Upstream Supply of of Chain Relations

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CARDS FOR YOU CASE STUDY: UPSTREAM SUPPLY CHAIN RELATIONS IN A COLLABORATIVE, INTEGRATED ENVIRONMENT The challenge with companies seems to be in growth and how to handle relationships with sales people and suppliers. In the case of Cards For You (referred to in this paper as C4U), the company’s growing pains have become more evident in recent years as the popularity of the cards have grown as has the competitive pressures from other companies that are saturating the market. Going forward, C4U needs assistance in addressing a number of areas – from sales and marketing to supply chain management – to address uncertainty in demand, supplies availability, and competitive responses. Working with their local suppliers, C4U might be able to find ways to address the industry challenges and customer pressures without sacrificing quality while improving response time, operational efficiencies, and costs through a collaborative, integrated supply chain relationship. This essay examines the current processes used with suppliers, highlights other systems utilised by companies in similar markets, and offers recommendations for improvements that will sustain the same level of quality, delivery, and service that have been hallmarks of C4U. Current supply chain management process Currently, C4U uses local suppliers that are small firms.

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Usually, specialised firms such as this rely on suppliers that deal in smaller qualities due to the unique nature of the supplies, which in this case include paper, card stock, ink and silk thread. John, one of the owners, finds that these suppliers can guarantee a better quality than a bulk wholesaler who may not be able to match the quality of the craftsmanship put into the specialty cards. The major problem with small suppliers is that they may not have enough of the supplies C4U needs on hand to produce the demand that they want to achieve by focusing on additional customer segments as well as broadening their product range. This strategy might not work with local suppliers because they may not be able to provide the supplies necessary for the additional products. In addition, there is the issue of costs. By using small, local suppliers, they must deal with a higher cost for these supplies. All indications point to the fact that these costs are destined to keep increasing. Both Stan and John are currently weighing the options to drop these local suppliers and develop relationships with larger, national suppliers. This raises the question of how close a company should be both geographically and relationship-wise with their suppliers. C4U’s reliance on local suppliers might be out of commitment to helping the local economy, but their kindness may be affecting the viability and success of their own business. C4U’s current supplier relationship can be described as an integrated relationship in which there are shared risks, costs, profits and information because the nature of what C4U makes is demanding and sophisticated (Mould and Starr 2000). If the supplier does not have the materials, then C4U cannot make the cards, drastically impacting both C4U and the suppliers that benefit from the company’s success. Background on upstream supply chain relations The primary goal of any supply chain is to more effectively coordinate supply activities with its partners while reducing the uncertainty of demand, supplies availability, and competitive response through better planning and communication.

This involves the need for all levels of management to participate in tracking and responding to the “dynamics of demand and supply,” which “significantly impacts profit, service and inventories” (Donovan 2005). Generally, a company’s supply chain is affected by a number of factors, including economic environments, technology, competitive forces, and social and cultural changes that impact consumer and business trends (Fill and Fill, 2005). Most importantly, today’s organisations seem driven by consumers whose demands determine success (Fill and Fill, 2005). Additionally, these forces then affect strategic decisions with product, price, promotion and place – also known as the four P’s of marketing (New and Westbrook 2004). All four of these “Ps” are dependent on the relationship that a company has with their suppliers. For example, the quality and price of the materials are based on the actions of the source of those supplies. In the case of C4U, they are concerned that selecting new suppliers will adversely affect the quality but most likely improve price competitiveness. As part of the supply chain management process, logistics is imperative to C4U’s operations. In this aspect of supply chain management, there is considerable planning and implementation of how the supplies and final product is made and stored (Fill and Fill 2005). Balancing an overall understanding of supply and demand in the consumer marketplace enables a company to effectively communicate with suppliers to ensure prompt delivery of the necessary supplies to respond to that demand.

