Supply chain management forms one of the most important components of the management of any one organization. However, just like any other part of organizational management, it is greatly faced with the risk of the changing business environment particularly the PESTEL environment. Specifically, the oscillations of the general economic environment present perhaps the greatest risk to the organizational supply chain. For instance, evidence show that the recent global economic crises has had far reaching and adverse effects to the organizations supply chain not only in the United States but also across other parts in the globe. Furthermore, some organizations had to completely realign their supply chain in adjustments and for survival. The purpose of this paper therefore was to find out the effect of economic warm- up on the
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Supply Chain management
Objectives of the study
This study sought to:
- Establish the effects of economic downturns/ warm up on the organizational supply chain.
- Establish the safeguards or supply chain strategies that managers can employ to safeguard the supply chain from the effects of economic down/ warm up.
- Economic warm ups have fatal negative effects on the organizational supply chain efficiency
- Economic analysis and MRP are ideal strategies for safeguarding the organizational supply chains against the shock of the economic warm ups
Statement of the problem
Supply chains in organization tend to be very vulnerable to the dynamisms of the economic environment particularly as evidenced by events in the current economic crisis. As a result, supply chain management must focus on safeguarding the organization against the shocks of economic fluctuations as well as economic downturns/ warm-ups. This paper therefore will undertake to find the effects of economic dry out on the organizational supply chain. Furthermore, the paper will focus on the supply chain management strategy to safeguard the SC from the identified effects of the economic warm- ups.
Limitation of the study
The challenges that the survey was expected to face includes:
- Limited budget
- Little time thus limiting coverage and richness of data for comprehensiveness
This section will present comprehensive review of literal materials and work of varied author in regard to the effect of economic warm ups of the organizational supply chain as indicated in literature (books, journals, articles, and other relevant literal materials).
What is an economic warm-up?
Ideally, an economic warm up refers to a state of economic instability as a result of prior unprecedented shocks brought about by dynamisms or oscillations in the general economy. In most cases, economic warm up occurs in the first phases of the economic recovery phase in the cycle (Padberg and Matthias, 2001). According to the latter, such could have a far reaching adverse effect on the general business environment operations, efficiency, and overall profitability if not adequately managed.
Economic warm- ups and supply chain management
Inventory demand forecasting based on the most precise economic analysis is a fundamental component of the supply chain management and the pedestal on which effective and efficient inventories control lies (cooper et al., 2007). According to the latter, inadequacies in terms of such analysis makes the organizational supply chain particularly vulnerable to the possibilities of economic warm-ups which pose a very big risk to the efficiency in operations on the organization. While establishing a supply chain that will have a guarantee of future sustainability and which will offer an organization a rather sustainable competitive edge, managers must integrate technologically-aided models that offer the company the highest level of inventories demand forecasting, accuracy, and precision if at all the company’s supply chain is to be safe from economic warm-ups (Padberg and Matthias, 2001). Ideally therefore economic warm-up can render supply chain of a certain organization ineffective particularly in terms where forecasting of inventories demand is concerned a factor evidenced by the fact that the firm is often faced with materials excesses leading to extra inventories costs and wastages, or shortages that usually call for the last minute expediting as a last gasp measure to save the company from missing customers’ needs or market demand.
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While shortages of inventories poses danger to a firm for failing to meet the market demand and customers need with a threat of customer dissatisfaction and ultimate increase in turnover, excess of inventories amounts to wastages and increment in inventories handling and other related costs. Furthermore, inaccurate demand forecasting and predictability will necessitate maintenance of buffer stock to safeguard against possible stock out, over and above the threat presented by the inevitable uncertainties of demand and supply (Collins, 2005). Especially when the latter relies on inventories or components that is crucial for its operations. It is important for the organizational managers to note that extra stock holding will also culminate to additional costs; hence accurate demand forecasting is crucial. This section therefore presents the organizational managers with feasible inventories demand forecasting models and approaches that will enable the company to maintain optimal inventories levels for ultimate SC effectiveness and preparedness in cases of economic shocks/ warm, up phase (Padberg and Matthias, 2001).
Inventories demand forecasting
As a preamble to developing a supply chain based on good economic analysis that will offer an organization with the highest degree of accuracy and precision in inventories demand forecasting, it is important for the supply chain managers and partners to understand and appreciate that success in the achievement of this objective rests on the level of technological integration in the supply chain. As such, the various forecasting methods that the company employs must be integrated with state-of-the-art technology (mainly computer- assisted models) so as to fit them with the highest level of accuracy in forecasting inventories demand. This is because such forecasting depends on accurate sales forecasts, the rate of inventories utilization, and prediction of inventories availability oscillations/variations.
