Supply chain integration and management

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15 December 2015

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Supply chain integration and management


Inter-relationship between inventory, capacity and customer demand

Brief introduction

            In businesses and companies, supply is one of the most important factors that ensure constant production that will meet the demand of the market (Burnetas & Ritchken, 2005). For a business to be effective in the market, it should ensure that it has a good supply management chain. Effective supply chain is achieved through making decisions that integrate capacity, inventory and customer demand (Lei, Liu, Ruszczynski, & Park, 2006). However managers in manufacturing industries make independent decisions by considering each factor separately. That is, they deal with inventory, capacity and customers demand as independent factors whereas they should be interrelated in order to achieve an effective supply chain. According to Bradley & Arntzen, (1999) the separation between inventory, capacity and customer demand can result to imbalance in supply chain and may end up affecting negatively the investments on these factors. To prevent negative effect on investment, supply chain management can be adopted to create equilibrium between supply and demand of a company. Inventory, capacity, and demand are the three main elements that are primarily used to create equilibrium between supply and demand to prevent losses that may result from disequilibrium.

            The relationship between inventory and capacity of a recycle period should be considered by manufacturing managers since they help in making the decision on supply that will meet the customers demand

            Inventory, capacity and customers demand can be explained using the beer game that helps to understand how the supply chain can be managed (Chandra & Kumar, 2000). During the seminar, our group participated in beer game by playing the role of supplier named Wire Bus Systems. The Wire Bus systems is a wiring looms manufacturing industry. The company operates as a second supplier with Eutruders & Co. operating as the upper supplier in wiring looms supply chain. The company supply wiring looms to two customers named Powertronic Ltd and Electraulics Ltd.

            The beer game involved tactics that would be used to maintain a smooth supply chain that would adequately meet the demand of the two customers without backlogs (Niranjan & Weaver, 2011). For this game, we placed an order from our supplier, which took two weeks for the order to be complete and the wiring looms delivered to our company. Hence, we had to make sure that inventory was adequate to meet two week’s demand.

Inventory and capacity

            In supply chain management, inventory and capacity are interrelated and play an important role in maintaining smooth supply of goods and services in the market (Lei, et al, 2006). The supplier must ensure that his or her company has adequate capacity to reserve inventory of a given period of time before the next supply arrives in order to have a smooth supply in the market and to meet the customers demand. Although the capacity of a company is usually fixed, the company has to consider the number of inventories needed to maintain a constant supply. Therefore, the availability of inventories such as raw materials determines the capacity of a company. Moreover, the manufacturers and supplier should rely on available numbers of inventory during production and supply of goods respectively. For example, in the beer game, Wire Bus System had a weekly capacity of 200 wiring looms. However, it only had 150 wiring looms as raw materials inventory. Therefore, it was important for the company to devise ways to meet 200 looms demand for its customers. Wire Bus Systems should ensure that adequate inventory is available so that it can operate in full capacity and meet the demand of its customers. Therefore, inventory is linked to capacity and is important factor to be considered by a business so that adequate inventory is maintained for two weeks before supply. If Wire bus’s weekly capacity is 200 looms, the inventory is to guarantee for the next two weeks’ use, so that, when ordering from the supplier, 400 would be the top amount to order.

Inventory and customer demand

            A business should consider the demand of customers as a major factor when planning on inventory that should be maintained in the business during the next production period in order to maintain a constant supply for customers. However, inventories should not exceed the capacity of a given production period to prevent backlogs. For example, in the beer game, it was evident that inventory and customers’ demand should be kept at balance. However, the inventory should be always slightly more than the customers demand to meet the unexpected demand from additional customers. During the second and third week that we played beer game, our group had predicted that customer demand would remain constant. However, the number of customers increased resulting in high demand and since we had ordered few materials, we experienced shortage of inventories that led to larger numbers of backlogs. From this experience, it was learnt that a business should always maintain an increased backlogs in order to meet any unexpected demand from customers.

Capacity and customer demand.

            The demand of products by customers determines the amount of to be produced (capacity) by a business. Increase in demand may result to a business increasing its capacity to meet the demand of customers and avoid accumulation of backlogs. According to semiconductor capital equipment company case study, limited capacity led to failure of meeting their future customer demand. This led to improvement of semiconductor capital equipment company capacity in order to meet future demand. It is evident that high demand causes results in increase in capacity of a given company while decrease in demand also results in decrease in capacity of a given business. Therefore, capacity is proportionately related to demand of customers.


