Economic Globalization And Offshore Sourcing Management Essay

Economic Globalization And Offshore Sourcing counselling EssayIn tune with change magnitude economic globalization and offshore sourcing, global deliver mountain range of a function management is becoming a vital subject for many businesses and somersaulting Furniture is angiotensin-converting enzyme of the companies facing the challenges when set up its global fork over grasp.The business st posegy constitutes ein truthplaceall impartion to achieve embodied objectives and goals in long term, but add together kitchen stove strategy focuses on driving down operational be, bourgeonlining procedures and maximizing efficiencies. However, most companies get under ones skin wonderful business strategies but most of them be unbelievable designed a seamless write out chain strategy which can result in great failure when doing business overseas.In this case study, somersaults legitimate salute to manage its sum up chain resulted in poor business actualizeance, the visib le hazards and other negative factors frustrated summersault include poor logistics management, uneffective instal establishment and inventory management as well as inconsistency of product quality. In filming a protect chain, Somerset moldiness consist and execute a robust supplement chain management strategy for best-fit suppliers selection, further establish on how to work with supply partners, distributors, suppliers, customers or even customers customers as a way to remain competitive. Otherwise, the community allow non survive.As the marketplace changes rapidly and becomes very competitive, it is critical that Somerset reinforces existing relationships and work unneurotic internally and externally. That being said, a well-practiced supply chain strategy results in value creation for the whole organization. In a nutshell, supply chains have shifted from a cost focus to a customer focus, until currently to a strategic focus, scrutinizing the success of a strategy is entirely as good as the companys capabilities to fully and properly execute all. A great supply chain strategic approach, connected with operational excellence, can provide success for not however the company in crisis but as well its partners and customers.1. IntroductionSomerset Furniture is an established ornate residential home wood article of furniture company with over 50 old age history in USA, renowned for producing quality and affordable furniture with a practical range of innovative design. To cope with the fast growth U.S. market, Somerset has developed its marketing strategy by introducing new product lines all(prenominal) few years and successfully gained creditable reputation during the last one-half of the twentieth century.The company was a pioneer in furniture manufacturing processes and in applying TQM linguistic rules to furniture manufacturing. However, Somerset soon faced with thorny problems emerging in mid-1990s, such as stiffer competition, high lab our rates, diminishing loot. As a result, the company downsized the domestic manufacturing facility and labour force through outsourcing several(prenominal) internal furniture product lines to chinaware manufacturers, this led to be very successful in reducing costs and increasing profits initially. By 2000, Somerset closed completed manufacturing facility in the United States and outsourced all of its manufacturing to suppliers in China and then set up global supply chain, at which a series of chain-reacting problems embossed and affected business. The primary focus of this paper is to find out outsourcing solution and rectify the global supply chain strategy to be very competitive.The military rating of Somersets approach on managing current supply chain both from strategic and tactical view patch will be addressed in Chapter 2. The subsequent Chapter 3 and 4 respectively describes the new strategic supply chain approach and then explains the commuteational requirements for c hanging Somerset supply chain effectively and efficiently.The conclusion will be made in Chapter 5 outlining the study points for readers.Evaluation of Somerset Furniture Companys Approach to Managing add up Chain from both strategic and tactical viewpoints.Somersets vivacious Global Supply Chain Process Map externalize 2.1 Somersets Global Supply Chain Logistic Flowchart character reference Adapted from Fawcett, Ellram and Ogden (2007, p.218)Foreign contentionWhile Somerset formulated a good strategic marketing plan for continually launching new product lines every few years during half of the twentieth century, simultaneously, experienced the positive effects of applying the TQM in its furniture manufacturing and popularly is known as high-quality yet affordable wooden furniture supplier in domestic market. However, since the mid-1990s, the company suffered from the stiffer competition, high labour rate and decreasing profits. To get out of this situation, Somerset started out sourcing several furniture product lines to China that helped start from cost-effective and reduced operating costs. Another strategy was reducing the manufacturing facility and labour force, to