MGNT 7430
Class Assignment #2
January 27, 2008
Trip Addison
Ashley Calhoun
Linda Dahlskold
Christie Heard
Lacie Heard
Leah Lewis
Kathryn Mosley
3.1
Running a vertically integrated firm, Henry Ford owned rubber plantations, farms, and mines. In
addition, the firm produced the metal, rubber, and concrete and manufactured the parts and
subassemblies, which allowed them to assemble and distribute the cars and trucks.
When firms are vertically integrated, the whole value chain is compiled onto one income
statement, which leads to a greater exposure for financial risk. In the case of an economic
downturn, the firm is responsible for more problems across the supply chain.
Henry Ford’s idea of “one-company-does-all approach” had advantages such as allowing
companies to gain very large efficiencies, having greater control over product quality, and
having greater coordination of operations across the value chain. However, it does not produce
a system that is flexible in terms of accommodating product variety or making model changes.
Henry Ford’s “one size fits all” approach is obviously not feasible for supply chain management
in today’s business world. Instead, focus today should be on improving performance by more
effectively matching specific customer requirements to what is provided, when it is provided,
and the quantities in which it is provided. Flexibility in product variety and making model
changes is crucial in today’s business world. If companies work with its suppliers and customers
within its supply chain, then it can produce products that satisfy customer needs and reduce its
cost which in turn results in the business’ ability to succeed.
As a result of the coordination issues faced by Ford, the typical supply chain has been broken
down into many pieces which are managed separately, known as a "divide and conquer"
solution. Complexity, technology issues, scale of products and services, and the need for focus
in operations led to this division of supply chains. However, the cost associated with
maintaining these buffers has been realized, and the practice of lean production has become
more common. Lean production is an approach to managing operations without massive
buffers of inventory. This allows companies to cut costs, improve quality feedback, shorten
production lead times, and reduce the time required to introduce new products or services.
Recent advances in information systems technology allow firms to look upstream beyond their
suppliers and downstream beyond their customers to make the supply chain leaner. Today, in
the automobile manufacturing industry, companies that assemble cars, such as Ford, usually
bear the largest capital investment of the companies in the supply chain, giving them
tremendous leverage within and exerting a huge influence on the supply chain. This influence
can be seen by evaluating the supply chain either upstream to the assemblers' first tier
suppliers and their second tier suppliers (influenced by the first tier suppliers) or by looking
downstream to the assemblers' distributors and retailers.
3.2
Supply Chain Management involves the management of a product (raw materials to a finished
good) as it moves from the supplier to the consumer. Supply chains include a combination of
suppliers, retailers, factories, warehouses, and distribution centers. In order to manage this
chain effectively, everything must operate in a coordinated manner. Communication is vital in
order to have a coordinated supply chain. Because customers have a plethora of choices,
businesses have seen an increase of complexity in the form of product variety they offer,
demand uncertainty of customers, and capacity requirements. However, communication along
the supply chain reduces this complexity. Communication ensures that the right product is
produced at the right time and in the right quantities that the customer prefers. With no or
poor communication, how do you know who is doing what, and how do you know every step is
being completed? How can you coordinate without communication? How can you improve
without getting someone else’s view and/or input on what and how something may be
improved? Thus, communication is of tremendous importance in SCM.
Information Technology plays an important role in communication along the supply chain. It
enables the members of supply chain to coordinate their activities. Now, technologies enable
real-time tracking of inventory, which reduces uncertainty in supply chains and also the impact
of the time-cost trade-off. Rather having “(1) a great product in the wrong place, (2) an
insufficient supply of the product, or (3) imprecise or erroneous information about the product
location and quantities”, information technology has allowed businesses to communicate
better and substituted these three to “(1) having a great product in the right quantity, at the
right time, at the right place, (2)knowing that the product is where it needs to be, (3) enabling
the customer to see that information.”
Information Technology allows for more accurate forecasted demand which in turn leads to
lower costs for businesses. In the past, information regarding demand and customer
requirements was passed upstream through the supply chain one stage at a time. Today,
information is exchanged via electronic data exchange (EDI), which is a method of transferring
business information such as demand, price, available capacity, and anticipated delivery date
between suppliers and customers via a predetermined protocol. Enterprise resources planning
(ERP) systems integrate decision support programs for the various functional areas with a
common database. This allows companies to access schedules of their downstream suppliers as
well schedule their own operations so that they are making what will be needed rather than
what they think will be needed. Information technologies such as EDI and ERP are key to
making SCM coordination possible.
Tom’s airline has experienced dramatic changes over the last few years as a result of the
information technology. These changes include e-tickets, which result in staff cutbacks,
increased number of scanners and security factors, among others. It will probably implement, if
it hasn’t already, radio frequency identification (RFID) in order to track inventory more
precisely. RFID will aide airlines in providing top-notch security to its passengers by determine
what has been loaded on to the airplanes and being able to detect unacceptable materials in
luggage. Information technology has enabled Tom’s airline to better serve its customers.