Supply Chain Design Seminar Work. Retailers, Relocation, Sustainability

SEMINAR WORK – Yasin Sengöz

Abbildung in dieser Leseprobe nicht enthalten

Question 1

In or der to answer this question properly it is wisely to display pragmatic examples from the real-world and also include case studies which have been intensively handled and provide a steer clear overview of the various stages, different flows and operations which are involved throughout the sup ply chain of a t-shirt.

This question leads us to different approaches a company can undergo in order to fulfill market requirements an d meet customer demand and also try to achieve a high customer satisfaction. (Schrauf and Berttram, 2016) . An exemplary stage overview is shown in the figureA (Appendix-A), which is applicable for a t-shirt regarding the stages of a supply chain from (McColl and Moore, 2014). It is applicable for not only clothing; it is a generic description for the process a product goes through.

Typically, clothing brands and their markets are at a fast pace, in order to react quick in the supply change and meet the customer demand. The different strategies are mentioned in question 2. That is why the first process/stage Design & Administration is a crucial stage for this work environment. To give pragmatic examples, Zara and H&M (Ferdows et al., 2014; Perepu, 2008) try to design their products adapting to fashion trend and dedicated different teams to design clothing articles. In the process they are distributed worldwide, and IT-tools are used to make artificial virtual products which may appeal to the customers. The administration facilities, like Zara, are centralized (Ferdows et al., 2014) and aided with IT-tools. This makes sense since decision like purchase, close collaboration, idea creation (Lankhorst, 2009), problem solving, quality checks, internal administration are centralized which saves a huge amount of workload. If those activities would be decentralized the different facilities all over the world would need different third-parties and partnership in order to fulfill administrational tasks, if it is like Zara centralized, the company owns this competence in a bulked place, and can save cost and the teams are also able to collborate and make reasonable quick decision-making processes. The control and information is also in the hand of the company if a centralized unit controls the business activities. The retailing just has to focus on improving sales. When the products are shipped they are already “saleable”, no set-up time is needed regarding pricing and decoration, the decoration is already given from the design layout retail team. In those micro- and macro business activities Zara, I think so, saves a lot of resources, can provide a quick time-to-market and has a high comptetitive advantage.

After the design & administration stage the production process starts. The design is given with the specific specifications and samples are made (Grönlund et al., 2010). Only if the given quality standard are met, mass production can start, testings are made before the mass production launchs (Bellgran and Säfsten, 2010). The production areas are mainly in asian countries like China, Turkey, India. These low-cost arreas are supplied by different suppliers with raw materials which are needed for production (Ferdows et al., 2014). So, the companies are moving or outsource the production process in order to have access on raw materials and the know-how of manufacturing clothes in those areas. Nevertheless, regarding to a sustainability and an awareness of exlpoting human labor this is not a good example. Zara has some facilities in Spain but mostly all of the cloth industry products come from Asia (Ferdows et al., 2014; Perepu, 2008).

The next step is the distribution of the produced products, in this case the t-shirt. It also depends how the strategical approach and the supply chain strategy are set up (question 2). Zara for example has big distribution centers in active high-traffic countries and continents (Ferdows et al., 2014), this will ensure them the flexibility to reach all the retail stores in a quick responsive manner to meet customer demands. The decision about the distribution system, like said before, is highly dependent on the company’s overall and supply chain strategy (McColl & Moore, 2014). Though, in some way or another the t-shirt is distributed and delivered to the retail store. Zara even packages and labels the products before they are sent to store, to enable even faster and more expedient handling of the products in the shops (Ferdows, Machuca, & Lewis, 2014). This is also the last step, since the destination here is the retail shop. Now the customer is advertised or has a high brand awareness and recognition and loyalty (Hines and Bruce, 2007) to buy the product from the retail store. Nowadays e-Commerce shops are more convenient for the customer and this will, I think so, have a higher impact on the supply chain. May be companies still need huge hub-spots for their distribution centers, but I think the trend will come that a lot of small distribution centers and warehouses are needed in order to act agile in order to deliver fast and be responsible in changes throughout the supply chain. To meet the standard “same day delivery” companies definitely need smaller hub-spots for ensuring the distribution of the products.

Question 2

Supply chain strategy are based on reducing costs and improving the overall efficiency or they either focus on doing things additionally different as their competitors in order to meet a higher customer satisfaction (Hines and Bruce, 2007).

Not every supply chain strategy is suitable for each company and the market segments (branches) they are working in, it depends on the output, the goods, the service and utmost, the complexity of the handled goods and services (Ramanathan and Ramanathan, 2014). The table from appendix B, shows this in a steer clear overview.

