Study About Supply Chain Management Management

Essay add: 29-03-2016, 20:26   /   Views: 8

The idea of supply chain is the application of total systems approach in managing the entire flow of information, materials, and services from raw material suppliers through factories and warehouses to the end customers. Inventory turnover and weeks of supply are two common measures to evaluate the supply chain efficiency. Inventory turnover is measured as the ratio between the cost of goods sold and the average aggregate inventory value, while weeks of supply is a measure of how many weeks' worth of inventory is in the system at a particular point in time. A firm considers inventory an investment as it ties up funds that could be used for other purposes, and a firm may have to borrow money to finance the inventory investment (Chase, Jacobs, & Nicholas, 2006).

The global supply chain management process covers aspects of the business that includes sourcing, order fulfillment, offshore procurement, distribution, warehousing, and inventory management. Managing the global supply chain effectively increases competitive advantage, market share and profits. Target's supply chain is very complex and starts from planning a product to be sold to getting them to their stores to be sold. The process flow chart described below gives an overview of the supply chain.

The first step in the process is deciding the product strategy of either a new or an existing item. For a new product that has not been sold previously in stores, the business sourcing strategy including the vendor the product will be sourced from, cost of the item are determined. The next step is deciding the basic product characteristics like color, size, case pack and also other characteristics like the stores the product will be sold and retail price are decided and setup. Deciding a replenishment strategy includes determining the reorder frequency if the product is planned to be replenished automatically, safety stock required to be carried, store presentation minimums and sales pattern associated with the item. Once the item is setup for replenishment, the orders are created and the information is sent to the vendors electronically using EDI documents. For products that are already being replenished automatically the replenishment parameters are constantly monitored and altered to meet the current market forecast and demands.

The vendors manufacture the product and ship it to Target. The shipment mode and location is determined based on the product. Orders for Import products are not setup to be ordered automatically and orders are placed months ahead. These import products are shipped in ships and sent to the import warehouses near the port of arrival. On arrival at the port these products are either sent to the import warehouses or regional distribution based on the need at the stores. Domestically ordered products are shipped directly to the regional distribution centers. The main distribution strategy followed by Target is warehousing. Only a very few special orders are placed with the vendors that are either sent directly to the stores or to the guests.

Once the products are received at the regional distribution centers they can be unloaded straight from inbound trailers onto the conveyers that lead to outbound trailers to be sent to the stores. The store distribution quantity is based on sales forecasts, store inventory and optimal distribution quantity. The received quantity ordered in excess are stored in the distribution centers for address future needs and market fluctuations. Products available at the regional distribution centers are evaluated daily to determine if any stores need them and picked to be distributed to them. The pick frequency is optimized to make sure the products are not sent to the stores daily for products with lower daily sales. This is done to reduce transportation costs of sending half empty trucks.

The distribution strategy of Target is different from Wal-mart its competitor. Both Wal-mart and Target follow similar warehousing distribution strategy. The main difference is Target evaluates the store needs once while placing orders and then again at the time of distribution. This strategy makes sure right amount of quantity are sent to the stores. The drawback in this method is due to possible variations between the time the product the orders and distributed, products could end up being over or under shipped. Excess products are required to be stored at the distribution centers. Wal-mart places orders for each store based on the need at the time of ordering. This enables them to have their vendor's package products specific to the store and the work required to redistribute in the distribution centers is eliminated. The drawback with this method is change in market trends between the time the product ordered and received is not accounted for.

A key aspect of demand forecasting is the ability to adjust quickly to market trends. Target imports goods from overseas and they are required to order them about 3 to 6 months ahead of time. They do not have any visibility of the state of the ordered products while they are being manufactured offshore. Overseas transportation management and visibility is an area where Target needs to improve to effectively manage their global supply chain management. A Just in Time (JIT) inventory means the company gets the inventory when they actually need it and not before and not after it is required. The major problem with the JIT operation is that it leaves the supplier and downstream consumers open to supply shocks and hence the need for knowing the exact location of the product (Wikipedia, 2006). Gathering detailed information about the product production schedule and movement require development of a software application. If Target can effectively use a JIT inventory management for import items, the savings achieved from reduction if inventory cost should be less than the application development cost. This decision also should not cause any ethical issues since this is a process change that has been implemented in other companies and does not impact any one.

Companies are achieving significant competitive advantage by the way they configure and manage their supply chain operations. A type of operation successful for one company may not be optimal for another. For example, Dell Computer's distribution strategy is direct to guest. They take orders directly from the customers, manufacture to the requested specification, and ship directly to them. This strategy is a successful strategy for Dell, but cannot be followed by retailers like Campbell to market their soup (Chase, Jacobs, & Nicholas, 2006).

JCPenney direct-ship initiative program has raised the bar for the retail industry when it comes to supply chain collaboration. JCPenney has established a factory-to-store supply management system for its private label merchandise suppliers in which they supply the products to JCPenney weekly, within five to seven days of receiving orders. This allows it to order merchandise as needed in response to demand, instead of at regular, pre-established intervals. The suppliers produce the goods in response to incoming orders in a few days, instead of producing apparel far in advance and storing it in warehouses. This has resulted in a significant reduction in stockouts and the time taken to get an idea for a product into the store (Atkinson, 2006). Target also uses the concept of direct to store and direct to guest distribution strategies for certain items.

The elements that have made the supply chains of Dell, Toyota and Wal-mart are well known, but they cannot be replicated by their competitors to achieve the same results. A successful supply chain practice needs to tie to the company's strategy, operating model, and performance objectives. Following a successful supply chain policy is highly unlikely to provide a competitive advantage to a company outside these supply chain leaders (Lapide, 2005).

Radio frequency identification promises to create revolution in the supply chain management process. Radio frequency identification (RFID) is a small tag containing electronic product code (EPC) data that can be picked up by an EPC reader and then transferred to a database to be used in various ways. The advantages revolve around improving the efficiency of all processes in the supply chain by eliminating the problems caused by human errors in counting and monitoring stocks. The temptation of warehouse workers to steal is reduced by the knowledge that the each carton is constantly being tracked. RFID also offers the possibility of tamper-proof containers to help alleviate the threat of terrorism. The company needs to be aware that the more data it holds about its products, the easier it is for a rival or criminal with a RFID reader to access that data remotely. RFID also raises ethical concerns as the consumer's data is stored and available for manufacturers' use (Anonymous, 2005).

Managing supply chain requires collecting, securing, and analyzing data from different sources and companies are turning to data warehouses to assist them in to bring data together from multiple sources to make better business decisions. Without a data warehouse, data cannot be easily shared across an organization, creating pockets of information instead of a broad business view. Wal-Mart, for example uses NCR Teradata data warehouse technology to manage in excess of 560 terabytes of information down to minute levels of detail, including items on the retail floor, supplier and carrier information and customer data to help them effectively manage their supply chain (Hickey, 2006).

Vendor management inventory (VMI) is another supply chain concept introduced by Wal-mart and is now being followed by other retailers. VMI is the process where a vendor assumes the task of generating purchase orders to replenish a customer's inventory with the two large partners helping each other do business (Shister, 2006).


To conclude, a supply chain management is a collaborative-based strategy to link business operations to achieve a shared market vision and spans from raw material sourcing and end-consumer purchase. There are many successful supply chain management processes perfected by companies and is often tempting for another company to follow them. Companies wanting to follow a successful supply chain process need to identify the underlining principles behind best practices and leverage them to provide benefit that is dictated by the company's strategies, operating models, and performance objectives (Lapide, 2005).

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