Strategic Outsourcing - Leveraging Knowledge Capabilities @VMI

Questions: 1. Explain how P Gs use of VMI is structured and how VMI is employed to help reduce bullwhip and improve supply chain co-ordination. 2. List using bullet points the likely reasons that resulted in demand versus supply variance at Cisco. Draw a diagram of the new supply chain arrangement. Tabulate the possible advantages and disadvantages of this new approach? 3. Identify a key order winner for HP, P G and Xilinx. Explain how the supply chain for each organisation is constructed (or could be constructed) to support this order winner. Answers: 1. Procter and Gamble (PG), founded in the year 1837 in Cincinnati, of Ohio, leads in the production of everyday used products worldwide. It has almost 129,000 employees working globally serving people with almost 300 brands (Pgeveryday.com, 2015). The company deals with the manufacture of cosmetics, beauty products, deodorants and antiperspirants, hair care products, personal cleansing products, hair colour, skin care products and hair styling products as well. Few of the recognised brands under PG are Wella, Pantene, and Olay (Pgshop.com, 2016). It also provides personal care products for men, products related to health care, household products, products for family care and fabric care. The company functions in 180 countries approximately through the retailers (Pg.com, 2016). Recently, the managers of the supply chain noticed demand fluctuations on a high note for various key brands that included diapers Pampers as well. After proper examination by the managers, it was found that though the consumer purchase rate was relatively constant, the order variability increased upstream at a significant rate. For the betterment of supply within the chain, PG brought in a new system known as the vendor-managed inventory system (VMI). This strategy is widely accepted and has gained much popularity within the industry of consumer goods (Esper and Russell Crook, 2014). PG is a recognisable company among the other goods industry selling consumer products. It has utilised VMI to ensure proper customer coordination for 30 years or more. By the introduction of this system, the sale of diapers reached 75000 per week from 25000 per week within a period of three weeks (PG bizjournals, 2015). This system provides ample beneficial opportunities to the manufacturers as well as the retailers (Ross, 2013). PG is always focused on improvement and that is why they decided to shift to a modernized VMI platform and chose Data alliance as the partner because it provides a cost-effective and flexible solution. PG is devoted to increased sales value within the integrated supply chain, and VMI, being an important element plays a vital part in achieving the desired objective (Esper and Russell Crook, 2014). Bullwhip effect states that the variability in demand increases as someone moves upward in a supply chain. The phenomenon means that information and goods dont move according to the quantity required within the chain of supply. VMI creates coordination between the participant and the producer (Brow, Bessant and Lamming, 2013). 2. Cisco is a major manufacturing component that produces electronic products, under the technology company, Xilinx. Previously, Xilinx supplied the components through technology business distributors like Avnet (Cisco.com, 2015). At a certain point of their relationship, a variance was noted between quantities of components supplied and produced by Xilinx and quantities needed by Cisco through the distributors. This happened due to the following reasons: Major downturn took place in the market and much time was needed by the industry (electronics) to recover. Lean behaviour dictated low inventories. Excess standardisation eliminated product differentiation. Redundancy increased cost which was not affordable by the customers. The quality of the products degraded in making the product quick and fast to the market that reduced reliability from the customers. The above mentioned factors caused a variation in the demand and supply chain (Ross, 2013). LAM or Lean Assets Management enhances the chain of supply of Cisco through proper analysis of the process and initiation of enabled technologies that improves the level of service, costs of operation, risks and inventory investments (Heizer and Render, 2014). The following diagram illustrates the new supply chain: Service Level Costs of Operation Risks Inventory Investments Figure 1: New Supply Chain Model (Wilson and Gilligan, 2012) The advantages that can be derived from the above diagram are (Fawcett, S.E., Ellram, L.M. and Ogden, J.A., 2014): The levers have the ability to be pulled jointly or individually to improve the quality of performance thereby increasing the productivity. Organisational objectives can be achieved through proper strategies or service level. The operational costs can be made affordable to expect best returns in terms of inventory investments. Costs can be reduced to provide fundamental break-fix services. It enables new value-added services of higher margin. Customer intimacy increases, thereby increasing the product usage. It satisfies the needs of the customers at the earliest. Outsourcing reduces the level of risks within the company by handing over various ill-performed tasks that were performed previously by the company to experts of the third party (Hill, Jones and Schilling, 2014). This particular supply chain also has certain limitations (Crandall, Crandall and Chen, 2015). They are: This management system is quite expensive because the expertise that is needed at all organizational levels comes at high premium investments rates. It heavily depends on outsourcing that proves disadvantageous because heavy cost is incurred in receiving materials from the business entity or third party. Variety and customer preferences suffer when unit costs are minimised. This is a traditional method of mass production which is not accepted by the modern, sophisticated customers who prefer variety in the products they demand. Modern customers follow the recent or latest trend that is highly affected by the lean method in the chain of supply (Ross, 2013). 