For example, C4U logistics management would want to plan accordingly for holidays where the demand for cards increases exponentially. Suppliers, in turn, whether the local companies or those which deal in larger quantities, should be prepared to handled this demand. Industry challenges Companies are faced with a host of challenges that have them feeling intense pressure and searching for new strategies (Gorbach 2006). The list is extensive: “dynamic market needs, increased compliance requirements, more distributed manufacturing operations, rapid product innovation, lean manufacturing, and the approaching transition to new IT technology” (Gorbach 2006). Many of these challenges touch on areas that C4U is examining in various aspects of their business. Overall, manufacturers have boiled down their challenges to three key issues with their suppliers. These issues are less service with increasing costs, lack of sales talent, and wholesaler-distributors that do not “execute a value-added strategy” (Dancer 2007). Customers are “demanding perfection in quality, quick on-time delivery and better pricing” (Donovan 2005). In many ways, C4U has experienced all of these challenges in their current supplier relationships. For companies that manufacture products, such as C4U, their priority remains excellence in performance. This is “characterized by the ability to react quickly to changing marketplace conditions, to dynamically reflect these changes in production targets, and to efficiently and reliably achieve these targets. It also requires ongoing cost reductions and quality improvements” (Gorbach 2006). For nearly every company out there, addressing and solving these industry challenges is a somewhat daunting task. Recommended relationship with suppliers Researchers are concluding more often than not that “building high-performing supply chains is increasingly dependent on the strength of the social ties that exist between buyer and their key suppliers” (Lawson et. al. 2007). There are a number of reasons why relationships are really the foundation of a successful supply chain.

First and foremost is the increase in pressure from competitive forces and from consumers or other constituents (Trent 2005). There is also a need to work with a smaller base of suppliers due to the costs of maintaining multiple suppliers, the probability for duplication of effort, and lack of efficiencies (Trent 2005). Buyers who take an “adversarial approach” to working with their suppliers will find “their suppliers increasing prices, allocating limited capacity to other firms, or sharing their most innovative ideas with other customers – some of whom may be the buyers’ direct competitors” (Trent 2005). At the same time, those suppliers may have a dependence on their buyers to maintain a profitable level of business. Because the whole concept of supply chain management is based on inter-dependence between steps that involve both the manufacturer and supplier, there seems to be a need for both parties to develop a close relationship in order to achieve each other’s objectives (New and Westbrook 2004). For any company, relationships with their suppliers “ought to be dictated by operating and marketing conditions; this framework can define the appropriate relationship – the foundations of intimacy, if you will – for each component supplier” (Mould and Starr 2000). Both the suppliers and the company that uses their supplies have roles to fulfil. For the supplier, they must be accountable for looking to constantly improve their part in the supply chain or be on notice that they could be replaced. (Fill and Fill 2005). For the company that uses their supplies, they are expected to better estimate their supply intake and communicate clearly with the supplier on that expectation (Fill and Fill 2005). However, companies can develop this intimacy of processes (Fill and Fill 2005) without having to be in close geographic proximity to each other. Technology has made this possible. There are some challenges with this strategy in that there has to be an incredible level of integration, greater scalability, and seamless processing in order to achieve a flawless execution of supplies delivery (Fill and Fill 2005). The amount of technology may be a huge investment burden of C4U and it might be more plausible to spend some on technology to modernise its local suppliers to better maintain the right level of materials to quickly respond to C4U’s demands. Collaboration and Socialization Collaboration is a necessary component of the supplier relationship because it is a way “for everyone in the supply chain to increase market share through quick response to customer’s needs” and the “flow through the entire supply chain is the critical success factor” (Donovan 2005). As one researcher noted, “Collaboration demands not only a commitment of resources but also the sharing of proprietary information….The information exchanged during collaboration may be the most valuable investment a company makes in the relationship” (Mould and Starr 2000). This collaboration requires investment in metrics to measure the progress, alignment of processes, and dedication on both sides to the effort (Mould and Starr 2000). Having an integrated relationship makes C4U and its suppliers a perfect choice for the collaborative method of supply chain relationships. This collaboration can also be seemed a socialization between the buyer of supplies and the suppliers. There are a number of aspects that present a positive conclusion on forming this type of relationship: Investments in socialization mechanisms produce a bank of benefits and goodwill that have the potential to generate ‘hard’ benefits to buyers, such as reduced supply chain costs, greater flexibility, and reduced new product development time. In return for the benefits of improved performance and joint value creation, suppliers are willing to work more efficiently due to more concise and accurate information sharing, responsive technical assistance, joint improvements in training, process control, and direct investment in supplier operations (Lawson et. al. 2007). As such, it may be necessary for the two companies to share a deeper, more intimate degree of information in order for the collaboration to be more effective.

