Type Of The Supply Chain

Published Date: 02 Nov 2017

When we design the supply network, we have first to under the type and characteristics of the supply chain that the business, product or service that belong to. There are 3 basic types of supply chain models, the Lean Supply Chain (LSC), the Agile Supply Chain (ASC) and the Hybrid Supply Chain (HSC) (Vonderembse et al., 2006). The LSC would produce the products based on the forecast (Make-to-Stock). It mainly focuses on the reduction of costs by improving the manufacturing processes and efficiency. The ASC would produce the products in response to customer’s orders (Make-to-Order). It mainly focuses on the adaptability of the marking changes and provides the customization of products within a short time. The HSC combines the LSC and ASC. It would produce the products when customer places order. The product is highly modularized and hence it is "Assemble-to-Order".

The 3 types of the supply chain models have different characteristics in designing of the supply chain network. As I am working in toy industry, which has the characteristics of the ASC (Lin & Wang, 2011), I think the most important factors are as below.

Product Variety

Response Time

Flexibility

Supplier Capacity

Information Integration

Customer Service

Transportation Cost

Environmental Cost

Product Variety

As one of the key features in toy industry, the products that the customers ordered are most likely unique. The designs and functions of the toys are different in each order and each customer. Most of the products are ordered once. The ASC supply network should be able to handle the broad range of the products with sourcing of materials, manufacturing, packaging and delivery (Lin & Wang, 2011).

Response Time

The response time is referring to the lead time between the order placing and the goods delivery. The supply network has to be designed to provide shortest order processing time. The time-to-market is very critical because the demand of the particular products could be changed from time to time. If the lead time is too long, then the availability of products would be unable to capture the demand. This would be a very worst situation in the ASC as the products may not be re-sellable after the demand is dropped. In case of this, the products would become the dead inventory and break the cash flow (Min & Zhou, 2002)

Flexibility

The ASC should be able to provide the high flexibility in product design, development, sourcing, vendor selection and delivery. The on-demand market-driven logistics is a common property in the ASC as Christopher and Towill (2001) said "A key characteristic of an agile organization is flexibility" (Swafford, Ghosh & Murthy, 2008). The entire arrangement has to be flexible to provide the quick sales and manufacturing decision of the unique desired products (Product Variety) within a short period of time (Response Time). If the company failed to provide such flexibility, the company would loss the competitiveness.

Supplier Capacity

The supplier is the key to provide the quick response time and quality product. We should select the supplier with the capacity to produce the right products within a short period of time. The supplier should locate in the location that able to source materials and deliver the products to the customers. The technical know-how of the workers in the suppliers is important for offering the flexibility (Sting & Huchzermeier, 2010). Therefore, the supplier selection is the essential when designing the supply network because it directly affected the quality of the product and lead time.

Integration of Information

The communication between the suppliers is very important. The effective reflection of the information from the market to the suppliers could make the information being captured on time and accurate. In case the information is not accurate enough, the demand would be increased a lot as the known "bullwhip effect" (Machuca & Barajas, 2004). Therefore, the information integration could speed up the information flow and the suppliers could get the most accurate information to produce the right quantity of products so that the response time could be improved.

Customer Service

When we design the supply chain, especially for the ASC, the customer may need to keep very close monitoring about the ordering processing progress because they expected the products could be delivered to the market in a very short time (Lambert, Stock, & Ellram, 1998). The supply chain should be able to release the information of the production status to the customer. The customer can easily track their order and the expected delivery time. The order visibility could be implemented as the information is fully integrated between the suppliers. The better order visibility could improve the customer relationship and satisfaction (Vickery et al., 2003).

Transportation Cost

The core of the supply chain is involving the physical movement of goods. The transportation cost is directly affected the cost of the products and service. The location of the suppliers, warehouse and distribution center are the factors to determine the shipping volume and shipping methods. Those factors have to be considered for an overall optimization in costs. The inventory and replenishment approach such as the JIT or the VMI would also affect the frequency of transportation and finally the costs (Tsao & Lu, 2012).

Environmental Cost

The opportunity cost of the traffic is the pollution of air and environment. The traffic consumes 48% of global oil demand in which 20% - 30% of all CO2 emissions from developed countries (Walther, Schatka & Spengler, 2012). According to the World Commission on Environment and Development, sustainable development is "development that meets the needs of the present without compromising the ability of future generations to meet their own needs." ("Sustainable Development", 2010). Apparently, the design of the supply chain should also consider the sustainable development (Elhedhli & Merrick, 2012). This is important to design the environmental friendly production process and supply chain to reduce the waste and pollution.

Question 2

Facility location selection is critical in the strategic design of supply chain networks. Therefore, the location selection of the consolidation, warehouse and distribution center mainly depends on the target markets and availability of the resource that the location nearby. The supply of the desired labor and transport service are also the factors to be considered (Melo et al., 2009). For the information flow, the IT infrastructure and reliability of the communication network are also important.