            From the above discussion, it is evident that the capacity of a manufacturer is dependent on customer demand. Consequently, inventory depends on the capacity and customers demand and the two factors should be considered when deciding the number of inventory that a business should maintain for fourth coming production period. Therefore, inventory should be considered when making production decisions. Hence, the three factors are interrelated with each other and should be considered for an effective supply chain management.

            Discuss how developing an integrated supply chain can help reduce uncertainty in the various levels of the supply chain and improve the management of inventory.

Inventory and customer demand analysis

            Developing integrated supply chain help to carry regular demand of customers and inventory analysis that play a major role in management of inventory and reduction of levels of uncertainties in supply chain. The analysis will give information that is needed to estimate or predict any demand of products in the market (Aburto, & Weber, 2007). Moreover, the analysis will help the company to assign inventories specific volumes based on volumes of orders and various changes in ordering pattern. Therefore, the company will be able maintain the required number of inventories and be able to regulate according to the patterns of demand. This in turn will prevent backlogs of orders that are mostly experienced in supply chain that are performed by companies that carry independent analysis for customers demand, capacity, and inventory management. Moreover, the analysis will help to prevent excess inventories that may increase the cost of production and thus reducing the profitability of the products. Hence, integrating supply chain helps a company to plan in advance and make the necessary adjustments through information obtained from the analysis.

Easier networking of stakeholders in supply chain

            The integrated supply chain allows easier networking and integration of various stakeholders and facilities in provision of raw materials, production and distribution of finished goods making the process of distribution more efficient. The networking of different people allows planned ordering and delivery process based on the availability of inventories thus allowing adjustment of inventories with changes in demand. Moreover, the information between the suppliers and manufactures is well relayed allowing the suppliers to adjust their order details regularly and enhancing the delivery process (Patnayakuni, Rai, & Seth, 2006). However, where each party act independently, breakdown of information is experienced which may affect the ordering and delivery process. As result the company experience increased demand with low numbers of inventories that create backlogs. Moreover, there is likely hood of increased cost that may be incurred in the process of adjusting the orders due to poor networking. For example Wal-Mart stores have an integrated supply chain where each party is involved in the supply process. As a result, the stores have experienced the company has recorded decreased backlogs or out of stock incidences. This has allowed the company to meet the demand of its customers successfully thus increasing trust that has led to reduced cost and increased profits on products supplied.

Effective communication between suppliers, manufacturers, and customers

            Integrated supply chain allows effective communication between customers, manufacturers, and suppliers of both raw materials and finished goods and maintains outstanding organization cultures for manufacturers and suppliers (Kanda & Deshmukh, 2008). This enhances supply of goods from one supplier to another and helps in management of inventories. The customers are able to communicate their orders in time and help the suppliers to manage their inventories accordingly. The manufacturers are able to communicate with suppliers of raw materials, which enable them to produce the required goods in time and supply to the market. Effective communication between suppliers allows delivery of goods in time. Moreover, the suppliers can adjust their new orders depending on the number of inventories and the demand of customers so as to avoid backlogs or excess inventories. High numbers of inventories increase a company carrying cost and this may affects its flexibility and profitably and therefore adopting an integrated supply chain allows companies to avoid this problem (Cucchiella, & Gastaldi, 2006). They are able to maintain a relatively constant number of inventories and make new or adjust orders accordingly. Moreover, maintain an effective communication between the suppliers prevents uncertainties that may happen such as late delivery due to unclear orders or shipping details. Any source of error is dealt with in time and thus the supply of goods is made before all the inventories are finished.

Reduced supply time

            Integrated supply chain reduced time required to move goods from one supplier to another through to the customers hence shortening the chain cycle. Reduced time for delivery of goods allow suppliers to maintain reduced inventory that can be maintained before the next delivery period. Reduced inventory are easily managed and the company is able to decrease the carrying cost and increase the profits of the products. Moreover, the shorten chain also allows goods to reach to customers in good time thus increasing the customers satisfaction. In addition, the reduced time in supply chain cycle allows suppliers to manage any predicted demand of goods in the market and adjust orders according (Aburto & Weber, 2007). Moreover, since orders are delivered with short time and they can be adjusted easily, few backlogs will be experienced and excess inventories will be avoided. The suppliers will also deliver goods in time to improve the competitiveness in the market. As result, there will be no later deliveries that may affect the management of inventories. The shorten time reduce the cost of manufacturing company. In manufacturing, the supply cost account for the greatest cost of production and thus a good integrated supply chain helps the company to cut down on the cost and increase profits (Stadtler, 2008). Most cost are incurred as a result of running out of inventory and therefore, the integrated chain helps to fix this problem thus reducing the cost of production and increasing the profits.