According to Collins (2005), accurate demand forecasting that is entrenched in intermittent demand forecasting technology present several advantages to the company. First, the latter asserts that accurate inventories demand forecasting assists organization to reduce its inventories levels and the related costs enhances customers’ service via enhancement of customers’ satisfaction through in time meeting of customers needs and promotes overall business control and efficiency in the supply chain management. Reduction of inventories and inventories cost is usually an imperative objective of supply chain or inventories manager, especially for those businesses which have not achieved a financial footing. Also, most organizations are operating in business environment faced with acutely hard financial times (Rooney and Bangert, 2001). According to the latter, it would be un-strategic for a business which is a financial struggler to hold finances in unnecessary inventories extras.
Accurate demand forecasting therefore will enable a firm to maintain optimal levels of inventories making sure that the right amount of component are available where and when they are needed hence avoiding disruptions in the company operations since such analysis is an ideal approach to avoiding economic warm-up. In the same way reduction of inventories will aid the company in the minimization of inventories carrying costs. For the company, such accuracy in forecasting is inevitable since its operations solely rely on it i.e. its operations depend on crucial components. In addition, adoption of technologically assisted inventories demand forecasting techniques will enable the organization to not only reduce the inventories and related costs, but also enhance its capability to meet the growing market demand and exploit the opportunity presented by this increase. In addition, it will help it to gain unmatched business control and efficiency that comes with competitive edge over others in the industry.
Ability of the organization to accurate forecasting of inventories demand, especially in situations where the company’s inventories are slow moving will positively transform to business efficiency throughout the other business sector (Collins, 2005). Ideally, the latter will enhance planning other company’s sectors; enhance inventories management, production arrangements, and supply planning thus culminating to efficiency and effectiveness in business assets planning and utilization, both in manufacturing finance and other business components in an organization.
Approaches (models) to demand forecasting (the economic analysis models)
Although inventories managers are continuously developing modern models for improving accurateness in inventories demand forecasting, there are basically four conventional models that are used to forecast demand. These include quantitative approach, qualitative model, causal regression model, and the time series model and simulations (Rooney and Bangert, 2001). However, immense improvements on these models, based on incorporation of modern technology (computer-assisted software) have been made in an effort to enhance the effectiveness, accuracy, and precision of inventories demand forecasting. For instance, the new inventory demand forecasting technology that was recently developed by smart software, Inc the smart Wlleman forecasting method has offered organizations with a technological advancement towards the achievement of organizational wide inventory demand forecasting, planning, and inventory optimization capabilities (Collins, 2005). According to Collins (2005), users of this forecasting software have testified having experienced close to 100 percent accuracy in inventories demand forecasting, obtained massive savings in inventories cost, and acquired unmatched enhancement of the levels of customers service and satisfaction. Therefore, models that can be used to forecast demand for supply chain safety against the shocks of the economic warm up includes Time series, Simulations, Qualitative models, Causal regression among others (Padberg and Matthias, 2001).
Furthermore, with an economic focus it is easier and practical to amalgamate technology with qualitative and simulation models compared to the others which may be unfeasible. However, the situation where the company’s supply chain would be best solved using smart Wlleman forecasting method that combines both quantitative time series forecasting method and modern (state of the art) technology that has helped fit the model with the highest level of precision, accuracy, and efficiency in demand forecasting that the world has ever seen. In fact, the model has been appraised as having given the inventories planner near unit (100%) accuracy in inventories demand forecasting. In addition, it comes with a score of other advantages over other models which includes and not limited to increased business control and unmatched reduction in inventories costs.
The business environment is changing and competitive pressure is increasing. In addition, the growth in the markets demand for the company’s products presents a new opportunity for an organization and the company is presented with a new challenge of serving many customers and extensive markets. As such, establishment of a highly efficient supply chain, which enables the organization to meet the new market demands (take advantage of the new sales opportunities) and present the company with a sustainable competitive advantage is the most strategic way to guarantee safety from the fluctuations of the economic environment that is particularly safe from the adverse effects of economic warm-ups thus ensuring the organizations sustainable efficiency success.
