supply chain management in the manufacturing industryhosteddocs.ittoolbox.com/Supply chain...

manufacturing industryin the

supply chain management

Duy Kiet Tran(10210856)

Kardin Edista(10029508)

Saumya Kandoi(10185674)

Tutor:

Heidi Sundin

Tutorial:

Friday 7 to 9pm

of 30

Table of Contents

Quick Find Contents ...............................................................................................2

Executive Summary ................................................................................................3

1.0 Introduction.......................................................................................................5

2.0 Problems & Risks..............................................................................................6

2.1 Supply disruption .......................................................................................................................................... 6

2.2 Information integrity...................................................................................................................................... 8

2.3 Planning supply and demand........................................................................................................................ 10

2.4 Compliance and regulation .......................................................................................................................... 12

3.0 Solutions and social context evaluation ...........................................................13

3.1 Reducing supply disruption risk................................................................................................................... 13

3.2 Information integrity management ............................................................................................................... 14

3.3 Improving supply and demand planning....................................................................................................... 16

3.4 Strategies for regulatory compliance ............................................................................................................ 18

4.0 Conclusion & Recommendations ....................................................................20

References ............................................................................................................21

Appendix ..............................................................................................................23

Individual Assignment Evaluation Sheets .............................................................27

of 30

Quick Find ContentsP

robl

ems

&R

isk

Are

as

Supply DisruptionSection 2.1

Information IntegritySection 2.2

Ineffective supply anddemand

Section 2.3

Regulatory complianceSection 2.4

Infl

uenc

eon

pric

ing

stra

tegy

Section 2.1.3 Section 2.2.4 Section 2.3.5 Section 2.4.3

Rec

omm

enda

tion

san

dSo

luti

ons

Section 3.1 Section 3.2 Section 3.3 Section 3.4

;Eva

luat

ion

ina

soci

alco

ntex

t

Section 3.1.2 Section 3.2.3 Section 3.3.3 Section 3.4.2

of 30

Executive Summary

Objectives

This paper primarily identifies the supply chain (SC) problems commonly faced by

manufacturing firms and their impacts on pricing strategy to the entire SC. A range of solutions

are suggested to address these problems, furthermore the applicability of each of these solutions

significantly depends on their social ramifications that are systematically evaluated.

Methods and data sources

A series of research studies were conducted and the information presented in the entire paper is

abstracted from a variety of authoritative data sources, namely, scientific and practitioner

literature, and survey-based reports.

Key findings

It was identified that the major problems commonly faced by manufacturing firms were:

• Supply disruption risk acts as a logistical impediment;

• Inaccuracy and inconsistency of information breed inefficiency between SC entities;

• Uncertainty in supply and demand jeopardises the decision making capabilities of

manufacturing firms; and

• Regulatory compliance stagnates the dynamism of the SC.

Conclusion

Several solutions are suggested to address these problems. Firstly, supplier disruption risk can be

remedied by utilising various suppliers and global outsourcing. Secondly, information integrity

can be enhanced by standardisation and embracement of new technology. Thirdly, planning of

supply and demand can be improved by organisational leadership, SC and value re-engineering

and multi-enterprise collaboration. Finally, regulatory compliance can be addressed by

establishing a total risk management culture for total quality management.

of 30

Recommendations

The most crucial of the abovementioned solutions to the manufacturing industry for effective

supply chain management is the embracement of new technologies, specifically e-manufacturing

and instilling a risk management culture with senior management acting as catalysts.

of 30

1.0 Introduction

SC management constitutes the series of interdependent upstream, manufacturing and

downstream processes targeted at transforming raw materials into products to meet customer

demand1.

In the backdrop of global markets, increased competition and extended SCs manufacturing firms

are now confronting new challenges. The need to eliminate waste, embrace new technologies,

improve on supplier/ customer relations, better manage inventory, comply with regulation, and be

more cost efficient is becoming more apparent in the quest to achieve operational excellence.

