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Review of Perspective on Risk management in supply chains 3-5
Review of ERP systems in lean production 5-8
Safety Stock planning under casual demand forecasting 9
Bibliography and references 10
The following is the authors’ review of three articles from journals relating to the Operations Management Course. Each of the articles will be reviewed and analysed as to their relevance to a particular or number of subjects of the course.
Perspective on Risk Management in supply chains; Journal of Operations Management 27 2009 (114-118) @ 2009 Elsevier B.V. All rights reserved
The article focuses on managing risk in supply chains and highlight how important this area has increasingly become over the last number of years. It highlights a number of key trends happening at present such as increased reliance on suppliers, cross border supply chains including that of developing countries, the globalization of markets, more and more firms outsourcing to gain or utilise specialists skill sets and increasing innovation and the increasing reliance in information technology that helps and makes it possible to get more control and have greater co-ordination that a firm can exert over supply chains. All this basically means firms now have increased outsourcing and reliance of cross border suppliers in the areas of research and of manufacturing.
While as a firm this all presents increased global strategic options for competitive advantages in their industries it does also have the adverse effect of the increased and heightened likelihood of adverse events and risks affecting your supply chain which can not only affect the normal running of these firms but can have adverse and detrimental effects on a firms bottom line, reputation and more important market share and shareholder confidence.
Some example of such occurrences have been the Melamine found in infant food/powdered milk in China) and the catastrophic building collapse in Bangladesh of a clothing manufacturing plant in 2012 which claimed many hundreds of lives due to improper building regulations and poor management , this company provided clothes for none other than one of Ireland’s well-known brands Penney’s which had an effect on their trade in both Ireland and the UK when their connection to this was documented in the media soon after this disaster.
The article tends to focus on how practioners and academics are paying more attention to supply chain risks and its impact on management. The article mainly highlights 2 key areas
1) Supply Chain Risk Management (SCRM) as an increasingly key investigative in operations and supply chain management.
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2) Offer possible new methods and theories dealing with supply chain risk management.
What is Supply Chain Risk Management? The article infers that it is a strategic management activity in so far as it can affect a number of company areas such as operational, marketing and financial. In the context of the article SCRM is defined as the “sources of risk, magnitude of risk and its relationship to business objectives, and threat of disruption in supply chains” (Duncan 1972). SCRM is effective in helping make decisions that maximise and align with organisational processes and decision that will open and exploit opportunities whilst at the same time reducing and mitigating against risk. Supply chain disruptions can happen both in and out of the supply chain , events such as natural disaster can impact on a supplier e.g. supplier in a developing country providing necessary raw materials or manufacturing skill to complete the chain. Therefore supply chain also needs to take into account capacity, inventory and forecast management as well so that such events can be catered for.
The article goes onto to review four papers around the following areas:
Value Focused Process Engineering
- Supply chains risks will affect and does contribute to a firm overall business risk this feature of the article highlights the reasons why firms outsource. Things such as cost reduction, need for agility and being able to adapt to changing customer needs were highlighted. It also looks at innovation outsourcing and the chances/likelihood of information leakages as the firm cannot control all the information and in such scenarios may leave themselves exposed to proprietary information being disclosed. This may lead to reduced competiveness and indeed lend a firm to be locked in with a supplier for the foreseeable future.
Labor Management and Global Supply Chain Risk (Jiang, Baker and Frazier)
-Looked at labor turnover in Chinese suppliers; it linked labor turnover to supply chain risks such as unfulfilled orders, poor quality and low productivity. This paper used a rubric of SCRM derived from Global Supply Chain Forum in Ohio State University. It found eight processes that should be the bedrock of supply chain success. Two of these directly relate to labor issues. The paper acknowledged that outsourcing and cross country supplier relationships will continue and indeed grow and as firms are more and more coming under pressure for reduce pricing and competitive advantages this area will be subject to greater scrutiny.
The authors identified two major areas for worker dissatisfaction these are sourcing requirements from overseas forms are too high and local buyers are far too greedy. So firms will continuously change their specifications, increase and tighten quality standards and reduce lead times for delivery. All this coupled with long working hours and unrealistic project demands cause the massive turnover in labor. So in identifying the main causes of these firms can reduce labor issues around supply chain risk.
The paper also further identified three major areas of supply chain risks (cost, operational and reputation). The key underlying trend to all three is that they are all impacted by labor management issues in suppliers manufacturing plants.
