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Supply Chain Strategies Bruce O. Bartschenfeld University of Indianapolis

Bruce O. Bartschenfeld is currently a full-time undergraduate in Business Administration at the University of Indianapolis, Indianapolis, Indiana.

4241 Bluff Road Indianapolis, IN 46217 (317) 786-8462

2 ..Supply Chain Strategies I Supply chain strategies are one of the most important aspects of supply chain management. Purchasing materials is a large part of managing costs. Two of the major issues in purchasing are: selecting the right supplier and finding the correct purchasing strategy in hiring suppliers.I . The success of any business as a whole relies on the ~ specific techniques executed to manage costs.

few suppliers. why so many people are searching for I ~ Innovative strategies can drastically improve the On the other hand. the logistics of a corporation are greatly affected by the technology that is employed. bad strategies can lead to profitability of that organization." The key to success of an organization is the supply chain strategy. 3 .I . and a supply chain structure perspective. Many companies are finding out that they must share information electronically. virtual If employed correctly. so it is understandable newer and better strategies. With careful planning in the warehouse.1) The supply chain makes up 55-85% of total costs for a business. This means keeping inventory as low as possible and cutting process times down to a minimum. These strategies are: many suppliers. improvements can be made any number of innovative ways. pg. Building a competitive advantage is important to getting one step ahead of the competition. and vertical integration." (12. Many purchasing strategies lead to a competitive advantage in supply chain management. (13) As the information age soars into the new 21st Century. or else they not be able to stay competitive with their rivals.. the demise of a business. each of the strategies companies. an operational standpoint. "Real improvement comes from making a change in the way business gets done from a process standpoint. (12) "The supply chain is made up of two essential elements: strategic sourcing and strategic logistics. (10) Business is more competitive than ever with the popularity of the Internet rising at a feverish pace. (11) Another popular strategy is a just-in-time system.

the purchasing strategy can provide a competitive advantage. and maybe. If the strategy is not given the proper attention.I . companies and suppliers may eventually become the competition. information. (4) Another strategy is to produce products within the company. Some companies are reluctant to tell suppliers too much ~ ~ They fear the information will be relayed to competitors or their Also. (4) Relationships with suppliers can be a touchy area for management. and in effect.can be a large asset. (9) When executed effectively. 4 . the most critical aspect of the supply chain. it can be extremely costly to the company and the success of the company as a whole. they feel the supplier must not be trusted. Many companies are starting to establish closer relationships with suppliers." (3. "Adoption of supply chain strategies could be a significant determinant of profitability for companies in the future. (5) Virtual companies are organizations who hire suppliers on an as needed basis. suppliers are each trying to get the best deal for their respective companies. Other companies treat suppliers as their enemies. pg.. It is important to figure out what is going on inside the business of suppliers to make sure the supplier is operating smoothly. Each of these strategies is very different in nature.204) PURCHASING STRATEGIES Purchasing strategies are the most difficult. This usually involves the buying out of a supplier. but the most important aspect is how a company goes about implementing the strategy.

If the company the supplier is working for performs poorly. pg." (12. the supplier will also struggle in business. it has not always led to the best quality or best service to the customer. such as low cost. Mining equipment is extremely expensive. (4) This type of partnership requires a company to share exclusive information about the company. The mining industry has determined that it needs to implement new supply chain strategies. either. . a company ~ can build trust in the supplier.421) Although looking to drive costs down seems to be a great short-term plan. A Company must trust the supplier enough to create a close relationship with them. and the supplier also has a chance to build trust in the company being supplied. This ensures that "Companies that routinely swap information and ideas with suppliers create an environment for joint achievement.. (1) The few suppliers strategy has many advantages. Mining companies must find the most competent suppliers and build a close relationship with them. First of all. the supplier is comfortable with the stability of the business. "A strategy of few suppliers implies that rather than looking for short-term attributes. They are spending too much money on non value-added expenses. (5. while the 5 . Supply chain strategies are not only limited to factories or manufacturing. The industry cannot survive under its current conditions. a buyer is better off forming a long-term relationship with a few dedicated suppliers. pg. the supplier puts much of its success in the hands of the company it is supplying.7) In this type of relationship. and mining companies are not using the most efficient practices within their supply chain. Few Suppliers According to Jay Heizer and Barry Render.

