Communication in supply chain design
Communication is imperative within the supply chain because it is the means with which relationships are cemented. Effective communication should allow all concerned members of the supply chain to access data that is relevant to their transactions. This enables them to deliver on time and allows recipients of materials to get at any point in the supply chain.
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Definition of terms
Communication refers to the transfer of information between one person to another. In supply chain design and management, communication affects procurement times (the time it takes to make an order and to receive the materials), delivery times (time between dispatch and delivery of goods) and other performance targets.
Once a communication breakdown exists in a supply chain then chances are that entities will keep duplicating efforts as there is a lack of coordination(Francoise et al., 2007). It can also lead to the use of excessive resources or unnecessary purchase of capital. This can tremendously minimize profit margins for distributors, manufacturers or even suppliers. Lack of communication also causes excessive staffing since firms are not keeping track of inputs and outputs. Also, it may cause entities in the supply chain to be highly inflexible. In this regard, orders will be found and acted on after excessive waiting times and this impedes efficiency in the chain. The best supply chains are always the ones that are proactive rather than reactive. This means that every member of the supply chain can respond to their circumstances in ways that allow them to be quite dynamic (Lee & Whang, 1998).
Understanding of issues
In the manufacturing unit of the supply chain, members of the firm need to communicate about process time, time needed to set up machines, production routes and the materials needed to achieve respective manufacturing targets (Singh, 1996). Additionally, machine-related information such as the number of machines in need of repair, time needed to repair them and preventive machine maintenance will need to be exchanged. Lastly, all members in manufacture needed to know about material structure so that they can communicate to their suppliers about it and receive it on time.
When the finished products are placed in a warehouse, they need to be transported to a distribution center so inventory managers need to convey vital information to the transporter concerning appropriate times to collect merchandise. Inventory control will need to be done concerning raw materials, intermediates and finished products. The company will need to know which stock levels are permissible and which ones warrant reordering. All this information must be communicated within the manufacturing unit. Retail outlets need to communicate with distributors about demand patterns and priorities. Distributors need to share information about procurement times and procurement horizons (Ellinger et. al., 1999).
In the supply chain, coordination can only be achieved when information is well coordinated. In traditional supply chain settings, information flows in the same manner that the physical supply chain does. In other words, orders move up from customers to suppliers. Shipment notifications flow down from suppliers to customers who may be retailers, distributors or even manufacturers. When information flow is limited to the physical realm then it may result in a very slow supply chain because issues such as bills of lading can slow down the process.
Also, when information only moves up sequentially, then this could become distorted and may compromise responsiveness and efficiency. Revolutionary communication methods are currently available for supply chain managers and other entities and these can contribute towards a recreation of the supply chain. Some of the flexible communication technologies include; the internet, intranets and E-procurement and broadband width. These new methods allow the separation of actual information from the physical flows in the supply chain. Therefore, entities can prepare for a shipment before it arrives. Waiting times and life cycles in the supply chain can be dramatically reduced because information processing errors and speed can be minimized.
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Supply chain coordination can only be achieved when communication is done effectively and this will eventually contribute towards profit maximization.
Problems that products with short lifecycles create in the supply chain
Short lifecycle products are particularly difficult to handle because sometimes suppliers may be unreliable and may fail an organization. Since the lifecycle is so short then it may be quite difficult to correct these challenges on time thus putting the manufacturing firm at a disadvantage.
Definition of terms
Product life cycle refers to the time between the design, manufacture, marketing, and disposal of a product. Short life cycle products take a shorter time to complete these steps and may disposed of faster than most.
Understanding of issues
In scenarios where a supplier fails, the manufacturer may need to switch to an emergency supplier who the firm is uncertain about (Fisher, 1997). Products with short lifecycles may sometimes be substituted by others because their demand may fluctuate. This could leave the manufacturing firm or other members of the supply chain with excessive inventory. The problem of obsolescence has exceeded manufacturing costs in certain firms. There should be immense communication and collaboration between the product developers and the marketers throughout the lifecycle but this should mostly occur at the beginning and the end; this may be problematic to supply chain managers because they now have to shift their frame of mind from the traditional approach to a demand-driven process.
Products with short lifecycles may require a redefinition of the supply chain principle because of this immense dependence on collaboration (Smith and Reinertsen, 1991).