This author feels that this part of the article is really highlighting two key implications for supply chain risk management these are that buying firms such properly evaluate suppliers before entering into agreements with them and secondly buying firms such invest into supplier firms to increase capabilities and skills in these companies. Basically if the buying firm can increase competencies in their suppliers than can further control the supply chain.
Planning for Catastrophic Events in Supply Chain (Knemeyer, Zinn and Eroglu)
-the article stresses the importance for firms to have plans in place for this. Whilst these events are few and far between none the less need is required to plan ahead. It proposes a number of steps for firms to implement these are:
1) Identify the key supply chain locations and threats
2) Estimate the likelihood of loss for each location (percentage based)
3) Review and evaluate alternatives
4) Select required countermeasure for each location
Supply Chain Agility and Risk Mitigation (Braunscheidel and Suresh)
-Highlight the factors firms need so that then achieve a very high degree of agility with their supply chain and put in place effective measure to counter against disruptions thus improving performance.
This article was thoroughly enjoyable to read as it covered a vast amount of subject topic relating to supply chain and their risks. It raised questions on how firms control, manage and select their supply chains and provided some very useful ideas on how they can mitigate against risk (All of which were covered). The article highlighted how the supply chain impacts on all areas of a business and touches on other areas of operations management such as inventory management, capacity management, ethics and total quality management The area of supply chain risk management will continue to grow as will the risks associated with it.
ERP systems in lean production: new insights from a review of lean and ERP literature; International Journal of Operations and Production Management ; Vol 33 NO 11/12 2013.
Lean Production improves manufacturing processes by using a set of tools and techniques and Enterprise resource planning (ERP) systems are a necessity for companies looking for the maximum efficiency for integration throughout their overall organisation. ERP systems have mainly being implemented in organisations with a view to integrating all business process that ultimately support management decision making. The integration of processes seems on the outside to gel with the idea and approach that is typical of lean i.e. an overall view). However according to the article ERP has been seen as roadblock or subject of waste within lean production. The paper does however provide useful overviews on the value of integrating ERP into Lean production.
Lean production is mainly derived from the practices of the Toyota Production System of Toyoda and Ohno. The idea is to enhance production efficiencies. It is a philosophy that provides a tools and techniques to systematically reduce and eliminate waste in an organisation (Ohno is the author/identifier of the 7W’s model or 7 wastes). ERP Systems are essentially a software package that aims to provide a seamless integration into all areas of information passing via a company. It looks at Human resources, financial, supply chain, customer information and processes. ERP can trace its origins to that of the Materials Resource Planning or MRP (a system designed in the 1980’s primarily for materials planning, inventory and purchasing).
The research provided in the paper is mainly provided by that of literature surveys and these shave been primarily garnered from journals within operations management, textbooks, whitepapers and other academic literature have been disregarded and only findings after 2000 have been included. The paper does however identify six key areas for ERP in Lean but mainly finds the gaps and offers some framework to further promote research regarding utilising ERP in Lean Production.
In looking at the paper it is clearly organised in the following way;
-Section 2: chosen research methodology
-Section 3: Classifications scheme being used to review its selected literature
-Section 4: Brief Review of literature
- Section 5: framework garnered from section 3 provides investigation for application of ERP in lean production#
-Section6: conclusion for future research
The literature used to research this topic and the methodology used has been mentioned previously. The main themes the article highlight from its classification of the literature is that a number of reoccurring themes are identified such as:
-Enabling for competitive advantage
Manufactures looking at performance improvements and view to competitive advantage often will look at an ERP system or utilising lean production.
-Modes of Implementation
This article highlights how much of the literature provided highlight the implementation of either one or the other of these however there is a lack of evidence from academia the shows the effects of implementing both.
Again in reading the article it does suggest how either of the approaches supports the other but there is no real concrete evidence to back this up.
-Role and Value of information
Information sharing and data accuracy is a key area in the literature. If ERP systems are to support lean then it is going to need to provide integrity and demonstrate its strength.
