In recent years the demand for high-speed networking has been growing at an exponential rate. The advent of the Internet has had a significant impact on access networks, particularly in the provision of various communication services. While the expansion of the Internet may be both a cause and an effect of this growth, it is not the only factor that drives the demand for broadband connectivity. As the cost of semiconductor devices continues to fall while the capabilities of such equipment increase, new applications for equipment built with such devices are continually being developed.
Articles Tagged: business
UK broadband internet access for home and samll business
Offshore Call Centers - The conflict between business & consumers.
Advancements in communications, software development and other technologies have enabled practically every type of business to expand its services to off-shore locations with the probable choices of countries where both the infrastructure and specific needs of the clients can easily be met. Examples of such services include but are not limited to call-centers, as also the subject of our present dissertation, back office operations, insurance claim processing, revenue accounting as well as web/digital development. Indeed one of the successful areas have the disciplines which involve information technology (IT) related services, making it a crucial element and part of a value chain for present day businesses.
Understanding of entrepreneurial theory would assist those supporting the business start-up process
Everyday, the world over, thousands of people start their own businesses. Some of these fail entirely, most are moderately successful, and a few are overwhelmingly successful, so what differentiates between these? How do some people make such a success of something, and others fail completely? Is there a theory, a method that can be followed to ensure success, or at least increase one’s chances of succeeding in the business start up process?
A business report for an Indian chain restaurants
It has often been reported on the television and in the national press, that the UK’s fastest growing and most popular food is ‘an Indian’. With an ever growing multi-cultural society being integrated into the UK and a general interest in eastern cultures, I have decided to set up and run a business venture which will concentrate on the quality/ top end of the Indian restaurants market. The venture will be sited in the wealthy west London area. Whilst there are over 100 Indian restaurants in the area (www.ask.co.uk) which all claim to offer quality food and service, I want my restaurant to be a true Indian Experience, not the place to go after a night at the pub.
Optimising Business Organization's supply chain with open source base software
The demands of today’s fast paced business environment make change a constant rather than a variable. Pricing, components, innovations, features, deliveries, consumer demands and expectations are the problems as well as solutions that supply chains exist to solve and represent the means via which companies stay in business. Even the one person operation utilizes a supply chain. It is that individual meeting deadlines and having the necessary supplies, components and other things on hand to enable him to accomplish this. As the complexity of a business increases, so does the demands in keeping it supplied as well as meeting deliveries.
The foregoing is the context that will be examined in this exercise and how the utilization of a Linux based open source foundation can or does optimize the operation and efficiency of an organization’s supply chain.
As is the case with most business systems, processes, associations, alliances, agreements and working relationships, the element of trust and confidence are variables that aid and support the associations made. And, the foregoing is true in the instance of supply chains as well. The preceding is illustrated through what are termed supply chain risks (Christopher et al, 2001). When confidence in some factor of the supply chain is broached it leads to varied forms and types of risks which manifest themselves in reduced performance and effectiveness. The preceding can be as a result of improper design or systems in some aspects of the supply chain and or its associative areas. Such can be late delivery of components that result in either a late order or a supplier having to work overtime to make up for the shortened time frame left for their aspect of the supply chain movement. It could also be a factor of inefficient order forecasting or delivery systems, resulting in over capacity during peak intervals.
The list of potential illustrations is virtually endless with the point being that each occurrence lessens confidence in the supply chain at some point, representing either individuals or firms (Christopher et al, 2001). When this occurs, varied actions and or interventions take place to counter balance and or mitigate the shortcoming(s). Such actions and or interventions can consist of a warehouse manager seeking to add additional stock to compensate or a spike or peak order demands as a result of late component or supply delivers from a supplier to ensure being prepared or being able to fulfill that aspect of the supply chain performance. Such leads to waste and inefficiency and adds to cost (Christopher et al, 2001). The financial risks from too many multiples of the preceding in whatever form, multiplies the risk. An example of the foregoing is illustrated by personal computers, which devalue by approximately 1 percent per week (Christopher et al, 2001). Thus, mismanaged, or efficiencies in some aspects and or areas of the supply chain can lead to excesses, which translate into financial risks. The increased competitiveness of the global business community means that supply chains, of necessity, have had to become leaner, faster, more efficient in delivery thus leaving small margin to error, overstocking and delays as these are cost functions reducing profits and or adding to customer end prices.
The cost effectiveness as well as respective confidences in a supply chain is negatively impacted when the order cycle time, representing the process of when the order is placed or generated is delivered. Whenever this exceeds the general industry standard and or is either delayed or excessive, it impacts not only on the process it affects the company and reduces profit as a result of more time in the order to completed product and or service end time (Christopher et al, 2001). Of the multitude of factors which can caused and or create the preceding, one of the primary reasons is the lack of pipeline visibility. The preceding refers to the inability to determine what is occurring at various segments in the supply chain system from an administrative standpoint. This lack of visibility means that understanding the manner in which the system flows, represented by the various fed lines and timing chains, renders the ability to correct and adjust timing and notifications as impossible, thus leaving fixes to be administered within the system, rather than from an overview. The disadvantages of the foregoing are obvious.
It is in this context that we shall introduce and discuss Linux as an open source methodology to optimize a business organization’s supply chain. Utilizing Linux as an open source base with windows when properly constructed provides a “… verifiably secure” (Starfish Systems, 2004) computing infrastructure. The preceding means that that the methods utilized in constructing as well as its elements need to be open for inspection to ensure it is secure and verified to avoid risk for the entire computing system and environment. The benefit of open source is that it provides the basis for this verification anytime. Other benefits accruing from the utilization of open source is that it does not have licensing constraints, thus all manner of varied applications and innovative solutions are available for utilization. In this context open source refers not simply to the code, it means the ability to utilize other software components in a broader IT system. A key to a successful and effective supply chain from an IT point of view is that it permits the integration of varied types of supply chain architecture by suppliers represents differing frameworks and standards and making all of these work as one system. The system has to ensure that all participants are able to access and obtain the information they need, in the forms that interface with their systems and permits them to utilize the primary supply chain autonomously as well as with other entities comprising its operation. The IT architecture must permit these networks to collaborate in all facets of operational requirements easily and securely which open source provides
In order for a supply chain to be effective, a detailed overview of all component, assembly, delivery and related flows need to be seen or measured in real time, or as close to real time as possible, and information linking the varied suppliers, assembly operations, delivery and output functions connected at only of the points need to have access and information as to the supply and or function lines that feed their aspect within the chain as well as outputting information to the next affected point(s). The foregoing can represent materials, work in progress, finished components, parts delivery, finished component pick ups, raw material supplies, production run planning, out put yields and well as system demands, new order input realities and or projections, etc. The importance of confidence as well as the elements of supply chain management will be examined in the following segment to provide a clear understanding of what the process is, thus leading to how it can be optimized utilizing open source base software – Linux/windows.
