart allowed for steady and consistent flow of products. Sophisticated technology and systems such as bar codes and computer systems were deployed in management of these centres. By 1983, the company had deployed a private satellite network that monitored sales and inventory in its stores and locations globally (Prasad 2007, p. 246).
This satellite system allowed management to monitor all activities within all stores in the United States. In terms of logistics, Wal-Mar has a large fleet of over 7,000 trucks which deliver goods to its different distribution centres located all over the United States. These trucks get to any store within 2 days and allow stock within any store location to be replenished twice a week (Langley 2008).
A system known as cross-docking is applied within Wal-Mart stores whereby goods are picked from the manufacturer or supplier and sorted before being delivered to the customer through Wal-Mart chain stores. Inventory control is what has made Wal-Mart to be successful over its competitors through the use of advanced IT systems.
Wal-Mart’s size in terms of store locations and operations is handled by the most sophisticated IT systems such as the Massively Parallel Processor. These systems track the movement of goods, inventory and sales within all store locations and distribution centers. Wal-Mart has relied upon these systems till today when they are now more improved and involve collaboration in sharing of information with suppliers such as Proctor & Gamble (McAdam 2008, p. 116).
For instance, some supplies through RFID tagging technology have information when stock levels run low within Wal-Mart stores and thus they are able to anticipate demand and replenish sold stock within a short period of time. The use of technology within the supply chain has led to improved efficiency and propelled Wal-Mart into the largest retail chain far ahead of its competitors (Mangan 2008).
Operations strategy at Toyota
The sustainable growth and sound financial performance of Toyota is partly based on the ability of this company to design, improve, and control the process of production. The optimization of manufacturing procedures is essential for this corporation. This is the main goal of their operations strategy. In this way, this corporation achieves cost leadership. Yet, one should examine the distinct elements of their operations strategy.
First of all, one should focus on such an approach as just in time production (Laseter, & Rabinovich 2011, p. 25). This company tries to improve manufacturing of vehicles by eliminating unnecessary and time-consuming parts of the process. For instance, one can speak about the storage and transportation of inventory such as spare parts.
In fact, their operations strategy is based on the assumption that the very presence of excessive inventory indicates at the deficiencies of their production process (Laseter, & Rabinovich 2011, p. 25). This is of the main arguments that can be put forward and it is vital for understanding way in which Toyota functions.
Furthermore, the company lays stress on the need to reduce the amount of time which is needed to complete various stages of the manufacturing process. This organization can achieve this goal by involving employees who can redesign the way in which cars are manufactured.
Moreover, they can give valuable recommendations to the management (Daft, 2008). So, the empowerment of employees can be regarded as a part of Toyota’s operations management. These people are capable of finding the flaws of manufacturing process at an early stage. This is one of the details that can be identified since it is critical for many successes of Toyota.
Furthermore, Toyota’s operations strategy is aimed at ensuring that the company is able to respond to the changes in demand. The main issue is that the spare parts for vehicles are produced at the time when they are required. The supplies of this corporation are also required to adopt the operational principles used by Toyota.
This element of operations strategy is critical for eliminating many costs. Moreover, this organization strives to deliver the products according to the timelines set by clients. Therefore, they pay attention to the improvement of transportation networks. This is one of the main issues that one should take into account.
There is another objective that should not be overlooked. The management of Toyota wants to make sure that employees handle the optimal amount of work. This is why they determine the necessary number of workers who should be assigned to an assembly line. In this way, they avoid unnecessary labour costs and eliminate the risk of defects. This is one of the reasons they were able to reduce their production costs.
As far as the skills and activities of employees are concerned, Toyota wants them to handle specific tasks. They must not be concerned with activities that are not directly related to their duties. However, at the same time, they are encouraged to understand the way in which the product is created. This knowledge helps them to improve the process of production. As it has been noted before, they are encouraged to take part in problem-solving which is an important part of Toyota’s operations.
Additionally, the management of Toyota wants to identify possible mistakes at an early stage. This is why they use technologies that raise workers’ awareness about a potential problem as quickly as possible (Obara 2012). The main principle is that the production should not be continued provided that the root cause of a problem is not fully identified (Obara 2012). This issue is also related to operations strategies because it is essential for the quality of products and time management.