companies stop allowing suppliers to freeload off the industry of mining. Some challenges also come along with a few suppliers approach. (3) The companies need to take control of their dying industry.000 suppliers. Companies must carefully examine the capacity of the supplier. contract. (9) Another disadvantage is meeting future needs of the company. including the competition. (3) Another benefit is that the few suppliers approach supports just-in-time systems. sign an agreement with the supplier that all information shared is confidential. and any breech of contract is considered illegal. The They may drive prices up because they are already under contract for an extended period of time. (1) If the supplier cannot meet all of the capacity requirements of a company. safety of the equipment is also a major concern for the company. The supplier is available on shorter notice if it is already under This works effectively for just-in-time systems. The company is vulnerable to losing valuable information.t . They need to study suppliers and find out It is time that the which ones are or are not performing up to standards. and therefore inventory is kept to a minimum and deliveries are made in smaller lots. supplier has an opportunity to take advantage of the company. 6 . since suppliers have been exposed to inside information. Nothing is stopping suppliers from It may be a necessity to relaying information to others. The supplier may relocate to a warehouse closer to the larger company. then the company will have to limit production. Many mining companies have admitted that they believe almost half of their suppliers are inadequate and others have over 1.

420) This requires companies to form an adversarial relationship with suppliers.' with the order usually going to the lowest bidder. This will ensure that the lowest priced supplier will be employed. The management There is little trust between the company of these resources requires new methods in order to collaborate with. It also increases the level of service from suppliers because they must do everything possible to get the business of a company. they decided to reduce the number of suppliers. a company can move along with business if something happens to the 7 . Many Suppliers A popular and widely used approach to purchasing is the many suppliers strategy. the supplier responds to the demands and specifications of a 'request for quotation. (9) The strategy revived both companies and they are now leaders of their respective industries. and its suppliers in this strategy. few suppliers approach is becoming very popular in the business It has provided a major boost for many companies that have been close Xerox and Minolta were both about to go out of business when I ~ to bankruptcy. pg. and maximize the results of. This strategy also works extremely well in case one supplier goes out of business or changes its line of business.. pg. . 'With the many supplier strategy. each of the participants outsourced around the planet." (5.35) Numerous suppliers allow companies to explore suppliers all around the world.The world. When there is no relationship with the supplier." (11. "Supply chain strategies must exploit global resources. Suppliers will maintain a fair price because they know they are in competition with other possible suppliers.

"An undependable source of parts can cripple a plant. Companies are able to keep important information within the company in the many suppliers approach. No information is shared with suppliers because In fact. and resulting in problems across the supply chain. is leaving the many suppliers approach because of a 43% decline in profits over the past year. Marks and Spencer can find out what the customer wants and get it to them more efficiently. The new suppliers will deliver products three times more often than before. a company can easily shift business .I . Marks and Spencer. If a supplier raises prices. an enemy for the company. This is attributed to slow reaction to customer's needs. suppliers are almost they are not considered a part of the organization. to a more competitively priced supplier. (8) The many suppliers approach seems to be a strategy of the past. leading to inflated lead times. which gives Marks and Spencer more time to get the newest styles shipped to the factory. a company is not able to gain much information about suppliers.current supplier. pg. Most companies still use this strategy.1 0) The many suppliers approach does not support a just-in-time system. a company must deal with inventory and deliveries that are not as frequent as in a few suppliers approach. With a few suppliers approach. all the way to the final customer. The reliability of suppliers may also be in question. Deliveries are made in large lots. Since suppliers are not available on demand. a British textile manufacturer. but they are in the process of integrating a more 8 ." (4. On the other hand. either.