keep the low costs in line with the pace of outsourcing. It was very successful initially in reducing costs and increasing profits for the company.By 2000, Somerset decided to set up global supply chain and closed entire manufacturing facility in the United States by outsourcing all of its manufacturing to suppliers in China. expeditions of Raw Materials and Inconsistency of Product QualitySomersets global supply chain aids the wood communiques from the United States and South America to manufacturing plants in China. This shipment itinerary grooms a long time to arrive China, therell be unexpected delays for process shipment which incurs customer complaints and orders cancellation. Despite of long shipping time, the costs of shipment to the final destination and the raw material from US and South America are apparently high that reduced the profits.As the manufacturing plants employed Chinese workers to produce products by hand in China, it will commence discrepancies in product dimension and quality. Customers would contend for exchange or refund as the quality is not assured by hand-made.Poor Distribution Network and fare ManagementThe finished furniture products are shipped by containers from Hong Kong or Shanghai to Norfolk, Virginia, once arrived, the containers are transported by truck to Somerset warehouses in Randolph Country, where all of retailers stores located and installed the furniture to prevent from malign during transport.Ineffective Order ManagementIt is found that therere some critical flaws exist internally within Somersets global supply chain on its order processing and fulfillment system. Somerset processes orders weekly and biweekly and it takes 7-14 twenty-four hour periods to developing hire forecast and 12 -25 days for processing order which amount wholly 22 to 45 days for grease ones palms order to eventually complete. It requires another 60 days to produce product by hand when going into production.Poor Transportation ManagementAs required by Chinese logistics, all finished furniture items have to be transported from the manufacturing plants to Chinese ports, which can take up to several weeks depending on trucking availability and schedules. Since 9/11, random security checks of containers will delay shipment for another one to three weeks and the trip overseas to Norfolk takes 28 days.Hence, from China to Norfolk port, it can take more than two months delivery time. Thereafter, clearing US customs can take another one to two weeks to begin with local workers take another 1-3 days to unload containers and transfer the furniture onto truck to Somersets warehouse in Randolph County.Ineffective neckcloth ManagementThe variability of supply chain estimated is up to 40% for schedule deferment. Due to Some rsets innovative conception to introducing new products frequently, it resulted in substantial excess inventories left over in warehouse where the obsolete furniture occupy precious space and increase high disposal and storage costs.Somerset proudly stands behind its products and customers can get a warranty period of 1 year from the date of purchase. It brought a serious problem for separate replacement, because China supplier is only able to provide these parts which are in production, but most of the parts are not produced anymore after 1-year guarantee period.Poor Product QualityAlthough quality auditors are employed by Chinese suppliers to perform quality audit every few weeks, Somerset still encounters several quality yields. Consequently, Somerset has to inspect every piece of furniture it receives from China delinquent to retailers and customers complaints.3. conveyment Justification of New Strategic Supply Chain Approach to beused by SomersetForeign CompetitionOwing to fierce competition, Somerset has to close its entire US manufacturing facility and outsource all of its manufacturing to China to reduce costs and increases profits for the company. Outsourcing has become a common strategy that is adopted by all US companies and managing supply chains has now become a trend due to globalisation. It is felt that Somerset should have an outsourcing strategy which will continue to evaluate alternate low-cost furniture manufacturing plants around Asia or other regions. Depending on just low-cost China manufacturers which product its products by hand may not be a viable long term solution for its overall corporate or supply chain strategy.3.2 Shipment of Raw Materials Consistency of Product QualitySomersets shipment of wood from the United States and South America to manufacturing plants in China is a costly and time-consuming process. Raw materials should be sourced from within China or from neighbouring countries around manufacturing facility to cons ider low cost and break out susceptibility in materials movement.The China manufacturing plant produced all furniture products by hand, which is not only time-consuming, taking 60 days to finished the production, but also cause inconsistency of products quality. It is thus recommended that China manufacturing plant be ISO9000 assured, to provide Quality Assurance and invest in partial or fully automated auto to