Business Operations Essay Example
Business Operations Essay Example

Business Operations Essay Example

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  • Pages: 10 (2707 words)
  • Published: August 23, 2018
  • Type: Research Paper
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Business operations have shown a fold in its properties due to globalization of activities creating intense competition.

Now days, companies are intending towards mass customization to achieve economies of scale. This led towards adopting large scale production feature and directly deriving the demand from customer end. Inherent features to mass customization properties result in increase in overhead cost structure, complexity in manufacturing processes and inventory management problems.However, many companies adopted a principle strategy of Postponement in order to effectively manage changing business operations. INTRODUCTION Globalization of business has shortened the product life cycles.

Companies now focus on getting edge over competitors through cost cutting measures, better product offerings, and improved service quality. Innovative product offerings and customer demand created a distinct market competition encouraging existing companies to move towards contemporary strategies.Customers demand show

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great variability depending on various offering by a company, and market factors including the offerings by competitors. Such a market structure creates problem in business operations when large sum of errors occur in forecasted demand and actual sales frequency (Boone, 2005).

Mass customization lead towards attaining high scale production facilities in order to effectively manage the demand by customers. This production strategy created many changes in traditional procedures from operational to management level.In early 1990s firms focused on mass production especially technology and FMCG companies to gain market share and profitability. Large scale changes were made in organization structure and business operational procedures. Firms established a production mechanism to achieve economies of scale. Production sites capacity was expanded including expansion in warehouse storage capacity.

Ordering was made frequent and large scale, however demand for raw material remain bulk (Esparrago, 1988). This resulte

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in rapid increase in cost structure that decreased the profitability of firms.Operations were become inefficient due to mismanagement in operational core. The main reason was devoted to demand uncertainty and associated losses for the raw material components.

Mass customization of product requires rapid adjustments in design of the product as per the demand of customers driven through market channel (Boone, 2005). This mainly is because competitors are constantly focusing on offering innovative products to customers that directly impact the current operations of a company unless any contingency plan becomes operational.Therefore, in order to address the problem of demand uncertainty and associated business losses Alderson devised a ‘postponement’ strategy in 1950 (Swaminathan & Lee, 2003), which was adopted at large scale in early 1990s by firms serving different industries such as Toyota Motors, Sony Electronics; later on followed by Dell computers, HP, IKEA, Amazon, Cutler Hammer, and Smart Automobiles. POSTPONEMENT Warehouse/Distribution centers play an important role in the supply chain process of an organization.It enables company to store and manage inventory in forecast of customer demand in order to avoid stock-outs and supply break-outs from production sites (Patrik & Ebbe, 2005). Mainly it is valuable when firms aim at continuous availability of its products in consumer markets.

However, mass customization of products may result in great uncertainty in actual demand and forecasted customer demand. This termed was conceptualized as ‘aggregate error’ by Dell Corporation to manage its inventory properly while reducing cost (Kapuscinski et al. , 2004).Many authors have identified the benefits of Postponement in today’s age.

Postponement refers to delaying supply chain activities to the point of customer driven demand for a product (Boone, 2005;

Bates, 1977; Patrik & Ebbe, 2005). Thus minimizes the risk and cost associated with production and inventory management processes; enhances the benefits by producing the product only when demand arise from customer end. Postponement plays an effective role in optimizing the business performance but is dependant on the effectiveness of supply chain component system.Postponement strategy actually refers to delaying the supply chain activities until demand is generated by customers for maintaining low inventory and operational overhead cost (Boone, 2005). Postponement strategy implementation requires accurate and effective information flow across the supply chain channel for in-time production and order completion to fulfill customer demand. Such a system is dependant on the supply chain components inter-linkages, aims at delaying the business decisions and investment in products/services till the time of demand generation from the consumer markets (Swaminathan & Lee, 2003).

WAREHOUSE AND SUPPLY CHAIN PROCESS Warehouse/Distribution centers offer significant advantages to firms especially having large scale production system. Electronics and FMCG firms use to produce in bulk quantities in anticipation of demand and thus require warehouses at distinct places to make availability of its products in markets in real time (Patrik & Ebbe, 2005). Firms having low production capacity used to deal with high inventory management cost for managing the product availability due to high scale demand (Swaminathan & Lee, 2003).In contrast to benefits of warehouse, it used to create financial burden on a company due to high inventory management cost and inefficiencies in properly managing the products.

Traditionally, firms used to focus on production concept and push-strategy for increasing its sales and profitability. Contemporary business decisions now revolve around customer demand for taking decisions related to purchasing,

production, storage, and transportation structure. Warehouse objective is to fulfill customer demand in shorter span of time with increased order fulfillment accuracy.This result in stuck up working capital in the form of products placed at warehouse for sale in future (Meshkat & Ballou, 1996).