and extremely risky investment for an organization. the company must pay margins for the company. for the supplier to cover its costs and maintain a positive profit. Producing a product within the company eliminates a member of the supply chain. Fewer members in the supply chain ultimately leads to better When dealing with a supplier. 0 innovative approach to business.. but this approach will save the company money in the long-term. Vertical Integration goes on in the entertainment industry as well as in manufacturing. The integration of a new All members of the It is considered a new executive team have to be informed of the developments. pg." (5. This is a great opportunity when the company has the necessary capital to incur the costs of production.422) This occurs when a company actually purchases its supplier. Vertical Integration "Vertical integration is developing the ability to produce goods or services previously purchased or actually buying a supplier or distributor. Costs are high for production in the short-term. Vertical integration can offer an opportunity for a company to lower its overall costs. Companies are finding that they can save money by reducing the number of suppliers and maintaining a relationship with the supplier. Disney has bought ABC and Viacom bought CBS. When a company produces the product within the company. they do not have to pay the premium associated with buying it from an outside source. set of operations is a major acquisition at a company. The two companies used to sell programming to the networks and would only receive 9 .

they are able to afford. moving organizational The plan must be well thought out. . and financial risks must be Companies need to have enough money to back up the venture 10 . Integration may seem like a good idea. A higher degree of risk is also involved with gaining a new department. Virtual Company "Virtual companies rely on a variety of supplier relationships to provide services on demand. they will eventually fail. many commercials for Disney World. Vertical integration carries with it major risks. These are attempts to gain a larger platform to sell and advertise their own products. Disney airs its shows and has Both acquisitions have been profitable so I . Many companies have bought out suppliers or began to produce their own materials. far. the two companies now make more money by airing their own shows. payment for the initial rights to the show. Virtual companies have fluid. considered. company has underestimated the costs of making such a large purchase or acquisition. management does not have the expertise to run new operations. should it fail. but management could get overzealous in the estimation of existing capital available for new ventures. Often times the. Vertical integration requires a company to take on extra responsibility. (7) Instead of letting the television networks make the majority of the profits on Disney and Viacom programming. A company could take on more operations than If Also.J. extra costs are incurred. The amount of capital tied up in internal expense increases greatly.

Each Technology I member of the network performs essential functions to the project.'. Also. many extra costs are This. It is not only the lagging company that suffers. IBM Corporation and EXE Inc. (10) Many companies are not ready to take on all of these costs. Much of the success of a company lies in the hands of outside companies. and integration skills. a company forms a network with other companies. All companies are dependent upon one another. Virtual companies work well in situations of short-term projects of a company." (5. This cost is not worth it for the company because they use many different operations depending on the particular project. lowers the profitability of the company. incurred by hiring other companies to perform major operations. have teamed to develop software that will help automotive The software provides links to consulting and packaged goods companies. (2) Information technology is a major cost for a business. Virtual companies are a great idea for smaller organizations. Merging with other companies for a particular project provides a company the needed resources to complete the 11 . Technologies. in turn. all members of the network fail. technology. They do not want to fully integrate new operations for just one project. The small companies do not have the resources to purchase all of the manpower and materials necessary for a short-term project. systems and financial services are major contributors to the network. services. If another company does not fulfill its responsibilities. pg." boundaries that allow them to create a unique enterprise to meet changing market demands.424) In this strategy. .

If only partial attention is given to a new strategy. Managers and supervisors with innovative new strategies can send their company straight to the top. CONCLUSION Many supply chain strategies can be effective for a company. Supply chain strategies could be the most important aspect of the corporate world today. Most people are aware that it takes a great deal of effort to get ahead in the business world. No It takes a team effort. It is up to the individual to find the strategy that will be most effective for his or her organization. Each and every employee must believe that the new strategy will work more efficiency than anything the company has ever seen before. .. project without the financial burden of creating and spending capital on all of the departments. All of the strategies that have been mentioned in the paper can be successful under the correct circumstances. It is also the responsibility of the leader of the project to sell other members of the company on the supply chain strategy. I . it will most surely end New strategies that are given the proper attention can provide new up in failure. one employee can single-handedly implement an entirely new strategy. life for a company and its success. The key to finding the best strategy for a particular company is to put full effort toward the project. That is not to say it can not happen. 12 .

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