In order to succeed in coming up with an effective supply chain safeguard against the shocks of the economic dynamisms, an organization will have to adopt a strategic approach based on accurate and modern economic models. This will involve the company carrying out a thorough situational analysis to identify its current position as far as its supply chain is concerned, identify the loopholes that the current company supply chain has and its shortcomings in the achievement of the set supply chain objectives (Hatesh, 2007). As such, the company must clearly set its supply chain objectives and establish proper control that will enable a company to appraise the overall efficiency of the established chain by measuring its achievements against the preset objectives. According to Carsten (2007), an efficient supply chain is the one that is consistent with the inventory policy. According to the latter, the aspects of the inventory policies which include, demand, lead time, product diversity, and the supply chain objectives (which includes the level of service required or offered by the supplier, cost management (minimization) and its consistency with the corporate cost objective/ structure) will make up the effectiveness of supply chain management.
The nature of the supply chain that a company adopts depends on the company inventory and business strategy (Hatesh, 2007). As such, the supply chain has to be guided by aspects such as the competitive requirement or whether the company intends to use the established supply chain as a competitive strategy and the competitive edge that the supply chain has the potential of offering to the company, the level of reliability that it poses to the company, its degree of responsiveness and flexibility to accommodate future emergencies and changes e.g. how easy it is for the company to expedite in cases of emergency demand for inventories, its consistency with the costs objectives of the company as far as inventory management are concerned among others (Cooper, 2007).
The supply chain that an organization must establish (in both short and long run) take into consideration putting the objectives alongside the company’s product objectives and lifecycle. While developing the new supply chain, the organizational management must not be overwhelmed by the need to take advantage of the emerging markets opportunities and loose focus on continued offering of top quality product that will put a company in a favorable market position. The supply chain that was adopted must therefore be consistent with the overall product strategy. This is in line with the fact that a good supply chain is the one that enables the company to achieve its optimal results (Jonathan, 2007). While maximizing the company’s inventory reliability (in terms of quantity and quality of the inventories) the supply chain must allow the company to minimize its cost on the latter for maximum productivity or result (Carsten, 2007),
Success in supply chain management is a combination of the supply chain networks optimization and the inventory optimization (Hatesh, 2007). In the endeavor to attain an efficient supply chain therefore, an organization will not only concentrate on optimizing the product availability and increased market locations via optimal suppliers’ reliability and availability but also ensure that the inventories guarantees top product quality. In order to create a sustainable competitive advantage, organization managers will have to ensure that the supply chain they create has optimal visibility. This is because that if supply chain visibility exists, it will not only increase the company products performance through reliability, availability, and meeting of increased demand but also will effectively reduce the company’s internal costs (Hatesh, 2007).
Economic analysis forms an ideal approach for ensuring supply chain feasibility. According to Carsten (2008) SC feasibility is the ability of the supply chain to provide the company or business supplies management with the right information and supplies of inventories that enables the company to provide the market with the right quality and quantities of the products and offer quality information support that ensure cost effectiveness and efficiency in supplies related decisions that ensure optimal products delivery (Carsten, 2008). Hatesh (2007) while establishing the supply chain, the company must be sure to come up with a supply chain that optimizes the customers value proposition, where a collaboration between a company and the suppliers is established to design, produce, and deliver products to the customers in the right quality, quantity and highest level of sustainability of production and steadiness of supply through continuous flow of quality accessories (Jonathan, 2007). In addition, the supply chain should enable an organization to gather information about a wide range of suppliers thus expanding its supply chain for optimal competitiveness, streamline the flow of accessories and ensure materials quality through comparison of numerous suppliers, in order to include only the global suppliers who are able to meet the objectives of the supply chain.
With the technological development and their applications in business today, managers can afford to ignore it. According to Jonathan (2007), technology is the pedestal on which successful supply chain managements in modern day business rests. This will enable managers to successfully align the supply chain strategies with the market needs and enhance cost efficiency and cost savings through encompassment of technology throughout that supply chain (Carsten, 2007).
While developing the supply chain, the company must ensure that it is consistent with the overall business strategy. They should thus develop global engineered and managements strategies that are able to grant the companies supply chain the responsiveness that it requires. This is achievable via embracing the modern technology while developing a competitive supply chain; the company must come up with a global system that supports internet related supply chain as well as establish an environment in which e-sourcing relationship exists between the organization and suppliers (Jonathan, 2007). The incorporation of modern technology has several advantages over the manual supply chain. First, automation and computerization of the supply chain increases the precision/ accuracy and speed in forecasting of inventories need, preparation of orders, processing of the latter delivery and payment for orders thus playing a major role in the minimization of lead time and cost (Cooper 2007). In addition, the automation or rather entrenchment of modern technology in the supply chain will enable a company to effectively and with great accuracy predict and set the requited inventory levels so as to do away with inventories demand uncertainties, develop contractual and strategic relationships with suppliers so as to lessen technical and sustainability risk in the supplies process (Carsten, 2007). While developing the supply chain, managers must aim at bringing all the parties in the supply chain together to work towards common objectives that is to enhance product quality through continuous supply of inventories while maintaining the highest level of cost effectiveness.