This may included planning and forecasting data, capacity, production schedules, marketing plans, costs and inventory (Mould and Starr 2000). The objective of collaborative demand planning is “to develop better forecasts of customer needs faster with consistent updating which should result in a more coordinated supply and shorter cycle response times” (Donovan 2005). At the same time that there is sharing, there should be firm boundaries to establish roles and responsibilities (Lawson et. al. 2007). Collaboration must also be analyzed and critically challenged before it is implemented with suppliers because “it is still neither feasible nor desirable to collaborate with all upstream and downstream supply chain participants” (Mould and Starr 2000). As one supply chain expert noted, “A major part of supplier relationship management is differentiating supplier relationships and understanding when and where to apply an appropriate relationship” (Trent 2005). This philosophy of collaboration should be shared or it is not the right tact to take. It is also critical to not get too close to suppliers because too much closeness “may diminish these competitive incentives with friendly suppliers receiving favourable terms” (Lawson et. al. 2007), leading to the opposite effect where there are no efficiencies and advantages to using that particular supplier. Maintaining quality and prompt delivery If C4U does decide to opt for larger suppliers outside of the local community, careful examination of these suppliers can help ensure that the same level of quality is possible while achieving cost savings and improved delivery of supplies. Companies, such as McDonald’s have been able to turn to suppliers all over the world without compromising its exacting quality standards. However, the risks with loss of quality are too much for a company like C4U to withstand if they cannot ensure the same level as a company like McDonald’s might do. The concern that quality might be lost is really the crux of the company’s supply chain dilemma and almost more important then the materials cost issue. This idea circles back to a company like C4U’s primary objective of performance excellence.

Maintaining the ensured level of quality can be better achieved by sticking with the company’s local suppliers. The issue of prompt deliver remains a challenge but might be addressed through benchmarking best-in-class supply chains that offer viable solutions for C4U to consider. Benchmarking the best In looking for the right solution for C4U’s issues, it never hurts to examine and benchmark the best practices of other successful supply chains. This strategy enables a company to implement changes that could improve their performance and competitive edge without wondering if they are doing more harm then good (Vitasek and Manrodt 2006). This is because they are incorporating proven strategies from other companies where the processes are in action and working to create “a strategic, operational, and financial advantage (Vitasek and Manrodt 2006). Impact on end user sales If the quality of the product was affected by a switch to an overseas supplier, it could drastically affect the company’s card sales. Consumers who recognize the value of the cards due to their beauty and quality by making the decision to pay nearly twice the cost of another brand of card may be offended by an obvious change in the materials used that they decide to stop buying the cards. Once this happens, it is too late for C4U to switch back to the higher quality supplies because the consumer will not return to notice that the quality has returned.

The risk of losing a large portion of the customer base to save on supplies may not be worth it. However, if the company focuses on improving response time and materials availability with its current suppliers while forming new relationships with other suppliers that can expand C4U’s product line, the company may garner additional market share and sustain its collaborative relationship with its local suppliers. Other recommendations Again, the recommendation lies in improving current supplier relations. Since suppliers are broken down into three categories – third-tier suppliers that supply raw materials, such as the paper, card stock, ink, and thread; second-tier suppliers that provide subcomponents; and first-tier suppliers that provide complete components (Fill and Fill 2005), a company like C4U that relies primarily on third-tier suppliers has a better chance of securing better pricing while maintaining quality since the end-result quality is based more on the production of the cards which will remain in-house. The overall recommendation, then, is to consider building relationships with some suppliers outside of the local area with a certain percentage of the raw materials for the product segments that require the company to retail the cards at a lower price.

