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Improving the Supply Chain

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Business Studies

The supply chain stuff is really tricky."

- Elon Musk

Certain businesses have long supply chains that branch out all over the world which makes optimising the supply chain tricky. However, most of the time businesses can take certain actions to improve their supply chains. Let's take a look.

Influences on the choice of suppliers

A supply chain is the complete sequence of activities involved in the production and distribution of a commodity. It involves transforming raw materials into finished products and delivering them to customers.

Depending on a company, there can be various needs and preferences regarding suppliers. Below you will find factors that can influence the choice of suppliers.

Cost

A key factor when it comes to choosing a supplier is price. Regardless of how profitable a business is, it will always try to find the cheapest supplier possible. It is because the cheaper supplier, the higher the profit margins for a company. Large enterprises making large orders are oftentimes able to dictate prices to suppliers. This is because their purchases tend to make up a bulk of suppliers’ output. The opposite situation occurs by smaller firms make smaller orders and have limited purchasing power. Here suppliers are typically those who can impose prices.

Quality

Even though the cost may play a key role in choosing suppliers, quality matters as well. The cheapest suppliers might be offering low-quality products which later on will cause more problems than benefits. That is why it is essential to make sure that the quality of products purchased by a company is at least satisfying.

Reliability

There might be suppliers offering good quality products at a low price. However, what if the products are not delivered on time? Delay in delivering certain products can stop the entire manufacturing process and result in not delivering a product to the final consumer on time. For this reason, it is crucial to choose a reliable supplier.

Flexibility

There are some businesses that need to respond to change very quickly to supply an erratic demand. For example, businesses selling clothes have to respond to weather and new fashion trends. Therefore, they need suppliers with a capacity to cope with the rush, widely varying orders, and a short lead time (time between placing an order and receiving a delivery).

Frequency

Some companies require products to be delivered frequently. For example, firms selling food items typically need suppliers that are able to produce and deliver on a daily basis. Moreover, such firms tend to use just-in-time (JIT) production systems which require deliveries even multiple times a day so that they do not have to hold products in stock.

Payment

In some cases, suppliers give credit to their customers. For example, large companies such as Sainsbury’s do not have to pay upfront which gives them time to sell products and consequently, pay suppliers later. However, regarding start-ups and smaller enterprises, they are usually not given credit as they have not yet proved to be able to survive and pay their bills.

Value and ways of improving the supply chain

A good supply chain should be offering good quality products and services at an affordable price. Additionally, it should be flexible, quick and reliable. Therefore, flexibility, speed of response and dependability are the key areas of improvement in the supply chain.

Flexibility

Flexibility relates to the ability of an organisation to change its operations.

Owing to flexibility, production can be modified cost-effectively, in a way that customised products are not much more expensive than mass-produced alternatives. Additionally, if a supplier is flexible, customers are willing to pay a higher price.

There are several types of flexibility that can be improved:

  • Product flexibility - switching production from one product to another. This can be achieved by designing production lines that can be quickly modified to change the end product.

  • Volume flexibility - changing the level of output to match the customer demand. This can be achieved by maintaining high levels of spare capacity. However, it can increase unit costs which can be avoided by outsourcing.

  • Delivery flexibility - changing the time and volume of deliveries. This can be achieved only if a workforce is flexible and is provided with the necessary equipment to do so.

  • Mix flexibility - providing a range version of the same basic product. This can be achieved by a modifiable production, a good database and a flexible workforce.

Another way to improve flexibility is to implement mass customisation.

Mass customisation - offering individually tailored goods or services on a large scale. It is when a customer is able to personalise a product while keeping costs at or near mass production prices.

Speed of response and dependability

Speed of response is the time in which a supplier fulfils the customer query.

Dependability has a wider meaning. It can refer to the reliability of a product or to whether a supplier is reliable i.e. if it manufactures and delivers a product on time.

Speed of response and dependability can be improved by:

  • a reliable and integrated information technology system enabling recognising and maintaining customer requirements which can be easily accessed by all staff involved,

  • a flexible workforce able to prioritise tasks and adjust their work,

  • a close relationship with all the organisations involved in production such as suppliers and distributors,

  • continuous improvement by setting challenging but achievable goals.