Supply chain management represents the process of implementing, planning and control of the components and operations of the supply chain with the objective of satisfying customers in as efficient a manner as possible (Silver et al, 1998, pp. 471-475). It can also include after sale services, returns as well as recycling. The key element concerning supply chain management is that in most instances it entails information and material coordination representing a number of companies. The inter related nature of the supply chain means that the decisions and actions of one company in the supply chain can have an influence and or effect on the actions, decisions and profitability of all other members in the supply chain (Silver et al, 1998, pp. 471- 475). The purpose of the supply chain is to enlist the cooperation and aid of all of the varied firms to work towards the objective, delivering the finished product and or services to the customer on time, as ordered and as efficiently and cost effectively as possible.
Poor coordination can be costly, resulting in the inefficient utilization of resources, production, warehousing, high inventory costs as well as high transport costs resulting from rush delivers or a faster delivery mode representing higher costs. One such manifestation is called the ‘bullwhip effect and or whiplash effect’ (Sterman, 1989, pp. pp. 321-339). It is analogous to the manner in which traffic on a highway congests and then opens up, which is also termed as the ripple effect, and represents an increase in the variables as varied fluctuations travel up the chain. In most instances the overall customer demand remains fairly constant, however, when inventory levels and back orders fluctuate it causes changes in the flow of the supply chain resulting in the bullwhip or whiplash effect, which varies in intensity depending upon the amount of disruption.
The varied factors which can cause the preceding are (Sterman, 1989, pp. pp. 472-474):
- Lead time variables which can change the variables affecting the firms, components, suppliers and other aspects in the supply chain,
- Demand forecasting,
- Pricing fluctuations,
- Batch ordering,
- Orders that are inflated
The preceding can be corrected through a number of management techniques depending upon the type of problem:
a. Increase the ability of the company to compete with rivals as well as to remain competitive over the long term.
b. Increase production efficiency through productivity improvements as well as a reduction of costs.
c. Reduction of material waste, time and effort.
The short term or immediate objectives represent (Koletic, 2005):
a. To be responsive as well as identify customer needs which in turn aids the as to customer demands and resulting what is required of production processes.
b. To optimize quality and cost through the application of zero-defect manufacturing production processes. The benefit is that the closer the company comes to achieving this objective, the more it eliminates wasted resources as well as efforts entailing inspections, reworking and the replacement of defective parts and or products.
c. Reduction of waste, in particular those that do not add to the product’s value.
d. The development of a reliable supplier relationship. This aids in management of a more efficient process concerning inventory management, delivery system(s) and the management of materials and helps to assure that the supply is stable as well as available when needed.
e. Plant designs that maximize efficiency aids in manufacturing productivity gains and maximization of resources.
f. And maintain an atmosphere that strives for continuous improvement.
The just-in-time process focuses on frequent deliveries in smaller quantities as a means to meet immediate demands, its drawback is that the methodology with regard to re-order is based upon historical demand, thus is demand rises above this factor as a result of say peak levels their could be an inventory depletion problem (Koletic, 2005).
Achieving the foregoing, having items in the supply chain system in the right place, in the right quantity, at the right time calls for management decisions in the orchestration of the supply chain on three levels:
Strategic aspects in supply chain management signify the area where long term decisions are made, representing location, inventory, production and transportation (Bidgoli, 2001, pp. 181-188). In terms of location, decisions representing this aspect are the number, size, as well as geographic location with respect to supply chain plants, distribution centers and inventory. Inventory refers to the decisions in managing them within the supply chain in order to have the right materials and or components on hand when needed without over or under stocking and managed to meet peak, normal and slack demand. Decisions concerning production entail which products and or product types to produce, where they should be produced, the suppliers to utilize in this process, the plants selected to supply distribution centers and related decisions. And lastly, transportation decisions entail the types of transport to utilize.
The information age has aided in the development of integrated supply chain management, which has impacted upon theory. A key aspect of this theoretical change is the shift from manufacturer based markets to retailer markets. Evidence of this is found in Wal-Mart which has caused a host of manufacturers to bring about an improvement in the way they manage inventories because of the firm’s market presence (Chandran, 2003, pp. 6-12). Information technology, integration and the power of retail companies have helped to create a surge in the interest in supply chains, and the promise offered by eBusiness has created even stronger excitement as a result of the potentials offered. A key example of the preceding is Amazon, which has become excellent in its management of funds and information flow through the utilization of the Internet along with the electronic transfer of funds. The new challenge facing companies is how to effectively and efficiently manage product flow.
A discussion of supply chain management represents a large number of disciplines that utilize a host of qualitative and as well as quantitative tools (Worthen, 2003). Ganeshan et al (1999, pp. 839-879) advises that there are twelve supply chain areas that can represent issues a company might be confronted with. In each instance an analysis and or decision support tools can be applied
a. location
b. forecasting and inventory
c. transportation and logistics
d. sourcing and supplier management
e. marketing and channel restructuring
f. service and after sales support
g. information and electronic environments
h. product design, new production introductions
i. outsourcing along with strategic alliances
j. green issues and reverse logistics
k. incentives and metrics
l. global concerns and issues
The following explain these areas:
The utilization of order batching as well as manufacture price variations generate large orders, these are then followed by small order and thus creates increased upstream chain variability. Increased communication regarding demand on the part of consumers which has been brought about through the Internet as well as data exchange electronically along with what is termed everyday low pricing, which eliminates bulk ordering, are aspects that reduce and or mitigate the bullwhip effect through better forecasting resulting in even production runs (Cohen et al, 1998, pp. 72-83). The benefits of ordering as well as receiving orders through the Internet and via electronic data exchange has undergone tremendous expansion as a result of the foregoing. Davis et al (1999, pp. 183-203) indicate that the foregoing provide the means to supply chain partners to be immediately informed as to order status, and that these aspects along with vendor managed inventory, coordinated replenishment and forecasting as well as continuous replenishment are initiative to help to mitigate the aforementioned bullwhip effect.
The impact of vendor managed inventory within supply chain management has been so beneficial that it bears additional mention in the context of Marketing and Channel Restructuring. Vendor managed inventory entails a partnership whereby in general the supplier, which is usually the manufacturer, reseller or distributor, renders the primary replenishment decisions. As a result the supplier monitors the inventory of the buyer, through either physical counts or electronic messaging, and then makes decisions concerning order amounts, shipping and delivery timing. Instead of transactions being started by the buyer, they are initiated by the supplier. In fact, an acknowledgement from the supplier might be the first notice concerning the transaction, with a shipping notification informing the buyer that the order is in shipping. In this manner, the supplier has responsibility for maintaining inventory levels that is stored at the distribution facility of the buyer.
As illustrated by the foregoing, the areas comprising supply chain management are complex, representing a broad array of areas, inter linkages and relationships that work in combination and impact each other in sophisticated ways.
An explanation of the preceding is evidenced by the utilization of manufacturing of dashboards as an example. The automotive manufacturer out sources the module to a primary supplier who in turn out sources varied sub parts to other suppliers, who may or may not out source their segment of the dashboard component they are responsible to deliver within a specific time frame back to the source they received their order from who in turn does the same. The complex nature of coordination is obvious and further exacerbated by the fact that in a hierarchical supply chain the time for information exchange is lengthened and can result in frequent errors, thus inefficiency in the automotive industry representing design, development, procurement, logistics and manufacturing abound (Kim et al, 2002.
