Logistics and Operations Management

Improvements in High St. retail logistics has had a huge impact on consumers given the ease with which they can now access the products of multinational retail consumer chains that were once not that accessible. However, the question as to whether these improvements have made consumers more loyal begs a much deeper analysis of the supply chain management process, and its evolution over the past few years. Since the 1990s, supply chain management simply referred to ways in which a company could get their products to their consumers in time once they had placed their orders (Haug, 2013, P.628). Therefore, this process involved one company in its efforts to satisfy the demand for its products in the markets where it had a presence and was never thought of as incorporating other aspects of the company such as production, relationship with other business partners and timely product launches. However, in recent years, supply chain management has emerged as a crucial part of company operations and currently, the process of choosing a supply chain management system involves answering questions such as: how well do we embrace product variety? How effectively are we marketing our products, and are our business models innovative through supply chain management to give us a strategic advantage over our competitors (Lichocik, & Sadowski, 2013, p.121)? The improvements in High St retail logistics have created global retail giants, but now we assess the creating of their business model to study their strengths and weakness as we seek to finds out whether they have created a more loyal base of customers.

Findings and Analysis

Cross-functional Integration to Cross-Enterprise Integration

One of the new questions that have greatly transformed supply chain management relates to how the company coordinates functions across several companies and also across different departments within the same company so as to supply products to the market. Since the 1980s, companies have looked for ways to implement cross-enterprise integration such as the just-in-time systems that were implemented by many automakers during this period that contributed greatly to cross-enterprise integration (Trentin, 2011, p.1707). Other such initiatives include those pioneered by Dell Computer’s and Wal-Mart that saw the integration of their vendor management systems, but there were other initiatives such as ECR that were industry-wide or public initiatives within the fast-moving consumer goods industry (Chan, & Prakash, 2012, p.4675). These public initiatives revolutionized the respective industries where they were implemented, but they also levelled the playing field in that all the companies within the industry now had similar supply chain systems and they had no competitive advantage over each other in terms of supply chain management. For the smaller companies, this was a welcome situation as the larger companies had superior capacity and had superiority in terms of supply chain systems, but the integration efforts gave them equal access to the same systems as the large corporations. The implementation of industry-wide cross-enterprise integration increased the efficiency of supply operations for the smaller companies, but the larger companies may have not benefited significantly from the integration. However, the cross-enterprise integration spearheaded by individual companies for their vendors and trading partners are unique and have greatly distinguished companies such as Wal-Mart and eBay from their competitors and earned them customer loyalty.

Evolution of Market Mediation from Physical Efficiency

The evolution of market mediation was driven by the need to minimize supply costs and still meet demand while at the same time reducing the production and distribution costs. Initially most companies were focussing on physical efficiency where they strived to produce enough products to meet the demand from the market based on the fact that costs associated with this approach were easy to assess as they were in the control of the company. However, recent developments in technology have largely increased the mediation costs that are the costs involved in matching the supply of products to the market demand at any particular time. This is especially true for companies in the technology industry that have uncertain demand driven by a rapidly changing environment that requires them to keep innovating or lose their market share. For technology companies such as Sun Microsystems, they faced significant problems in meeting the demand for their products given that their complete solutions consisted of many different parts from various factories within the company and from other manufacturers. Sun’s initial approach was to assemble all the components from the different factories and manufacturers at a staging facility after which they were repackaged then delivered to the client as one system, but this usually resulted in high mediation costs. Therefore, Sun has decided to partner with logistics companies so that different components are assembled at different points while enroute to the customer, which has resulted in significant savings in mediation costs. Most industries require companies to pay attention to both their physical costs and mediation costs so as to minimize costs and increase efficiency (Haug, 2013, P.631).