Provide visibility of supply chain

            Integrated supply chain and good management is able to provide visibility at different points of the chain thus reducing the uncertainties and improving the management of inventory. Supply chain that lack visibility may results in bullwhip effects. The visibility helps the suppliers to keep track of demand of products at the distribution channel so that a company can be able to adjust its inventory in respect to demand. Lack of visibility can result in increased inventory, constrained or excessive capacity that may affect the performance of a business negatively. Therefore, visibility is one of the approaches that help to manage inventories so as to avoid excess or reduced inventory. Moreover, well managed inventory ensures that the company is able to manage its carrying cost and increasing profits margins. Since demand and supply of orders can be tracked at distribution level, accurate orders and forecast can be made that are also important factor in maintaining accurate inventory (Aburto, & Weber, 2007). The information technology can be used to improve supply by enhancing integration between different suppliers and processes such as raw material processing, manufacturing, processing finished goods and they supply to respective suppliers and customers. The integrated supply chain that uses information system technology can help reduce the uncertainties and help in management of inventory in supply chain.

Enhanced information technology allows quick solutions of uncertainties and inventory mismanagement

            The information technology will serve as means by which suppliers and manufacturers can maintain a constant link between themselves and customers and provide quick solutions to uncertainty and inventory mismanagement (Devaraj, Krajewski, & Wei, 2007). Use of internet and common websites will allow the suppliers to keep track of customers’ demands and the changes in patterns. The use of technology can allow online orders request. This will make the order processing and delivery easy and fast. Since the delivery goods and raw materials is effective, the companies can maintain low numbers of inventory that are manageable without causing backlogs or excess inventory in the company. Moreover, the technology monitor customers demand and customers are able to make their demands in time giving the management ample time to make orders and ensure delivery. In addition, the information allows supply chain managers the appropriate decisions on the orders to demand and the inventory. As a result uncertainties such as late delivery, poor quality goods, and errors of orders can be avoided since there is good relay of information along the supply chain. Moreover, unnecessary costs that are incurred through delayed goods and poor goods quality are reduced thus increasing the profit margins.

            Discuss why Master Data Management is so important in trying to achieve integration and consider the implications if there is a lack of compliance

Master data management

            In manufacturing companies, supply of goods is the most hectic and costly process. Supply of goods involves collection and utilisation of various data from customers, suppliers, manufacturers, and products. In some instances, these data are fragmented and it makes it hard for supply chain managers and other supply chain personnel to make decisions and develop policies (Rai, Patnayakuni, & Seth, 2006). Moreover, in cases where problems arise in the system, it may be difficult for the management to develop a solution and the data that can help give the best solution may be missing. In addition, these data are important in decisions and operations in supply chain in order to improve efficiency and reduce the cost (Attaran M. & Attaran, S. 2007). Therefore, it is important to consolidate all these data in a common application that will allow easy and fast access when they are needed. To manage all these data, information technology known as Master data management is used. The technique involves policies, processes, and set of tools used to manage these data. Therefore, companies look for ways that will help to streamline and reduce the cost in supply through information technology management. When the data is managed in common system, master data, the integration of supply chain become easy as all the stakeholders will have to operate using the same application. Moreover, data can be used to make policies that guide the supply chain and thus involving all the parties and facilities and thus making supply chain more effective.

Collective data handling and integration

            Master data technology plays an important role in supply chain by helping the stakeholders to achieve a single analysis and maintenance of master data through collective data handling, thus enabling different stakeholders to work in unison. This allows the supply chain to increase the opportunities required to increase income, reduce risk, reduce costs, and improve agility of supply chain (Loshin, 2010). In addition, Master data can interact with other data. For example data on customers demand can interact with supplier data and the manufacturer data can interact with supplier data. These interactions mean that manufacturers rely on suppliers’ data and the latter rely on customers’ data. This means that stakeholders will be required to work together in order to consolidate their data together and use other data to improve their performance. The integration of various levels of supply results in an integrated supply system. From the fact that decisions are made based on another party, it become important for integration of supply chain in order to make concerted decisions and to develop all round policies that will improve the supply process.