The key example of supply chain efficiency is demonstrated by Dell Computer which was ranked as the top supply chain operation in 2004 and 2005 based upon a study by AMR Research (AMR Research, 2005), leading:
2). Proctor & Gamble
3). IBM
4). Nokia
5). Toyota Motor
6). Johnson & Johnson
7). Samsung Electronics
8). Wal-Mart
9). Tesco
10). Johnson Controls
11). Intel
12.) Anheuser-Busch
13). Woolworths
14). The Home Depot
15). Motorola
16). PepsiCo
17). Best Buy
18). Cisco Systems
19). Texas Instruments
20). Lowe’s
21). L’Oreal
22). Publix Super Markets
23). Sysco
25). Coca-Cola
The importance of listing the preceding indicates the difficulties the automotive as well as computer firms are having. Maintaining and increasing market share is a function of increased productivity, quality and lower costs as well as delivering a product to market on time. Internally, this means that business organizations need to optimize the manner in which they do business throughout their organization. In today’s global marketplace the customer is king as the plethora of competitive products offer selection that is unrivaled (Subramanian, 2002). The supply chain in today’s environment is increasing dependent upon electronic information technologies that aids companies in conducting transactions with buyers, sellers as well as the other elements in their matrix to increase product quality, productivity, deliverability, customer services, reduce costs and open new avenues to increase sales and profitability. In addition to supply chains driving product manufacturing, and delivery, it drives internal operations which are focused on delivering to the customer. Dell’s supply chain model functions in this manner as it is a business organization supply chain around which the entire company is build and run.
Dell accomplishes the results in achieving sales through the focus on customers, “… one customer at a time” (Jacobs, 2001). The company maintains just four days of inventory in comparison to many of its competitors who maintain inventory levels of 20 to 30 days, considering that Dell manufactures approximately 50,000 computers per day, the preceding is impressive (Jacobs, 2001). The supply chain in Dell’s business model is the backbone of the company’s retail strength, as it also is for Wal-Mart, Tesco, Nokia and the other firm’s indicated on the list of the ‘Top 25 Supply Chains for 2005’ (AMR Research, 2005), as well as the firms that are not listed. The company maintains a “… supplier report card on every supplier, and tracks each supplier’s performance against a set of metrics maintained by Dell” (Jacobs, 2001). The tight scheduling and rigid controls Dell imposes throughout its organizational profile is geared to sales and supply chain delivery.
Dick Hunter, Dell’s vice president of Americas Manufacturing Operations, states that “… information is increasingly replacing inventory…”, adding that the identification, “… gathering and sharing new types and levels of data…” (Jacobs, 2001). The preceding is indicative of the importance of the supply chain in its business organization. The company’s success rests upon that simple tenet which works in Dell’s favor enabling it to tackle small problems quickly and effectively. Dick Hunter explains that the production lines are scheduled “… in every factory globally every two hours…”, thus, Hunter elaborates “… we have not inventory and no warehouses in any of our factories…” (Jacobs, 2001). The efficiency of the supply chain management in Dell’s business organization permits it to gather the materials required to produce at factories based upon actual orders thus saving critical money by not having inventory stocking. The company’s Ariba Buyer, a software customization it collaborated on with Ariba, Inc. eliminated the three part manual hand coded procurement order system that required 10 signatures to its present Dell Internet Requisition Tool which provides for automated order validation, saving the company an estimated $110 per requisition (Jacobs, 2001). Furthermore, the preceding reduced the requisition completion time frame by 62%, as well as the cost factor on completing the lengthy hand coded forms by 61% and vastly reduced errors (Jacobs, 2001).
Dell’s example of the effectiveness of integrating its supply chain into its business organization has enabled this computer manufacturer and retailer to become one of the industries best through its attention and focus on the customer as its operational objective.
1.4 How to Optimise Supply Chain in Business Organization
The background provided on the importance and impact of supply chains on business effectiveness and efficiency as well as profits and customer focus have indicated the invaluable nature of the practice. As mentioned previously, the increased competitiveness of business in today’s global marketplace leaves companies with no room to miss opportunities to improve in these areas on an ongoing basis, least their competitors gain ground and or catch up. One of the keys to increased competitiveness is represented by a firm’s operational efficiency in administrative as well as production and sales methodologies, all of which have the singular purpose of meeting and exceeding customer expectations. The Seeburger Company in a White Paper on this subject stated that those companies that have become market leaders have understood that managing their businesses fundamentally was a key to successes which they capitalized upon through the utilization of technology (Seeburger Company, 2005). RFID (Radio Frequency Identification) represents a labeling compliance is a backbone of this new technology (Industry Week, 2005). Initiatives on the part of Wal-Mart as well as Best Buy and others in this area are requiring suppliers “… to encode unique identifiers on case and pallet tags” (Industry Week, 2005). The purpose is to permit the receiver to read these tags at the Distribution center via automated equipment, with future planning calling for this to be repeated at stores. This barcode identifier is “… coupled to an electronically transmitted advance shipping notice” (Industry Week, 2005) and permits almost immediate identification of where a shipment is and its status. The preceding represents an emerging technology that is designed to replace barcode readers and is stated to offer increased efficiencies.
The foregoing example is an illustration of how companies are seeking to improve upon their present supply chain capabilities to further reduce internal costs, minimize errors and increase customer satisfaction. As documented in the Dell examination of its move from a manually based hand code procurement system, the promise of RFID offers the same advantages, elimination of time consuming and costly shipping notices, orders and related documents. The side benefits of the implementation of a RFID system is that the suppliers will thus adopt these same techniques benefiting them as well as their suppliers and business associations.
Optimising the supply chain in a business organization is based upon the consistent elimination of paper, errors, the bullwhip effect and reducing standing inventories as well as delivering on time, just in time in the right quantities. The integrated supply chain is a business strategy that has proven itself through usage and in response to the aforementioned increased demands on the part of customers for quality, speed and delivery. The aforementioned integration of the supply chain to optimize its effectiveness needs to be at the core of a company’s organizational structure as it is the functioning aspect of why a firm is in business, to service its customers.
Thus, the first step in optimizing the supply chain within a business organization is for management to understand the preceding and take such as a mandate to achieve increased performance throughout the company, from top to bottom. The well used term information age is no longer a phrase or emerging business function, it is a proven operational core that provides the means to link all aspects of a company’s operations into useable, tangible and productive systems that in the words of Dell’s Dick Hunter means “… information is increasingly replacing inventory…”, and“… gathering and sharing new types and levels of data…” (Jacobs, 2001). This key statement underpins the basis for increasing supply chain performance within a business organization so that it can continuously work towards optimizing the operation through the embracing of new systems, technologies and methods, as illustrated by RFID.