The agile supply chain strategy is applicable for highly innovative product with more uncertain demand and supply (Hines and Bruce, 2007). This is reasonable, since the demand and supply of the served goods for the customer have a high level of uncertainty. Therefore, the supply chain shall be really flexible and adaptable in order to react to quick changes in the processes and demand/supply structure. This strategy is highly volatile and as explained needs to adapt itself regarding to market impacts and signals (Schrauf and Berttram, 2016). A pragmatic example is the Zara Case study. Zara delivers high fashioned, customer satisfying products in a short time-to-market and adapts its supply chain regarding the market actions and events (Ferdows et al., 2014).

Lean, which has his roots in the Japanese culture and also today all over in every production. The mindset behind lean is to minimize waste and contemporary improve the customer satisfaction and reduce cost. The value for the customer is always the gist of this philosophy (Bertagnolli, 2018). Lean concepts work well when demand is relatively stable, predictable and variety is very low. This leads to the implication that, the cost of producing and distribution the products will minimize. This strategy is most applicable to functional products with a lower uncertainty of demand and supply (Hines and Bruce, 2007).

The leagile supply chain strategy describes the hybrid solution of lean and agile concepts. The lean mindset and tools are used for predictable standard products and the agile principles used in comparison for the unpredictable products which have also long lead-times (Hines and Bruce, 2007). This combination also shows the beauty of the supply chains strategy decision. Companies have to find the most utmost suitable strategy and have to alter it in order to make it “work” in their work environment. For this, suppliers can be involved and even the customer to have a higher customer satisfaction, which shall the overall goal of all the activities in the company.

Risk hedging, the last strategy which will be mentioned here, is applicable for companies which produce less demand uncertain products chained with a high supply uncertainty in the supply process. Hines and Bruce (2007) describe it as follow: “Risk hedging is a trade-off strategy meant to gain without predominant loss and it is almost similar to lean strategy with more emphasis given towards supply uncertainty.“. This means overall, to divide the risk of not receiving goods throughout the supply chain. In order to reduce the risk of not being delivered, for e.g., from the raw material supplier, companies try to select several suppliers which can deliver the same product. This will lead to a reduction of risk of finally receiving the ordered materials. This makes sense, since having only few suppliers can lead to a high dependency and a higher risk of not receiving ordered goods, nevertheless, if the ERP (enterprise-resource-planning) (ACIIDS, 2018) system is not automated enough or the suppliers are not involved properly in all the processes can lead to high administration costs, and a lower speed in time-to-market (Schrauf and Berttram, 2016). Since, time and resources have to be invested in order to select several suppliers which suit the demand and quality standards internally.

Question 3

For the begin it is wisely to start to define the terms outsourcing and offshoring since these are the terms which will be used frequently in this question section. Outsourcing is an abbreviation of “outside-resourcing” which means clearly to use external resources to perform tasks that were done formerly inhouse. In short, it means to give over tasks, which are not mostly the core competence of the company, to other companies and third-parties to entrust them with tasks on the obligation to perform them. The theoretical boundary of outsourcing starts from 0 and ends with 100%. Companies decide by themselves how much of control of the performed task they want to keep inhouse or give it to external companies (Szymczak et al., 2013). The purpose of outsourcing has different reasons, following some adequate reasons:

- Focus on core competence, in order to ensure competitive advantage (Szymczak et al., 2013). This is the utmost important reason, since companies spend many resources in research & development to ensure their knowledge and competitiveness in their core competence. If company no longer have the required core competence, or even neglect it, due to poorly designed priority setting companies can lose their competitiveness.
- Reduction of overall investment (Szymczak et al., 2013). As I said at the first point, they can mainly focus their resources in the core competence, and do not need to invest in different technologies/processes in order to be competitive in a special task and work environment.
- Greater possibilities to adapt to customer needs and customer satisfaction (Szymczak et al., 2013). Since third-parties are entrusted with tasks they have to deliver an adequate performance for the invested money spend on the supplier of the outsourced product/service. Mostly those companies are subject-matter-experts (SME) in the outsourced performing area and will ensure a high-quality work or service. If the customer demand is volatile, depending on the contract with the third-party, the partnership can be dissolved (Lexa, 2018), with this action the customer demand can be adapted easily. In comparison, if the investment was made inhouse in order to perform a specific task, the cost of the investment would be higher than outsourcing the task since the cost-drivers are not so easily degradable like the third-party partnerships (Cooper and Slagmulder, 2004; Ibusuki and Kaminski, 2007).