Focusing on Demand instead of Supply

Companies are no longer just focusing on supplying the amount of products that the market demands, but they have shifted their attention to how they can affect the nature of demand by the market so as to match the demand to their supplies. As much as companies are still focused on improving their supply capability they have realized that they can manage demand better by coordinating with the sales and marketing departments so that they can get adequate information about demand and improve the supply management process. The first concern for supply chain managers is the bullwhip effect that is usually caused by demand variability across the supply chain, which causes the demand variability to increase at all levels of the supply chain including manufacturers and suppliers. Supply chain managers in most industries are struggling with this phenomenon where the final retailer has variable demand, but the variability increases as he places orders to his suppliers who then increase the variability as they place orders with the manufacturers. Companies are now focusing on mitigating the bullwhip effect within their supply chain by improving their pricing structures, the incentives offered and by restructuring the planning and ordering processes. Many companies are also investing in better ways of acquiring demand information so that they can easily detect shifts in customer demand and adjust their supply accordingly, but in order for this to work, the supply chain should be extremely reactive to changes in demand so as to adjust supply according to updated demand information. Companies such as Japan’s 7-eleven have adopted such systems and they have reaped significant rewards such as having a stock turnover of 55 times in a year (Iyer, Srivastava, & Rawwas, 2014, p.55). Another crucial strategy is the demand-based management system where the company’s marketing efforts and their demand-management systems are integrated with the supply chain activities. This strategy reduces costs drastically and causes a significant increase in the profits earned given that the products presented to the market are fully aligned with what the company can efficiently supply. The airline industry has effectively implemented this strategy through the yield-management approach where ticket prices are constantly adjusted to match the market demand.

Evolution of Collaborative Product, Process, and Supply Chain Design

Companies are now shifting their efforts from designing their own products to minimize product costs to how they can collaborate to design products, processes and supply chains in order to minimize their costs. This new design model is known as designing for the supply chain where marketers, designers and supply chain managers collaborate in the product design process so that supply chain management issues are identified and tackled during the early stages of the design process (Cannella & Ciancimino, 2010, p.6742). This strategy is particularly viable to high-clock-speed industries where there is extremely high speed of evolution in technology and production technologies coupled with extremely short product lives. In such industries, the development of new generations of products may require drastic changes in the technology used and the suppliers used by the company, which will definitely affect the structure of the supply chain given that the location of suppliers has a significant influence on the location of production facilities and lead times. The use of technology based systems that manage vertical and horizontal collaboration within industries is the key to enhancing collaboration in product development with examples of such software including Agile Software, which is mostly used in the electronics industry and the Freeborders software that is prominent within the apparel industry (Tse, et al., 2012, p.7185). The high-end retailer Dillard’s discovered that its products reached the market much faster when it started a collaboration program with some of its suppliers when designing its private-label clothing line, which was followed by a significant reduction in the shortage of Dillard’s products in the market. Technology companies have also implemented this strategy to significant reductions in costs, such companies include Hewlett-Packard that implemented postponement effectively to store generic safety stocks and protect future product supply.

Breakthrough Business Models that Evolved from Cost Reduction

The surest way to achieve success is when companies combine new supply chain management strategies with innovative marketing strategies to create a formidable market force. Companies such as Dell and IKEA are two companies that have implemented unique marketing and supply chain strategies to dominate their respective markets and become market leaders. Dell uses a build-to-order strategy where it does not keep inventory, but rather customers specify the properties of the unique products they require through the Dell website after which the products are made and delivered to the customers. This model has worked extremely well for Dell that has dominated the personal computer industry as compared to their competitors who use the build-to-stock supply chain system (Haug, 2013, P.628). On the other hand, IKEA uses the build-to-stock supply chain system in an industry where most of their competitors use the build-to-order system that is much slower, and IKEA faster system has made them market leaders. These changes in business models usually occur as a result of more collaboration and sharing of information within the supply chain system that causes the company to make changes as they adopt go-to-market strategies only to end up with breakthrough business models that are aligned with the market demand.