Supply and demand

In many cases, demand for certain goods and services may fluctuate. This can be because of new trends, weather, marketing, and competition.

People are more likely to go on holiday during the summer than during the school year in autumn.

That is why a supplier should be prepared for fluctuating demand and be ready to cope with change. There are two ways in which suppliers deal with demand variations:

  • Matching production to sales - producing more units when demand is high and less than demand is low

  • Constant production - producing all year round no matter demand variations

Companies that produce according to demand tend to have very low profits when demand is low. However, they rarely overproduce and their products are fresh and of good quality. Regarding constant production, they typically have a lower cost per unit and lower labour costs as they operate twelve months a year.

Other ways to supply demand

  • Outsourcing - when a supplier does not have the capacity to produce demanded products, it can hire an outside company to produce them for it

  • Temporary and part-time employees - during a period of higher demand, a supplier can increase its labour capacity by hiring temporary and part-time workers

  • Producing to order - a supplier can use a strategy in which it manufactures a product only when it has been ordered by a customer

Improving reliability in the supply chain

Supply chain reliability is a degree to which both customer and supplier can depend on the supply chain. Supply chain reliability enhances its productivity and cuts costs. Below you will find some ways to improve the supply chain reliability.

Continuous improvement

To successfully run a supply chain, it needs to be continuously improved. In doing so, businesses should constantly monitor all their operations and use small, endless efforts to solve existing supply chain problems.

Transparency

It is worth using systems such as ERP (Enterprise Resource Planning). The system helps businesses to control the amount of inventory and save time. It also helps to avoid situations in which some units are forgotten or just disappear by physical inventory count.

Automatic purchases

Systems should be updated and extended to enable automated purchasing. The system should be set out in a way so that it automatically places orders with dealers when inventory levels drop below a specific level. The automatic purchasing system will save businesses spend time on monitoring the inventory level and allow employees to focus on their other duties.

Data insight

Having access to accurate data and reports will give businesses a reliable insight into the supply chain health of a manufacturing business. It is worth using IoT (Internet of Things) devices with a reliable system such as ERP since it allows instant access to inventory, purchasing, and production data for critical decision-making purposes.

Improving the Supply Chain - Key takeaways

  • A supply chain is a complete sequence of activities involved in the production and distribution of a commodity.
  • Influences on the choice of suppliers are cost, quality, reliability, flexibility, frequency, and payment.
  • Flexibility, speed of response and dependability are the key areas of improvement in the supply chain.
  • The ways in which suppliers deal with demand variations are matching production to sales and constant production.
  • Other ways to supply demand are outsourcing, temporary and part-time employees and producing to order.
  • Supply chain reliability can be improved by continuous improvement, transparency, automatic purchases, and data insight.

Improving the Supply Chain

  • Flexibility - the ability of an organisation to change its operations. 
  • Speed of response - the time in which a supplier fulfills the customer choice. 
  • Dependability - has a wider meaning. It can refer to the reliability of a product or to whether a supplier is reliable i.e. if it manufactures and delivers a product on time. 

Mass customisation - offering individually tailored goods or services on a large scale. It is when a customer is able to personalise a product while keeping costs at or near mass production prices.

When a supply chain is reliable, both customer and supplier can depend on the supply chain. Supply chain reliability also enhances supply chain’s productivity and cuts costs.

Enterprise Resource Planning is a system that helps businesses to control the amount of inventory.

- Outsourcing - when a supplier does not have the capacity to produce demanded products, it can hire an outside company to produce them for it

- Temporary and part-time employees - during a period of higher demand, a supplier can increase its labour capacity by hiring temporary and part-time workers

- Producing to order - a supplier can use a strategy in which it manufactures a product only when it has been ordered by a customer 

Final Improving the Supply Chain Quiz

Question

Provide a definition of a supply chain.

Show answer

Answer

A supply chain is a complete sequence of activities involved in the production and distribution of a commodity. It involves transforming raw materials into finished products and delivering them to customers.

Show question

Question

What are some influences on the choice of suppliers?

Show answer

Answer

  • Cost 
  • Quality 
  • Reliability 
  • Flexibility 
  • Frequency 
  • Payment

Show question

Question

What is lead time?


