Introduction to Global Supply Chain Management
Required:
Q1. (6 marks) Be specific and to the point.
Q1-1. (3 marks) “Companies should continue to strive to merge or acquiretheir suppliers and industrial customers to form a larger conglomerate and achieve vertical integration. That way, supply chain integration can be readily attained.” (approx. 150 words)
Clearly indicate whether you “agree” or “disagree” with the statement above and support your position.
Q1-2 (3 marks) Explain how just-in-time approach contributed to the advancement of supply chain management practices. (approx. 150 words)
Q2. (8 marks)
For the following two questions, refer to the article “What is the right supply chain for your products” by Marshall Fisher.
Q2-1. (4 marks) Briefly summarize the HBR (1997) article: “What is the right supply chain for your products” by Marshall Fisher (Approx. 1 page, 1.5 line-spacing)
Q2-2. (4 marks) Conduct a research to provide at least two “real industry” examples of product-supply chain mismatch which are out of the ‘strategic-fit zone’. Clearly explain why and how they are out of ‘strategic fit’. (approx. 200 words) Using examples from or directly citing Fisher’s article will get no marks.
Q3. (8 marks) Short Essays. Be brief and to the point in your discussion. Clearly indicate whether you “agree” or “disagree” with each statement below and support each of your response with (a) real business example(s).
Q3-1. (4 marks) For most innovative products, market mediation function is easy and trivial; main focus should be put on minimizing physical costs.
Agree Disagree
Explain and support your response with (a) real business example(s) not mentioned in Fisher.
Q3-2. (4 marks) Companies should focus on lead time reduction as the top priority for functional products as that leads to minimum inventory levels via faster response.
Agree Disagree
Explain and support your response with (a) real business example(s).
Q4. (13 marks) CJ Industries and Heavey Pumps
Read the case posted on Blackboard: CJ Industries and Heavey Pumps
Q4-1. (10 marks: 3-4-3) Answer three case discussion questions at the end of the case. Keep each response to approx. 200 words
Q4-2. (3 marks) What other factors need to be considered in supplier selection for CJ Industries?
You are encouraged to conduct research using either online or offline resources for the assignment. For any real business examples discussed, you are required to make proper citations according to the APA standard.
CJ Industries and Heavey Pumps[1]
In October 2007, CJ Industries (CJI) had just been awarded a 5-year contract, amounting to $10 million per year, commencing on July 2007 to supply Great Lakes Pleasure Boats a number of key engine components for their luxury line of pleasure boats. The award marked an important milestone for CJI, in that it was the culmination of several years of hard work and dedicated service, supplying Great Lakes parts for their boats on an as-needed basis. The contract had significant long-term follow-on potential as well, if they could continue to show Great Lakes they had the capabilities to be one of their valued, alliance partners. In addition, with this contract, Great Lakes would represent approximately 30 percent of CJI’s annual sales, so performing adequately on this contract had a significant long-term financial impact on CJI.
One of the parts, a bilge pump, was an item that CJI had been purchasing from one of their suppliers, Heavey Pumps, a small local specialty pump manufacturer, on an informal, noncontract basis. The remaining items were all built in-house by CJI and supplied to Great Lakes from one of their two finished goods warehouses located near the Great Lakes production facilities. Heavey Pumps was producing and delivering 50 bilge pumps at a time at a cost of $1,500 per unit and built to Great Lakes’ specifications to one of the CJI warehouses, whenever an order was telephoned in by CJI. The delivery costs (about $500 per 50 pump shipment, depending on the carrier used) were included in the $1,500 per unit price. This scenario typically occurred about every four to six months. Normally, CJI would order another batch of 50 about eight to ten weeks ahead of time, and Heavey had always been able to supply the pumps before CJI’s stock was depleted.
Though CJI had sufficient excess capacity to ramp up production on the parts to be supplied in the Great Lakes’ contract, they were not sure about the ability or willingness of Heavey to increase their production of the bilge pumps. The new demand for bilge pumps starting in July would be 50 pumps per month, and potentially more, depending on Great Lakes’ demand, and the ability of CJI to perform on the contract.
There were a number of issues that Nik Grams, the purchasing manager who put the contract together with Great Lakes, needed to work out with both Heavey and the production manager at CJI, for this contract needed to be met with as few problems as possible. The issue with Heavey Pumps was whether or not they could guarantee delivery of 50 pumps per month to one of the CJI warehouses. This had been the one item that had “slipped through the cracks” on the contract with Great Lakes, and it now loomed as something that could conceivably put the contract in jeopardy. There were potentially additional equipment, labor, and other production costs for Heavey associated with the extra demand for bilge pumps, not to mention extra delivery costs as well. Heavey had been a reliable supplier for CJI for a number of years, but nothing else had ever been purchased from them. In addition, because the demand for these pumps was rather low and the deliveries were sporadic, no performance records had ever been kept for them. Mr. Grams had also not known specifically about the quality history of the Heavey bilge pump; although he could not remember ever getting one returned by Great Lakes for any reason. Up until now, the pump issue did not seem like anything to worry about.