Most manufacturers compete in oligopolistic markets where it is necessary to consider

competitive behaviour before devising a pricing strategy. Furthermore, pricing strategies in SC

management brings into context the value chain where it is necessary consider the value added

through each process of the chain and the value perceived by customers.2

1 Slack N, Chamber S, Harland C, Harrison A, Johnston R 1998 “Operations Management” 2nd Edition PitmanPublishing

2 Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 “Management Accounting and Australian Perspective”, 3rd

Edition McGraw Hill, Sydney

Figure 1: Illustration of the upstream, manufacturing and downstream activities within the SC. Adapted fromreference 1.

of 30

2.0 Problems & Risks

2.1 Supply disruption

2.1.1 SC disruption poses technical or behavioural problems for manufacturers. Technical

problems include equipment malfunctions, system failures, and financial distress; while labour

strike and human fraud are behavioural problems. In addition, disruption may occur from other

uncontrollable events such as natural disasters and terrorism. 3

2.1.2 Since there are strong connections among components of the SC itself, the effect of a SC

disruption will have differing levels of impact on each element of the SC4. If the interruption

cannot be addressed immediately, it will lead to some malfunctions of manufacturing activities.

Interruptions take place at the first two stages of the chain will eventually affect the distribution

function (example in appendix D).

2.1.3 To demonstrate how pricing strategies are affected by supply disruption, three elements that

influence that pricing decision need to be considered: marketing positioning, customer value

3 Paul R. Kleindorfer • Germaine H. Saad, Managing Disruption Risks In SCs, Poms Production And OperationsManagement, Vol. 14, No. 1, Spring 2005, Pp. 53–68

4 J.L. Gattorna and D. W. Walters (1996), Managing the SC: A Strategic Perspective, MacMillan Press Ltd, England

Figure 2: Illustration of the drivers of supply disruption and the resolution process. Adapted from reference 3.

of 30

and competitor behaviour5. Firstly, the market position of the manufacturer who suffers from

the disruption risk will change due to the loss of market share and inventory. Secondly, the

economic value to customer (EVC) of the manufacturer’s product might be reduced due to

attacks of competitors. As a whole, the pricing strategy of the manufacture is influenced because

of the disruption of supplier.



of 30

2.2 Information integrity

2.2.1 As e-commerce increasingly becomes a crucial tool for information sharing and SC

integration a major problem for any organizations is the risk that information becomes,

inaccurate, incomplete and unsynchronised.6 (See appendix A & B)

2.2.2 Betts (2001) demonstrates the problem through the various ways in which a particular

supplier or customer such as IBM can be entered into a SC software as either:

• IBM Corp

• I.B.M Corporation, or

• International Business Machines Corp.

Whilst a difference in a name seems trivial, this diversity will project false information in

identifying the volume and value of doing business with IBM7.

2.2.3 Incomplete and unsynchronised information can arise from the different data formats

operating under different information systems within the SC8. In information sharing SC

networks, when corrupt or false information generated from one part of the SC is passed along

the SC all entities will be affected both internally and externally9.

2.2.4 La Londe (2003) argues that the lack of accurate or standard information adversely affects

costing data, a crucial element for establishing a competitive pricing strategy10. Consequently,

decision would be based on false measurements regarding:

6 Poor data management had cost global businesses more than $1.4 billion per year in billing, accounting andinventory disorder, according to a survey by PricewaterhouseCoopers (Betts, 2001).

7 Betts, B. (2001) “Dirty Data”, Computerworld, Vol 35, Issue 51

8 Humayun, B. (2004) “Web Services Yield Simply E-commerce” Information week, Issue 1013 CMP Media



10 La Londe, B.J. (2003) “SC Management Review”, Reed Elsevier Inc

of 30

• A products resource consumption;

• The effectiveness of deployed capital;

• The economic contributions of entities within the SC

In the case of inconsistent information such as the IBM example, the organisation will be unable

to determine the correct value of business conducted with its suppliers and customers ultimately

limiting its capacity to negotiating favourable trading deals or volume discounts11. Consequently,

organisations using substandard information results in sub-optimal pricing strategies,

diminishing competitive advantage and lower market share.


of 30

2.3 Planning supply and demand

2.3.1 Forecasting and adapting to changes in demand and supply is applicable to the entire SC

affecting upstream, manufacturing and downstream processes and arises from factors within and

external to the organisation.

2.3.2 Manufacturing firms are often departmentalised into ‘functional silos’ resulting in a lack of

collaboration, information flows and accountability among internal functions which in turn

distorts effective decision making. The result is material and product shortages, excessive on-

hand inventories, lack of labour utilisation and on-time delivery issues12.

2.3.3 Externally, lack of SC agility affects the ability of firms to respond rapidly to unpredictable

changes in demand and supply. SC agility has two aspects – visibility and velocity, both of

which prevent the firm from gauging the demand for its products which in turn manifests errors

in forecasting supply of raw materials13.