Dell’s success in being the industry leader in supply chain efficiency and effectiveness stems from this very core, the supply chain is the company. It is how the company thinks, acts, lives and satisfies its customers and works with its suppliers. And, it has resulted in the company’s success. Evidence of the importance of adopting a supply chain organization is provided by the company selected as the top 25 in this area, starting with Dell as number 1:
2). Proctor & Gamble
3). IBM
4). Nokia
5). Toyota Motor
6). Johnson & Johnson
7). Samsung Electronics
8). Wal-Mart
9). Tesco
10). Johnson Controls
11). Intel
12.) Anheuser-Busch
13). Woolworths
14). The Home Depot
15). Motorola
16). PepsiCo
17). Best Buy
18). Cisco Systems
19). Texas Instruments
20). Lowe’s
21). L’Oreal
22). Publix Super Markets
23). Sysco
25). Coca-Cola
Each of the preceding are either market leaders or close to being such in their respective industries, a coincidence that is not simply a coincidence! All of the preceding demonstrates what Lee (2004) terms the “three A’s of supply chain excellence”:
- Agility
- Adaptability, and
- Alignment
A factor that firms must be acutely aware of in today’s marketplace is the day-today uncertainty of supply. Such uncertainties can be of an internal supply chain foundation, or as a result of external forces such as the 2002 Longshoremen’s strike in the United States, located in California, and the SARS outbreak in 2003 in Asia. High product complexities, multiple country markets, dispersed manufacturing and distribution facilities and the shortened time frame for product life cycles means as Lee (2004) terms it, the “… clock speed…” of the pace in industrial sectors is increasing. A fast changing competitive landscape along with the varied risks as well as opportunities means that changes present themselves rapidly, and disappear just as rapidly, and a company must be able as well as operationally ready to pounce on opportunities as well as side step risks, this means that in adopting a supply chain strategy, it must be constantly upgrading and improving itself in the face of changes within the technological and information base it is constructed upon, as well as the effectiveness and efficiency it brings to the chain itself. Change is a fact of life, and thus an effective and efficient supply chain must be organized, monitored and maintained with the preceding as a structural and managerial component.
In optimizing a supply chain from a corporate administrative and functional aspect, it, the supply chain, also has to be optimized from a disruptive view as well, thus requiring the indicated ‘Agility, Adaptability and Alignment’ (Lee, 2004):
- a strong supplier relationship,
- accompanied by capacity set at the appropriate levels,
- the proper amount of buffer inventory,
- product design that includes process adjustment that allows for differing component interfaces,
- a overall parts commonality
- a logistics system that is efficient,
- contingency and back up plans for supply as well as logistics
- and an information system which provides for and allows information to be transmitted quickly and accurately concerning demand as well as supply conditions in all facets of the supply chain to permit proper decision making choices
In order to achieve the preceding a company needs to plan its supply chain strategy in new product engineering through a design process that incorporates the indicated flexibilities that will permit the company to make component adjustments if called for as a result of a potential disruption. Nokia, Zara and Japan’s Seven Eleven are examples of this facet. Zara outsource its manufacturing to Portugal and in its home country of Spain, and although the company pays a 10 to 15% premium in costs, the local nature of the production permits it to make faster changes thus beating the competition in agility and getting desired items to the marketplace. Its retail life cycle of 30 days as opposed to three to eight months enables it to change stock and keep shoppers coming into the stores to look at the new offerings and this has contributed to the company’s 10 percent growth rate over the past 10 years and its profit margin of 10% is above the industry average of 3 percent.
- the relocation of manufacturing,
- Adaptations to the supply base,
- Utilization of differing distribution and or outsourcing suppliers and or services,
- new sales channels and.
- the modification of product designs to fit the new variable(s)
The second dimension represents the alignment of identity, which are the responsibilities and roles of the supplier / partners. In this aspect issues such as responsibilities for:
- replenishment,
- order fulfillment,
- forecasting,
- and customer service,
are clearly defined. In the vendor managed inventory the responsibility of replenishment management rests in the hands of the seller. Under a collaborative planning methodology, these aspects are shared.
The third dimension represents the alignment of incentives which entails elements of risk as well as reward and cost sharing schemes to cause the chain partners to work together in maximizing the performance of the system whereby each partner thus receives an equitable and fair return.
The importance of optimizing the supply chain is illustrated by a component problem that hit both Dell and Apple computers at the same time. In 1999 an earthquake hit the island of Taiwan and both companies were advised that it would be weeks before components could be delivered. Apple’s upper line products were affected and they were unable to fulfill standing orders, while Dell was able to shift components as well as change incentives in its online site to offer a temporary better buy to those computer lines not affected thus weathering this disruption. The preceding is an example of how optimisation of the supply chain can enhance business performance and organization.
1.5 Supply Chain Initiatives in Business Organization
The rapid pace of change in the global business environment is a refrain that is repeated throughout this examination as it is this foundation which is fueling the pace of development, interest and attention in supply chains as an important competitive answer. An initiative represents “…the power or ability to begin or to follow through energetically with a plan or task…” (Houghton Mifflin, 2006). The foregoing is an important understanding whether the firm is at the pinnacle of supply chain development, as is the case with Dell, or suffering from the inoperability of U.S. based automotive manufacturers. In the instance of being the leader in the field, the initiative is to look for new and innovative ways to improve upon what is already in place and further refine the system in keeping with the Three A’s, Agility – Adaptability – Alignment (Lee, 2004).
Initiatives can thus take on many forms and strategies depending upon management’s analysis and the objectives to be achieved. And to accomplish this, management must have a clear and accurate assessment of exactly where their supply chain stands in terms of its ability to deliver products to the end customer on time, in the right quantities at the lowest possible and achievable price. In addition, management needs to access the supply chain’s adherence to the twelve areas as indicated by (Ganeshan et al, 1999, pp. 839-879):
a. location
b. forecasting and inventory
c. transportation and logistics
d. sourcing and supplier management
e. marketing and channel restructuring
f. service and after sales support
g. information and electronic environments
h. product design, new production introductions
i. outsourcing along with strategic alliances
j. green issues and reverse logistics
k. incentives and metrics
l. global concerns and issues,
to determine how their supply chain stacks up against the preceding. Once it has a clear assessment, as well as information from its historical use, the problem points should be easy to locate. However, the obvious is not always the answer in many situations, and in some cases what is wrong may not present itself in a manner that can be uncovered through statistical and historical information. The relationship a company has with its suppliers means that they have their own supply chain methods as well as overall company goals and objectives to achieve. If the two are not on consort with each other, from their perspective, then this represents a hidden problem that might not readily reveal itself through management analysis of records, data and statistics. Once again, Dell provides a classic example of how to approach and achieve results in this area. Thinking that the use of Dell as a model in this instance means that what is applicable in computers is not analogous to automotive manufacturing, canned goods production, clothing manufacture and delivery, or even stock the shelves at Tesco is not true. In fact Dell has and is applying its supply chain model and methodologies to printers, handheld devices as well as flat screen televisions in addition to other products with the same results (Mentzer et al, 2004). Mentzer et al (2004) explain Dell’s success as an attribute of it’s “… culture of execution” in addition to the company’s continual attention to find ways via which to improve upon the system.