The difference between offshoring and outsourcing is that, offshoring is based on using country’s resources to manufacture goods or provide services that were previously manufactured or provided in the implementing company’s country of origin (McIvor, 2005). For example, having a third-party provided oil pumps in a high-quality standard is outsourcing, but if the oil pump production was transferred in another country (area with the highest value-adding) to the company´s affiliate aboard, it is called offshoring. The purpose of offshoring, is describes briefly as followed:

- Reduction of operating costs (cheaper workforce; lower taxes; lower costs of leases, energy, transport; lower real estate and land prices; lower communication tariffs and cheaper means of production) (Szymczak et al., 2013). This is a really critical point since a lot of company’s don´t know the difference between labor costs and labor rates (Pfeffer, 1998). Companies calculate with labor costs, and employees are getting paid depending mainly on their labor rate, which is in low development countries lower than in high developing countries like Germany or mainly in the EU. This leads to the confusion that the labor costs will be lower since the operational, administrational tasks will be performed by operators and resources which need lesser money investment and labor costs as high-development countries, (Pfeffer, 1998). But is it not always the case, the non-monetary aspect like time-to-market, speed, delivery, quality and customer satisfaction and long-term goals are not pursued with the most offshoring strategies from companies (Pfeffer, 1998). This is understandable, when the company tries to achieve short-term goals, but they should align themselves like the Toyota production system and adapt their whole mindset for long-term goals (Bertagnolli, 2018).
- Closeness of the target market (Szymczak et al., 2013). This is also often combined with joint-ventures in order to penetrate new markets. The affiliates already have experience in the country the company want to establish itself.
- Closeness to raw material resources (Szymczak et al., 2013). This is now an upcoming phenomenon for car manufacturers ensuring their partnerships with companies which have access to the raw materials for batteries which will be used for electromobility. They try to ensure the delivery and the exclusiveness of having access of resources which are drastically needed, with an progressive rising demand (Schneider et al., 2018).
- Ensuring high traffic nodes. This helps the companies like Zara or H&M in order to have a quick time-to-market metric and to be able to adapt their supply throughout these high traffic nodes (Ferdows et al., 2014; Perepu, 2008).

This showed, the factors of offshoring and outsourcing lead us to the conclusion that different factors influence the relocate decision of supply chains. The utmost critical point are costs. Companies try to be in low-cost environment areas in order to save investment costs, but nevertheless, the total cost of ownership is rarely taken into account in those factors and also the administration costs are not involved (Cooper and Slagmulder, 2004). This can lead to a fundamental wrong calculation.

Relocation can also be triggered by new high traffic nodes, when the company want to occupy these routes in order to have control and be able to supply their supply chain stages. Also the point to ensure new markets, or to penetrate new markets, companies like Zara and H&M (Ferdows et al., 2014; Perepu, 2008) penetrate new markets by locating new distribution centers to new markets. This makes sense, since the uncertainty is really high in new markets, and the companies have to adapt themselves regarding to the customer demand. And only by this decision to be close to the market, a quick time-to-market can be achieved.

A new upcoming point, in my eyes, is the fact that companies try to joint venture with companies in new markets and be able to have access to resource which are scarce and partial to acquire, especially in the electromobility sector. This leads to a change of supply chain locations and companies have to completely offshore departments or outsource tasks into new areas in order to compete and keep or even improve their competitive advantage.

Question 4

It is wisely to determine the term sustainability in advance before I proceed with answering the question. There are many literature resources which define this term, one, which I think is the most accurate is from Seuring and Müller (2008). Sustainability, and the attached sustainable development meets the needs of the current living generation of humans without the ability of future generations to meet their own needs (Seuring and Müller, 2008). This means that the current living generation shall develop a sustainable mindset and living culture to use the scarce resources existing on our planet efficient and with the background thinking of providing the same resources (or even better) to the upcoming generations. To connect it with supply chain design, management and strategy the overall goal is to minimize, or completely get rid of the ecological footprint caused the supply chain as a holistic construct (Johnsen et al., 2014). Personally, I think it is more than a responsibility every living human shall impersonate. It is our duty to make decisions, whether in every-day situations or work environment, positively regarding sustainability.

This written, we shall explain which risks can occur in supply chains. Sodhi and Chopra (2004) have a subtle description of problems and risks which can occur in a supply chain. They also categories the risks and give the drivers which can be seen in appendix C. Companies have to know which risks can appear while dealing and managing supply chains. As the appendix C demonstrates, there are different categories of risks (Chopra and Sodhi, 2004). Disruptions, delays, system risks, forecast, intellectual property, procurement, receivables, inventory and capacity. Chopra and Sodhi, sum quite a large scale of can-be risks in companies which manage supply chains. I would personally think the overview is enough to tackle the question. And we can also see that in a lot of departments and sectors within a company problems can occur, and individual problems are quite often connected with other risks (Lankhorst, 2009). This means solving properly only one risks doesn´t mean solving the problem. Therefore, adequate problem-solving skills are needed to catch the root cause and handle precisely and understand the holistic approach/structure of the supply chain.

The following categories can be seen as “attached” to sustainability. Disruptions and delays risks. The following risk drivers are mentioned from Chopra and Sodhi (2004), and reflections are added.

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