Most manufacturers that fail to achieve sufficient visibility don’t have a clear view of upstream,

production and downstream inventories not only because of the lack of internal communications

mentioned above, but also a lack of integration between suppliers and customers.

Firms lack velocity due to an inability to quickly move goods from one end of the SC to another

either because of long in-bound lead times or non-value adding processes. Global outsourcing

might lead to increased length and complexity; in other words, process inefficiency, of the SC

itself especially because of political instability in different countries at different periods 14.

These issues are becoming increasingly apparent with the outsourcing of manufacturing to low

cost countries such as China thus increasing lead times for manufacturers and their customers15.

12 Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume15 No.2 2004 pg 1-11.

13 Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume15 No.2 2004 pg 1-11

14 Robb, S. P., A. Bailey. 2003. Risky Business: Corruption, Fraud, Terrorism & Other Threats to Global Business,Revised edition. Kogan Page Ltd., London, United Kingdom

15 Dalziel A. (2005), Gartner Advice on Global SC Management, Intentia Headlines, No 2. 2005, pgs 4-6.

of 30

2.3.4 The lack of visibility and velocity results in the bullwhip effect. Even a small amount of

unplanned demand from any one customer oscillates back through the SC often resulting in

costly disturbances to manufacturers who need to quickly acquire and process more raw materials

and reschedule production which negatively resounds on business performance through excess

inventories, overtime expenses and shipping costs 16,17.

2.3.5 Manufacturers may not be able to pass on costs to customers due to contractual obligations

and those who do pass on the incremental cost of additional production may face the

opportunity cost of losing the customer. This scenario may force firms into market-based

pricing, often at a sacrifice of their income18 .

16 Donovan R.M. (2005), SC Management: Cracking the Bullwhip Effect Part 3, Available:www.edm1.com/donovan.pdf

17 Management consultant RM Donovan indicates that a common complaint by many manufacturers is that of‘unknown’ sale promotions by their customers which ripple through the SC with the costs of additional productionbeing borne by the manufacturer.



of 30

2.4 Compliance and regulation

2.4.1 The imposition of regulatory standards on manufacturing firms limit their flexibility and

dynamism (appendix H). Lax screening of these regulations on a regular basis is often at the root

of the problem which often causes companies to be accused of breaches of ethical trading

practices when doing business19.

2.4.2 All activities in the SC are subject to regulation such as environmental and quality

standards, labour and consumer laws. For example, regulation pertaining to waste reduction

initiatives requires the SC to incorporate a reverse logistics component to accept used products

for recycling. Furthermore restrictions on certain materials usage for production will pressure

manufacturers to establish new manufacturing processes which can result in major changes to the

timing and resource usage of production goods. Litigation due to non-compliance of these rules

not only influences on a particular party but also attacks the entire SC competitive asset i.e.

reputation20.

2.4.3 Legal setbacks can largely affect customers’ perceptions of the economic value of the

product or service. As a result, firms need to put more effort to certify the economic value to the

customers (EVC) which mainly affects the pricing strategy of the firm21.

Manufacturers and their constituents within the SC must now incorporate the costs of complying

with extended regulatory activities and procedures in to the cost of their products (appendix 2).

Furthermore the risk of litigation puts additional weighting on contingent liability accounts.

2.4.4 Protiviti’s survey found deficiencies in post-contract management and in the

implementation of regulations such as the Sarbanes-Oxley Act in the US22, (see appendix E).

19Ian Gilchrist, View Point: Beyond Compliance; Social Accountability Can Protect Companies And Profits,Asiaweek, Hong Kong, Apr 13, 2001. pg. 1

20 Ian Gilchrist, View Point: Beyond Compliance; Social Accountability Can Protect Companies And Profits,Asiaweek, Hong Kong, Apr 13, 2001. pg. 1



22 O’Keeffe, P. (2004) “Understanding SC Risk Areas, Solutions, and Plans, A Five Part Series”, Protiviti IntegratedRisk Consulting

of 30

3.0 Solutions and social context evaluation

3.1 Reducing supply disruption risk

3.1.1 It is suggested to engage with several suppliers of critical materials and embrace global

outsourcing in order to mitigate supply disruption risk23. This methodology implies the chain can

never be significantly disrupted if the major supplier is no longer eligible to be part of the chain

and enables flexibility for manufacturers to obtain resources worldwide rather than relying on

domestic supplier1.

