Q1-1. Explain the following terms and provide a “real world example” of each term.
a). Second-tier supplier:
The first tier’s supplier’s supplier is the focal firm’s second tier supplier. Second tier suppliers are companies that sell and deliver goods and services to a first tier supplier. An automobile company could have a second tier supplier that would supply materials or parts to another company which would then supply materials or parts to another company which would then supply them to the manufacturer. A real world example of a second-tier supplier is “Wisconsin Aluminium” which supplies aluminium fuel filter housing to Mechanical Devices Company. Mechanical Devices uses the fuel filter housing on an engine component that they produce for Caterpillar Inc. Therefore, Wisconsin Aluminium is a second-tier supplier.
b). Second Tier customer:
The first tier’s customer’s customer is the focal firm’s second tier customer. Second tier customers buy from first tier customers (who now become a re-seller). The second tier customer may or may not be the end user of the product or service. A real world example of a second tier customer could be a retailer like Superstore where they would purchase the groceries from their first tier customers (wholesalers) and they would become the end user’s retailer.
c). A focal firm:
A focal firm is “the initiator of an International business transaction, they conceive, design, and produce the offerings, (goods and services) intended for consumption”. Note 1. A real world example of a focal firm would be VW. Basically, there are many firms that help in the making of the VW, a different firm may assemble the car, and another one may provide the means of distribution, but the focal firm is still VW, as it “their car”.
Q1-2). Is the use of a large number of suppliers a good idea? Why or why not? Support your answer with real business examples.
It all depends on the nature of the industry as to how many suppliers would be needed, however, a few good suppliers is what organizations should aim for. This is because the key to developing effective chain management programs is keeping the customer in mind. When individual firms in a supply chain make business decisions while ignoring the interests of the end customer, and the other chain members, these suboptimal decisions transfer risks, costs and additional waiting time along the supply chain, ultimately leading to higher end-product prices, lower supply chain service levels and eventually lower end-customer demand. Firms should have few good suppliers that they can manage successfully. Building successful, trusting relationships with all the top-performing suppliers is a key ingredient of an effective supplier management effort. These few good suppliers can then provide tremendous benefits to the buying firm and the entire supply chain. Higher purchase volumes per supplier typically mean lower per unit purchase costs, and in many cases, higher quality and better delivery service. These important characteristics of few good suppliers are strategically important to the firm because of their impact on the firm’s competitiveness. A real world example of a good supplier is Imperial Oil who provides gasoline to their retailers.
Q1-3). Why do companies practice supply chain management instead of buying out their suppliers and industrial customers forming conglomerates?
The reason why firms are practicing supply chain management is because they want to be able to focus more on core capabilities, while trying to create alliances, or strategic partnerships with suppliers, transportation and warehousing companies, distributors and other customers who are good at what they can do best. This collaborative approach to making and distributing products and services to customers is becoming the most effective and efficient way for firms to stay successful....