Power Tool Company
Based on the information provided by Power Tool Company it is recommended that the company consider using a Keirtetsu Network as there supply chain strategy. While there are other supply chain strategies available the Keiretsu Network provides many of the desired components which will allow Power Tool Company A to achieve there desired goals while utilizing there current resources.
Joint Ventures are not recommended for Power Tool Company because although companies can benefit from shared resources there is a risk that this type of partnership can dilute a company brand or unintentionally cause a company to lose its market share or competitive advantage to its partner. Virtual companies are another strategy but is not recommended for Power Tool Company. The reason this option is not recommended is because with Virtual Companies a large amount of suppliers is used.
Although this method may be cost effective having fewer suppliers like within a Keiretsu strategy makes suppliers more reliable and allows for longer more stable business relationships. Because Tool Company A will own its production plant purchasing or investing in the suppliers which provide the required goods will give Tool Company a competitive edge while allowing the company to purchase required materials at the lowest price possible.
By taking part in the Keiretsu network the suppliers will also benefit by securing a long-term relationship with Company A which will ensure stable revenue for the supplier instead of having to continuously negotiate and renegotiate contracts with a company with whom they share a temporary or short term relationship. The relationship between the suppliers and Tool Company A can also benefit from this relationship because increased and more efficient communication between the two companies and higher quality products because of a shared goal and potential for profit.
A Keiretsu network between suppliers is also beneficial in keeping inventory levels low. Because of this exclusive relationship with the supplier a JIT delivery strategy can be initiated between the two companies where as this arrangement would be more difficult in other Supply Chain strategies such as Virtual Integration or a Many Suppliers relationship. A final benefit of a Keritsu network between Tool Company A and its supplier would be increased financial opportunities such as lines of credit, quicker payment on accounts and increased revenues for higher demand. A Keiretsu Network will make both Company A and the suppliers more efficient, profitable and successful overall.. In order to track performance and to ensure the chosen Supply Chain Strategy is efficient and effective it is necessary to select and implement a Metric in order to track and improve the various areas of the supply chain. A common metrics tool which would be recommended for Power Tool Company would be Inventory turnover metrics . Inventory turnover is the cost of goods sold divided by the average inventory.
This metrics is critical to Power Tool Company managers to determine because inventory represents one of the largest cost in a business. Cost of goods sold for Power Tool Company during a year was $84,270 inventory at the beginning and at the ending of the year was $9,865 and $11,650 respectively. Therefore Average Inventory Is = ($9,865 + $11,650) / 2 = $10,757. 5 Inventory Turnover Is = $84,270/ $10,757. 5 ? 7. 83 Another metrics which can be used is lead time.
Lead time is the delay between the customer placing the order and when they receive the product. This is an important benchmark for the company because it is directly correlated with efficiency in the supply chain and customer satisfaction. Creating a metric and benchmarking lead time will provide managers with vital information and is especially important to ensuring JIT manufacturing. A third metrics that is recommended is a weeks of supply (wos) metrics. Determining the weeks of supply is a good indicator of how long the current inventory will last.
This will give managers an idea of sales demand for the specified product. This is recommended for Power Tool Company because it will assist with JIT and lean operations process. The equation for this metrics is on hand inventory / average weekly units sold. When attempting to keep the supply chain as efficient as possible it is important to consider issues which could complicate and make the supply chain less profitable or efficient. Some of these issues include Incentives, the bull whip effect and large lots.
Incentives are Incentives can be used in several areas of the supply chain from vendors to sales teams in order to drive sales or to increase production levels. While incentives can provide motivation at certain levels of the supply chain it is important to ensure that the incentives do not compromise the supply chain through inferior quality of products or manufacturing, embellished sales figures and inaccurate sales forecast information. The bull whip effect is when there is a fluctuation which can change order demands in the supply chain.
The Bull whip effect is and is another issue which could complicate or a supply chain because it causes inaccurate or inconsistent figures which can negatively affect sales. For instance if a vendor is provided incentives for meeting increases in demand the vendor may over build inventory in order to meet an increased demand . If the company has a need for the excess the vendor will be profitable. The vendor would base its production based on forecast on market demand or past performance of the business partner.