Companies can curb the challenge of supplier failure by planning and always having a standby supplier who can then fill in the gap. In other words, they can avert this type of risk by contingent sourcing. Alternatively, they can diversify their supplier base such that they always have vast options when such incidences arise.
The problem of demand risk can easily be dealt with by demand forecasts. However, it should be noted that these kinds of forecasts will need to be very different from the ones carried out for products with longer lifecycles. Usually, traditional forecasts assume that a product will remain in demand for at least one year yet that may not always be true for products with short lifecycles. Excessive inventory arising from obsolescence can be prevented through proper inventory planning. Certain solutions combine inventory planning and demand forecasting in one and one such solution is ‘accurate response.
This method works by getting initial sales data rather than expert intuition. Here, one examines and records orders made within the first two weeks then using a ratio/ percentage which similar products follow, one then predicts the total number of products ordered over the entire lifecycle. For instance, if customers order one hundred blockbuster DVDs from a retailer in the first two weeks and similar two-week DVD sales in previous years have been 10% of all products ordered in the lifecycle then this implies that 1000 DVDs will be sold in the entire lifecycle.
To cushion the retailer, then he or she can add a lead time before replenishment quantities are added. Usually, these lead times are supposed to be very short. There should also be an additional hedge added in order to prevent stock-outs. The major benefit of using such a method is that the right products are delivered at the right time. Consequently, customer service can be dramatically improved and this would make such organizations quite productive. Also, the company can protect itself from uncertainty by hedging against it. Through accurate response forecasting, the concerned supply chain entities can be highly responsive and they would also be working with accurate forecasts in order to carry this out (Tomlin, 2009).
A well managed short lifecycle product is one in which there is efficient communication with customers and producers, sound supply management, and thorough product and enterprise planning.
Challenges posed by the need to accommodate the development chain within the supply chain
Any new product development process needs to have two aspects i.e. people and process. These normally play out in different ways but most of the time; the new product development process will affect the supply chain tremendously.
Definition of terms
The development chain refers to all those activities involved in the conception and design of a new product. Usually, these must be merged and coordinated with the normal products in the supply chain.
Understanding of issues
In the industrial era and other subsequent decades, supply chains were dictated by companies like Chrysler, Ford and many others. In other words, these organizations would come up with innovative products, place them in the retail market and create support for those innovations through advertisements. Such a method worked well in that environment owing to lack of computerized data collection methods. Companies were not in a position to assess consumer demand.
They also preferred this option because they could always utilize their industries to the maximum. However, consumers today are highly informed and would not be satisfied with such approaches. They want to be more involved in product development. This has created products with short lifecycles because customer input keeps varying from time to time. Unless organizations can keep up with fluctuating demand that comes from product development, then very minimal results will be expected. Communication issues can also arise owing to the incorporation of development chains in supply chains. This normally becomes a problem when members of the supply chain have outdated ideas about the role of marketers.
Lead times are a big challenge in these kinds of product life cycles because when product innovation is demand-driven then customers can change their minds even before a product launch has taken place (O’Marah, 2005).
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Members of the process or engineering department may assume that their role is to bring marketers back to reality since the creative specialists always go ‘over the top’. Such old fashioned attitudes may cause conflict and may disrupt the entire supply chain.
First of all, the company must keep operation costs down even as the production of other products continues. Furthermore, the development costs themselves need to be low too and this may not always be easy to achieve especially when the product is so different from what has ever been done before by the firm. The quality and robustness of the newly developed product should not be compromised and this may involve reconfiguration of the supply chain. The level of responsiveness and service emanating from the supply chain should not be compromised merely because a new product is getting introduced into the market. However, life cycle times need to be speeded up such that the product development process does not bring down the rest of the supply chain (Grieves, 2006).
Firms will need to rethink the need for linear flow. Instead of information coming from marketers to the research and design department and then to manufacturing and eventually sales, firms can involve their customers in product development or product innovation. This can allow them to participate in changes in customer demand and can provide them with opportunities to predict how their supply chain will be. Such companies can also keep costs of materials down because they only get to spend on those things that will contribute towards actual order taking.
