Supply Chain

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A – Supply Chain Strategy
The supply chain strategy chosen for the power tool company is a long term partnering relationship with few suppliers. The long term vision of the company is to make quality products and constantly stay ahead of the competition with innovation. The best way to accomplish this strategic long term goal is to partner with key suppliers that operate using a strategy of long term thinking based on trust and transparency. Ray Kroc was one of the pioneers on forming partnerships with the management teams of his suppliers back in 1955 (Vitasek & Manrodt 2012). Ray Kroc defined the McDonald’s supply chain partnerships with his suppliers as a “system” with everyone working together to drive costs out of the supply chain. This philosophy has proved tried and true for over 50 years and is what makes McDonald’s the successful company it is today. By partnering with few suppliers and building trust between the two organizations the customer and supplier can work together to better understand the drivers of the supply chain costs. There are many advantages of using a long term partnering supply chain strategy over some of the other strategies adopted by other companies. One of the major advantages of partnering with few suppliers is that you are able to build strong relationships with your supply base and both the supplier and customer grow the business together. One of Ray Kroc’s famous quotes was, “none of us is as good as all of us.” (Vitasek & Manrodt 2012). Having few suppliers will create a competitive advantage through innovation, quicker lead times, better inventory management and working together to drive costs out of the supply chain. If your suppliers understand your business model and trust that they will be your primary supplier for the long term they will invest capital into their company with the expectation that innovative ideas will drive revenue for all involved. Another advantage of building partnerships with few suppliers is that you can integrate your computer systems, so your suppliers can see real-time inventory levels and schedule changes (Vendor managed inventories). The more the suppliers know about your inventory and production schedule the better they can react to getting the materials needed to support future production runs. Partnerships with your supply base will ultimately improve quality and service levels as your supplier and customer will meet on a regular basis addressing daily, weekly or monthly quality and/or service issues. The supplier will have a clear understanding of customer complaints and be more willing to make process improvements (e.g. Capital investments) as the supplier knows they are under a long term contract and the business won’t be shopped around after one or two years. The potential risk of having long term partnerships with few suppliers is that if there is an issue it will take months and perhaps years to find secondary suppliers. The best supply chain strategy is to have partnerships with your primary suppliers, but also have strong partnerships with secondary suppliers as well. It is important to be clear with both your primary (75%) and secondary (25%) suppliers what percent of the business they represent and the potential growth opportunities for both suppliers. This keeps the relationship open and transparent with the clear distinction the majority of the growth opportunities will be with the primary supplier. This clear and open communication will keep both suppliers motivated to invest in the long term business partnership.

Another supply chain strategy is having multiple approved suppliers for materials. The selection process usually takes form using a request for proposal (RFP) or request for quotation (RFQ) process on some sort of regular interval (e.g. annually). The advantage of having many suppliers competing for the same business is that you typically get multiple suppliers trying to outbid each other keeping...
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