            Master data management helps in creating supply data from suppliers of raw materials, manufacturers, suppliers of finished goods to customers in a common master data that can be accessed by all parties in the supply chain. In the long, the data consolidation plays an important part in integrating of supply chain (Mamou, & Scheffler, 2005). This makes it easy for a given party to access the any data that he or she may be interested in and use it to make decisions on supply of goods to customers. For example, the data on pattern of consumers demand is very important to suppliers as it would help in determining the quantity of inventory to be maintained in the company before the next period of delivery. The data will prevents accumulations of backlogs as suppliers will be able to adjust inventory and orders according to the market demand. On the other hand, the ability of manufacturers to access the data on supply of raw materials is important in making decisions on the inventory that should be stored and at the same time determine the capacity of the company in order to meet the demand of the market and ordered goods.

Common policies in ordering and supply processes and data management

            The manufacturer and suppliers are guided by the data that has been managed through the data managed system to make policies regarding ordering and delivery process of goods along the supply chain. These policies define all the conditions that should be considered during delivery such as time of delivery, quantity to be delivered and the means of transportation thus easing the supply chain and reducing delays and mismanagement. When developing the policies and making decisions the process integrate all data using information technology from buyers and supplier in the supply chain thus making the supply process effective (Power, 2005). Thus the master data play an important role in the integration of supply chin. Based on previous data about the quality of the products from consumers’ feedback, manufacturers can improve the quality of the products to satisfy the consumers’ needs. Therefore, the suppliers and manufactures make decisions based on the master data, which allow supply chain management to be integrated across from production, distribution to consumption. As a result, quality goods are produces within the ordered time frame thus meeting customers’ satisfaction, which is critical in increasing profits (Benton, & Maloni, 2005).

Implications for lack of compliance with master data management

            It is important to be compliant to master data management in order to achieve the best results in integration of chain management. In addition, it would reduce the cost of supply through good management of inventory (Stadtler, 2008). Moreover, it ensures improved performance of supply chain and that customers are able to get quality goods that meet their needs. However, lack of master data system compliance results in poor performance of the company and supply chain leading to increased cost and reduced profits. Since master data management is an information technology landscape, it comprises of complex technologies and systems of supply chain management. The complex system helps to manage all data from field to the company and any failure to comply with the system results in inaccurate and incomplete data that can results in inappropriate analysis and inaccurate-poor decisions in the supply chain system. As a result, the data quality is compromised for the whole supply chain resulting in negative effects on supply management decision making and governing process. In addition, the ability of the supply chain managers to mitigate for risks is compromised and they end up providing inaccurate compliance reports (Amalfi, 2009).

Errors in data entry are costly to supply chain stakeholders

            Errors that can occur during data entry from various sources such as suppliers and manufactures may be costly to the company and all the other stakeholders in the chain. The errors on consumers demand may results in erroneous inventory of raw materials and finished goods, which may cost the company or supplier. Errors may also cause inefficiencies in supply chain management (Hugos, 2011). For example, when high demand is entered in the mater data system by suppliers, it may results in storage of large numbers of inventory that may have a high carrying cost. Moreover, overestimated orders may be made by suppliers that may end up increasing consecutive inventories and that may translate to high losses for suppliers when stored for an extended time. Consequently, errors in production data may cause manufacturers to order increased raw materials and increase companies capacity thus may results to loss due to lack of orders from suppliers. Therefore, master data entry should be entered careful to ensure that there is no error that is transferred during manual data entry to prevent the losses from such errors.

Inaccurate decision making

            Lack of compliance may also affect the decision making and policy development process in supply chain. Since manufacturers and suppliers rely on master data to make their decisions, error in data management may result in inaccurate decisions that may not improve the performance of the company (Amalfi, 2009). For example, data may indicate that the quality of the product is goods and meets consumers need whereas consumers demand is low. This may call for decisions to streamline supply processes such as reducing the time for delivery and also increasing the quantity delivered. The approach may no impact on consumers demand as expected due to errors that describes the quality of the product as good while it is poor. Therefore, the compliance of master data system become very important in order to make accurate decisions that will not cost the company or involve unnecessary decisions that do not impact on the supply chain.


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