In the bull whip effect the forecast can be inaccurate or changes in market such as a recession or decreased demand due to other factors could cause a business partner to decrease its order from the vendor and therefore cause the supplier or vendor to have a surplus of product thus leading to excess amounts of inventory which may be sold or scrapped at a substantial loss. Large lots can have cause complications in supply chain for similar reasons. Large Lots consist of more units of product generally sold at a lower price the small lots which may consist of one or a few units of products.
Companies are often able to secure deep discounts from suppliers for purchasing large lots. This type of supply chain incentive is ideal for large corporations with many outlets however if sales are not accurately forecasted to reflect the units which are needed the seller may incur large amounts of excess inventory which cannot be moved. In order to avoid these complications within the supply chain it is recommended that all companies within the supply chain are clear about the actual demand for products, sales and goals in every area of the supply chain.
Some suggestions to make this process more streamline are by employing such measures as Collaborative Planning and Forecasting (CPFR), radio frequency tags and real time inventory tracking. Two recommended tactics which can be used to effectively manage the integrated supply chain are standardization and postponement. These two specific tactics are ideal for Power Tool Company because of the type of product which will be manufactured by the company. Standardization would consist of avoiding variations in the products packaging, labeling and other components which could be used throughout the product line.
Postponement would allow the company to manufacture the complex components of the power tools at the companies local production facility while smaller components could be ordered and added by a remote vendor when order is placed. This would save time and money in the supply chain. Actions recommended to mitigate possible supply chain risk for Power Tool Company are Process- to reduce risk of shortage of component availability Power tool Company a should develop relationships with a few highly reliable suppliers which will ensure components will be available when needed.
Controls-To reduce risk in the management metrics throughout Power Tool Company, performance standards and metrics should be individually audited by an independent contractor to ensure all managers within the company are meeting and exceeding management requirements. Environmental- In order to reduce the risk of the supply chain being interrupted by natural disaster Power Tool Company will partner with suppliers and vendors in multiple geographic location to ensure in case of natural disaster all production facilities, suppliers are vendors will not be affected.t is recommended that the Hierarchal Organizational structure for Power Tool Company consist of three key divisions Operations, Finance and Marketing. Each division can be headed by a team of managers responsible for the performance of each division. The operations and marketing departments will be overseen by a CEO and the finance department will be overseen by a CFO. Because Power Tool Company is mainly a manufacturing company this structure will be ideal for ensuring all functions such as production, design and quality are fulfilled.
Three strategic management decisions which would support the company’s mission and goals would be to implement effective management processes in the Design of goods and services, quality and inventory. The recommendations in these areas are as follows Design of goods and services- An effective design management strategy can provide Power Tool Company with a competitive advantage in a diverse industry. In order to design quality products which will meet and exceed the wants and needs of the target market Power Tool Company must formulate product strategy options such as differentiation cost and rapid response.
Managers must also identify and analyze changes in the market such as the economy, customer base and technology in order to take advantage of potential emerging markets and opportunities. Utilizing tools such as product development systems and Quality Function Deployment QFD can assist managers in determining these needs . Quality-Managing quality is an essential part to meeting and exceeding customer needs in any industry.
In order to attract and maintain a profitable and loyal customer base Power Tool company should implement a TQM strategy which helps to increase profits while supporting differentiation and providing a product at a competitive price. A TQM strategy which would be beneficial to Power Tool Company would be to establish a Six Sigma Program. Implementing a Six Sigma Program would enable Power Tool Company to improve the quality of its products by decreasing the amount of defects, lower cost throughout the supply chain and increasing customer satisfaction.
Inventory- Inventory management can benefit a company in many ways. Good inventory management will consist of adapting certain processes in order to ensure inventory is available when needed without incurring additional cost for excess inventory. One method of managing inventory is to conduct ABC analysis. This will give management as well as vendors and retailers a clear picture of which items are yielding high, medium and low sales amounts. By classifying inventory in this way managers can determine which items yield the highest demand and sales and other items which are less profitable.