In order to reduce lead times brought on by demand-driven development chains in the supply chains, it may be crucial to postpone any decisions concerning product quantities made for as long as possible. This can be achieved by thinking of all time lags created by supply components delivery and any kind of sourcing activity and predicting it before a launch. This kind of approach has been used by manufacturers within the computer industry but is rather new for other industries. They can borrow a leaf from supply chains in these industries and thus benefit from more precise product development processes (Saaksvuori, 2008).
Communication challenges brought on by new product development in the supply chain can be handled by first clarifying and redefining the roles of the product development team. Process engineers should not think of themselves as disciplinarians who need to step in at the last minute and tell everyone how product development suggestions cannot be implemented. Instead, the entire supply chain should meet up frequently such as once in a week and exchange ideas on the new product being developed. All experts need to keep in mind the fact that customers are central to this process so the team should be furnished with feedback obtained from the internet, surveys and focus groups before product launch. All entities in the supply chain need to respect one another as they continue with their roles.
Cross-functional teams are the way to go in today’s challenging product development world. However, suppliers should not be underscored in these cross-functional teams because their contributions are critical.
Contribution of quantitative methods of ordering (inventory management) within the supply chain
The supply chain is linked to inventory management because such quantitative methods of ordering have a direct effect on costs and service offerings.
Definition of terms
Inventory for any company entails the raw materials, manufacturing or production processes and finished products involved in a supply chain. On the other hand, Inventory management can be understood as the order process, stock and the analysis of the cost of business processes (Dooley, 2005).
Understanding of issues
Any alteration in inventory can translate into supply chain inefficiency or poor responsiveness i.e. deterioration in the services delivered and the costs of production. Quantitative methods of ordering contribute towards cost reduction in the supply chain. Usually, when a company has excessive inventory then it may spend too much and costs will plummet. Inventory management facilitates analysis of this process thus ensuring that only those items which will be used are ordered.
Inventory management also leads to better customer service. Sometimes when there is an undersupply of inventory then chances are that demand may be higher than what a company can supply. This will result in lost sales and disgruntled consumers. Inventory management allows companies to prevent the occurrence of scarce inventory thus boosting customer service. An IFR or Item Fill rate is a measure of the number of times that a certain product is available when a consumer requests for it; it is a determinant of the level of customer service.
Usually, organizations may have a certain percentage that they always work towards in terms of their IFR rated. When firms find themselves in a lack of stock, this may have been brought on by several reasons. First, the company may not be tracking its inventory amongst distribution centers or they have poor tracking systems. Alternatively, it may be that the products are damaged especially if the supply chain involves consumables. Third, it may be that the concerned company may have carried out a wrong product forecast. These issues actually cause severe impediments to customer service and if inventory management has not been utilized then chances are that supply chain management may go wrong (Chandra & Fisher, 1994).
Inventory management allows for incorporation and reaction to customer demand. Demand may not always refer to the end consumers-output since one entity will be input for another. For example, a tractor may be an end product for a components manufacturer who then delivers it to a wheat farmer. Wheat may be the end product for the farmer but is a raw material for a miller and this then flows to the retail outlet and finally to a consumer. Because of this interrelatedness of the supply chain, it can be quite difficult to determine intermediate demand especially when extra inventory has to be kept in order to cushion against stock-outs. Inventory management allows for the inclusion of this uncertainty and therefore minimizes costs (Felea, 2008).
It should be noted that certain stages in the product life cycle require more cost control while others require greater customer services. For example, at the beginning of the product life cycle i.e. during the introduction phase, focus should be on expanding the business so attention should be directed towards customer service. On the other hand, in the maturity phase, the brand has gained sufficient exposure and at this point, the firm should dwell on cost savings. An overabundance of inventory at the last phase of the life cycle will lead to obsolescence and immense loss. It may be difficult to know how demand will be at the early stages so lots of inventory will be needed at this time to meet customer expectations. However, as the product matures then demand forecasting can be done; this would eventually allow firms to dwell on cost minimization.
Normally firms need to anticipate and monitor demand so that they can determine which stage of the life cycle they are. The major aim should be to achieve high profits as quickly as possible and then maintain stocks at levels that consumers require. Inventory management facilitates this process by ensuring that consumer demand and inventory levels are well aligned (Johnson et. al., 1999).
The ultimate aim of any supply chain design is to minimize costs and maximize service output. Inventory management facilitates demand forecasting, customer relationship management, as well as cost reduction through stock monitoring and these, make the supply chain efficient.