One of the key’s to Dell’s success is the relationship it has with its suppliers. From the onset of its refinement and development of its supply chain that aspect has been a central component in the design, planning and structure of the supply chain matrix, because the system is more than components, parts and numbers, it is operated and run by companies and individuals. It has built excellent relationships with its suppliers and thus maintains leverage as well as inputs on improvements and ways to make things function better, in addition to the company’s own internal efforts and reviews in this area (Labitzky, 2001). Thus, corporate initiatives in its business organization with regard to supply chain initiatives represent understanding what is working, what is not working so well and what needs to be either fixed or changed, as an ongoing process. In the case or instance of a company that knows its supply chain is in need of changes and modifications, then the approach needs to analyze the most glaring problems and introduce fixes in consort with a broader and long term analysis of the entire chain so that the problems and changes are something it can build upon in the future rather than moving from one fix to another in the hope that repairing the problem will solve the problem.
Thus, in launching the first step, an in-depth, accurate, honest appraisal of the supply chain seeking and encouraging inputs from all quarters, specially suppliers, is the foundation from which to understand the state and status of aspects which might be already known as problems, but not identified with regard to solutions. Thus, there are problem to be encountered with changing over a supply chain to open source, however, the state of the problem can be liked to continuing a car race with an engine prone to breakdown, or replacing the entire motor, while that latter takes more initial work, the later stages result in less work. Patchwork solutions in a highly competitive environment where failures in supply chain functionality spell. Such an example, there are numerous others, is supplied by Nike in 2001 when is found that announced sales for a quarter were $100 million lower than reported as a result of problems in its supply chain which did not account for all inventories (Taylor, 2003). Then, there is the example of Cisco Systems which had to take a $2.2 billion write down on inventory that was no longer useable as a result of their having problems in the supply chain (Taylor, 2003). These types of costs, mistakes, problems and expenditures are not the exception. Thus, the costs associated with making changes to accommodate an open source Linux based system, pales in comparison to the eventual problems that a company could be facing.
The optimisation of a company’s supply chain through the utilization of Linux based open source represents a methodology that has many potential approaches. Christopher and Lee (2001) in their examination of supply chains provide the basis beginning point in explaining that the entire system represents a trust and confidence factor as suppliers must believe that the information being relayed to them in terms of component manufacturing schedules, delivery cycles or whatever their function within the system can be relied upon as an accurate assessment of what is needed. If there are too many instances whereby the information transmitted represents over or under ordering or delivery, completion time frames they stand to loss money through either inventory or work scheduling and related cost areas thus confidence in the system is lost and they will tend to seek their own interpretations of what is needed and when. This foundation represents the basis for the entire examination, the accurate assessment through the supply chain of what is needed and when.
“The Evolution of Supply Chain Management Models and Practice at Hewlett-Packard” by Lee and Billington (1995) explained the workings of the supply chain system in the organizational structure as well as its importance to the ability of a company to produce and deliver. The entire purpose and function of a company is to fulfill customer order expectations whether this represents a single consumer located in the United Kingdom, or a multi national corporation expecting the delivery of 10,000 units to its own supply chain. Mujaba (1994) delved further into the preceding in “Enterprise Modeling and Simulation: Complex Dynamic Behavior of a simple – Model of Manufacturing” emphasized that the function of the supply chain is to delver what is needed when and where it is needed in the right quantities at the right time. The profitability of the members of the supply chain is the object of the system, not just the main company, as explained by Silver et al (1998) in “Inventory Management and Production Planning and Scheduling” and is best accomplished through the cooperation and coordination of all the firms utilizing the chain. Sterman (1989) advises that lead times, demand forecasting, pricing fluctuations, batch ordering and inflated orders can generate a bullwhip effect which disrupts the deliveries and system up and down the supply chain. The preceding is managed through just-in-time scheduling (Koletic, 2005), vendor managed inventory (McIntyre et al, 2001) and strategic partnerships (Bidgolic, 2001).
Optimisation of the supply chain represents the means via which companies either stay in business and match competitors or achieve an edge (Jacobs, 2001), and is illustrated by Dells pioneering and innovative approaches that begin at the management level making the importance of the supply chain an integral aspect of its corporate culture. Lee’s (2004) “The Three A’s of Supply Chain Excellence” states that companies do not compete for market dominance, supply chains do and cites agility, adaptability and alignment as the means to that end. Actualizing optimisation of the supply chain represents a business initiative on the part of firm’s strategies to implement changes and improvements (Mentzer et al, 2004). Linux as an open source potential in the solution of the varied complexities facing firms in the operation of their supply chains is a result of the fact it can be customized to fit any system, suppliers, as well as provide information flows and information accessibilities to suit the specific needs and dictates of the situation (D’Agostino, 2006). The benefits of open source over Windows is explained by Kehagias et al (2003) in “Open Source Supply Chains” whereby they advise that open source provides a better framework for multi user systems to work together for the dissemination as well as distribution of information through its ease of modernization. The limitations of Windows based systems is that customization entails a laborious process of obtaining permissions from the vendor as well as the future customization limitations and time frame delays associated with working with a third party. Kehagias et al (2003) further explain that Linux represents the new edge of technological developments that is permitting supply chain design to be modified, customized and altered in house whenever the need(s) arise thus offering company’s with the instant ability to effect the aforementioned and thus work towards optimization.
The limitations of third party supply chain based software systems, such as Windows, has caused the European Committee for Standardization to recommend open source, which includes Linux, as a standard for its member states to utilize in their governmental systems as well as encouraging companies to embrace the utilization of open source as well (Lorenzelli, 2005). The foundational basis for plugging in differing systems, applications and the important facet of customization are/were the reasons behind that stance, by the European Committee for Standardization, as well as the problems encountered with working with third party vendors, notably, Microsoft (Lorenzelli, 2005). Schonfeld (2000, pp. 115-124) in his work “The customized digitized have-it-your-way economy” points out the benefits of open source in providing companies with options to, in his words, for them to “…have-it-your-way …”.
The fast changing pace of developments in the competitive arena as well as technology and supply chain demands as represented by improvements which companies should be constantly seeking, are the reasons for the support of open source as a methodology to effect change. Schonfeld’s (2000, pp. 115-124) position is that open source aids companies in management of their supply chain through improved information flows which lead to reduced inventories, and thus improved bottom line results for all supply chain participants. Whang (1999, pp. 633 – 640) in “Decentralized Multi-echelon Supply Chains: Incentives and Information” makes references to the benefits of customization in the utilization of multi level systems whereby companies can break down their supply chain systems into more manageable stages which permits the locartion of areas for improvement easier, as well as permits for faster modification and customization as a result. The preceding is not a benefit of Windows based systems without the aforementioned vendor collaboration methodology that is a time consuming process.
