Logistics and Supply Chain Management for Demand Estimation

Question: Discuss about theLogistics and Supply Chain Management for Demand Estimation. Answer: Importance of Inventory Inventory is an essential component to every business balance sheet. In addition, it plays a major role in the daily operations of a business. A Manufacturing Company, like Wheeled Coach, keeps an inventory of raw materials used in the manufacturing of ambulances. Additionally, the company must also keep an inventory of the assembled ambulances. A company is bound to fail where the practice of inventory keeping has not been adopted. Inventory influences revenue and profits of an organization directly. The coach must keep an inventory of the raw materials used in the assembly of the ambulances. The data obtained is then compared with the output to determine revenue and the profits made by the company at a particular point in time. In business terms, profit is the sum of the total income and the subtractive variable costs. This implies that the ability of a company to generate profits is based on their ability to acquire inventory at the lowest price possible and sell the products at the highest possible price (Why Is Inventory Important, n.d.). Inventory keeping also helps in the management of the entire production process. On the same note, it is important to manage inventory in a cost-effective manner in order to maximize profits. For instance, too much inventory may be disadvantageous because employees will be paid more to organize the same. Inventory turnover is also essential to every company (Why Is Inventory Important, n.d.). For example, Wheeled Coach uses the inventory data to calculate the inventory turnover ratio. This ratio dictates the performance of the company through a certain period of time compared to other companies or the company itself. Excess Inventory at Wheeled Coach The Company uses IBM MAPICS MRP to generate reports concerning its inventory. This system was purchased by the company to help in improving the accuracy of inventory in the company. However, the Company is faced with inventory issues like excess inventory. The company has excess inventory as reported by the MRP. Excess inventory is described as any supply that exceeds the demand of the products. The company has excess inventory due to the previous methods of inventory data collection and management. The method was inaccurate and this leads to the company buying more raw materials that are required in the assembly of ambulances. This hypothesis is proven when the MRP is able to identify the excess inventory. In addition, the previous reports were inaccurate that many inventor items were not called out in the bills-of-material report. Wheeled Coach did not accurately monitor the inventory items. They were oblivious to the fact that demand for products has stages (Daniel, 2017). Additionally, the excess inventory was as a result of a decline in the life cycle of the product. With the decline in demand of the ambulances, the company failed to monitor the demand stages. This made the company run at risk of getting stuck with excess inventory (Daniel, 2017). According to iEntry Network (2010), excess inventory reduces the responsiveness of the company because the minimum time required to pull inventory is increased. Reducing Excess Inventory The plant manager, Lynn Whalen, ought to address the excess inventory issue. The company should focus all efforts to this sector in accordance with the MRP inventory report requirements. However, the state of zero excess inventories in a company cannot be realized in a practical setting (Reducing supply chain, 2009). The excess inventory, however, should not exceed one percent of the annual sale of that particular year. There are several methods that Wheeled Coach can employ to reduce excess inventory. The company must actively monitor the different stages of the demand of the ambulances. At launch, the demand for any product is low but grows exponentially to reach the growth stage. The end of the growth stage marks the start of maturity where the product does not experience major hikes in demand and thus the company ought to switch to a constant amount of raw materials as opposed to the increasing trend in the previous stages. During the decline stage, the Coach Company should also decrease the inventory in accordance with the demand of their ambulances to minimize excess inventory. Finally, the company should employ accurate inventory systems like the IBM MRP to avoid excess inventory due to inventory report errors. Material Requirements Planning software, MRP, is better adapted to planning the material requirements of a company. The IBM software is also capable of synchronizing the data with the whole lean manufacturing process of the company (Material Requirements Planning, n.d.). The advantages of this software include compatibility with both repetitive and non-repetitive schedules. The latter involves work orders for the non-production activities and the manufacturing activities (Material Requirements Planning, n.d.). Enterprise Resource planning (ERP) Enterprise Resource planning is an extension of the Materials Requirement Planning. This extension includes customers and suppliers, and this allows for the automation and integration of various business operations. In addition, the extension is designed to use the same database with the MRP system (Jeff, n.d.). It is efficient and crucial to any business in New Zealand because it is able to turn raw data into useful information in real time. 5the extension is also responsible for coordinating business operations. These operations range from the evaluation of suppliers to the process of a customer of invoicing. ERP has several modules, which include the basic material requirement planning system, the financial aspect, the human resources module, the supply chain management, and the customer relationship management. These modules can be customized to meet the business requirements and this gives the system some level of flexibility. In addition, integration of the system with warehouse management, electronic catalogs, quality management and logistics is possible. The integration is facilitated by the Enterprise Application Integration software (EAI). The system has more than a few advantages; for instance, it reduces transaction costs and increases the accuracy and speed of information delivery system (Jeff, n.d.). First, the ERP system helps business in defining business processes provided it is integrated into all the aspects of the business. In addition, it also ensures that the processes are undertaken in accordance with the set rules (Benefits of an ERP, n.d.). The aforementioned processes include planning, scheduling, production, and production and distribution of the products in New Zealand. Second, ERP is responsible for protecting the security and integrity of the business data through its well-defined security protocols. The automation of the business processes improves the productivity of the same through its efficiency and accuracy of the ERP system. Third, the ERP increases the overall performance of the businesses in New Zealand. Since ERP is an automated system, coherence is ensured and as well duplication and discontinuity is avoided (Benefits of an ERP, n.d.). Fourth, the ERP is responsible for producing quality reports and performance analysis to ensure business success. In other words, the ERP is able to provide the business with the necessary tools for smooth operation