Another possibility for CJI would be to make these pumps in-house. Nik Grams knew that CJI had the capability to make this pump, but it would require an initial capital investment of approximately $500,000 according to the CJI production manager, along with the clearing out of some space, and the hiring of three additional employees. With only about nine months remaining until the contract start date, it would be tight, but the production manager had assured Nik that they could do this, if needed. Though Mr. Grams didn’t doubt the production manager’s assurances that the production line could be ready, he wasn’t sure that going to this added expense was a good investment for CJI, given their lack of pump manufacturing experience. There were also at least two other bilge pump manufacturers that Mr. Grams knew of, but both of them were about 500 miles further away from the CJI warehouses, and he had never used either of these firms in the past.
This whole thing seemed to Nik like an ideal job for his special project buyer, Bob Ashby. He figured he had maybe a week or two to hammer out a plan to assure contract compliance with Great Lakes, and Bob was known for his ability to put things together quickly. So, he called Bob.
Discussion Questions
- What are all the issues here, from both CJI’s and Heavey’s perspectives, that need to be researched by Mr. Ashby?
- Should CJI continue to use Heavey to supply pumps, should they make them in-house, should they consider one of the other suppliers, or should they do some combination of these alternatives? Discuss the advantages, disadvantages, and risks of each of these alternatives.
- How can CJI assure continued contract compliance and additional contract business from Great Lakes in the future?
[1] © Joel Wisner, PhD, C.P.M., University of Nevada, Las Vegas ([email protected]). This case was prepared solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author has disguised names and other identifying information to protect confidentiality.
Solution
Introduction to Global Supply Chain Management
Question 1 (1)
I agree with the statement that mergers and acquisitions are a strategic move through which companies embrace the possibility of forming huge conglomerates as well as achieving the most optimal vertical integration. Ideally, the aftermath of implementing successful mergers and acquisitions fosters many avenues through which supply chain integration prospers. Mergers and acquisitions with the primary stakeholders such as the industrial customers as well as suppliers promote several aspects that improve supply chain management at different levels (Salmon, 2012). First, they bring about organizational management which is a perfect way through which organizations embrace new structures and designs that support better supply chain integration efforts. Secondly, mergers and acquisitions lead to the establishment of Information Technology technologies. Regarding the current technological dynamics, the above is very crucial for improving supply chain integration development. Last, but not least, mergers and acquisitions bring about the aspect of infrastructure rationalization which also plays a key role in the promotion of supply chain integration efforts.
Question 1 (2)
Notably, the just-in-time approach has played quite a significant role in fostering the advancement of the supply chain management practices as exhibited in today’s world. Irrespective of the fact that just-in-time stands out as a very simple business idea; it features quite a phenomenal foundation regarding the dynamics of supply chain management. The core aim of the just-in-time approach is cutting down the costs through the reduction of many materials and goods held as stock by any given firm. In light of the above, it features the following aspects: the production and delivery of products ‘just in time’ for selling, availing work-in-progress materials ‘just in time’ for conversion into finished goods, as well as the provision of raw materials ‘just in time’ for modifying them into work-in-progress materials. In light of the above, just-in-time fostered the advancement of supply chain management since it promotes waste-free lean production which is the foundation of supply chain management.
Question 2 (1)
The general provisions of the concept in the article are overly intriguing – establish the category of your products and implement the supply chain referring to the best underlying conditions. Ideally, Fishers description of the Campbell Soups as well as the Sports Obermeyer case studies provides extensive validation of the above conclusion (Fisher, 1997). The concept is overly simple. There are two important aspects in the determination of the right supply chain for any given product – consistency and methodological experiments. Consistency features the creation of a connection between the company’s products with the employed supply chain strategy while getting methodological features the application of strategies suggested by various experts.
Question 2 (2)
One key aspect that leads to problematic supply chain management is the existence of mismatch between the supply chain management and the business strategy (Ambe & Badenhorst-Weiss, 2011). Two examples of companies that feature significant degrees of product supply chain mismatch include Apple Inc and Pepsi Co. The reason for the mismatch presence in either of the two companies is easily explainable from the readily visible failure in maintaining the required strategic fit in some aspects of their product supply chain. For Apple Inc, the fit strategic failure surfaces from the lack of variety of products especially for the low-income earners who cannot afford its usually high-end products. In the case of Pepsi Co, the failure in strategic fit surfaces from the fact that does not have enough bottlers and distributors outside of the USA where like its major competitor, Coca-Cola.