The preceding has been emphasized by Ganeshan et al (1999, pp. 839 – 879) in “Quantitative Models for Supply Chain Management” where they detailed the twelve areas of supply chain management that represent important aspects in its operation. These points provide management with a clear set of tools for assessing the effectiveness and efficiency of their supply chains to aid it its optimization. Mentzer (2004) offered Dell as an example of how utilization of these points benefits supply chain participants as a model of efficient operations achieved through customization. The literature utilized provided the means to equate the problems and well as solutions open source offers in permitting companies to manage the complex variables that are the supply chain.
The examination of Linux based open source software in supply chain systems represents the ability for companies to develop and customize their supply chain software through the writing of code which is not an option utilizing proprietary software applications and operating systems. The open source system permits all firms tying into the system to have access to the information they require and its adaptability permits it to be customized to fit any suppliers operating system methodology thus giving the operating firm more flexibility in its selection of suppliers and tying them into its system almost immediately as functioning components. Through the examples and samples reviewed the importance as well as reliance that companies have upon their supply chains has been illustrated. The examination uncovered that proprietary software has code that is guarded by their vendors and any changes require working with said vendor in a slow and laborious process that can spell undue delays in the fast paced world of retailing, manufacturing, supply or any of the other aspects associated with the production and sale of products.
Open source provides the means to customized software to deal with the specialized needs each firm has in the construction and functioning of its supply chain in the manner that companies deems as the best methodology to accomplish the tasks at hand. More importantly, it permits ongoing revisions and changes whenever the company desires thus permitting it to amendment the system to eliminate operational flaws or aspects which could be better sourced. The research uncovered that is has and is becoming the preferred system operational foundation as a result of the foregoing. In addition the examples indicated that there is not such thing as the perfect supply chain, but rather that they are systems in a constant state of evolution and upgrading as a result of historical trending information, new technological developments and ideas emanating from both inside the company as well as from vendors and suppliers. The preceding holds true for even top rated systems such as Dell which is constantly undergoing revision and upgrading.
The new variables and or potentials uncovered through this examination represent the abilities of management to delve deeply into the functional aspects of their supply chain system and correlating what the company is, does, wants to be or is, as well as what competitors are doing and the direction that new developments are driving the industry and supply chain management and systems in. This seemingly abstract context is the atmosphere from which new innovation flows and thus is the open ended equation in the consistent striving for the edge to provide a firm with the operational system to improve efficiencies and effectiveness.
Chapter 3 – Methodology
The examination of the mechanics and system underpinnings of supply management represented research into what supply chains are, its management and the logistics involved as well as the methodology of the software and vendor tie ins that permit it to function. The research entailed secondary research analyzing the mechanics of the preceding as well as what open source is permits and accomplishes in this environment. Through the investigation of various theories and actual applications a foundation for understanding the manner in which a Linux based open source system can aid companies and specifically the case study example was arrived at.
Studies as well as utilizations by companies such as Hewlett-Packard, IBM, Oracle and Novell have found that open source can provide companies with a competitive advantage through enterprise applications. Optimising open source is a manifestation of what is termed “… Christensen’s law of conservation of modularity” (Koenig, 2004) which refers to where software layers are adjacent and interdependent software stack layers whereby applications within these layers can be optimized (Koenig, 2004). Koenig (2004) adds that under “Christensen’s law of conservation of modularity…” the modular and conformable operating system such as Linux serves to erode margins for other operating system vendors…” such as Microsoft, Sun Micro Systems and Wind River. Dell runs Oracle’s 9i Real Application Cluster (Dell, 2006) which comes in a Linux version thus providing the “…law of conservation of modularity…“ (Koenig, 2004) referred to by Christensen. This same software bases was utilized for Electronic arts, the game software company saving it an estimated $1.3 million over the UNIX version of Oracle’s software.
Putting new and better applications to work within a system at the foundational level for something that is already up and running might serve to cause some managers to re-think the proposition as a result of the initial insertion costs and or time spend in shifting applications and bringing suppliers and vendors up to speed. Wallace (2006) states that “… the key benefit of OSS is that users have the option to customize the product to meet their business’s exact needs”, adding that this includes the ability to integrate it with varied legacy solution and most importantly “… the ability to customize the software gives users…” (Wallace, 2006), the freedom to do these things. The drawbacks associated with proprietary software is that the vendor maintain control over the source code, thus any changes are orchestrated by them thus causing delays as well as constraints that the fast paced environment of supply chains does not have the luxury of. As pointed out, in order to maximize efficiency as well as innovate, the supply chain matrix needs to be under constant review and revision to incorporate the latest in software or technologies as well as changes and improvements resulting from monitoring and examining the system.
The complex variables constituting supply chains can vary even among firms in the same industry sector in the same line of business as it is a living and functioning extension of the corporate culture as well as its vision on attacking the marketplace and servicing its customers. The nuances can be either subtle or dramatic and represent innovation as the key to arriving at a competitive edge through calculated use of existing theories as well as the development of new untried measures offering promise. Open source is the foundation that permits the preceding.
The utilization of a Linux based open source system for the supply chain at Backcountry.com represented a massive undertaking for a small company in that the foundation of such a plan entailed the writing of its own code as the basis for the change over. The preceding is an expensive and risky undertaking if a firm does not have the basics as well as details firmly planted in sound strategy and planning for all aspects of the supply chain system as well as a good working relationship with suppliers. To understand some of the complexities facing Backcountry.com in this endeavor, one must understand that the company sells 250 brands representing 25,000 products (D’Agostino, 2006) which are subject to varied price fluctuations based upon seasonality and the actions of competitors. In addition, the company has to correctly forecast as well as fill orders and maintain inventory and supply controls to meet varied customer demands across this diverse line of products.
The circumstances prompting Backcountry.com’s decision to change its supply chain to a Linux based open source was a sale the prior year which was disastrous. The company’s IT administration at that time required each web page to be changed manually for each of the company’s web pages and the full line of 25,000 products (D’Agostino, 2006) In order to accomplish the preceding it needed to analyze each items and apply the proper discounts in order to be competitive across the full line. The shortage of personnel in that year did not permit the company to apply this methodology thus it resorted to applying the “… same discount to every item in its inventory” (D’Agostino, 2006). The preceding turned out to be a $400,000 mistake as this represented the money the company lost as a result of consumers opting to purchase elsewhere for many of the items discounted in the manner indicated (D’Agostino, 2006).
So that this disaster would not be repeated, the company turned to utilizing a Linux based open source platform. In order to accomplish the transition Backcountry.com had to hire and maintain an army of programmers to write code and maintain controls over their rapidly changing inventory pricing as well as order and inventory management levels with is 250 brand suppliers. Backcountry.com utilizes Linux for its operating system, MySQL for databases and Zimbra for emails which ties directly into the company’s order management system (D’Agostino, 2006). The ability of the company to write its own code enabled it to customize its supply chain software to enable transformation of pricing on each of its web pages to reflect changes to the entire system in four days as opposed to the four weeks it took under the old system.
