All Aspects of Creating a Successful Supply Chain

Executive Summary

This report will address all aspects of creating a successful supply chain operation that will ensure the successful manufacture and market a line of hand tools in offices both domestic and international. The study investigated customer demand and competition for both markets; while keeping an eye on cost to operate. The decision and recommendation to operate was based on information collected from a variety of sources: industry research reports, local government reports, census data, as well as laws and requirements governing international involvement. The conclusion drawn from the analysis is that in this current economic market, there is sufficient demand for quality made product at an affordable price both locally and internationally.

1. Introduction

The purpose of this report is to provide preliminary information to the group of investors interested in manufacturing and marketing a line of power hand tools, including electric drills, saws, and sanders. It encompasses key areas of successfully creating a supply chain operation that will produce a quality product that is able to meet customer demands in the areas of cost-effectiveness and quality. This study considers the viability of the business in broad management and marketing terms only; it does not provide a comprehensive financial analysis of day-to-day operations or projections for any period of time.

A. Recommendation for Business Strategy

The investigation began with examining different types of supply chain business strategies specifically: Keiretsu network, a virtual company, and a vertical integration. Each strategy is explained and detailed as follows:

2A. Keiretsu Network - is a business network composed of manufacturers, supply chain partners, distributors, and financiers who remain financially independent while working closely together to ensure each other's success. The formation of a Keiretsu allows a manufacturer to establish long-term, stable partnerships, which in turn helps them to stay lean and focus on core business requirements (Heizer, Render, 2010). That same stability, however, can sometimes be a liability and prevent the manufacturer from responding quickly to changes in the economy, technology, or culture.

2B. Vertical Integration Strategy - is one in which one company operates at more than one level of the distribution channel. The distribution channel starts with the manufacturer of the end product. The manufacturer sells the product to a wholesaler - who sells to retailers who ultimately sell to end customers. When a manufacturer sells directly to end customers, it uses a forward vertical integration. When a wholesaler or retailer manufactures, it uses backward vertical integration.

2C. A Virtual Company Strategy - relies on multiple supplier relationships to provide services on demand. In this strategy, one company will form a network with other companies where each is dependent upon the other. Each member performs specific and essential functions of the project, with financial services and technology being major contributors to the network as a whole. This strategy works best for smaller company who take on short-term projects. Because the success of the company lies in the hands of outside companies, it risks failure when another company within the network does not fulfill its responsibilities (Handfield, Nichols, 1999).

Although each of the strategies described above would be good business strategy choices, the recommended supply chain strategy at the start-up is the Keiretsu Network. By engaging this strategy, the investor group could own their production facility while having the option to invest in and/or own suppliers to ensure the lowest cost. The Keiretsu network is the best choice because it is part collaboration, part purchasing from a few suppliers, and part vertical integration. It would combine the benefits of using fewer suppliers such as those having a huge commitment to buyers and who are more likely to have a better understanding of the broad objectives of the manufacturer and end consumer. The Keiretsu Network provides an assured price structure, predictable inventory and delivery schedules as well as clear, quality and performance standards. A stable environment such as this close cooperation between supplier and the manufacturer can lead to quality improvements, continual product development and reductions in cost (Heizer, Render, 1999).

B. Metrics

Supply Chain measurements or metrics are standards designed to evaluate performance, which is vital in recognizing the weak areas in the chain and then devising or changing processes for improvement. There are numerous types of metrics used to measure such performance and after extensive research, the three mentioned below are recommended for this company's start-up:

1. Inventory Turnover - this metrics measures the rate that inventory is used, put into sales and replaced. The importance of inventory turnover is to measure how fast investment is returned for any set period of time. This is done through a formula that examines the Cost of Sales/Average Inventory. In most cases, high turnover is an indicator of efficient cash flow. For example, a turnover rate of six times per annum would show that the inventory was steadily moving rather than sitting on the shelves - thus, increasing cash flow (Heizer, Render, 2010).

2. Lead Time In Weeks - is the amount of time between the placing of an order and the receipt of the ordered goods. In keeping with a lean manufacturing model, this measurement is highly recommended as keeping lead time at a minimum is vital in today's competitive markets. It is also important that measurements are in place to evaluate different types of lead times as they affect performance throughout the Supply Chain, for example:

a. Order Lead Time - time from customer order received to customer order delivered

b. Order Handling Time - time from customer order received to sales order created

c. Manufacturing Lead Time - time from sales order created to production finished

d. Production Lead Time - time from start of physical production of first submodule/part to production finished

e. Delivery Lead Time - time from production finished to customer order delivered (Handfield, Nichols, 1999)

3. Percentage of Out of Stock Items - measures the percentage of items that are out of stock at the time a customer places an order. This metrics measures a company's ability to meet customer