Demand uncertainty for a product directly impacts the cost structure for products placed at warehouse, if product demand becomes obsolete. Market factors influence the customer demand which in turn determine the demand for a particular product and subsequently production decision for that product by a firm. ROLE OF WAREHOUSE IN POSTPONEMENT Postponement offers significant advantages to firms; supply chain process effectiveness increase due to diverse postponement strategies.Different postponement strategies classify the role of each strategy for firm depending on its type and industry. Firms operating in diverse markets have extensive supply chains and therefore possess greater risk due to inventory management systems.

Such firms are reluctant to fulfill customer demand in very short span of time due to raw material availability, production process, and product delivery constraints (Swaminathan & Lee, 2003). Warehouse is very beneficial for a firm having diverse product portfolio generic in nature but have different customized design/featuring.Firms can store its products in its warehouses dispersed geographically for quick customized product delivery to customers (Bates, 1977). Postponement strategy differs for each type of firm depending on the business need and market characteristics. Mass customized products can be managed through packaging postponement, manufacturing postponement, and assembly postponement (Swaminathan & Lee, 2003).

This enables company to make critical product development changes as per the frequent changing demand of customers for that product.Sony Corporation adopted assembly postponement strategy for its PSPS product

availability in different countries especially Hong Kong, China, Japan and Taiwan. Accessories and product manufacturing is standardized whereas assembly process is postponed as per the differing demand from each country since plug sockets, manual (different languages), and packaging for PSP differ for each country. Sony Corporation has established a centralized warehouse system located in Japan which enables to achieve flexibility in delivering PSPs within short time to global markets by making minimal changes in packaging depending on the customer preferences.Sony Corporation stores its raw material component and semi-finished products at central warehouses due to assembly and packaging postponement strategy. This enables company to deliver customized PSP to its customers within short span.

It just had to manage its logistics process to make availability in market in real time. Warehouse can contribute momentous value in postponement process. Manufacturing postponement and packaging postponement contribution to firm is dependant on the warehouse locations, capacity and capacity of firm to manage its logistics operations just in time.Firms concentrating on process factors are more relied on its warehouse system for effective adoption of postponement strategies (Swaminathan & Lee, 2003). Process factors are related to firm’s operations for customizing the product, production process, supply chain network structure, manufacturing and distribution sites, product ordering and stock mechanism, geographically dispersed inventories management location (for component, work in process, and finished product).

Warehouse offers advantages to firms to store its work in process inventories and goods that can be moved to production sites for final finishing and assembly process. Dell has adopted an assembly postponement strategy for its computer delivery to customers once order is placed. When demand is generated by a customer Dell process

the order through financial evaluation and then forward it to its manufacturing plant located in Austin, Texas. Dell assembles, test, and package the product within eight hours.Dell follows FIFO (first in-first out) principle for product delivery and takes at most five days once order is placed.

However, in contrast to that, Dell outsources its assembling parts from different suppliers located globally. Some components delivery may take more than 30 days from suppliers, more than the system capability of Dell computers to fulfill its customer demand (Kapuscinski et al. , 2004). Since Dell aims at providing computers at low price, therefore, it focuses on minimizing its production cost by eradicating inventory management expenses.

For that purpose it depends on its supplier for efficient product delivery. In response to that suppliers have established their warehouses at places near to or within easy access to Austin manufacturing site of Dell. Thus assembly postponement strategy enables Dell to offer computer system at low price by minimizing its operational and inventory management cost structure (Kapuscinski et al. , 2004). Warehouses can support postponement strategy by providing access to desired inventory in real time.

Firms having decentralized inventory system and follow assemble to order strategy are in actual employing manufacturing postponement strategy in assessment of consumer demand to avoid uncertainty. This offers advantage of firm to provide better quality services to customers as per their modifying demand whereas distributed the risk of uncertain demand for a particular product due to mass customization to supply chain components involved in the system (Meshkat & Ballou, 1996). Risk is distributed in a way that goods stored at warehouses are in raw form or are under condition

of Work-In-Process.This reduces the risk of diminished customer demand in contrast to forecasted demand that is addressed as ‘aggregate error’ or ‘attach error’ by Dell.

Dell shares its forecasted demand with its suppliers in consideration with customer trend for a particular design and product to maintain its continuous availability of customized product in market (Kapuscinski et al. , 2004). Assemble to order policy by Dell foster customization of product at large scale requiring managing high class differing component properties used in assembly and packaging process.Warehouse can play an effective role in reducing the inventory management cost through postponement process. Company has flexibility in moving the inventory based on demand signals (Esparrago, 1988).

