Supply Chain Management Research Paper
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Example Research Paper on B2B Marketing & Supply Chain Management:
The chosen company for this assignment is Home Depot Inc. In order to better understand the complexities related to the supply chain of the company it is vital to understand the corporate activities and the industry in which the company operates.
According the homepage of Home Deport, www.homedepot.com, Home depot was created in 1978 and is a company that uses a warehouse-style stores in order to sell various building materials, house supplies, lawn and garden products. Home depot sells to both the households as well as to the improvement contractors, salespeople, and various building professionals. Home depot also owns Expo Design Center stores, which deals with the house renovation, Home Depot Landscape, Home Depot supply stores, and Home Depot floor stores.
In 2004, Home Depot Inc owns over 1800 stores in the USA and abroad (Canada, and Mexico). Home Depot formed strategic alliances with the suppliers in order to market numerous products under different existing names. For instance, Home Depot Inc sells products created by John Deere, Thomasville, Silestone, Ridgid, Behr Premium Plus, Mill’s Pride, Husky, Toro, Vigoro, GAF, Lithonia, Honda and others. Home Depot Inc also provides installation services, for the Do-it-for-me (DIFM) customers.
Home Depot Inc in 2003 had sales of over $13 billion and operates stores in 20 countries, while employing over 45 thousand people.
Prior to speaking about the actual supply chain of Home Depot it is necessary to understand that the supply chain is one of the most important parts of the logistics management, which if managed properly will certainly cut costs, speed up work at Home Depot and contribute to the improvement of the customer service.
Logistics at Home Depot is all about proper coordination of supply materials and information with respect to the overall organizational operations (Lambert, 91). Supply chain management at Home Depot deals with the chain issues from suppliers to the customers. Its main objective is to control the total costs, improve the total organizational quality, maximize Home Depot customer service and value, as well as increase corporate profit. Home Depot finds its supply chain management a rather complex subject simply because it involves a shaky between the proper buying, product storage, information flow, transportation and commercial relationships and thus has to consider many things at once. Yet, the game is worth the candles and if applied properly Home Depot is expected to remove no-value-added waste out of operations, while retain only value added products and become even more competitive.
Home Depot’s supply chain is about smooth and efficient flow of raw materials through the organization to the final customers (in the form of goods). Home Depot’s supply chain management indeed replaces the ‘traditional’ management practices of buying, storing and moving merchandise and raw materials used for production.
Historically, the production and operations management would focus on things like product. Thus it would deal with things like trains/cars/boats, warehouses, and factory production lines (Hugos, 88). In the past it was enough to buy enough of raw materials in advance to assure that there is enough for long production and there is no raw materials shortage. Yet once the competition intensified and created much shorter product life cycles, it became rather risky and expensive to buy a lot of raw materials in advance. Thus, it became understood that service-driven production systems should and will replace ‘inventory-driven production systems’. The latter has become the industry standard for virtually any company in the USA because it is pulled by the existing market demand for the product, rather than produced in advanced and then pushed by the company through its distributors as it has been a common practice in the past.
Speaking about Home Depot, I have to note that prior to getting a better management of its supply chain the company had to ask and answer the following questions (Simchi-Levi, 162):
- What should the business achieve?
- What does the market want or expect?
- How well does the competition meet the present or future demand?
One should remember that those companies that deal with bulk sales, i.e. assemble goods in large volumes and ship them to the customers, supply chain management is their sole business. The companies like Home Depot need to consider timely manufacturing, transportation, product procurement and ultimate sales/customer service in order to benefit from the logistics function, leaving things like marketing, personnel development to the other departments. Smaller companies and those companies involved in services (rather than goods) do not find it so necessary to think about proper logistics and supply management at their organization.
It is of importance to note that traditionally the majority of companies like Home Depot would move and store goods in disparate ways and under different managers which oftentimes would result in errors and inefficiencies. Please refer to the diagram A below for pictorial representation of the traditional supply chain.