The more suppliers the better is not necessarily the best philosophy so it is best that C4U does not go overboard in forming relationships with any and every raw materials supplier. Perhaps, C4U would be best served to only seek out these new suppliers when expanding their product line into other areas that do not match the expertise of their current suppliers. With the current suppliers, further planning for greater inventory will help address C4U’s unexpected need for additional materials instead of having a just-in-time mentality in which only a smaller company could effectively function. Utilising an e-procurement system might help suppliers more effectively respond to C4U when there is an unexpected need. When needed, C4U could use an e-marketplace to purchase supplies that they are short on for an attractive price, filling a need for extra materials on as-needed basis. One other option would be to tighten the relationship with current suppliers by vertically integrate with them to gain greater control over the supplies.

This would basically mean that C4U would buy those suppliers in order to own the materials, gaining better pricing and reliability (Fill and Fill 2005). Other recommendations involve utilising major advances in technology that allow organisations to better collaborate with their suppliers through a more rapid information exchange. Examples include “investments in new electronic technology, such as the meta-data system language XML, EDI (Electronic Data Interchange) and supply chain software” (Mould and Starr 2000). The last two recommendations point to the fact that both “electronic communication and physical proximity are useful for scheduling just-in-time component shipments, reducing inventory carrying costs and keeping the supply chain flexible (Mould and Starr 2000). This collaborative environment and closeness can provide a number of measurable benefits, smooth process flows, decreased lead times and reduced inventories while more effectively integrating such processes as “order fulfilment, materials management, operational planning, product design, and feedback on quality and performance” (Mould and Starr 2000). Overall conclusions Because C4U management does not have the experience to truly understand the strategic process, the company executives must really consider bringing in people who can help them understand how to build a better supply chain management system. These experts can help C4U build a stronger bond with their current suppliers by forming a collaborative relationship that is enhanced through technology, communication, and process integration but is guarded by the establishment of agreed-upon boundaries. Careful thought should be given to working with new suppliers on expanded product offerings that the local suppliers might not be able to provide the necessary supplies. Above all, quality is one of the most important values and competitive advantages that C4U provides, so it is not prudent that the company risk that with unknown suppliers that might have cut-rate pricing but poor quality as well. Combining the best of other companies who have proven best-in-class supply chains with an open, collaborative environment with current suppliers will be a win-win for both C4U and its local suppliers who rely on the company for employment in a struggling local economy.

Consumers will benefit from continued quality and the possibility of new and exciting product lines from a unique and distinct company. All changes within the supply chain must be aligned with a strategy that also addresses issues that the company has in terms of sales, channel management, and marketing communications. Integrating all these areas in a sound business strategy will help C4U flourish and continue to grow its sales in a market that had recently become somewhat saturated. REFERENCES Dancer, M. (2007). Reinvigorate your supplier relationships, Modern Distribution Management Newsletter. Donovan, R. M. (2005). E-supply chain management: managing the extended enterprise, Performance Improvement, pp. 1-10. Fill, C. and Fill, K.E. (2005). Business to Business Marketing: Relationship, Systems, and Communication, London: FT Prentice Hall. Gorbach, G. (2006). Pursuing manufacturing excellence through real-time performance management and continuous improvement, ARC Advisory Group, pp. 1-19. Lawson, B. et. al. (2007). Good fences, good neighbours? Socialization in buyer-seller relationships, The University of Manchester Supply Chain Management Research Group, Manchester Business School, pp.1-6. Mould, T.L. and Starr, C.E. (2000). Dangerous liaisons, Accenture, pp. 57-61. New, S. and Westbrook, R. (Eds.) (2004), Understanding Supply Chains, Oxford: Oxford University Press. Trent, R.J. (2005). Why relationships matter, Supply Chain Management Review. Vitasek, K. and Manrodt, K. (2006). Benchmarking – prerequisite for building best-in-class supply chains, ProLogis Supply Chain Review, pp. 1-11.

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