-Supply chain integration
The article highlights several inks to supply chain with both approaches. For example it mentions benefits of implementing of information sharing within an ERP 2 system and links it to the existing Toyota keiretsu structure in Japan (Koh et al 2008). Toyota has its own vertical keiretsu system where it controls or own between 15%-30% of its main parts suppliers. The article also highlights that while ERP is an example of an IT system it does also state it is an exemplar of JIT. Toyota integrated SAP (A type of ERP system) in the late 1990’s so that it could further manage its supply chain. ERP has enabled companies integrate their purchasing, production, scheduling, inventory, logistics, product design and other production to help track materials across their whole supply chains. (Melford 2009)
-Development of Kanbans and role of the internet
The development of kanban and the role of the internet in lean production whilst being classified as separately and closely linked and should be looked at simultaneously. Kanban system derived from the Toyota Production system and is an effective tool for the pull concept in lean production. In IT system the Kanban substitutes the physical signal with an electronic one. This has the effect of improving supplier relationships, provides instant assessment of supplier performance and reduces paperwork (less waste). An online kanban system can mitigate against human error also and facilitate tracking and performance measures. For example a human may lose a paper card in a setting , this could result in materials shortages, long waiting times, increased costs, lower expected productivity, reduced customer service and underutilisation of staff )all key in Ohno’s 7 wastes). IT can greatly increase kanban visibility by providing better tools. Does this then suggest a new direction for computer applications in lean production? Tjahjono (2009) suggests a multimedia based information system could be developed for a shop floor worker and this be incorporated into an ERP Framework.
The research framework for the ERP in lean production: towards a concept for ERP-enabled lean is nest summed up by the following diagram:
This paper really presented a thorough and critical review of literature that’s stated goal was to highlight and engage with relevant factors and useful insights into the role and consequences of ERP systems in lean production.
Whilst it is very clear that ERP systems and lean production offer many opportunities for manufacturers to improve their competitiveness it worth further research on how both of these can be combined and how that can be extended to the supply chain also. To have a wider impact on the supply chain, lean production and JIT should better utilise IT and in particular EERP systems and the internet. The importance of including a Kanban system within a global environment thus becomes more important.
Article 3: Safety stock planning under casual demand forecasting; Int. Journal f Production Economics 140 (2012)637-645
Forecasting demand in without doubt one of the main challenges facing a supply chain. Forecasting is the process of trying to predict future events and is the main basis for business decisions relating to production, inventory, HR and facilities. The article looks it from an inventory and supply chain management point of view.
If there is an a problem with the accuracy of a forecast it can have major negative impacts such as overstocks, can lead to a reduced price and very unsatisfied customers. The article highlights safety stocks as a good countermeasure against inaccurate forecasting. The size of such a safety stock is dependent on the forecast error and the demand from achieving a certain customer satisfaction level.
The article closely looks at inventory management using a theoretical demand distribution and evaluates and estimates the necessary criteria from historical data. It suggests that the time series based framework uses forecasting and this provides the criteria for the demand model. What is does not do is factor in the likes of customer demand, price changes, weather, sales prices, currency risks and economic conditions. The paper provides two frameworks one a reversion model to forecast demand and this shows how estimation errors can be used to determine and set safety stocks. The second one is a linear programming and this uses separate guidelines, different goals and more constraints around agreed service levels to maximise inventory levels.
There was a lot of numerical and statistical calculation put forth in the article which have for the purposes of my research not been included.
The research was motivated by inventory planning problems in the retail industry. Demand forecasting is just based on historical demand or otherwise known as the Quantitative approach did not produce the most satisfactory results due to the demand dependency on other factors like the ones previously mentioned. Demand dependency is demand for an item which is dependent upon the demand for some other item in the inventory. Example here is in good summer weather retailers would see an increase in demand for salads to compliment barbeques etc.
Times based models are incapable of capturing these types of effects therefore other forecasting methods are required.
Whilst forecast are very rarely perfect there is a set format for ensuring that they can be at least based on real data. Firstly determine the use of the forecast, select the appropriate items for forecast, identify the proper time horizon for the forecast, select forecast model, gather the data, make your forecast and finally evaluate and validate the results.
This article while very geared towards a numerical and statically analyses of the subject matter does offer a very good insight on how to best approach forecasting and what needs to be included in a forecast to as best as possible accurately forecast demand. In offering a framework for demand forecasting and safety planning where demand is dependent on many external factors like price, weather and sales where a time based model would be inadequate the article does try to provide the reader would an alternative model to work within.
Powell, Daryll; ERP systems in lean production: new insights from a review of lean and ERP literature; International Journal of Operations and Production Management; Vol 33 NO 11/12 2013. http://0-www.emeraldinsight.com.acpmil02web.ancheim.ie/journals.htm?issn=0144-3577&volume=33&issue=11&articleid=17101332&show=html&view=printarticle&nolog=931210
Narasimhan, Ram; Perspective on Risk Management in Supply Chains; Journal of Operations Management 27 2009 (114-118) @ 2009 Elsevier B.V.All rights reserved
Beutel,Anna; Minner, Stefan; Safety stock planning under casual demand forecasting; International Journal of Production Economics 140 (2012)637-645