The transportation from the supplier to the company was usually handled by the supplier or by the purchasing departments of the company. The storage of the raw materials provided by the suppliers within the company was handled by the stores departments, the transportation of the materials was usually handled by the manufacturing department (Monczka, 187). The transportation of the product from the plant to the customers was usually handled by both the transportation and the distribution departments of the company. Any buying within the company would be the job of the purchasing department, while any forecasts within the company would be handled by the marketing departments. As a rule the communication to the manufacturing department would be a one-way information flow (Clark, 76).
Such approach to supply chain management is represented by the independent departments, and at present such structure cannot survive the competition because of the high costs it creates for the company. When one has to consider the proper flow of materials and information between the departments, the management integration is vital for cost and error minimization efforts.
Home Depot understood that the proper logistics has to deal with time and value of the proper material movement through the company into the hands of the final customer. Proper innovation is needed and Home Depot strives to complete the manufacturing and distribution cycle with the smallest possible overhead.
Home Depot is aware of the globalization, the intensification of competition, strong customer demand for the quality products and the technological improvements like ecommerce.
For Home Depot such changes mean that the manufacturing process needs to be re-appraised in order to improve the customer service while reduce the costs.
Home Depot understands that the supply chain differs not only from industry to industry but also from product to product. Thus the supply chain for high volume mass produced products will be different than for the highly customizable products. In other words, it became apparent that Home Depot needs to re-engineer its supply chain processes in order to boost efficiency as could be seen in economies of scale, just in time delivery, strategic inventory management etc.
Home Depot for its different products deploys different types of supply chain:
- The first type of manufacturing could be called ‘make and sell’ manufacturing. The company would initially develop and assess the efficiency parameters and would use long production runs in order to establish enough inventory for the wholesalers and retailers. This type of supply chain management focuses primarily on the structured materials planning and scheduling. This type of selling is all about ‘you can get any color you want as long as it is black’, yet it is still useful in some instances, e.g. when the person gets the lawn mower (Hugos, 92).
- The second type of manufacturing, can be called ‘sense and respond’. The company then would establish and assess the actual demand for its products and thus quantify the production in order to build just enough for the market and avoid unnecessary storage costs (Frazelle, 120).
Home Depot understands that the power within the supply chain is held within the second type of manufacturing which with the help of the new technology is likely to replace the first type of manufacturing in any company and become the sole type of supply chain within the industry.
Home Depot slowly moves to the second type of supply chain as related to the customizable manufacturing. The corporate management understands that the power within such supply chain is reflected by the proper synchronization between the existing corporate players and inter-organizational relationships between the Home Depot and its suppliers or distributors (Christopher, 210).
At present at Home Depot, the information from all of its suppliers should certainly be a part of the corporate decision making. Therefore, Home Depot constantly uses new technology to collect and process the needed information from the numerous suppliers in order to quickly respond to the market demands (Monczka, 190).
Home Depot Inc lately has engaged in the product registration and data synchronization services provided by the company UCCnet in order to properly manage its supply chain via computerized data exchange.
Home Depot Inc plans to register its existing products and the applicable data with the UCCnet company, and require its own suppliers to do the same in order to have the centralized data processing hub. UCCnet would then serve as an intermediary while checking the suppliers’ information and data for the compliance with the industry standards and with the demands/standards set by Home Depot Inc. Home Depot Inc, on the other hand will utilize the synchronization services that UCCnet develops for the data synchronization in order to assure that all suppliers of Home Depot Inc use relevant, and identical data that home depot might need (Chopra, 144).
Home Depot Inc believes that the data synchronization as developed especially for Home Depot Inc by UCCnet will allow Home Depot Inc to improve the supply chain and reduce costs associated with the supply chain handling.