Conclusions

In the analysis above, it is clear that the improvements in High St. retail logistics did not automatically create more loyal customers, but increased the efficiency of supply operations and the ease and speed of meeting customer demand. Cross-functional and cross-enterprise integration was the first strategy to significantly benefit the customer who gained easy access to products from both large and small manufacturers and the increased coordination between companies must have led to better quality products for the customers. Market mediation also impacted the customer positively because as the companies minimized their mediation and physical costs the benefits eventually trickled down to the customer who was now paying less for the same products than he was paying in the past. The reduced mediation costs were also quite significant to the manufacturers who now had extra revenue to invest in further supply chain strategies and realize further reductions in costs. By focusing on the demand as opposed to focusing solely on supply, companies were able to predict customer demand much better in their forecasts and means that customers benefitted greatly because now there were less product shortages and the products they needed were always available in the market (Strozzi, Noè, & Zaldívar, 2012, p.2048). Companies also benefited from focusing on demand by mitigating the bullwhip effect and getting better demand information that drastically reduced mediation costs. The increased collaboration between companies in the design of new products greatly benefited the customers who were able to get new generations of products in time and companies also benefitted from postponement that significantly increased their profits. Lastly, the breakthrough business models implemented by companies ensured that customers got the exact products that they preferred tailored to their specifications and the companies became market leaders in their respective industries.

Recommendations

My topmost recommendation for these companies in future is that they should develop products tailored to specific groups of customers with unique needs or even start tailoring some of their products to individual customers. More companies should implement customer interface systems such as the one implemented by Dell where they can interact with their customers and address their unique needs. Companies should also integrate their Customer Relationship Management systems (CRMs) with their supply chain management systems so that they can offer customers with unique products specifically tailored to their needs. The future for these companies lies in collaborating more with suppliers and designers in their efforts to bring more tailored offerings to their customers.

Major benefits of IT systems

The major benefits of IT systems are weaved throughout the whole report. They are:

Dell and Wal-Mart used IT systems to integrate their vendor management systems to become market leaders in their respective industries (cross-functional integration). EBay uses IT systems for effective cross-enterprise integration.
Companies such as Japan’s 7-eleven have adopted IT systems that allow them to collect data about supply and customer demand and they have reaped significant rewards such as having a stock turnover of 55 times in a year (focusing on demand not supply). Airlines also use similar IT systems to regulate ticket prices.
Companies in the electronics industry use IT systems such as Agile Software to facilitate horizontal and vertical collaboration, while those in the textile industry use Freeborders.
Dell uses an IT system, its website, as a revolutionary marketing tool to tailor products to customers’ expectations.

References

Cannella S. & Ciancimino, E., 2010, ‘On the Bullwhip Avoidance Phase: supply chain collaboration and order smoothing.’ International Journal of Production Research, 48(22), 6739-6776.

Chan, F. T.S. & Prakash, A. 2012, ‘Inventory management in a lateral collaborative manufacturing supply chain: a simulation study.’ International Journal of Production Research, 50(16), 4670-4685.

Haug, A., 2013, ‘Improving the design phase through inter-organisational product knowledge models.’ International Journal of Production Research, 51(2), 626-639.

Iyer, K. N. S.. Srivastava, P. & Rawwas, MY. A., 2014, ‘Aligning Supply Chain Relational Strategy with the Market Environment: Implications for Operational Performance.’ Journal of Marketing Theory & Practice, 22(1), 53-72.

Lichocik, G. & Sadowski, A., 2013, ‘Efficiency of supply chain management: strategic and operational approach.’ LogForum, 9(2), 119-125.

Strozzi, F., Noè, C., & Zaldívar, J., 2012, ‘Divergence control of a one-level supply chain replenishment rule.’ International Journal of Production Research, 50(7), 2046-2057.

Trentin, A., 2011, ‘Third-party logistics providers offering form postponement services: value propositions and organisational approaches.’ International Journal of Production Research, 49(6), 1685-1712.

Tse, Y.K.et al., 2012, ‘Improving postponement operation in warehouse: an intelligent pick-and-pack decision-support system.’ International Journal of Production Research, 50(24), 7181-7197.

Bibliography

Simangunsong, E. Hendry, L.C. & Stevenson, M. 2012, ‘Supply-chain uncertainty: a review and theoretical foundation for future research.’ International Journal of Production Research, 50(16), 4493-4523.

Das, K., 2012, ‘Integrating reverse logistics into the strategic planning of a supply chain.’ International Journal of Production Research, 50(5), 1438-1456.

APPENDICES

Wal-Mart Sales growth due to improvements in logistics and supply management

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