3. The problems of inventory reduction and time for order fulfillment faced by Hewlett-Packard (HP) were reduced by implementing Velocity Factor. The areas where the improvements were done were a reduction in inventory of raw materials, an increase in performance of on-time delivery, drop in time of fulfilling orders and reducing response time for the factories. It was realised that improvements in the above mentioned areas helped HP to maintain the top most position in the competitive sector but more actions were needed to lead the industrial era in the near future. The main problem faced by HP was coordinating supply with demand. The two key elements of this problem were firstly: components erosion over time was of high value and secondly demand pattern was inherently volatile. Most of the products had a unique pattern and these unique elements would become highly obsolete if such products were left unused. Common elements faced and suffered erosion of high value due to the high pa cing industry (Bastin, 2014). To reduce these difficulties, flexibility was required at the floor level to obtain inventory sitting as well as becoming obsolete. Hewlett-Packard needed to sketch a substitute model of production-planning in order to cope up with high variability. It was then they designed velocity factor whose underlying concepts are disaggregating the process of order fulfillment, parallel processing, outsourcing and workforce flexibility. They made a change in their process of supply chain by implementing the use of late differentiation. These changes helped HP to maintain the leading position in the target market (Esper and Russell Crook, 2014). Now coming to the PG group, it has its own business strategies to elude people and improve their chain of supply (Esper and Russell Crook, 2014). The core strengths of PG are in understanding target consumers, coming out with innovative ideas, building the brand name, scaling the products, going for a proper market survey and increasing productivity (PG Market Research, 2015). To understand the customers and their requirements, proper research is done on a daily basis to serve them better. This helps in better communication with the target consumers (Bastin, 2014). Creating innovative products is a major component of winning a place in the market. The contributions from the external sector help the company to gain consistent recognition day by day. PG being a leading brand, it focuses on product categories to improve them. Its main strengths have been already discussed. Across the globe, they have various recognisable brands with very high annual sales. PG is recognised as the leader of the industry in a number of fields that include company strategies that are clear, brands with a definite purpose, business fundamentals with a strong base and innovative programs and household products. PG has a large-scale business as it covers a wide area globally. This allows in sharing knowledge, transferring technologies, optimising the flow of resources and spending to serve customers in the best way by improving productivity and efficiency. Productivity is made systematic by improving cash performance and sales profit, enabling ongoing investment for proper business growth, creating innovative products and introducing new markets and channels (Wilson and Gilligan, 2012). Xilinx, is a technology company in America, which supplies logic devices for programming. As the demand for logic devices continued growing, Xilinxs profits and revenues also started growing. The company that provided funds to Xilinx was bought by Xilinxs main competitor AMD. This resulted in the expansion of the company area to about 13,400 meter square in California to compete with companies like Apple Inc., HP, Sun Microsystems and IBM (Hoovers.com, 2015). It has tools designed in modern techniques, to provide the best results desired by the potential consumers (Xilinx.com, 2016). For a perfect order win, all the above mentioned companies should follow few priorities in the competitive field along with the operational strategies. They should offer affordable costs, proper safety, flexibility in rules, wide range of goods, increasing demands, improved quality of goods and services, recognisable brands, speedy delivery of products, variability in the products or services sold, proper environment for selling goods, technical support and after-sales service to potential customers to gain their trust and thereby maintain long-term relationships with them. The strategies they should adopt include alternative designs and processing types, outsourcing and integration of supply chain, inventory investments, trade-off analysis and improved technology (Bowersox, 2013). Support services, work force, compensation system and innovation levels help in improving the infrastructure of these companies. References Brown, S., Bessant, J. and Lamming, R. (2013).Strategic Operations Management. Hoboken: Taylor and Francis. Carter, C.R. and Liane Easton, P., 2011. 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