This strategy was employed by Toyota Motors as Kanban (similar to postponement) in its production sites located in Japan. Toyota was coping with storage capacity and production site capacity for storing goods and thus was in need of managing its components supply to assembly sites (work centers) in real time and based on demand.Company managed its process by establishing ‘Move Kanban’ and ‘Production Kanban’ system that involve transferring the materials in containers in a specific quantity to assembly sites form input area that served as stock management area for Toyota (Esparrago, 1988). Once all material is utilized in work centers and product is delivered to output area, move kanban is attached to empty container that is then moved to input area; after filling the container move card is attached to container that is followed by production card attachment to container being cent to work center.Warehouse support postponement in a way that increases inventory management flexibility based on customer demand. Inventory management cost can

be reduced if firms adopt assembly postponement strategy in which warehouse enables firm to move specific inventory only when there is a demand for manufacturing (Meshkat & Ballou, 1996).

Dell has reduced its cost by shifting the inventory management at warehouses to suppliers that foster better quality as quality control checking become easy for employees at production site in Austin.Dell also get advantage of speed in component movement from warehouses to production sites to effectively manage its manufacturing and assembly postponement strategy (Kapuscinski et al. , 2004). Thus warehouse increases the just in time delivery of raw material for components required by companies following manufacturing, assembly, and packaging postponement strategies. Cost is reduced significantly due to effective inventory management at warehouses such that inventory is acquired from suppliers only when it is followed by customer driven demand in contrast to forecasted demand.Mass customization of product is subject to risk of obsolescence due to rapidly changing customer demand for which firms are moving towards leveraging its product manufacturing, assembly, and packaging towards customer driven demand (Swaminathan & Lee, 2003).

Demand fluctuation risk is reduced and distributed since work in process goods can be customized and redesigned based on order and then move towards assembly from warehouse. Sony has assembly postponement strategy in which it store WIP goods of PSP in its centralized warehouse from where it move it to assembly sites for finishing and packaging based on customer demand.Market competition raises pressure on firm of offering customized product to customers quickly based on their demand. Therefore it is essential to maintain inventory of desired material components either as raw or in WIP form to manage the

production and final packaging in less time.

Dell is dependant on its suppliers’ warehouses for managing the material for its production plan (Kapuscinski et al. , 2004). Any uncertainty in demand and gradual shift in market demand will result in significant losses to suppliers holding material components for Dell at their warehouses.Warehouses thus need to be managed in a way that quantity available at warehouses does not exceed a specific level based on forecasted customer demand, lead time for next shipment arrival and storage capacity (Meshkat & Ballou, 1996).

Thus postponement strategy is highly dependant on raw material supply from warehouses to production site for assembly and packaging. CONCLUSION Postponement refers to delaying work activities based on customer ordering and demand trend in order to avoid stock-outs and stock burdens of material components that become obsolete in use.Postponement can be of different types, either related to assembly, manufacturing, or packaging. This needs to align the production process of company in response to customer ordering to influence demand. Aggregate demand error can be reduced by shifting the production and finishing good process towards customer demand responsiveness. Firms have flexibility to involve in mass customization for gaining competitive advantage due to flexibility in transforming the product during work in process.

Warehouse play significant role in managing the inventory in supply chain process for JIT delivery of components to production sites and delivery of finished goods to customer within feasible timeframe. Stock-outs affect the production facility whereas ample supply of inventory at warehouse result in mismanagement and high inventory management cost for firm that result in high financial burden and reduced effectiveness of firm’s production structure. Uncertainty in demand

must be responsive from postponement strategy for assembly and packaging leveraging the customization in product design based on customer ordering.Global supply chain increases the vulnerabilities in logistics and goods delivery to desired locations either due to supply chain flow burden or incompatibility of firms to manage high customer demand. Warehouses thus enable firms to store in-process products and components to be easily transferrable to production sites as and when demand arise from customer end; postponement can be supported through flexibility in customizing the product during finishing and packaging process.

REFERENCESBates, Albert D. (1977). Warehouse retailing: a revolutionary force in distribution?California Management Review, Volume 20, pp. 74-80. ABI/INFORM Global Boone, Christopher A. (2005).

Postponement: an evolving supply chain concept. International Journal of Physical Distribution & Logistics Management, Vol. 37 (8), pp. 594-611. Emerald Group Publishing Limited Esparrago, Romeo A.

, Jr. (1988). Kanban. Production and Inventory Management Journal, Volume 29 (1), pp. 6-10.

ABI/INFORM Global Kapuscinski, Roman et al. (2004). Inventory Decisions in Dell's Supply Chain. Interfaces, Vol 34 (3), pp.

191-205. InformsMeshkat, Hamid; Ballou, Ronald H. (1996). Warehouse location with uncertain stock availability. Journal of Business Logistics, Volume 17 (2), pp. 197-216.

ABI/INFORM Global Patrik, Appelqvist. Ebbe, Gubi. (2005). Postponed variety creation: case study in consumer electronics retail. International Journal of Retail ; Distribution Management, Volume 33 (10), pp.

734-748. ABI/INFORM Global Swaminathan, Jayashankar M. Lee, Hau L. (2003). Design for Postponement.

Retrieved from http://public. kenan-flagler. unc. edu/faculty/swaminaj/research/paper/SL. pdf

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