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For the purpose of this study; a study population of 10 supply chain or logistic managers currently working for ten respective companies in the manufacturing industry in New York was identified. However, the stratified sampling process was used to identify companies in the manufacturing industry in New York so as to enhance uniformity of the data as well as the authenticity of the results. From the ten companies representative organized interview and structure questionnaires was used to collect qualitative data regarding the effects of economic warm-ups. A number of ten was used for the study particularly due to the fact of limited time for the study and that it was possible to adequately cover the entire respondent within the limited time. Also, only companies from New York were studied due to the ease of accessibility based on limited times and funds for the survey was selected for this study. Furthermore, data via organized interview and structure questionnaires from the ten respondents was analyzed using simple percentage to enhance simplicity and ease in making conclusion and testing the hypothesis.
Discussion of the finding
All the ten representatives (100%) of those interviewed and from whom data was collected using questionnaires were supply chain managers representing 10 respective companies in the manufacturing industry in New York. From the study 9 out of 10 i.e. 90% managers admitted that economic downturn or rather economic warm up had adversely affected the company supply chains. Among the negative effects that were identified from the responses given by 90% of the respondents included increased costs due to shortages, necessitated expediting, disruption in production process, decline in quality and variations among others. Furthermore, 7 of the respondents (70%) indicated that their respective companies had resulted to reconstitute the company’s supply chain to handle the challenges that had resulted from the economic warm ups in reference to the current global financial crisis. Also 7 of the respondents (70%) admitted that the economic warm ups had resulted in increased supply chain costs in the company that they represented since 2006. The respondents agreed unanimously (100%) that lack of supply chain planning coupled with ineffective economic analysis for accurate inventory planning was responsible for the adversity of the economic warm ups since many organizations/ supply chains were caught unawares by the warm ups. Consequently, managers (respondents) felt that accurate economic analysis was essential and an ideal strategy to safeguard the organization’s supply chain against the shocks of the economic warm ups.
In conclusion, this would be inadequate and particularly risky for an organizational supply chain if it is not fully fitted with strategies and tools that safeguard it from the effects of economic down turns. As such supply chain managers will have difficulties in handling the risks and challenges that the company is presented with the continuously changing business environment, the manual sourcing that depends entirely on suppliers proximity is not only insufficient to fully meet the increasing market demand and size for an organization but also fails to give the company sustainable competitive advantage in the industry in circumstances where such an SC is not well equipped with effective and modern economic analysis approaches (model) since such increases its vulnerability to the adverse effects of economic warm-ups. The company cannot adequately take advantage of the new market opportunities and results in excessive cost. It is not reliable and is totally inefficient in accurate forecasting of inventory needs for the organization. To come up with an efficient supply chain, the management must have well stipulated and clear supply chain and inventory objectives that supports efficient identification and establishment of top suppliers followed by engaging them in to strategic two way relationships that guarantee reliability and optimal sustainability for just in time inventory acquirement and products deliveries. This must also be supported by modern technology and absolute automation that allows for web-enabled and e-sourcing systems. This would guarantee the organizational supply chain’s safety against the shocks of the economic downturns/ warm ups.
Ballou, R. H. (2004). Business Logistics/Supply Chain Management. Upper Saddle River, Nj: Prentice Hall
Carsten, B. (2007). The Importance and Development of a Supply Chain Management. Harvard Business School Publishing
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Cooper, C. (2007). Supply Chain Management: the Effects of Economic warm-ups. Web.
Jonathan, W. (2007). The Sustainable Supply Chain: Balancing Cost, Customer Logistics Inc. The International Journal of Logistics Management Vol. 8 Pp 1-14
Padberg, F., and Matthias, M. (2001). On the Impact of Warm-up Phases on the Economics of Pair Programming, Universität Karlsruhe, Germany retrieved from Planning under ERP.
Rooney, C., & Bangert, C. (2001). Developing the Right Approach to Requirements Service and Sustainability to Achieve High Supply Chain Performance.