Overall, global optimization is a mathematical term, describing a set of tools which are used to analyze and improve various organizational processes within organization. When this notion is applied to supply chain, it can be interpreted as methods of improving every element of the manufacturing process, transportation routes, distribution of the product, procurement of raw materials, and so forth. The manager, who applies this, view the supply chain as a whole, and not a set of separate elements. The importance of this concept can be exemplified by referring to such a company as Toyota and its strategy, known as lean production (Teresko, 2006, unpaged). It is based on the careful analysis of market needs and avoidance of unnecessary costs.
Types of Inventory
The three inventory types are as follows:
- raw or direct materials;
- work in process ;
- finished goods (Shim & Siegel, 2005, p 189).
The main rationale for keeping inventory control is that it enables the management to control business processes within the organization: inventory allows the management of the company to point out those elements of the supply chain which require improvement, for example, one can identify those areas, where the majority of costs occur. To a great extent, Toyota’s lean production relies on the skillful use of inventory.
Overall, the supply contract is a legal agreement between the customer and the supplier. It specifies the timelines of delivery, the quantity, and the quality of goods to be delivered. Moreover, it delineates the responsibilities of the parties. We can discuss such a form of supply contract as a conditional sale arrangement. Its essence lies in the following. The supplier transfers the goods to the customer while retaining the title for these goods until the moment when the last payment has been made. Such a form of agreement is particularly beneficial to the supplier who is able to insure oneself against the customer’s default of payment.
However, such a contract is not fully applicable if we are speaking about services. On the whole, the supply contract is particularly important for the automotive industry, where the customers, for instance, such large companies Ford and GM have to forecast the demand for the product and estimate their needs for components and spare parts (Purdum, 2006, unpaged).
Supply Chain Variability
The variability of the supply chain can be caused by the following factors: 1) inefficient planning and inability to forecast the demand for one’s product; 2) poor inventory control; 3) slow exchange of information within the organization (Lambert, 2008). This problem is particularly important for many representatives of the automotive industry, which need to reduce the number of its suppliers at a very fast pace (Teresko, 2006, unpaged).
Push-pull supply chain
The peculiar features of push-and-pull supply chain lie in the following: on the one hand, the manufacturer attempts to assess the needs of the customer and his/her demand for a certain product, and on the basis of these findings, the company estimates the future volume of production and specifies the design of the product. Normally, such an approach is called a pull-supply chain. In turn, push strategy is based on the analysis of the historical sales records, in other, the manufacturers estimate the volume of production on the basis of their previous sales rates.
The two fundamental distribution strategies are as follows: 1) direct shipment to the customer when there are no intermediaries between the client and the manufacturer; 2) intermediate approach, which is based on the use of warehouses and distribution centers. To better explain the differences between these distribution strategies, we can refer to such company as Four Star which sells in-house which means that they avoid using third parties while dealing with the customers (Anonymous Author, 2008, unpaged).
The advantages and disadvantages of outsourcing
The companies which prefer to outsource some of their business processes can obtain the following benefits:
- expertise of the supplier that can be much more experienced in a certain area of production.
- the reduction of costs.
However, these companies also run certain risks, for instance, the inability to control the manufacturing process, especially if we are speaking about the quality of the product. Additionally, often have to deal with delays, especially, if their suppliers are unreliable. Overall, such practice is very common nowadays, for example, such company as Four Star prefers to outsource its production to China. However, to maintain the quality at the highest level, they continuously send specifications to their Chinese partners so that they could a precise idea of how the product should like (Anonymous Author, 2008, unpaged).
The forces driving the globalization of the supply chain
There are numerous, driving the globalization of the supply chain; one of them is the rapid development of information technologies which enable the speed of the interactions between the customer and the supplier. Informational technologies are particularly important when we are speaking about the companies which are separated by long distances. The second force is the adoption of free trade agreements.
The free movement of goods and labor force across national borders is possible only due to free trade or liberal policies, pursued by the governments of many countries. One of the best strategies for managing the risks, connected with globalization is to diversify your customers and suppliers. In other words, you should not be dependent only on a certain group of clients. To illustrate this point, we can refer to such a company as Delphi Group, one of the leading Ford’s suppliers. The problem is that when Ford decided to curtail its production, Delphi’s revenues began to decline, because they had no other clients, apart from Ford Motor Company. This is why diversification is the best method for managing global risks.
An example of a supply chain (Four Star)
Fully Integrated Global Supply Chain (based on Toyota Motor Company)
Push-pull supply chain
Pull supply chain
Push-pull supply chain
“Skateboarder Apparel, Footwear Firm Just Wants to Focus on Product Marketing” Global Logistics & Supply Chain Strategies. About.com. 2008. Web.
Lamberty. D. 2008 Supply chain management: processes, partnerships, performance. NY. Supply Chain Management Inst
Purdum Traci. (2006) Automotive: In Search Of New Outlets. Industry Week. Web.
Shim J. & Siegel J. 2005. The Vest Pocket Guide to Information Technology. NY: John Wiley and Sons.
Teresko John. 2006, Learning from Toyota Again. Industry Week. Web.