of the business. These tools also help businesses to provide a considerably good level of service to their customers. Fifth, the ERP, like many information systems, it is able to translate raw and meaningless data to useful information. This information gives full visibility between the supplier and the customer systems and as well improves the efficiency across the entire supply chain (Benefits of an ERP, n.d.). Difference between Manufacturing and Service Industry Supply Chain The supply chain in the service industry, like Arnold Palmer Hospital, is different compared to the manufacturing industry. The latter is mainly focused on the development of new product innovations. In addition, the supply chain also focuses on the efficiency through buyer-vendor collaboration. However, service industries put more emphasis on better products that achieve the economic targets. Among others, the tangibility of the products is a key difference. Service industries like hospitals produce intangible products, unlike manufacturing industries. Capital investments are made in the procurements stage in the manufacturing industry as opposed to the service industry. In service industry, most of the cost is used in manipulating information and developing relationships compared to procuring materials like medicine (Differences in Supply, n.d.). The service industry is least concerned with the shipping rates because they do not deal with tangible raw materials or products. However, manufacturers are obligated to negotiate better shipping rates in order to reduce the overall production cost. This is particularly because they deal with tangible raw materials and products. Optimization of the supply chain, in the manufacturing industry, is done through making the speedy delivery of products and reducing the overall cost of delivery. It goes without saying that all manufacturing companies incur a lot of costs dealing with inventory and thus must try to reduce these costs. Service industries do not have inventory and their supply chain optimization is differently. The companies are faced with virtual bottlenecks like intangible delays and duplicate approval loops. These bottlenecks can be overcome by speedy delivery of the intangible products (Differences in Supply, n.d.). Decision Making based on Economics. There are several bottlenecks that undermine or constraint decision making in Palmer Hospital based on economics. For instance, the company was faced with serious supply chain problems before forming its own corporation. The new corporation was able to save the company a lot of money by being able to secure contracts with local manufacturers at best pricing. The corporation controls all decisions of the company on an economic level and the hospital cannot be able to make personal decisions on an economic level. During, the first year of its inception, the company was able to save about seven million US. Dollars with only two major changes. The first change included the bulk savings through restructuring and staffing to ensure that the advantages went to its members only. Second, the corporation was able to strike good deals with vendors and thus ensuring savings. Role of doctors and nurses in the supply chain The doctors and nurses have a big role to play in the supply chain of the Palmer Hospitals. In essence, they should specify in details the commodities that should be supplied to the company to avoid the predicament the company was put into by their previous corporation. The corporation used to change their products suppliers every year and this resulted in the hospital getting different products every year. In some instances, the doctors and nurses were forced to work with products they were not familiar with. This may result in poor service delivery to the customers and thus decline in business. The doctors and nurses should thus prepare an inventory of the products the hospital requires and as well an inventory of the products used in service delivery like medicine. Palmer hospital has adopted the culture of including physicians and nurses in the decision-making process concerning the supply of products to the hospital since 2003. Introducing a new product into the supply chain The Hospital gives room for creativity and innovation which involves the introduction of new products into the supply chain. For instance, Dr. Smith must follow a well-defined procedure before incorporating the new hip replacement procedure in the surgery department. The mandate trickles down from the Healthcare Purchasing Alliance Corporation which allows Palmers hospital to be creative in its own way. The product must pass through the New Product Introduction process, which involves analyzing the scalability of the supply chain as well as listening to the customers views about the same. Pak n` Save supply chain strategy A supply chain strategy is an elaborative and iterative process that describes the cost-benefit trade-offs. The term should not be confused with supply chain management as it entails strategies on how the supply chain should operate in order to be able to compete in a business environment. Each and every business in New Zealand should have an elaborate supply chain strategy, for instance, the Pak n` Save Company. Pak n1 Save is a food warehouse that is owned and managed by the Foodstuffs cooperative. It is among the three major chains of supermarkets in New Zealand, among companies like Countdown and New World. Pak n` Save, deals with perishable raw materials, and as well perishable food products. This means that the supply chain strategy has to be different from the supply chain of durable goods as in manufacturing industries. The strategy is concerned with the effective supply of products of acceptable quality with the least possible cases of product waste. An effective strategy can be able to reduce costs for shelf life losses for this food warehouse. The Pak n` Save company should adopt a hybrid of push and pull supply chain strategy. The strategy has several advantages, among which include the reduction of uncertainty. Uncertainty reduction has the effect of reducing inventory on the safety of the perishable stock. In addition, the products are partially assembled according to the aggregate demand forecasts. These forecasts are more reliable and accurate than individual food product demand forecasts. This is what is called push strategy and is implemented in the early stages of the companys product assembly (Push-pull supply, n.d.). The major advantage of this hybrid strategy is the ability to minimize or completely overcome the disadvantages of the pull strategy and the push strategy as well. The assembly of the final product, in this strategy, is done based on the market information available on a specific product. This information defines the preferences and demand of a specific product to the customers. This strategy is thus suitable to food warehouses because it has the effect of reducing the total costs of perished raw materials and the finished products (Push-pull supply, n.d.). Conclusion Inventory is very important in every company and this call for a Materials Requirement Planning. The role of MRP is made sure the company has acceptable percentages of excess inventory. In addition, all companies should actively monitor products through their different demand stages. The ERP as an extension of the MRP has numerous advantages to a business including improving the overall performance of the company. 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