The additional cost in programming staff has been offset by the increased sales and margins the company reaps as a result of the advantages that open source provides in being able to respond to changes across its 25,000 product line, which includes approximately 80,000 SKU’s and all of the aforementioned include lots of keywords (D’Agostino, 2006). The company utilizes a keyword base to actively track bid management which manages shippers and represents 30 percent of what the company generates in revenue as a result of savings. Careful management of this aspect is required to control inventories. The Linux open source foundation enables Backcountry.com utilize “… an open source Perl script that monitors inventory …” (D’Agostino, 2006) which monitors its inventory and permits keywords to drop off so that when stock runs down the company can effectively replenish supplies.
Backcountry actively works with its supplies to permit real time inventory counts and replenishment based upon current order level forecasts as well as anticipated demand during certain peak seasonality periods. The entire processes is a result of its utilization of its own programming that is a product of utilizing Linux open source as the basis for its supply chain management. The company’s culture and operational philosophy is based upon the realization that its supply chain is the basis for servicing its customers. The company’s Chief of Technology, Dave Jenkins, has stated open source creates value and that while the company needs to employ a large IT staff they are able to make needed system changes almost immediately rather than having to rely upon either “… Accenture or IBM…” to take months in putting changes together (D’Agostino, 2006).
The success the company has achieved through utilizing Linux based open source has helped the company shift prices and manage inventory levels in consort with changing prices on the part of competitors. Because Backcountry.com is an Internet based retailer consumers have the opportunity to compare prices easily, thus the company must be able to actively track the rapidly changing price variables and respond almost immediately to as not to lose customers. This is what Sterman (1989, pp. 472-474) referred to in:
- Lead time variables which can change the variables affecting the firms, components, suppliers and other aspects in the supply chain,
- Demand forecasting,
- Pricing fluctuations,
- Batch ordering,
- Orders that are inflated
The company’s just-in-time inventory management system (Koletic, 2005) enables it to:
a. Increase the ability of the company to compete with rivals as well as to remain competitive over the long term.
b. Increase production efficiency through productivity improvements as well as a reduction of costs.
c. Reduction of material waste, time and effort.
Backcountry.com’s use of a Linux based open source system enables it to make use of qualitative and as well as quantitative tools as described by Worthen (2003). The company’s most important operations area represents not being out of stock for items, which represents forecasting and inventory coordination as stated by Silver et al (1998, pp. 31-41).
The aims and objectives of this examination were to determine how open source, Linux, can and or do optimize the supply chain of an organization. The case study, as a result of the details uncovered in setting the background understanding for the analysis, served to illustrate the benefits utilizing the indicated foundation. From the examination of what a supply chain is, what supply chain management is, as well as understanding how and what open source is, and how it works within the system and where optimization could occur were and are complex and detailed subjects that required in depth explanations in order to see and determine the interlinks in the entire matrix. The preceding approach was utilized as it was determined that this represented the best manner in which to approach the context and glean the points needed.
The real find that developed as a result of the preceding is that supply chains are as different and the organizations that use them. It is a function of who and what the company sees itself as being, as well as the dictates and demands of the business it is in along with the varies nuances of the preceding. Optimising a supply chain entails understanding certain principles that Ganeshan et al (1999, pp. 839-879) indicates are the twelve areas that a company needs to understand as well as confront in reviewing as well as analyzing its supply chain whereby decision support tools can be utilized:
a. Location
b. forecasting and inventory
c. transportation and logistics
d. sourcing and supplier management
e. marketing and channel restructuring
f. service and after sales support
g. information and electronic environments
h. product design, new production introductions
i. outsourcing along with strategic alliances
j. green issues and reverse logistics
k. incentives and metrics
l. global concerns and issues
Open source does provide companies with the ability to customize their codes without the proprietary controls exercised by the vendor and therefore provides freedom in adapting the system as deemed fit from management and operational requirements. The acceptance of open source as a viable solution is supported by the European Union’s Executive Branch as a means “… of cutting public-sector costs, stimulating the local software industry and fostering interoperability” (CXOtoday.com, 2003). That singular endorsement speaks volumes in that the world’s largest multi national trading region sees open source as the means to the future.
Lee (2004) makes the observation that “… supply chains, not companies, compete for market dominance”. The very factors that provide supply chains with their efficiencies and effectiveness, tight inventories, just in time deliveries, vendor managed inventories, outsourcing, logistics and other benefits are the vulnerable points when supply disruptions occur. As supply chains become more efficient, they also become more complex and sophisticated which renders them as vulnerable to interruptions of an unforeseen outside variable. And while they are able to adjust to such circumstances more quickly then by any other means, such occurrences represent a challenge for corporate supply chains which have gotten longer, more far flung in operation and since they operate on razor thin tolerances to optimize effectiveness, these aspects are the weak points in the aforementioned disruptions. The preceding has been researched by Computer Sciences Corporation (Supply Chain Management Review, 2004) found that 60% of the reporting firms stated their supply chains were vulnerable to disruptions. Examples of the preceding are provided by Ericsson which lost 400 million euros when a fire occurred at a supplier’s semiconductor factory (Wall Street Journal, 2001), and Land Rover of the United Kingdom had to lay off almost 1,400 employees as a result of a supplier becoming insolvent (IBL, 2002).
A supply chain is a multi agent user system and open source provides the framework for permitting varied system architectures to work in conjunction with one another for the dissemination and distribution of information (Kehagias et al, 2003, p. 3). In addition advised Kehagias et al (2003, p. 3) open source offers the opportunity for the ease of modernization in all facets of the supply chain system. The open source framework of Linux is in keeping with new technological developments that provide for the wider utilization of “… open standards and open source software” (ZDNET.com, 2001). Industry, in general, is moving in the direction of open source as a foundational framework for supply chains in order to harmonize a common technological and methodology for building blocks in consideration of the global nature of the process. The capability to utilize all manner of software applications an innovative programming under the open source framework is a must for the fast paced developmental cycle supply chains live in whereby they are constantly being upgraded, added to and modified. Further, the addition of new supply chain partners with differing systems means there needs to be a common ground to enable these new additions to quickly interface with the chain and other functioning members. The following is a summary list of these benefits (Kehagias et al, 2003, p. 6):
The utilization of open source as a foundation for supply chain architecture is supported by the European Committee for Standardization which sees this approach as providing the means for a technology interoperability level consisting of building blocks which will enable as well as sustain the establishment of said building blocks along with lifecycle management that provides the framework and foundation of evolution using open source as the foundation (Lorenzelli, 2005). The operational methodology behind Linux is that it is the kernel of the operating system which manages the hardware (Siever, 2005). It provides the foundation that in conjunction with the operating system makes the system useable. Thus Linux consists of a broad array of libraries, system utilities as well as programs along with commend shells (Siever, 2005). In the context of this examination, the reference to Linux refers to the ‘distribution’ of Linux which is the complete system whereby the source code is available to read as well as modify.