Category of products

The product category would affect the location of the consolidation and deconsolidation (Lee & Wilhelm, 2010). Some products could be damaged easily by shocks, such as the glass-make products. Some products could be damaged by unsuitable temperature, such as the frozen food. The location of the consolidation, deconsolidation and distribution of such kinds of product should be specially designed to make sure the distribution route covered the special facilities and transportation requirement (Rodrigue & Notteboom, 2012). The distribution network should be efficient and reliable enough to deliver the products to the customers with right quality.

Location of the suppliers

The manufacturing process of toys would require different kinds of suppliers, such as molding, plastic and electronic components. Therefore, the point of the consolidation should be place closed to the locations of the key suppliers so that the suppliers could deliver the finished goods to the consolidation point when the manufacturing is completed. In case we need to supply the materials to the suppliers, we could also ship from the consolidation point to the suppliers within short period of time. The cost efficient operations are improved (Vanteddu, Chinnam & Gushikin, 2011).

Location of the Target Market

We need to consider the how often that we need to distribute the products to the target markets. We need to consider the cutting of the shipping cost if the replenishment is required very often. We need to setup a local distribution point which should be very close to the local retailers to minimize total distance, time and cost to deliver the products and services to the end customers (Melo et al., 2009) otherwise the regional distribution should be designed for supply the entire regional retailer network. For example, the fresh foods, we may need to setup the local distribution center very close to the local retailers to shorten the transportation time.

Labor cost and labor force

Although the modern consolidation facilities and distribution center are highly automated, the labor force is still indispensable. The supply of the reliable and productive labor force is an important consideration in location selection (Foote, 2005). This is necessary to study the structure of the workforce, such as the age profile, its skills and education and wage rates. The skill level and turnover rates of the local labor force are very important because the training and retraining of the employees are costly ("Distribution Center, Warehouse, and Plant Location.", 2011). If the labor is not skillful enough, then the efficiency of the operation would be reduced and finally affected the quality of distribution.

Transportation infrastructure

The quality of a transportation infrastructure is one of the important factors to determine the locations of the consolidations and distribution centers. The final cost of the product sold to the customer could possibly include as high as 10% of the transportation cost (Rodrigue & Notteboom, 2012). The high ratio of the transportation cost not only included the fuel costs but also the salary of the drivers and maintenance costs of the trucks. The consolidation and deconsolidation should be located in the location that with good transportation infrastructure, such as close to the railway, airports or highways so that the large volume of products could be used the mass transportation to ship from consolidation points to deconsolidation points (Olsson & Woxenius, 2012).

IT infrastructure

The smooth movement of goods requires the efficiency data exchange between each node throughout the supply chain ("Supply Chain Network and Technology", n.d.). The point of the consolidation and DC has to know what kind of goods and quantity would be arrived so that the space and equipment could be arranged in advance. The delivery schedule and inventory replenishment orders are also received electronically. The booking of the freight and most of the operations are also highly computerized. The Internet connection and the IT infrastructure, including the IT support and telecom company, are needed to provide reliable service (Li, Sun & Sohal, 2009). The operation would be greatly affected in case the IT systems or data connection interrupted.

Social and political stability

The operation of the distribution relied on the public services that provided by the governmental organizations. The public services include the water and power which are the essential components that supporting daily operation. Moreover, the public services such as the policy, fire service and public traffic are also important because the availability and maintenance of these services would affect the security of the consolidation point. If the available workforce is always unpredictable due to the lack of social stability, the operation is unable to plan and basically unable to run.

Weather and climate

The location always with bad weather or extreme temperature may not be suitable to setup the distribution center as the delivery of products could be affected by the damage of products, delay of flight or shipment schedule (Dixon, 1999). Locations with frequent affected by the natural disasters such as the flood and typhoon are also not a good choice to be used in the key distribution routes (Rodrigue & Notteboom, 2012). For example, the flood in Thailand in 2011 interrupted the hard-drive manufacturing. It caused the serious loss of the hard-drive manufacturer, Western Digital, while, however, due to the facilities were located in high and dry location, another hard-drive manufacturer, Seagate, has not been affected and even increased their forecast in profit margin ("Thailand Flooding", 2011). Therefore, the possibility of the occurrence of natural disaster is a consideration in site selection. This is not only about a risk but also could be a chance.

Question 3

The harmonies and disharmonies in Fujitsu

The original supply chain in Fujitsu separated the hardware manufacturing and software configuration of the laptops production (Figure 1). The hardware manufacturing was located in Japan is mainly because the production line was highly automated and did not require many human workforce to operate the production line. It is much easier to maintain the quality and save the high labor cost in Japan. The software installation and final packaging were arranged to complete in China because these jobs were required lots of the labor force to complete manually. The costs of materials used for the packaging, such as the manual, paper box and plastics bags, were cheaper and able to be suppliers by the nearby vendors in SZ. It saved the transportation cost and lead time to deliver those low-value materials from long-distance shipping to the factory. The final packaged laptops with larger volume and weight were shipped from HK to the different distributors in APAC.