However, a larger number of contracts with multiple suppliers might lead to a higher level of

inventory24. This solution might not be desirable for those firms with low inventory turnover

since stocking a large quantity of inventory exposes companies to a higher level of inventory

cycling and obsolescence risk. Manufacturers can avoid these negative outcomes by having a

lead supplier and keeping other sources available or single source by each product manufactured.

3.1.2 While ethically questionable, Suppliers can exert bargaining power over single-supplier

manufacturers by threatening to raise prices or reduce the quality of purchased products.

Powerful suppliers can thereby squeeze profitability out of an industry unable to recover cost

increases in its own prices25.

In addition to the issues with global outsourcing discussed in section 2.3.3, manufacturers may

also contract and thus support unscrupulous suppliers with abysmal employee safety and

environment records. Thus risk mitigation comes at a social cost, especially in low cost

countries such as China where a PwC survey revealed that employees face barriers to freedom of

association, insufficient wages and compensation, excessive working hours and poor health and

safety standards.26

23 C. F. Ho, Y. P. Chi, and Y. M. Tai (2005), A Structural Approach to Measuring UncertaintyIn Supply Chain, International Journal of Electronic Commerce / Spring 2005, Vol. 9, No. 3, pp. 91–114.

24 Certain suppliers may invoke contractual obligations that require manufactures to continuously maintain certainlevels of inventory

25 Dowlatshahi, Shad, Production & Inventory Management Journal, 1999 1st Quarter, Vol. 40 Issue 1, p27-35, 9p; (AN

11934250)

26 Fabian T. Hill C. (2005) “CSR & The Ethical Supply Chain”, PricewaterhouseCoopers UK LLP

of 30

3.2 Information integrity management

3.2.1 Betts (2001) argues that standardising data by establishing business rules regarding the

semantics of data will eliminate the diverse methods of conveying information27.

Standardisation provides an economical and effective method of ensuring that information

exchanged within the SC is communicated with consistency. It also creates a prevention

mechanism for misinterpreting information and can identify when data is entered incorrectly28.

3.2.2 Embracement of new technology enables automation to SC activities and eliminates the

need for manual processes. New technology such as radio frequency identification or (RFID)

tags, display terminals and wireless web technology can decrease the probability of inaccurate

information caused by human error and enhance information integrity (see appendix C).

Recognising the vital role that technology plays in SC management is E-manufacturing. E-

manufacturing is a technology orientated ideology that aims for complete integration between the

manufacturing operations and the functional objectives of the enterprise.29,30

3.2.3 Macintosh (1985) points out that mechanisms such as standardising business rules,

installing new technology and committing to regulate information integrity can lead to

organisational inefficiencies. That is, from a human relations perspective, information systems

and control mechanisms are viewed as an oppressive tool used by upper management to

27 The below points provides examples of the many ways in which the same type of information can becommunicated:

• Pants, slacks or trousers• 06-03-2001 as June 3 or March 6• “Invoice Date” referring to the date the supplier put on the invoice, or the date the invoice was received?


29 Lee, J (2003) “E-Manufacturing – fundamental, tools and transformation”, Robotics and Computer IntegratedManufacturing Issue 19, pp 501 -507

30 E-manufacturing addresses the problems of incomplete and unsynchronised information by promoting thedevelopment of a single information system that provides the platform for synchronising manufacturing systems ande-business systems including Customer relation management (CRM), SC Management, (SCM), Business-2-Business(B-2-B) and e-Commerce systems such as EDI.

of 30

relentlessly and unilaterally drive up unrealistic production goals and furthermore used as an

unfair means of evaluating performance.31

Whilst strategies such as participation of all stakeholders in the decision and implementation of

new processes has provided some respite to the conflict, studies have shown participation leads to

productive inefficiency caused through organisational slack.32 Furthermore, La Londe (2003)

argues that two major barriers to information integration (achieved through the embracement of

technology)33 as:

1. The cultural bias toward current system and processes caused by IT illiteracy and acting

an impediment for choosing the next information system.

2. The prevailing management style that uses information as power, postulating that for

most traditional managers the last item on their agenda would be for integrated

information system that dissipates their power inside and outside of the company.