This discussion suggests that Toyota continuously tries to improve the design, quality control, planning, and the use of resources. As it has been said before, this corporation stresses the importance of just-in-time production. One can identify the following goals: 1) the optimal use of spare parts; 2) timely identification of defects; 3) efficient time-management; 4) employees’ ability to improve the flaws in design, and 4) the effective use of technologies. In this way, they can reduce costs and improve the quality of their vehicles. These are the main issues that can be singled out.
Sustainable advantage
The discussion of these two companies suggests that sustainable competitive advantage can be achieved with the help of supply chain and operations strategies. As it has been shown, the optimization of the supply chain has enabled Wal-Mart to gain the cost-leadership in the retailing industry. This organization was able to avoid such stock-outs or oversupply of goods.
Therefore, they could sell goods at lower prices, and in this way, they managed to increase their market share. Apart from that, they could reduce the cost of inventory, so their financial performance improved. In part, this goal was achieved through investment in the information technologies and transportation infrastructure (Chopra & Meindl 2012, p. 7). It should be kept in mind that the company works on the improvement of its supply chain since this element is vital for their sustainable advantage.
In turn, Toyota was able to derive several benefits by relying on its operations strategy. First of all, this organization managed to decrease its operational costs and cut down the prices of their vehicles. Thus, they were able to increase their market share. Moreover, the company was able to increase the volume of production.
This result can be partly explained by the fact they were better able to avoid delays and quality defects. One should mention that Toyota’s major manufacturing facilities are usually located in the countries in which the majority of potential clients live (Chopra & Meindl 2012, p. 19). Overall, the sustainable advantage of this corporation relies on the improvement of its manufacturing process.
Agile and lean supply chain
Agile and lean supply chain strategies are widely used by modern businesses (Rangaraj, 2009). Agile manufacturing or SCM is a system whereby several tools, processes and trainings have been organized so as to cater for the needs of the customer. The main aim of agile manufacturing is to control costs and quality while providing value to the customers. More importantly, this approach is supposed to make companies more responsive to the changes in the changes in demand.
This SCM strategy has been adopted by organizations which try to control diminutive problems at the initial stages that might have huge downstream consequences. As a result, companies that make use of this system can reduce the costs of production in the long term (Leeman, 2010). Therefore, agile SCM strategies are based on tools, processes and training that ensure that customer needs are meet within a set period of time.
The main element in this strategy is customer order cycle (COC). COC is the waiting time that the customers have to endure before goods or services are delivered to them. In turn, the goal of agile SCM is to decrease COC; otherwise this strategy will not be beneficial for a client.
A supply chain management system can be called agile if it has such components such as orientation toward the needs of clients, improvement of organizational processes, and the value human knowledge and skills. This supply chain can be adjusted to the fluctuations in demand.
In turn, the main focus of lean SCM is the reduction of waste such as the overuse of raw materials or delays (Ohno 2008). Moreover, lean production within the supply chain enables the smooth flow of operation. This goal can be achieved provided that the management and employees try to identify potential problems at an early stage (Motwani 2009, p. 352).
Lean SCM relies heavily on information technologies and systems that can improve quality and eliminate waste (McAdam 2008, p. 122). Therefore, production would realise reduction in time and total costs. Yet, lean production does not guarantee the flexibility of the supply chain. This is the main limitation of this technique. As a rule, successful companies try to combine the principles of lean and agile supply chain management.
Conclusion
Overall, it is possible to say that supply chain and operations are essential for the long-term sustainability of a business. Various organizations have to improve the way in which in which its inventory and technologies are used. For instance, they need to ensure that components parts or technologies are delivered to them in time. Additionally, they need to focus on organizational processes.
The managers should concentrate on the identification of possible problems or the reduction of time which is needed to deliver goods or service to clients. The case studies included in this report show that supply chain and operations strategies can help businesses to win the completive edge over their rivals. The strategies used by Wal-Mart and Toyota can be emulated by other businesses. This is the main point that can be made.
References
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Chopra, S & Meindl, P 2012, Supply Chain Management: Strategy, Planning, and Operation, 5th Edition, Pearson Publishing, Pittsburgh: PA.
Daft, R 2008, New Era of Management, Cengage Learning EMEA, London.
Lambert, D 2008, Supply Chain Management: Processes, Partnerships, Performance, Pelshiver, Boston: MA.
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Laseter, T. & Rabinovich E 2011, Internet Retail Operations: Integrating Theory and Practice for Managers, CRC Press, New York.
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