Please respond to the 2 separate, student responses to this weeks discussion forum with at least 150 words and 1 APA citation
- Chapter 11 in Operations Management: Sustainability and Supply Chain Management
- Laihonen, H., & Pekkola, S. (2016). Impacts of using a performance measurement system in supply chain management: a case study. International Journal of Production Research, 54(18), 5607-5617. doi:10.1080/00207543.2016.1181810
- Noël, P. (2014, November 12). iProblems: Learning from Apple’s strained supply chain. Industrial Maintenance & Plant Operation
- Yadavalli, V. S., & Balcou, C. (2017). A supply chain management model to optimise the sorting capability of a ‘third party logistics’ distribution centre. South African Journal of Business Management, 48(1), 77-84. Retrieved from https://repository.up.ac.za/bitstream/handle/2263/61749/Yadavalli_Supply_2017.pdf?sequence=3&isAllowed=y
- Ivanov, D., Mason, S. J., & Hartl, R. (2016). Supply chain dynamics, control and disruption management. International Journal of Production Research, 54(1), 1-7. doi:10.1080/00207543.2015.1114186
- Ho, W., Zheng, T., Yildiz, H., & Talluri, S. (2015). Supply chain risk management: a literature review. International Journal of Production Research, 53(16), 5031-5069. doi:10.1080/00207543.2015.1030467
- American Supplier Institute (ASI)
- Council of Supply Chain Management Professionals
- Institute for Supply Management
- Operations Management textbook companion website for the 11th and 12th editions
The six sourcing strategies per Heizer et al (2017) are many suppliers, few suppliers, vertical integration, joint ventures, keiretsu networks, and virtual companies. Mostly found in commodity type of situations such as sourcing textiles, many suppliers is the most common type of sourcing. It simply means that a company is going to request quotes from multiple suppliers, but go with the lowest quote. It is meant to keep your suppliers competitive with each other and forces them to maintain the required technology, expertise, forecast based on your demand, cost, quality, and delivery competencies (Heizer et al, 2017). On the opposite spectrum, we have the few suppliers sourcing strategy whereby there are only a few suppliers you utilize for a long term partnership. Motorola is most known for their few suppliers strategy in order to maintain the same quality, control the cost of goods, forecasting and timelines (Heizer et al, 2017). While few suppliers is sometimes necessary depending on your product or service, it is never a good idea to have too few suppliers in case something goes wrong with their production, costs significantly go up, timelines are longer than expected, etc.
Vertical integration is a unique sourcing strategy because you are bringing the production of the product or service in house or buying out your supplier or distributer (Heizer et al, 2017). An example of a company that did this is Apple since they have actual Apple stores in addition to distributors. Vertical integration can be beneficial as it allows the company to control the product or service better, control the cost more efficiently, control the inventory more accurately, as well as manage timelines and deliverables better (Heizer et al, 2017). An example of vertical integration is Target. Target is a very smart company because they sell their own store brands. They own the manufacturing, control the distribution, and is also the retailer (Amadeo, 2019). This definitely gives Target a competitive advantage!On the opposite end of vertical integrations, there is joint ventures which is less costly and risky. This is when a company collaborates with another company such as Daimler-BMW so they can produce the same parts for their vehicles but are actually saving money on production and labor costs (Heizer et al, 2017).
Bringing the above mentioned sourcing strategies together as one is the Keiretsu network which combines joint ventures, purchasing from few suppliers AND purchasing the plants or facilities (Heizer et al, 2017). Often times, the parent company are actually supporting the divisions from a financial aspect. An example of Keiretsu is Toyota. Toyota sources their parts from a global market including huge suppliers at very low costs. They keep their suppliers competitive by utilizing the costs they found from their larger suppliers, forcing their not as large suppliers to meet the low costs. In addition, Toyota buys systems of components rather than part A from supplier A and part B from supplier B and then sending it to supplier C to take part A & B to make C. Supplier C gets the business and makes the complete part. While Toyota drives costs down, they also have preferred suppliers based on their relationships with them (Aoki and Lennerfors, 2014).
Finally, virtual companies are companies that rely on many different suppliers and their relationships in order to provide services as needed or on demand (Heizer et al, 2017). An example would be a clothing designer since they typically license their clothing rather than manufacture it.
Amadeo, K. (2019, August 6). 5 Reasons Companies Go Vertical. Retrieved from https://www.thebalance.com/what-is-vertical-integration-3305807 (Links to an external site.)
Aoki, K., Lennefors, T. (2014, August 1). The New, Improved Keiretsu. Retrieved from https://hbr.org/2013/09/the-new-improved-keiretsu (Links to an external site.)
Heizer, J., Render, B., & Munson, C. (2017). Operations Management Sustainability and Supply Chain Management (12th ed.). Pearson.
Six popular sourcing strategies include: 1) Many suppliers. 2) Few suppliers. 3) Vertical integration. 4) Joint venture. 5) Keiretsu. 6) Virtual. The most commonly used sourcing strategy is the ‘many suppliers’ method. This enables greater competition among suppliers, leading to lower costs and higher quality, while also providing greater security to the purchaser through redundancy in the supply chain (Heizer et al, 2017). The few suppliers sourcing strategy focuses on quality and forging positive long term relations. This may be induced by market restrictions or chosen as a means of improving quality. Contingency planning and the use of buffer stock may be a necessity with this strategy.
Vertical integration requires incorporating suppliers within the purchaser’s own business framework. A number of benefits are derived from this including the ability to reduce costs, control inventory, and manage schedules (Heizer et al, 2017). However, this strategy adds complexity and requires close management to mitigate risk. Joint ventures function as contractual partnerships, and are typically project oriented with less risk involved. Benefits include sharing of accountability and reduced costs caused by the combination of specializations (Meredith et al, 2018).
The Keiretsu network is a combination of several strategies. These include many suppliers, few suppliers, vertical integration and joint ventures. Long term quality and reduced costs are maintained with few suppliers through the use of bidding involving many suppliers. Benefits also arise from opportunistic joint ventures and under favorable conditions the vertical integration of chosen suppliers. This strategy is the most complex and requires substantial management to maintain its efficiency (Heizer et al, 2017).
Virtual sourcing utilizes virtual integration and networking in order to fulfill supply needs. This may be achieved through outsourcing supply needs to a virtual organization, whose main purpose is to act as a middleman, or through a centralized virtual purchasing system which allows individual departments and entities to submit requests and quotes in a standardized fashion (Gunasekaran & Ngai, 2004).
Gunasekaran & Ngai. (2004). Virtual supply-chain management. Production Planning & Control, vol. 15, no.6, 584-595. Retrieved from https://www.researchgate.net/publication/ 228738543_ virtual _supply-chain_management
Heizer, Render, & Munson. (2017). Operations management: Sustainability and supply chain management (12th ed.). Boston: Pearson.
Meredith, J., Söderlund, J., & Browning, T. (2018). Old theories, new contexts: extending operations management theories to projects. International Journal of Operations & Production Management, 38(6), 1274–1288