Similarly Koch (2002) warns that embracing new technology changes the way people do their

jobs. The biggest mistake firms make is assuming that changing people’s habits is trouble-free

and therefore when the SC entities are resistant to change failures are likely to occur 34,35 .

31 Macintosh, N. (1985) “The Social software of Accounting & Information Systems” Chapter 3 pp25-40, JohnWiley & Sons, London

32 This means that organisational slack can result in line managers opting for higher allowances for data error thanwhat in reality can be achieved

33 La Londe, B.J. (2003) “SC Management Review”, Reed Elsevier Inc

34 Koch, C. (2002) “The ABC’s of ERP”, CXO Media Inc. Available:http://www.cio.com/research/erp/edit/erpbasics.html

35 A recent Deloitte Consulting survey of 64 Fortune 500 companies, 25 percent reported a drop in performancewhen their ERP system went live. The major contributing factor to the performance problems was that people couldnot do their jobs in the familiar way and had not yet mastered the new way, consequently they panic and the businessgoes into spasms.

of 30

3.3 Improving supply and demand planning

3.3.1 To breakdown the ‘functional silo’ mentality examined in Section 2.3.2 requires

organisational leadership from senior management who must drive teamwork, collaboration

and a culture of shared risk management.36

Sales, marketing, finance, supply, and operations must work closely to integrate plans, recognize

risks, and present recommendations to senior management who then make decisions. Policy and

process translate these decisions to specific actions and schedules37.

3.3.2 One way to eradicate problems in relation to SC agility is through SC and value

reengineering. The process of SC re-engineering requires a manufacturer to gain an

understanding of SC bottlenecks and critical paths from which it can formulate a strategy to

redesign the SC. Methods to address are supply sourcing, already discussed in section 3.1.1,

efficiency vs. redundancy trade-off38 and multi-enterprise collaboration through the use of IT

to improve the exchange of information amongst suppliers and customers thus improving SC

visibility39.


37 Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume15 No.2 2004 pg 1-11

38 The trade-off implies that even if excess production capacity is redundant it allows the firm to be more efficient incoping with demand surges and avoiding the swings as suggested by the bullwhip effect.39 Peck H., Martin C (2004), Building the Resilient SC, The International Journal of Logistics Management /Volume15 No.2 2004 pg 1-11

Figure 3: The diagram depicts the planning process and the role of senior management. Adapted from reference #35.35.

of 30

3.3.3 While these solutions are effective, their feasibility may be questioned when viewed in a

social context. Senior management participation, teamwork and SC re-engineering require

changes in the culture of an organisation. Employees who are comfortable in their job may resist

the culture change which would cause tension between staff and management, and stress to

employees which in turn would be detrimental to the effectiveness and efficiency of the

organisation.

The establishment of multi-enterprise collaboration and I.T. solutions may result in structural

unemployment amongst lowly-skilled workers who are not willing and are not able to adapt to

the new technologies. The loss of jobs will understandably have negative consequences on the

staff affected, but the organisation will also suffer by losing the SC knowledge that these

employees held40.

40 Jackson, McIver (2001), “Macroeconomics”, 6th Edition, McGraw Hill Companies, Australia

of 30

3.4 Strategies for regulatory compliance

3.4.1 Regulations are either complied with or violated. This paper does not divulge nor promote

the use of unlawful practices that depart from the conditions set in the relevant legislation

however, Gilchrist (2001) suggest the following strategies can help manufacturers to better cope

with the regulations and avoid breaches in trading practices (example in appendix H):

• Ensure employees and partners have a legitimate and creditable history

• Conduct preliminary assessments of facilities to ensure integrity of security, safety

measures and waste management procedures.

• Clarify expectations to suppliers through contractual obligations to comply with your

standards.

• Monitor progress and revise risk minimising goals continually

• Form strategic alliances to lobby against impracticably stringent laws

The implementation of such a SC risk management culture entail increased dialogs with

consumers, employee empowerment and to raise the level of communications among parties

regarding the corporate social responsibilities such as environment, health of employee and work

safety issues assist in engendering a greater level of compliance control throughout the entire

organisation and among interactive parties. It also assists total quality management through the

empowerment of employees and an emphasis on the smooth flow of activity41.

To complement theses actions manufactures can also undertake to acquire ISO 4001

accreditation which recognises that the organization has met the International Standards

Organisation for monitoring, environmental or employment practices.

3.4.2 Advocates of employee empowerment suggest that employees who have a stake of the

entity would have a long-term view and generate high productivity and other gains to the SC.