Figure : The original supply chain in Fujitsu

However, for past few years, the production costs increased while the labor cost in China increased (Rabinovitch, 2011) and the logistics costs increased as the global fuel costs increased almost 40% from 2010 to 2012 (Avro, 2012). The benefits, relied on low labor cost in Chain, gained from the original supply chain were reducing (Barnato, 2013). As what the logistics experts recommended (Dixon, 1999), the total costs of supply chain were re-evaluated and re-built a new supply network to simplify the supply of products by direct shipment (Figure 2). The advantages of the new supply chain are as below.

Figure : The new supply chain in Fujitsu

Establish cost effective supply chain

Shorten order lead time and reduce inventory level

Increase the flexibility of the order management

Reduce the CO2 emission

Establish cost effective supply chain

Reducing in administrative cost

The new supply chain simplified the distribution network. Less nodes, forwarder, consolidation and deconsolidation points were involved. The administrative works incurred in the network were reduced and make the administrative costs was reduced.

Reducing in transportation cost

The direct shipment of products from Japan to distributors saved the air costs from Japan to HK and the land costs between HK and SZ. The overall transportation costs were reduced.

Reducing in total product cost

Although the new supply chain moved the process of software installation and final packaging back to Japan in which labor costs are higher than China, the cost reduction in administrative costs and transportation costs are able to cover the increment in labor costs. As a result, the total product cost is decreased.

Shorten order lead time and reduce inventory level

Due to the simplification in the supply chain network, the order lead-time reduced from 19-20 days to 9-10 days. There is almost 50% faster than the original network. The faster ordering processing not only improves the customer satisfaction but also reduced the required inventory level of Fujitsu and distributors (Garcia et al., 2012).

Increase the flexibility of the order management

The customers may change their requirements suddenly during the production and shipping period (Park, Lee & Sung, 2010). The new supply network is able to cope with the changes efficiently because the involved parties are much less than the original one. The changes of requirement are handled faster and more accurate by just only needed to coordinate the local departments in Japan.

Reducing the CO2 emission

According to McKinnon (2010), the CO2 emission per ton-km of air freight is the highest in among of the different transportations. The CO2 emission was estimated as 1600g per ton-km in air freight (McKinnon, 2010). According to the figures, the reduction of the one-way air transportation from Tokyo to HK (around 3000km) in the new supply chain of Fujitsu reduces the emission of CO2 around 4800kg per ton of product shipment (3000km x 1600g/ton/km / 1000g).

Problem of new supply chain

Overall, the new supply chain network in Fujitsu is able to increase the competitive advantage by reducing the logistics cost and inventory cost and caused the decrease in the price of final product. It also improves the supply chain flexibility for the rapid changes in requirement and improves the cash flow. However, it also brings new challenges to Fujitsu.

Materials cost

The packaging required lots of paper, plastics, packaging materials and accessories of the laptops too. Most of them have to be imported from Chain. The shipment costs of those materials increased the packaging costs as the costs of the raw materials are increasing for recent few years. Although the overall costs are still lower, the re-evaluation of the supply chain network should be done regularly to ensure the optimization in costs.

Warehousing cost

As all the production processes are in Fujitsu Japan, the extra space to store and process the product for installation and packaging are required. The inventory and warehousing cost would be increased. The insurance costs would be increased because the longer time and larger volume of products store in single location would cause higher risk in case of any accidents.

Labor cost

According to the Bureau of Labor Statistics ("Manufacturing in China", 2011), the labor cost in manufacturing in Japan is almost 20 times higher than in China. As the labor cost is a variable cost in the manufacturing, the more quantity of products produced would require higher demand in the labor force. Therefore, either the increase in the volume of products or the local labor cost would produce larger impact on the increases in the cost of the new supply chain than the original one.

Using the Information Technology

The new supply chain network is able to shorten the ordering lead time and reduce the inventory level. However, the less inventory buffer implies any communication mistakes in the supply network would cause the immediate shortage in supply. To avoid the disaster, the information should be updated rapidly and exchanged in the different partners in the supply chain. The EDI and the relevant IT of supply chain collaboration model: collaborative planning, forecasting and replenishment (CPFR) could be applied.

EDI

EDI technology has been widely applied to integrate the different parties in the supply chain and the benefits of reducing the information delay and bullwhip effect were proven (Machuca & Barajas, 2004; Nurmilaakso & Kauremaa, 2012). The key benefits for Fujitsu is the EDI can eliminate the human keying errors and faster document processing in their vendors, distributors and forwarders.

Cloud Computing and Internet

However, due to the technical limitations of EDI, the content of information could be shared to the suppliers is limited to the order and shipment data (Sanders, 2007) and hence the information, such as production planning and sales forecasting, should be shared to the partner in order to make sure the partners would obtain the sufficient information for the prior production and materials replenishment (Sari, 2008).

The growth of the Internet technologies, e.g. cloud computer, brought the new solutions to share the information within the supply chain partners in more efficient and secure way (Chen & Ma, 2011). With the latest IT, the implementation of CPFR becomes more feasible (Zeng et al., 2012).