Balance of costs and service in supply chain design
Supply chain design must be done in a manner that ensures the delicate balance between service and costs. If one goes wrong on these two aspects then one would wind up with a highly inefficient system.
Definition of terms
Supply chain refers to the process of conceiving, realizing and servicing a supply chain. These may involve manufacture, procurement, marketing, distribution, and retail designs.
Several factors can affect what a company prioritizes in the supply chain i.e. service or cost. If a company wants to be a price leader then it is likely that the organization will have very minimal distribution centers and will optimize its transportation system by bulk carrying and employing low-cost carriers. Investment in inventory is likely to be done after orders have been obtained.
On the other hand, if a firm wants to compete and win on a service basis then it is likely to use a different approach. It would select high-quality transporters and may possess several distribution centers around the country. It may also invest in inventory to minimize stock-outs. Typically, these would be slow-moving commodities which are altered by customer outputs. Therefore, it can also be said that order cycles also contribute towards the decisions made in the supply chain about the need to balance cost and service (Chopra & Meindl, 2004).
In order to maintain this balance, companies often need to identify a series of factors that may affect them. For instance, they need to consider their location about customers. If a location has a wide client base then it is likely that a company may incur extra expenses to meet the needs of these clients. However, if the location has very few customers then chances are that the service benefits customers can enjoy will be offset by costs incurred in order to set up a distribution center in such a location. It would, therefore, be wise to weigh the option and see whether a company will benefit from such investments.
Sometimes companies may opt to outsource elements of their supply chain to meet these divergent needs in cost and service management. When making these decisions, companies need to know that transporters and logistics handlers may charge them for the extra risks associated with the movement of those goods or inventory of the commodities. This is especially high for those commodities that may be perishable.
One will be charged for the cost of administering such a program and for the inherent costs involved in handling those commodities. Sometimes a firm may not have the capital investment needed to deliver their goods so they can choose a third party. Also, it may be that the service provider understands consumers in that location more than the concerned company so a firm will be willing to undergo a minor increase in costs for the promise of better customer service and greater returns (Stark, 2007).
Product forecasts are crucial in maintaining this balance. If a company has excessive inventory without considering its demands then chances are that it may waste it. This means that it will have spent more and this would make its supply chain inefficient. Unless the company possesses an accurate forecast system then it will be useless for it to keep excess inventory.
In order to maintain this balance of services and costs, supply chain entities need to monitor the amount of time commodities take from the organization to the consumer. If delivery times are too long then this could have implications on the service levels. On the other hand, it may be that the delivery systems are low cost and improving these delivery times may increase costs. Firms must evaluate whether an investment in delivery systems would compromise their costs strategies. If that is a risk they are willing to take then they can go ahead and do so.
Supply chain design facilitates a balance of costs and service production through prioritizing of efforts depending on one’s business goals.
Supply chain design and business strategy
Supply chain design is intertwined with business strategy because it is the means with which companies get to achieve strategy. It affects almost all facets of business so it must be duly controlled.
Definition of terms
Business strategy can be defined as a set of activities and decisions enacted by people who direct a business that is shaped by their values and prepares a business for its future.
Understanding of issues
Supply chains are crucial in determining how effective the business strategy is because they are the ones that answer the question concerning how a business will enact its values. If a company’s business strategy entails product differentiation then the supply chain will reflect this aspect. If a company’s value proposition is low cost then the supply chain must be organized in a manner that allows the company to realize those low costs (Handfield et. al., 2000).
The supply chain will define how a company will organize its suppliers, transporters, customers and internal operators and will, therefore, be the vehicle that will execute the business strategy. For example, if the company wanted to expand its geographical boundaries then the logistics, distribution, and procurement will need to have greater geographical reach. Alternatively, if the firm was interested in restructuring then the supply chain will need to be altered as well. Companies often anticipate a return on assets and it is crucial to design one’s supply chain effectively to reap these benefits. Furthermore, since inventory management leads to lower turns then that would affect operating margins.
Stakeholders in the supply chain need to ask themselves what they need to do to increase the level of visibility during inventory control or how they can control inventory to minimize costs. When costs are minimized then this can translate into heightened revenue growth. The right supply chain can, therefore, make the difference between the achievement of these goals and failure.