However, a paper released by the US National Bureau of Statistics in April, 2005 found that such



of 30

change of corporate governance led to an opposite effect42. Employee shareholders indeed tended

to take less risky and less long-term investments to secure their jobs and their day-to-day

concerns dwarfed the prosperity of the SC. This builds upon the concept of organisational slack

discussed in section 3.2.3.

Lobbying governments may compromise environmental responsibility of firms and give rise to

bribery and corruption.

42 Mary Kwak(2005), MIT Sloan Management Review: Is Employee Ownership Counterproductive? Cambridge:Summer 2005. Vol. 46, Iss. 4; p. 8

of 30

4.0 Conclusion & Recommendations

The continuing pursuit to an efficient and effective SC is not without its set-backs and obstacles.

As illustrated in Figure 4, there are a range of problems and corresponding solutions presented

SupplyDisruption

Informationintegrity

Planning supplyand demand

RegulatoryCompliance

Several suppliers � �

Global outsourcing � �

Standardisation of information format �

Embracement of new technology � � � �

Organisational leadership � �

SC and value re-engineering � �

Multi-enterprise collaboration � �

Contract management � �

Risk management culture � � � �

The table conclusively suggests that adoption of information technology and implementation

of a risk management culture are universal solutions to the problems outlined. This is not to

discount the value added from other solutions but serves as to which solutions most critically

require implementation in contemporary supply chain management.

Before accepting such solutions an astute SC manager should heed the social ramifications which

each solution presents. The matter of bargaining power wielded by large suppliers over smaller

participants can breed conflicts of interest within the SC and disengage entities from working

towards a unified goal. Moreover the conflict between the human relation schools and

management accounting regarding whether control mechanisms play a productive role within the

organisations still remains unresolved. In addition, global outsourcing solutions breed process

inefficiency through extended lead-times. Ultimately, as entities within an integrated SC are

unique and different no one solution will provide a panacea to the problems in SC management.

The SC manager must therefore use sound judgement in deciding which solution will best suite

both the organisation and the SC itself.

of 30

References

• Betts, B. (2001) “Dirty Data”, Computerworld, Vol 35, Issue 51

• C. F. Ho, Y. P. Chi, and Y. M. Tai (2005), A Structural Approach to Measuring Uncertaintyin Supply chains, International Journal of Electronic Commerce / Spring 2005, Vol. 9, No. 3,pp. 91–114.

• Companies Report Widespread, costly asset tracking problems Frontline solutions; Oct 2001;2,11, ABI/INFORM Global Pg.10 Source: Australian, The, OCT 04, 2005

• Dalziel A. (2005), Gartner Advice on Global SC Management, Intentia Headlines, No 2.2005, pgs 4-6.

• Donovan R.M. (2005), SC Management: Cracking the Bullwhip Effect Part 3, Available:www.edm1.com/donovan.pdf

• Dowlatshahi, Shad, Production & Inventory Management Journal, 1999 1st Quarter, Vol. 40Issue 1, p27-35, 9p; (AN 11934250)

• Fabian T. Hill C. (2005) “CSR & The Ethical Supply Chain”, PricewaterhouseCoopers UKLLP

• Gopal, G. McMillan, E. “Synchronisation: A cure for Bad Data Innovation” New ways ofSC Management Review – May/June 2005

• Humayun, B. (2004) “Web Services Yield Simply E-commerce” Information week, Issue1013 CMP Media

• Jackson, McIver (2001), “Macroeconomics”, 6th Edition, McGraw Hill Companies, Australia

• J.L. Gattorna and D. W. Walters (1996), Managing the SC: A Strategic Perspective,MacMillan Press Ltd, England

• Koch, C. (2002) “The ABC’s of ERP”, CXO Media Inc. Available:http://www.cio.com/research/erp/edit/erpbasics.html

• Logistics Advertising Report (2005), International Logistics: Katrina’s Challenge, TheAustralian Sep 26, 2005, p6

• Macintosh, N. (1985) “The Social software of Accounting & Information Systems” Chapter 3pp25-40, John Wiley & Sons, London

• Langfield-Smith, K., Thorne, H. and Hilton, R. 2004 “Management Accounting andAustralian Perspective”, 3rd Edition McGraw Hill, Sydney

of 30

• La Londe, B.J. (2003) “SC Management Review”, Reed Elsevier Inc

• Lee, J (2003) “E-Manufacturing – fundamental, tools and transformation”, Robotics andComputer Integrated Manufacturing Issue 19, pp 501 -507