Show answer

Answer

Lead time - time between placing an order and receiving a delivery

Show question

Question

What is JIT?

Show answer

Answer

Just-in-time (JIT) is a production system which requires deliveries even multiple times a day so that products do not have to be held in stock.

Show question

Question

What are the three key areas of improvement in the supply chain?

Show answer

Answer

  • Flexibility 
  • Speed of response
  • Dependability

Show question

Question

What is meant by flexibility and why is it valuable?


Show answer

Answer

Flexibility relates to the ability of an organisation to change its operations. Owing to flexibility, production can be modified cost effectively, in a way that customised products are not much more expensive than mass-produced alternatives. Additionally, if a supplier is flexible, customers are willing to pay a higher price.

Show question

Question

What are the four types of flexibility?


Show answer

Answer

  • Product flexibility 
  • Volume flexibility 
  • Delivery flexibility 
  • Mix flexibility


Show question

Question

How to improve product flexibility?


Show answer

Answer

Product flexibility can be improved by designing production lines that can be quickly modified to change the end product.

Show question

Question

How to improve volume flexibility?

Show answer

Answer

Volume flexibility can be improved by maintaining high levels of spare capacity. However, it can increase unit costs which can be avoided by outsourcing.

Show question

Question

What is mass customisation?

Show answer

Answer

Mass customisation - offering individually tailored goods or services on a large scale. It is when a customer is able to personalise a product while keeping costs at or near mass production prices.

Show question

Question

What are the two meanings of dependability of a supply chain?

Show answer

Answer

Dependability can refer to the reliability of a product or to whether a supplier is reliable i.e. if it manufactures and delivers a product on time.

Show question

Question

How to improve speed of response and dependability?

Show answer

Answer

Speed of response and dependability can be improved by:

- a reliable and integrated information technology system enabling recognising and maintaining customer requirements which can be easily accessed by all staff involved,

- a flexible workforce able to prioritise tasks and adjust their work,

- a close relationship with all the organisations involved in production such as suppliers and distributors,

- continuous improvement by setting challenging but achievable goals.

Show question

Question

What is constant production?


Show answer

Answer

Constant production - producing all year round no matter demand variations

Show question

Question

What are the three ways to supply demand?


Show answer

Answer

  • Outsourcing 
  • Temporary and part-time employees 
  • Producing to order

Show question

Question

What is meant by producing to order?


Show answer

Answer

Producing to order is when a supplier manufactures a product only when it has been ordered by a customer.

Show question

Question

Flexibility relates to the ability of an organization to change its operations. 

Show answer

Answer

True

Show question

Question

Switching production from one product to another is called _________


Show answer

Answer

Product flexibility 

Show question

Question

Changing the level of output to match the customer demand is called _______


Show answer

Answer

Volume flexibility 

Show question

Question

Changing the time and volume of deliveries is called ______ 


Show answer

Answer

Delivery flexibility 

Show question

Question

Providing a range version of the same basic product is called _______


Show answer

Answer

Mix flexibility 

Show question

Question

How mix flexibility can be achieved?   

Show answer

Answer

Through a modifiable production, a good database, and a flexible workforce.


Show question

Question

How delivery flexibility can be achieved? 

Show answer

Answer

Only if the workforce is flexible. 

Show question

Question

How volume flexibility can be achieved? 

Show answer

Answer

By maintaining high levels of spare capacity.

Show question

Question

How product flexibility can be achieved?  

Show answer

Answer

By designing production lines that can be quickly modified to change the end product. 

Show question

Question

Could mass customization improve flexibility? 

Show answer

Answer

Yes

Show question

Question

Mass customization means offering individually tailored goods or services on a large scale.

Show answer

Answer

True

Show question

Question

Speed of response is the time in which a supplier fulfills the customer query.


Show answer

Answer

True

Show question

Question

What makes a supplier reliable?

Show answer

Answer

If he delivers the supplies on time and without damage. 

Show question

Question

When is outsourcing needed?

Show answer

Answer

when a supplier does not have the capacity to produce demanded products, it can hire an outside company to produce them for it 

Show question

Question

What does ERP stand for?

Show answer

Answer

Enterprise Resource Planning

Show question

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