Indeed the most flexible supply chain designs are the ones that can accommodate all market variables since market conditions are always changing. If a company does this effectively then it can leverage on its supply chain to boost competitiveness; an aspect that one cannot miss in most business strategies. For instance, if a company experiences growth in volume or a reduction in volume then the supply chain should record an adjustment in inventory investment to keep up with the business strategy. Alternatively, if a business has lost customers or it has recorded an increase in customers then it needs to alter its transportation costs.
This can be done by the optimization of current carriers or transportation modes. However, if that is not possible then a company may need to rethink its service provider or transportation mode. Sometimes the problem may be that distributors’ capabilities have changed. Here the supply chain will need to adjust in a way that would reduce warehouse space and labor costs used in procurements. To do this, supply chain managers need to rethink their facilities’ capabilities.
They need to align this with the changes that have just occurred in distribution. If a company has decided to introduce a new service then administrative costs in the supply chain need to be minimized. When the company has acquired another or it has merged with another then the supply chain should be adjusted such that on-time rates can be boosted. In other words, the supply chain is the machine which allows the company to stick to their business strategies when changes in the external and internal environment occur.
Supply chain managers and other stakeholders need to know the optimal number of goods that customers require. They should also be aware of the optimal number of raw materials needed from suppliers. They also need to monitor locations; facilities needed to meet service targets. Without this knowledge and monitoring processes, then a business would just not be in a position to deliver its promises to its clientele and would fall below their strategic expectations.
A good supply chain can, therefore, ensure that firms meet their financial obligations such that costs, asset optimization and tax reduction can occur. This means that financial management and the supply chain are highly correlated. On the other hand, certain technical systems may be introduced into an organization. The supply chain is the means with which companies can execute and manage new technologies. Lastly, companies can boost their stakeholder networks through the supply chain by examining infrastructural sustenance and implementation. Any supply chain needs to consider what the growth plans are for the company, its new products, new acquisitions and well as its new markets so that the business strategy can be effected.
Supply chain and global risks
Supply chains are affected by labor issues, currency issues and demand since supply chain activities depend on those factors.
Definition of terms
Global risks refer to those external conditions that affect how supply chains are run.
Understanding of issues
Global risks affect supply chains from year to year. Currently, there have been global issues with liquidity owing to the crises in the banking sector. Therefore, supply chain designs that involve global markets now have to reduce inventory and rationalize their product lines so that they can boost productivity. Some of them just have to lower operating costs so as to keep businesses profitable. The major effect of this global risk is that it has caused buyers in supply chains to ask for extensions in terms of their payment terms while sellers are looking to collect aggressively. This eventually leads to tension between the two.
Any supply chain that spans across the globe is likely to be affected by regulations enacted in target countries. For instance, if a new consumer safety law is enacted in one country and not in others then those products can be recalled and inventories would be in a crisis in those countries. What’s more, regulations in popular countries can likely spearhead regulations in other less popular nations thus putting a lot of pressure on the supply chain. Warehouses may end up with products that they can no longer use.
Global environments also increase the possibilities of outsourcing. Many manufacturing jobs in western countries have moved to the East or other less developed countries. Consequently, firms may find that they have to work with a series of supply chains from other partner firms. Eventually, this can translate into uncoordinated work and companies may compromise their service provision or cost reduction because of this. Businesses can solve this problem by working hand in hand with members of the supply chain in different parts of the world so that no one can ignore the possibility of loss. They need to communicate their expectations to these partners concerning supply chain management and coordination. On the other hand, the issue of outsourcing one’s supply chain can contribute to a company’s profitability since it distributes risks.
Global supply chains also present a number of challenges to stakeholders because demand for items can fluctuate from time to time. Sometimes this can be brought on by financially related reasons as was the case with the global economic downturn or it may be created by divergent tastes amongst consumers.
When supply chains are extended across the globe then chances are that they can be affected by rising labor or production costs. If this happens then firms often start compressing their supply chains. If operations were in another continent then the firms may choose to bring them to regional firms. When this occurs then stakeholders in supply chains need to adjust their processes so as to deal with cost and service-related challenges.
Global supply chains present so many risks in terms of money. First, exchange rates may go up or down frequently. The same may apply to energy prices. In such circumstances, it may be imperative for people within the supply challenge to re-examine their transportation costs as this may be the biggest energy consumer in the supply chain.