• O’Keeffe, P. (2004) “Understanding Supply Chain Risk Areas, Solutions, and Plans, A FivePart Series”, Protiviti Integrated Risk Consulting

• Paul R. Kleindorfer • Germaine H. Saad, Managing Disruption Risks In SCs, PomsProduction And Operations Management, Vol. 14, No. 1, Spring 2005, Pp. 53–68

• Peck H., Martin C (2004), Building the Resilient Supply Chain, The International Journal ofLogistics Management /Volume 15 No.2 2004 pg 1-11

• Robb, S. P., A. Bailey. 2003. Risky Business: Corruption, Fraud, Terrorism & Other Threatsto Global Business, Revised edition. Kogan Page Ltd., London, United Kingdom

• Slack N, Chamber S, Harland C, Harrison A, Johnston R 1998 “Operations Management”2nd Edition Pitman Publishing

• Wright C. (2005), Sarbanes-Oxley silver lining: compliance leads to risk management,Boston-Herald,1 October, Available:http://business.bostonherald.com/womensBusiness/view.bg?articleid=104472

of 30

Appendix

A) Asset Management hampered by manual processes, inaccurate data

Survey by WhereNet: Real-time locating system (RTLS) Vendor of 146 operations managers,engineers and IT executives

• 10% of respondents indicate their companies write off a half million dollars in annuallosses as a result of lost assets or inventory

• 59% of respondents reported their companies spend up to $25,000 a year, in man-hoursalone, searching for lost assets

• 60% of respondents said that companies spend up to $50,000 annually over provisioninginventory and equipment as part of their “standard” operational for manufacturing process

• 49% of respondents consider the lack of connectivity between their inventory / assets andthe people and information systems that manage those assets as the most significantbarrier to streamlining their SC

Source: Frontline Companies Report Widespread, costly asset tracking problemsFrontline solutions; Oct 2001; 2, 11, ABI/INFORM Global Pg.10

B) According to a report prepared for the grocery industry by consultants A.T. Kearney, bad dataleads to a host of problems:

• Companies lose approximately $40 billion, or, -3.5 percent of sales, each year because ofSC information inefficiencies.

• Nearly 30 percent of item data in catalogues used by retailers and manufacturers isincorrect. Correcting those errors costs between $60 and $80 each.

• Companies spend an average of 25 minutes per SKU per year manually cleansing out-out-sync item information.

• Nearly 60 percent of" all invoices generated have errors each invoice error costs $40 to$400 to reconcile.

• Forty-three percent of all invoices result in some form of deduction

• New product rollouts take an average of four weeks—in large part because of theinefficient and error- prone approaches for exchanging and updating the new item'sinformation in the buyer and seller systems.

Source: Gopal. G, McMillan. E Synchronisation: A cure for Bad Data Innovations: New ways ofSC Management Review – May/June 2005

of 30

C). Cool Tags help Trucking Company

Radio Frequency Identification (RFID) benefits the SC by allowing items to be identified andtracked throughout the entire SC in real time. RFID consists of devices which transmits andreceive data (in the form of radio waves) and is usually attached to containers containing thegoods. The technology enables the capture and analysis of information without employeesrequired to manually type the data.

In addition to identifying and tracking goods, RFID also allows provides information on the stateor condition of the goods within the SC. Scott’s Transport, one of Australia's leading refrigeratedtransport companies, delivers perishable goods to customers such as Kraft, Primo Smallgoodsand National Foods. By the end of 2005, 30 RFID-based temperature monitoring systems,developed by Australian company Exago will be installed onto their fleet of about 400 vehicles.RFID technology will allow for the temperature inside vans to be monitored and alert allstakeholders from the driver to the customer when suitable temperature levels are breached

Source: Australian, The, OCT 04, 2005

D) Example of supplier disruption risk: Hurricane Katrina

An extreme example of supplier disruption and its effects on the entire SC can be seen by therecent Hurricane Katrina. Shut down of manufacturing operations (e.g. oil refineries) in affectedareas have resulted in supply disruption throughout the USA and the world. Furthermore,upstream and downstream activities, that is, deliveries from and into affected areas havecompletely stopped due to the damage of infrastructure. As a result, costly and timelyreconstructions have to be made to restore the usual production capacity

Source: Logistics Advertising Report, International Logistics: Katrina’s Challenge, The AustraliaSep 26, 2005, and p6

of 30

E) The Sarbanes-Oxley Act was enacted in 2002 in the US as part of the efforts to help restoreinvestor confidence in the integrity of financial reporting. Section 404 of the Act enforcescompanies to understand and quantify risk within the SC and introduce controls to mitigate it,however, the problems arises with operations personnel which are often unable to appreciate thedirect financial linkages of their day-to day activities. Another barrier is that implementation is anexpensive and time-consuming process43.