Question 3 (1)
I disagree with the insinuation that market mediation procedures are trivial regarding most innovative products. In my opinion, market mediation procedure in this case are more important that the minimization of physical costs. The rationale for my argument finds its basis in the fact that innovative products require enormous market research efforts just like new market entry products. The acceptability of innovative products is thus more important since it determines the future of such products on the market more than their production costs. A good example is Uber. It is not the cost of establishing Uber infrastructure that matters in making it a mainstream transportation product but the acceptability of the concept of the society – the market.
Question 3 (2)
I agree with the fact that lead time reduction should be a top priority in the reduction of minimum inventory for functional products. Notably, the above strategy helps in preparing the supply chain and the production department on the optimal demand levels while simultaneously preparing the customers to be ready as soon as the product sales are open. The Jordan’s shoe company as well as Apple Inc have applied the above strategy and successfully cleared their stocks for their new products for as first as in the first day of opening sales (Kish, 2014).
Question 4 (1)
There are some issues that Mr. Ashby requires to include in his research – from the perspectives of both CJI as well as Heavey. First, the primary issues relate to Heavey. Mr. Ashby should seek to establish all the relevant information regarding the production of the pumps by Heavey. That is, what is their maximum production capacity per month? Are they involved in other kinds of contracts with other companies for the supply of the same product? Then, there are the issues relating to CJI. Majorly, they include the following: how fast can CJI establish an efficient pump assembly unit? What is the cost-benefit-analysis between establishing a pump assembly at CJI and outsourcing from other new pump suppliers in the market?
Regarding the most optimal decision between continuing to use Heavey for the supply of the pumps, making them in-house, outsourcing from other pump suppliers, or establishing a mix of all the above, the decision is most definitely fixed at the moment. CJI should continue to use Heavey while at the same time establishing an in-house production unit. The advantage of such a set-up is that there is an opportunity for the diversifying the business of activities of CJI in line with their new contract with Great Lakes Pleasure Boats. However, the initial cost of establishing an in-house production unit is relatively expensive. More so, there is the possible risk of not making quality pumps like those of Heavey since CJI has no prior experience in the pump production business.
Finally, it is important for CJI to seek a continued business relationship with the Great Lakes Pleasure Boats company in the future. Such continued business relationship can only exist in the case where CJI complies with all the provisions of the current contract with the above company. Ideally, continuous compliance calls for the CJI ensuring that the delivery of the pumps to Great Lakes Pleasure Boats is not only on time but also of only quality pumps that made them establish the contract with them in the first place. In so doing, CJI can rest assured that the Great Lakes Pleasure Boats will not only be satisfied with the current contract but also stands a chance to award them additional contract businesses in the future.
Question 4 (2)
In light of the fact that CJI might require outsourcing the pumps from other suppliers in case Heavey does not stand in a position to meet the new demand, there are a couple of necessary factors worth putting into consideration. First, CJI should ensure that the pumps from other suppliers are of the same quality as those produced by Heavey. The rationale for the above finds its basis upon the fact that the Great Lakes Pleasure Boats expects pumps of the quality produced by Heavey. Additionally, CJI should ensure that every other new supplier complies with delivery timeframes since time observance is a key aspect that determines the determination of quality contract compliance which in turn determines whether the CJI will receive additional contracts from the Great Lakes Pleasure Boats after the expiry of the current contract.
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References
Ambe, I., & Badenhorst-Weiss, J. (2011). Framework for Choosing Supply Chain Strategies. African Journal Of Business Management, 5(35). http://dx.doi.org/10.5897/ajbmx11.016
Fisher, M. (1997). What Is the Right Supply Chain for Your Product?. Harvard Business Review. Retrieved 5 February 2016, from https://hbr.org/1997/03/what-is-the-right-supply-chain-for-your-product
Kish, M. (2014). Nike sells $80M Worth of one Retro Air Jordan –. Portland Business Journal. Retrieved 5 February 2016, from http://www.bizjournals.com/portland/blog/threads_and_laces/2014/12/nike-sold-80m-worth-of-one-retro-air-jordan-in.html
Salmon, K. (2012). When One and One Is Three: Successful M&A Supply Chain Integration – Kurt Salmon. Kurt Salmon. Retrieved 5 February 2016, from http://www.kurtsalmon.com/en-us/Retail/vertical-insight/599/When-One-and-One-Is-Three%3A-Successful-M%26A-Supply-Chain-Integration-