Placing one’s distributors, logisticians and suppliers all in one geographical area is dangerous for business. For this not to be a reality, a company must fully understand conditions in those partnering countries so that it can be shielded from such problems.
Companies need to look for ways of anticipating these changes in demand so that they can manage their inventory. This can be done through regional or geographically based forecasting.
Companies can protect themselves from labor and production risks by always looking out for closer partnerships as this will allow them to capitalize on a bad situation. Members of the supply chain should be well informed about goings-on in different parts of the world so that they can adjust accordingly when there is a need to compress the supply chain (Bechtel & Yayaram, 1997).
Companies will need to evaluate the kinds of suppliers that they procure their raw materials from in order to deal with the problem of escalating raw materials. If prices of raw materials have gone up in a certain part of the world then a manufacturer will need to work with suppliers from another part of the world. For instance, a coffee producer may choose a country like Kenya over Brazil if Brazil’s coffee prices have gone up.
Flexibility is imperative when handling global risks in the supply chain because the external environment is quite unpredictable.
The world is one big supply chain
The functions carried out by individuals in the supply chain are no longer limited by geographical barriers because product development can be done in Germany, finance can be handled in the US while distribution can occur in China. The global marketplace has offered supply chain stakeholders a chance to collaborate irrespective of their locations (Ballou, 2004). In fact, when one looks at how supply chains are run, one soon realizes that the world is one large supply chain.
Definition of terms
A supply chain can be understood as those components involved either obliquely or directly in gratifying the user’s instructions. It includes suppliers, manufacturers, retailers, distributors, transporters and even customers themselves.
Understanding of issues
A case in point is Japan; the country was recently dealing with the after-effects of a tsunami and a nuclear crisis. This country’s importance to the global supply chain could not be underscored after companies realized how much they needed Japan’s contribution. An organization like General Motors closed down stations that employed over nine hundred employees. The company was heavily reliant on component supplies from Japan for its Chevrolet brands.
It did not have any other alternative so it just had to close down. In Sweden, Volvo depends on navigation and air conditioning parts from Japan. Since the country was in a disastrous state then the factories decided to close. Other industries are reliant on equipment which is exclusively made in Japan; these equipments cannot be found in any other part of the world. Companies in the semiconductor industries in the US are suffering tremendously because of this. Also, mobile phone and laptop manufacturers depend on Japan for raw material. These products utilize BT resin and 9 out of 10 of the world’s supplies come from Japan. About three-fifths of the world’s supplies of silicon wafers also emanate from Japan.
The country supplies these commodities to computer chip manufacturers who then sell their commodities to computer manufacturers like Apple and Dell. In fact, Apple is having a hard time sourcing batteries and flash memory devices. These supplies were not available from Japan after the earthquake. It has messed up the machines as they now need to be recalibrated. Another company such as Boeing relies on galley supplies from Japan. Without these items, Boeing cannot make airplanes. Other companies such as Caterpillar also think of Japan as a vital part of their supply chain. This organization has been able to get other suppliers and thus carried on with their activities. The reason behind Japan’s centrality in the global supply chain lies in its leading science and engineering excellence, high skilled labor and great FDI conditions (Chana, 2011).
This integrated global supply chain does not just rely on Japan for suppliers alone but considers the country as an important aspect of the distribution and marketing functions as well. Japan currently offers a large market for the purchase of high fashion exports from western companies in the UK, US, and France. Fresh food producers also depend on this country for marketing functions but because earthquake led electricity problems have ruined refrigeration of their commodities then business has definitely gone down. Normally, these corporations often establish retail branches in the country. Therefore Japan’s contribution illustrates just how related and interconnected the global supply chain is.
In order to contribute well to this global supply chain then companies need to segment their supply chains and logistics systems so that all products are fully accommodated (Ganeshan & Harrison, 1995). There is no such thing as one size for all objectives. Companies need to dwell on certain aspects of their global objectives such as quality, time or cost and not each one of them.
Global supply chains implemented by one company should not merely depend on one supplier; diversification is crucial to survival. Furthermore, companies need to be prepared for alterations in consumer demand such that their supply chains can adjust accordingly. Failure to comply with these requirements can cause huge problems to companies participating in the global supply chain.
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