manufacture some of these furniture products so as to cut down the production lead-time and provide better consistency in products quality.In the meantime, the leader should take action of outsourcing another manufacturer in China to replace the current one, because the current plant may not have enough capital to purchase all necessary expensive equipment. Furthermore, the conversion from undeveloped factory to a qualified lean manufacturing facility cannot take place in one day since it is viewed as a long term transformation. Therefore, Somerset should outsource the pro duction base to other China furniture manufacturing facilities, which comprise the following competencies propensity manufacturing system implementationLean manufacturing results in significant cost savings over a two to three year period. Specifically, manufacturing companies report significant reduction in raw materials, in-process inventories, setup costs, throughput quantify, hold labor costs, indirect labor costs, staff, overdue orders, tooling costs, quality costs, and the cost of bringing new designs on line (Swamidass 2002) ISO9000 certification tractability (refers to modification, design, machine, productionlines and time flexibilities) Capacity (in terms of space, labor, equipment, IT and materials)3.3 Better Distribution Network Transportation ManagementAccording to Chopra Meindl (2010), with regards to movement of products from factory to customer, there are sestet distinct diffusion network designs for company to select one of them, as shown belowManufacturer s torage with direct shippingManufacturer storage with direct shipping and in-transit mergeDistributor storage with package carrier deliveryDistributor storage with last-mile deliveryManufacturer/distributor storage with customer getawayRetail storage with customer pickupSomerset can select one of above distribution network to help in improving its distribution network.Choosing the manufacturer storage with direct shipping will help to eliminate the movement of furniture from Somerset warehouse to retail stores. This will have the advantages of better customers experience and lower inventory costs. Installation of hardware can therefore also be done at customers house instead of at retail stores. However, it has the disadvantages of higher transport costs (because of increased distance and disaggregate shipping) and requiring investment in nurture infrastructure to integrate manufacturer and retailer.Another mendment in conveyance of title is to eliminate export of raw materials f rom US to China by sourcing these materials from China or its neighbouring countries. This not only saves transportation time but also costs of materials. Purchasing department of Somerset will thus have the task to source for these new raw materials around Asia.3.4 Effective Order ManagementThe order processing and fulfillment system in Somersets global supply chain is too long and it is suspected that Somerset and Chinese manufacturing plant may not have the necessary information technology to enable the rapid sharing of demand and supply data. Per Harrison Hoek (2002), they mention that integration of demand and supply data so that an increasingly accurate picture is obtained about the nature of business processes, markets and consumers, can provide increasing competitive advantage.Figure 3.1 shows a conceptual model of how supply chain processes (supply, source, make, distribute and sell) are combine together in order to meet end customer demand (cited by Harrison Hoek 2002, p.14)Figure 3.1 Integrating demand and supply chainsSource Harrison Hoek (2002, p.14)Another solution is to ensure that Somerset utilizes software for order processing which will automatically route for approval and issue purchase order in an efficient manner. There should also be policy in place to ensure that the approval routes are short and approve manager does not take too long to approve it.3.5 Better Transportation ManagementApparently, the Chinese logistics arrangement, depending on trucking availability and containers, causes wide times variability in shipment of finished furniture items from China ports to Norfolk. It is really critical for Somerset to have a good logistics/transportation manager to insure the root causes, select work with the Chinese suppliers to reduce this time and wide-variability to avoid delay shipment to customers.Langley et al. (2009) recommends proactive management approach to identify and solve transportation problems by reducing the physiqu e of carriers, negotiating with carriers, establishing carrier contracts with prescribed service levels, and modifying loading procedures. Hence, Somerset can negotiate and establish new contracts with Chinese suppliers or carriers to ensure that the finished products can depart China ports consistently at a shorter lead-time. In fact, Somerset should establish contracts with all transportation modes to ensure the required transportation service level and lead-times predictability. Other means of improvement and cost-effectiveness can be done through consolidating shipments and monitoring transportation service quality.3.6 Effective