Internal controls as required bythe Act are not limited to the setof controls that governaccounting processes. Rather,they are full set of controls thatrelate to all components of theSC. The table on the right showsthe linkages between SCactivities and the accountingareas upon which it impacts44.

Figure 1 indicates the number ofcontrol points needed throughoutthe organisation which helpmitigate risk. However, a lack ofcontrol points will result ininaccurate costing data which inturn will hide non-value addingprocesses, decrease the firm’sability to benchmark againstcompetitors and increaseuncertainty in applying a cost-based pricing strategy.

43 Wright C. (2005), Sarbanes-Oxley silver lining: compliance leads to risk management, Boston-Herald, 1 October,Available: http://business.bostonherald.com/womensBusiness/view.bg?articleid=104472


Areas in theSC

Area affected-balance sheet

Area affected -income statement

Raw materialspurchased

Raw materialsAccounts payableCash and debt Cost of Sales

Purchase ofequipment

Plant and equipmentAccounts payableCash and debt

DepreciationTaxes

Direct and indirectmaterials andservices

Plant and equipmentAccounts payableCash and debt

Cost of SalesWagesUtilities

Conversion of rawmaterials i.e.manufacturing

Raw materialsWork in processAccounts payableAccrued expensesWages payableCash


Storage of rawmaterials, work inprocess or finishedgoods

RM, WIP, FGAccounts PayableAccrued expensesWages payableCash


Sale to customer orsubsidiary

WIP InventoryFG Inventory

RevenueCost of salesTaxesIntercompany

Figure 1: adapted from reference #17

of 30

F) One of the most common and less well-controlled weaknesses occurs generally after thecontract has been awarded. Even where manufacturer’s are able to establish a strong discipline insourcing, supplier selection, and contract negotiation in the purchasing and procurement phasesof the SC and are thus able to gain solid contracts with preferred suppliers, there is a tendency togive inadequate attention to evaluate the ongoing performance, service and value delivery, andcontract compliance. Without monitoring, measuring, and controlling supplies, the manufactureris unable to identify quality and quantity shortcomings which may lead to supply interruptionfurther down the SC 15.

G) For example, suppose a customer order is electronically transmitted to the sales departmentthrough an Electronic Data Interface (EDI), the order is for 20 units which EDI sends as 2separate digits i.e. 2 and 0. This information is then passed on to the manufacturing department inan XML format via the company’s ERP system however the “unit order” field which is charactersensitive consists of 3 digits. Consequently this blank field may automatically be assigned a valueof ‘zero’ which would then be display as 200.

H) McDonald's and Disney - two of the world's most valuable and popular brands - were recentlyaccused of using suppliers in mainland China that breached labour regulations. Not only do suchsituations cause concern regarding potential and actual damage to the environment, workers orcommunities, they also pose a serious threat to corporate brand reputations and to companies'bottom lines.

Source: Gilchrist, I. (2001) Asia Week: “Beyond Compliance; Social accountability can protectcompanies and profits” Financial Times Information Limited Apr 13, 2001 pg1

I) Albright (2005) reports that the European Union (EU) has implemented two directives onelectronics manufactures, the first directive, Waste Electric and Electronic Equipment (WEEE) isa recycling directive which will require manufactures to provide a means for consumers to returnelectronics waste free. The second directive, Reduction of Hazardous Substances (RoHS)requires manufactures to limit the amount of hazardous materials (lead, mercury, cadmium andsome flame retardants) in everything from electronic phones to desktop computers

In the case of WEEE, manufactures are required to finance the return of upto75% of all productsAlbright (2005). .

supply chain management in the manufacturing industryhosteddocs.ittoolbox.com/Supply chain...

Documents

Transcript of supply chain management in the manufacturing industryhosteddocs.ittoolbox.com/Supply chain...