The supply chain controls that the new synchronization system of Home Depot Inc provides is expected to reduce the amount of administrative errors as related to invoice, order purchases and product delivery dates. The accuracy of inventory management will also be ameliorated. Home Depot Inc expects the new system to increase the speed of order processing and tracking as well as to stay up to date with the existing and developing standards. Currently this system is of extremely importance taking into account the fact that Home Depot Inc deals with over 4,000 different suppliers and purchasers who need to be perfectly coordinated (Mentzer, 73).
Speaking about the recommendations that can be made for the Home Depot Inc., I would like to note that the company still fails to utilize the existing technological advances properly with Electronic Data Exchange (EDI) being one of the most important things for Home Depot to consider.
EDI historically allowed a great number of companies to improve the speed and security of the communication within the company. By implementing EDI together with the system developed by the UCCnet it would be vital to assure that all supplies of Home Depot are also connected to the same information inter-exchange. EDI as applied to Home Depot should be a part of the extranet of UCCnet (a web-based information exchange service that would streamline communication process not only between the departments of Home Depot but also among Home Depot and its numerous suppliers and distributors).
Home Depot, in my opinion, should use the improved supply chain that would improve inter-organizational relationships and include both a part of the ‘classical’ manufacturing supply chain upgraded with the various inventory control software, let alone the web-based catalogues and e-commerce solutions.
I should add that Home Depot might use the following innovative supply chain solutions as shown below:
- Mass customization. The Home Depot’s customer (or the retailer) should choose their custom product. The web-based information system of Home Depot would then pick such individual orders from hundreds of thousands of its customers, place them together based on the similarity and then schedule proper production, assembly and distribution.
- Online bidding. Home Depot might use this new model of organizational procurement in order to get the best price and quality of materials from its suppliers by holding various bidding online rounds. To the best of my knowledge several years ago the British government would use this online bidding process to sell mobile phone service licenses to the numerous cell phone producers.
- Shared distribution chain. Home Depot at present already uses shared warehouses especially abroad to supply its distributors and retailers. The modern technology if used by Home Depot would allow the company to send the warehouse data (prior to the shipment to the warehouse is made) to the retailers and distributors of the Home Depot products and synchronized with their individual automatic order replenishment systems in order to reduce the storage time. By the same analogy, the automatic order replenishment system of the Home Depot retailers can be synchronized with the Home Depot’s suppliers, who would then know exactly how much raw materials are needed at that particular time.
It is vital to remember that the innovations related to the supply chain of any company are drastically influenced and thus can be either accelerated or retarded by the state and federal governments and existing infrastructure and technological advances of the nation.
Once the company manages to pick up on some of the advices shown above in the essay, it would be able to improve its supply chain efficiency that would be seen in the following:
- Ability to go global in production and operations.
- Improve the visibility of the supply chain by possessing the real-time supply chain tracking software.
- Improve and speed up communication between the numerous corporate departments scattered around the world.
- Reduce or potentially remove existing inventories.
- Reduce the ‘time to market’ for Home Depot’s new products and reduce the time needed to respond to the clients, suppliers, and retailers enquiries and suggestions.
Hugos, Michael, Essentials of Supply Chain Management, McGraw hill, 2002.
Chopra, Sunil, Supply Chain Management, Second Edition, NY Random House, 2001.
Clark, Kim, Harvard Business Review on Managing the Value Chain (A Harvard Business Review Paperback), Prentice Hall, 2002.
Christopher, Martin, Logistics and Supply Chain Management: Strategies for Reducing Cost and Improving Service, Second Edition, Penguin books, 2000.
Frazelle, Edward, Supply Chain Strategy, Wiley and sons, 2001.
Simchi-Levi, David, Designing and Managing the Supply Chain w/ Student CD-Rom, Barons books, 2000.
Lambert, Douglas, Fundamentals of Logistics, McGraw Hill, 2001.
Mentzer, John, Supply Chain Management, Prentice Hall, 2000.
Monczka, Robert, Purchasing and Supply Chain Management, Penguin books, 2002.