Inventory ManagementIt is highly recommended that Somerset adopts Just-In-Time (JIT) and Lean thinking concepts, as discussed by Harrison Hoek (2002), that can reduce delay, waste and inventory costs. Long-standing approaches to material control, such as reorder point stock control (ROP), economic order quantities (EOQ) and material requirements plannin g (MRP) can be made far more responsive by the application of JIT principle whereas lean thinking seeks perfection by gradually reducing waste from each of below four areasSpecifying value from the customer perspectiveIdentifying the value stream ( through time-based mapping)Making the product flow through the supply network (by applying JIT principles)Letting the customer pull (through pull scheduling)Somerset may also adopt vendor-managed inventory (VMI) where it takes responsibility for monitoring sales and inventory in the retailers process. This information is used to trigger replenishment orders. As VMI is facilitated by willingness to share data, the use of integrated systems, and standard procedures, it is made more difficult by such factors as long replenishment lead times, inaccurate data, and unwillingness by either troupe to invest in systems support.Murphy Wood (2008) highlights tracking technology, radio-frequency identification (RFID) to keep track of inventory, whi ch can further improve the efficiency in the supply chain network.3.7 Better Product QualityThe fact that Somerset has to inspect every piece of furniture it receives from China proves that China manufacturing plant must be ISO9000 certified and implement Quality Assurance System in-house. In addition, this will avoid the need to get quality auditors who are employed by Chinese suppliers to perform quality audit. A Quality Improvement Team should be formed in the China manufacturing plant and be trained so as to improve quality on a continual-basis.Somerset can also assist in the implementation of lean manufacturing for its outsourced China manufacturing plant or introduce Lean Six Sigma methodology to effectively control the process for better consistency in products quality. The requirements for the successful implementation of lean manufacturing, as per Swamidass (2002), areAll levels in the plant, from the production worker to the president must be educated in lean production ph ilosophy and concepts.Top management must be totally committed to this venture and provide necessary leadership. Everyone must be involved in the change, and the internal customer must be empowered to play a vital role in this evolutional process.Everyone in the plant must understand that cost, not price, determines profit. The customer determines price, the plant determines the cost.Everyone must be committed to the elimination of waste. This is inherent for becoming lean.The concept of standardization must be taught to everyone and applied to documentation, methods, processes as well as system metrics.4. Evaluation Transformation RequiredIn order to change the Somersets Supply Chain Philosophy from its traditionally position of functional independence to an integrated single entity, top management of Somerset has to ensure that distant functional objectives along the supply chain are reconciled and balanced. According to Barnes (2001), supply chain management requires a new app roach to systems integration is the key.Somerset must better manage its supply chain effectively through adapting the six building blocks for effective supply chain management (Harrison Hoek 2002) as followsDevelop a supply chain strategyElements to be incorporated areCustomer service requirementsPlant and distribution centre network designInventory managementOutsourcing and third-party logistics relationshipsBusiness processesOrganizational design and training requirementsPerformance metrics and goalsGather supply chain informationEnterprise resource planning (ERP) systems to facilitate the flow of information across their organizationDevelop effective partnerships and alliancesCollaborative approach with key suppliers and customers for better decisions in procurement, production, inventory and fulfillment.Pilot new supply chain solutionsPiloting initiatives on a small scale reduces risk and can encourage buy-in from others within the organization or supply chain. Elements to be i ncluded in any pilot projects areInvolvement of key stakeholders, suppliers, customers and employees.Selection of scope and environmentIdentification of critical success factorsOrganise for supply chain performanceOrganisational change for cross-functional instead of functionally based structures.Develop measurement system for supply chain performanceCross-supply chain instead of function centre measuresOn time in full, outboundOn time in full, inboundInternal defect ratesNew product introduction rateCost reductionOrder to delivery lead timeFiscal flexibilitySomerset can also consider the proposal by Heinrich Betts (2003) to transform companys supply chain into adaptive business network. This new business model joins companies as partners, into an adaptable and flexible set of business relationships such that each company is able to respond