THE DEAR JOHN MOWER COMPANY
The Dear John Mower Company is an old-line manufacturer of gasoline-powered lawn mowers and riding mowers. Increased competition has resulted in Dear John’s share of the mower market declining to 10 percent. Profits have declined to the point that many are questioning Dear John’s ability to survive.
The firm employs three engineers who are responsible for the development and design of all new mowers. When the engineers are not involved in the development of new products, they apply their energy to value analysis work in an effort to engineer costs out of the firm’s products.
Material costs at Dear John range from 55 to 65 percent of the cost of goods sold. Supply management has been a routine function, responsible for issuing purchase orders confirming the sourcing decisions of the engineers and for issuing order releases against these purchase orders. Recently, Mr. Tom Dalton, CPM, was hired in an effort to reduce the cost of purchased materials. Mr. Dalton had some success through the application of price and cost analysis and professional negotiation concepts. Material costs have dropped an average of 12.5 percent. These savings have been the basis of a badly needed shot in the arm for Dear John’s financial report.
Tom believes that he’s done about all he can to reduce costs—short of getting himself and his key suppliers involved early in the design of new mowers. Tom has initiated discussions on this approach with John Steel, chief of engineering—to no avail. Mr. Steel is adamant that his engineers are the best in the industry and develop the industry’s finest mowers. He acted insulted when Tom suggested that early supply management and early supplier involvement would improve Dear John’s profitability.
Having had no success with engineering, Tom has initiated discussions on the matter with Mr. Helmich, COO of Dear John. Mr. Helmich has requested Mr. Steel and Mr. Dalton to meet with him to discuss the merits and possible implementation of early supply management and early supplier involvement.
As a consultant for THE DEAR JOHN MOWER COMPANY, you are required to assess the aspects of Supply Chain Management and use your own assumptions to answer the following questions:
QUESTION 1
Discuss the advantages of the inclusion of supply management and prequalified suppliers.
(10 Marks)
QUESTION 2
Discuss the disadvantages of excluding supply management and suppliers from the new product development process.
(10 Marks)
QUESTION 3
Assuming that the three executives agree on early involvement of supply management and suppliers, develop a plan to implement this new way of doing business.
(10 Marks)
END OF QUESTION
ANSWER:-
1. Massachusetts Institute of Technology Centre for Transportation Studies, “Integrated Supply Chain Management (ISCM)” is an integrated and process-oriented approach to procuring, delivering and producing products and services to customers. ISCM includes internal operations, sub-suppliers, suppliers, retail customers, trade customers and end users. It covers management of information material and fund flows.
Every organization is a part of one or more supply chain. Weather a company provides a service, sells directly to the end customer, manufactures a product or even extracts material from earth, it is characterized within its supply chain. Earlier, organizations placed little emphasis on organizations within their supply chain network. However, supply chain management had become a forefront of management’s attention due to three major developments(Balsmeier 1996)
1. The information revolution
2. Customer demands in areas of service and product cost, delivery, quality, technology and concept of cycle time brought about by increased global competition.
3. Emergence of newer forms of inter-organizational relationships.
These developments have nurtured the emergence and integration of supply chain approach. The following model illustrated the integration of supply chain in all the three developments mentioned above.
2. (Balsmeier 1996)The Supply Chain is considered as the set of frameworks and processes that have helped organizations in development and delivery of products. The supply chains represents the complex relationships of an organization with its trading partners through whom it sources materials, manufactures products and delivers products or services to the customers. The supply chain links all the activities in the procurement, transformation and storage of raw materials and intermediate products, and sale of finished goods.
The entire Supply Chain (Figure 1) is looked across my Supply chain management, rather than a single entity or level. The SCM aims to increase alignment and transparency of supply chain’s configuration and coordination, regardless of corporate or functional boundaries.
Supply Chain Management is considered as the integrated process of the management of all the networks of the businesses that are interconnected to each other. The Supply Chain Management is involved towards the provision for all product and services that are demanded by the customers. (Harland,1996). The SCM includes the varies tasks such as raw materials, work in process, inventory management and also the finished goods moment from the origin point to the point where they will be consumed.
3. Integrating the supply chain to improve logistics efficiency is a key challenge. The composition today is not between the companies but between the supply chains. Hence, for the supply chains to be successful, it should integrate the three individual business processes of procurement, manufacturing, and distribution by consolidating the sub-components in each of the above functional areas(Ashkenas. R 1995).
Procurement: This is one of the major cost drivers in the supply chan. Procurement cost is influenced by the following factors:
1. The way procurement decision is made
2. Procedures adopted in the procurement process
3. Relationship with suppliers
4. Firms credibility
5. Market Intelligence
Procurement cost can be controlled through long-term relationships with suppliers by considering the supplier as an extension of the manufacturing facility. The philosophy of co-partnership is based on the sharing of resources and benefits on a long term basis. The major step in this process is reduction in supplier’s base and induction of a few reliable suppliers into the supply chain, who are ready to work for the firm and can align themselves with the policy framework and requirements of the supply chain.
Material Requirement Planning is a critical element in the procurement process. In an integrated supply chain, material planning will have a cascading effect in the entire supply chain. Hence, in co-partnership arrangements the material planning will cover inventory requirements in the entire supply chain, including both firms and suppliers.
Processing: For a lean supply chain the emphasis today is not on curtailing the processing/ manufacturing cost through economies of scale, but by curtailing the huge inventory carrying cost resulting from mass production ahead of demand. In the past, the emphasis was on building mega capacity factories to produce standard products in millions in order to reduce manufacturing costs and flood the market with low priced products. This approach resulted in the build up of a large reservoir of finished goods, which remain unsold and dead due to its inability to respond to the changing needs of the customers. Hence, today firms instead of banking on cost reduction through economies of scale are thinking of strategies of reducing the total supply chain cost through manufacturing flexibility to rapidly respond to changing markets demands of products volumes and varieties.
Distribution: Traditionally, the role of distribution in the business process is warehousing transportation. However, in the supply chain model, the major task of distribution is the management of demand, i.e. to make available the right product, at the right place, at the right time, and at the least cost. Demand management covers all the activities involving anticipating the customer requirements of products and fulfils that requirements against defined customer service norms. Requirement fulfilment is done through proper distribution network.
The first and foremost task in demand management is to forecast customer requirement accurately. This is done only if the firm is able to satisfy the customer as per the service level acceptable to the customer. Logistics play a vital role in understanding the demand through improved informational flow by way of quick response to customer’s demands.
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