Another tool which is beneficial in inventory management is the EOQ model. The EOQ model is a tool used in inventory management to decipher which items are in independent or dependent demand. The benefits of using this model for Power Tool Company is that it will help managers to determine how much production to order. Utilizing inventory management models such as ABC analysis and EOQ model will assist management at Power Tool Company in meeting inventory demand while avoiding excess holding, production and overstock cost. Based on the amount of manufacturers and customer demand it is not recommended that Power Tool Company A adopt a consumer focused mass customization process at this time. Instead it is recommended that Power Tool Company should adopt a more product focused process. The reason a product focused process is more ideal for Power Tool Company would be based on the fact that Power Tool company product line is geared more towards standardization then customization. While needs of Power Tool Company customers may change overtime at the given juncture in business the company should strive to build its customer base around high quality, dependable and affordable products.
This strategy will allow Power Tool Company to acquire a market share and remain competitive against counterparts in the industry. A mass customization process is not required because technology in the current industry has remained unchanged in the industry for the most part and customization for power tools based on customer needs is unlikely. Furthermore the sophisticated process would make it necessary for Power Tool Company A to expand its focus to more departments and processes which is unnecessary based on the products produced by the company.
While mass customization may be ideal for rapid low cost production it is not ideal for a company such a Power Tool company which produces more low variety products. Recommended actions to improve cost effectiveness for each of the following: Manufacturing facility-Establishing Quality Assurance controls in a manufacturing facility in order to improve cost effectiveness can be done by implementing the following processes. Implement a SPC (statistical process controls) in order to monitor all production processes as a part of a continuous improvement program.
By analyzing the results of this data management will be able to identify processes which are wasteful or cause defects in the manufacture facility. Next management can implement an action plan to improve in specific areas that may be inefficient or not cost effective. By addressing these areas the company will be able to correct or prevent these issues in order to save money, avoid customer dissatisfaction and make processes more efficient thus saving time in the supply chain.
As part of continuous improvement process managers can use SPC to periodically reassess and identify outcomes based on changes in revenue, incident reports and other criteria included in the action plan. Implement a lean manufacturing process. A lean manufacturing process is a process by which waste is decreased or eliminating throughout a number of manufacturing processes and procedures. A lean manufacturing process will help Power Tool company with cost effectiveness by 1. boosting productivity in employees in order to produce more quality products and reduce overtime.
Saving space by establishing workcells. 3. saving space which could prevent expansion of company. 4. eliminationg materials and machinery to save maintenance and electric cost. 5. Cleanliness can improve employee morale and also help to decrease hazards which cause accidents and equipment malfunction. There are two main areas outside of product manufacturing that could introduce and create waste that would degrade not only your product line itself, but also service lines which affect customer satisfaction.
These are pre-manufacturing inputs upstream (equipment and supplies) and post-manufacturing outputs downstream (warehousing, shipping, and product delivery) By implementing a quality assurance program to eliminating waste, appropriately minimizing product or service failures, and also reducing returns of previously sold product inventory you will effectively increase customer satisfaction, decreasing wasteful spending (cost cutting), and improve operations.
There are many ways to implement a quality assurance program that pulls in all of these areas. For the manufacturing of power tools this can be achieved by constant analysis of our Just-In-Time (JIT), Lean Operations, and implementation of a Customer Feedback program. By synchronizing and constantly fine-tuning our operations utilizing these tried and true methods of operational management we will maximize our profits by striking a balance in these areas.
Just-In-Time (JIT) allows us to have adequate resources available for product manufacturing when needed with an adequate re-supply in transit to replenish what has been used in production based upon business analysis, sales analysis, and midrange forecasting. The business and sales analysis allow for accurate determination of what must be produced. While the midrange forecasting will give incite to potential future sales and revenue. This is an ever changing cycle and must be monitored on a very frequent basis to ensure that supplies are not over-stocked upstream of the manufacturing operation.
Lean Operations principle of operational management is all encompassing. How this translates to the supply chain is through both upstream and downstream review and analysis of cost, annual review of supplier business partnership relations, and annual review of vendor business partnership relations to ensure that the best cost and quality of equipment is being received. Customer Feedback program implementation provides direct input from your target market on ways to improve not only your products but also the all-important customer satisfaction angle.
Are they satisfied with the product? Is the product ergonomically designed? Was the product working as expected? These are a few of the questions that most companies are asking their customers. Incentivizing the customer feedback program with discounted coupons or a loyalty feedback bonus will increase responses from customers and automating this process will through an online customer feedback survey in a more interconnected internet world will further reduce costs waste as well.