more swiftly into changing market conditions and leverage the networks cumulative ability toPlan and anticipate demand and supply.Execute plan s efficiently and effectively. wiz events that affect the plans as those events occur, and analyze them for impact.Respond to and learn from ever-changing business conditions.Somerset can then move to an adaptive business network in four steps, as in Figure 4.1Figure 4.1 The Four Steps of an Adaptive Business NetworkStep 1 VisibilitySharing of information with partner companies.Many routine business processes with partners standardized.Information posted for common view on portal.Greater insight into business process and data true statement problems.Step 2 CommunityMoving day-to-day transactions to the portal.Establishment of minimum and maximum control thresholds.Reduction of inventory.Time savings via mechanizing transactions.Step 3 CollaborationSharing of customer demand data with members.Targeted replenishment of supplies.Responsibility transferred to supply replenishment vendors.Ability to reallocate inventory to fulfill maximum number of orders.Step 4 AdaptabilityTime req uired for many tasks greatly decreased.Many tasks completely eliminated.Inventory and working capital dramatically reduced.New alliances, products, and revenue opportunities possible.Source Heinrich Betts (2003, p.80)Harrison Hoek (2002) illustrates a number of transitional forces that need to be harnessed to give momentum to the change project, as structured in Figure 4.2 belowFigure 4.2 Transition forcesSource Harrison Hoek (2002, p.267)These 5 forces are described briefly as followsViability of current performance levelConsider in light of market changes such asDemographicsTime-stressed customersOne-to-one marketingThe marketplace becomes the marketspacePerceived pay-off benefits from targeted performanceReap the potential benefits of e-business and benchmarking of improvement projects to quantify the potential benefits of making a change.Belief and raptureAbility of project manager to communicate belief in the change process with enthusiasm.Ability to manage changeAbility to plan the change, organizing the resources needed to make the change and managing the application of those resources in order to achieve the necessary outcome.Ability to operate in the new environmentPeople in the organization must have the right skills, tools and techniques to operate the new process. The management of the new process will require a new set of performance measures to be in place so that its efficiency and effectiveness can be assessed.Specifically, there are several action items that are required to progressively (from Stage 1 to 3) change Somersets supply chain network to be effective and efficient, as illustrated in Table 4.1 belowTable 4.1 Action Items Required To Change Somersets Supply Chain NetworkItemAction ItemAction To Be TakenRemarks1Foreign CompetitionOutsourced to China manufacturing plants Re-evaluate its capabilitycapacityDone2Shipment of Raw Materials from USSource raw materials in neighbouring countries of ChinaStage 13Poor Distribution NetworkManuf acturer storage with direct shipping to customersStage 34Ineffective Order ManagementIntegrating demand and supply data using technologyStage 25Poor Transportation ManagementRe-negotiate new contracts with all transportation modesStage 26Ineffective Inventory ManagementImplement JIT approach and pull system schedulingStage 37Poor Product QualityGet China manufacturing plant ISO9000 certifiedStage 1However, the implementation of change in business is often frustrating and difficult, particularly in supply chains as it has to be undertaken in a arrange manner across and between several organizations. It is therefore important to gain agreement from the top level of all companies involved before wide-scale changes can be made.5. ConclusionIn this case study, Somersets approach to manage its supply chain resulted in poor business performance. The visible hazards and other negative factors frustrated Somerset included poor logistics management, ineffective order system and inventory man agement as well as inconsistency of product quality. In adopting a value chain, Somerset must incorporate and execute a robust supply chain management strategy for best-fit suppliers selection, further establish on how to work with supply partners, distributors, suppliers, customers or even customers customers as a way to remain competitive. Otherwise, the company will not survive.In addition, top management of Somerset has to lead and propel not only all internal functional teams, but also external suppliers and partners, to work as an integrated entity in the new strategic supply chain network, so as to achieve the overall corporate objectives.In a nutshell, supply chains have shifted from a cost focus to a customer focus, until currently to a strategic focus, scrutinizing the success of a strategy is just as good as the companys capabilities to fully and properly execute all. A great supply chain strategic approach, connected with operational excellence, can provide success for not only the company in crisis but also its partners and customers.