This report is prepared for JCT Task 3
There are several options when it comes to a supply chain strategy including the Keiretsu network, virtual company, a vertical integration, and joint venture. After analyzing all of these programs, it is my opinion that the virtual company supply chain strategy be adopted. The virtual company supply chain strategy is the best option for several reasons. One reason is that it keeps the overhead low. Unlike vertical integration where the parent company actually buys and runs other aspects of the supply chain, each segment relies on multiple types of relationships to streamline the supply chain. Another reason that the virtual company strategy is the best option is because of the autonomy that each segment of the supply chain maintains, unlike with vertical integration, where the bureaucracy can bog down even the most simple of tasks and decisions. Flexibility is another good reason that the virtual strategy is a good option. The virtual company strategy allows for multiple relationships that can either be long term, short term or by contract, which enable the company to evaluate each supply and adjust the relationship as needed. This flexibility lets the company change its shipping company if it finds a faster one or a new supplier that offers more competitive pricing without having to break long term contracts and incurring penalties. The Keiretsu network is not a good option because it works best for an established company with a larger market share. The Keiretsu network would be an option once the tool company is established and has expanded its market share. Joint venture is not the best option because the tool company does not want to share its portion of the market with its competition. Rather, the company wants to establish its dominance in the market without its competition utilizing the shared supply chain. Efficiency is the main reason that the virtual company strategy is a great option. Low capital investment, flexibility, speed, and specialized management all contribute to the increased efficiency of the supply chain. Supply chain performances as well as assets committed to inventory are the two metrics that should be used to measure the performance of the supply chain. Within those two metrics are separate measurements to evaluate each of them. Supply chain performance has five indicators or benchmarks to measure performance. These five benchmark metrics are Lead time, time placing order, percentage of late deliveries, percentage of rejected material and the number of shortages per year. These benchmarks focus on procurement and vendor performance. Assets committed to inventory the other metric that should be used to measure the performance of a supply chain. There are three measures that should be used as a measurement. These three measurements are the amount of money invested in inventory, inventory turnover, and cost of goods sold. There is an equation used to express the money invested to inventory which equals the percentage of assets. This equation is: Percentage of inventory = (total inventory investment/total assets) X 100. Inventory turnover is part of the metric that is calculated on an annual basis. The equation used to calculate inventory turnover is: Inventory turnover=Cost of goods sold/Inventory investment.
Cost of goods is the third part of the asset committed to inventory metric. The cost of goods sold is the cost to produce the goods sold for a given period of time. My recommendation to the investors is to develop good relationships with the suppliers to reduce the time the supply chain managers spend dealing with ordering and fixing errors within the supply chain as well as increasing the efficiency of the supply chain. Familiarizing themselves with the metrics provided will help to ensure a smooth and efficient supply chain relationship. Three significant issues that could complicate the development of an efficient, integrated supply chain are...
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