Optimisation of an organization’s supply chain utilizing Linux based open source is a proven methodology that is employed by firms such as Dell, IBM, Tesco and the case study example Backcountry.com as a few of the numerous examples. Its operational interface permits codes to be customized to serve in a company’s best interest with respect to the design of software operability to meet the specific demands and dictates of a company’s requirements and operations. The preceding represents the most important benefit in its adaptations and use, customization which is the direct path to optimization. The costs to generate the changeover to this system can be realized through increased efficiencies and effectiveness of the supply chain operation. The case study example illustrates the preceding and this benefit that Backcountry.com achieved in reversing the $400,000 loss in sales that culminated from the inability of its supply chain software to change pricing on its web site in response to changes in the competitive environment. The subsequent utilization of a Linux based pen source system enabled the company to achieve sales increases after its adaptation and is a clear illustration of the benefits of this methodology.
In order to have the Agility, Adaptability and Alignment referred to by Lee (2004), a company must first have the ability for its software base to be able to adapt to changes, with the flexibility to work with any and all new technological forms as well as developments and user systems. The preceding is the foundation of what open source, such as Linux, brings to supply chain operation as opposed to the indicated third party limitations of proprietary vendors, such as Windows. The preceding study has delved into the nuances of supply chain operation, management, systems, vendor associations and identification of problems as well as benefits to be achieved from the utilization of a flexible software core such as Linux and represents the recommendation for the achievement of the varied ends indicated throughout this examination. Innovation as a constant that must be utilized by companies in their operation of their supply chains as a means to achieve optimization of operation through consistent modification, improvements and identification of areas and aspects to increase its efficiency from all participants in the system. Open source represents the manner in which to accomplish the foregoing.
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Thierry, M., Salomon, M., Van Nbunen, J., Van Wassenhove, L. (2001) Strategic Issues in Product Recovery Management. Vol. 37, Issue 2. California Management Review
United Parcel Service (2005) Supply Chain Strategy: The Importance of Aligning Your Strategies. http://www.ups-scs.com/solutions/white_papers/wp_supply_chain.pdf#search='Supply%20Chain%20Strategy%3A%20The%20Importance%20of%20Aligning%20Your%20Strategies.'
Wall Street Journal (2001) Trial by Fire: A Blaze in Albuquerque Sets Off Major Crisis for Cell-phone Giants. http://faculty.fuqua.duke.edu/~willm/Classes/ccmba2002/Nokia_TRIAL_BY_FIRE.doc
Wallace, G. (2006) Open Source: Changing the Enterprise Software Supply Chain for Good. 2 February 2006. http://it.sys-con.com/read/173425.htm
Whang, S., Lee, H. (1999) Decentralized Multi-echelon Supply Chains: Incentives and Information. Vol. 45, Issue. Management Science
Worthen, B. (2006) The ABC’s of Supply Chain Management. http://www.cio.com/research/scm/edit/012202_scm.html#scm_roadblocks
ZDNET.com (2001) Microsoft to offer e-business tools. http://zdnet.com.com/2100-1104-993297.html
The foregoing is the context that will be examined in this exercise and how the utilization of a Linux based open source foundation can or does optimize the operation and efficiency of an organization’s supply chain.
Chapter 1 - Introduction
1.1 Supply Chain
To summarize, a supply chain represents the varied stages entailing the fulfillment of the orders and or requests from customers (Howard University School of Business, 2005). The elements in the chain consist of manufacturers, transporters, suppliers, retailers, warehouses as well as customer service. The business sector a company is in has a bearing on the components constituting the particular type of supply chain employed. As an example, the supply chain of a manufacturing company might be comprised of the aspects entailing the development of a new product, operations, marketing, finance, and distribution along with customer service (Howard University School of Business, 2005). The supply chain represents the supply network along with logistics that coordinates the varied activities, information as well as resources that moves a service and or product from the supplying entity to the customer. The entities in the preceding represent the conversion of raw materials and or varied components into completed or finished products and or services. The key purpose and objective of the supply chain is the fulfillment of customer demands via the most effective and efficient resource utilization (Bock, 2001).As is the case with most business systems, processes, associations, alliances, agreements and working relationships, the element of trust and confidence are variables that aid and support the associations made. And, the foregoing is true in the instance of supply chains as well. The preceding is illustrated through what are termed supply chain risks (Christopher et al, 2001). When confidence in some factor of the supply chain is broached it leads to varied forms and types of risks which manifest themselves in reduced performance and effectiveness. The preceding can be as a result of improper design or systems in some aspects of the supply chain and or its associative areas. Such can be late delivery of components that result in either a late order or a supplier having to work overtime to make up for the shortened time frame left for their aspect of the supply chain movement. It could also be a factor of inefficient order forecasting or delivery systems, resulting in over capacity during peak intervals.
The list of potential illustrations is virtually endless with the point being that each occurrence lessens confidence in the supply chain at some point, representing either individuals or firms (Christopher et al, 2001). When this occurs, varied actions and or interventions take place to counter balance and or mitigate the shortcoming(s). Such actions and or interventions can consist of a warehouse manager seeking to add additional stock to compensate or a spike or peak order demands as a result of late component or supply delivers from a supplier to ensure being prepared or being able to fulfill that aspect of the supply chain performance. Such leads to waste and inefficiency and adds to cost (Christopher et al, 2001). The financial risks from too many multiples of the preceding in whatever form, multiplies the risk. An example of the foregoing is illustrated by personal computers, which devalue by approximately 1 percent per week (Christopher et al, 2001). Thus, mismanaged, or efficiencies in some aspects and or areas of the supply chain can lead to excesses, which translate into financial risks. The increased competitiveness of the global business community means that supply chains, of necessity, have had to become leaner, faster, more efficient in delivery thus leaving small margin to error, overstocking and delays as these are cost functions reducing profits and or adding to customer end prices.
The cost effectiveness as well as respective confidences in a supply chain is negatively impacted when the order cycle time, representing the process of when the order is placed or generated is delivered. Whenever this exceeds the general industry standard and or is either delayed or excessive, it impacts not only on the process it affects the company and reduces profit as a result of more time in the order to completed product and or service end time (Christopher et al, 2001). Of the multitude of factors which can caused and or create the preceding, one of the primary reasons is the lack of pipeline visibility. The preceding refers to the inability to determine what is occurring at various segments in the supply chain system from an administrative standpoint. This lack of visibility means that understanding the manner in which the system flows, represented by the various fed lines and timing chains, renders the ability to correct and adjust timing and notifications as impossible, thus leaving fixes to be administered within the system, rather than from an overview. The disadvantages of the foregoing are obvious.
It is in this context that we shall introduce and discuss Linux as an open source methodology to optimize a business organization’s supply chain. Utilizing Linux as an open source base with windows when properly constructed provides a “… verifiably secure” (Starfish Systems, 2004) computing infrastructure. The preceding means that that the methods utilized in constructing as well as its elements need to be open for inspection to ensure it is secure and verified to avoid risk for the entire computing system and environment. The benefit of open source is that it provides the basis for this verification anytime. Other benefits accruing from the utilization of open source is that it does not have licensing constraints, thus all manner of varied applications and innovative solutions are available for utilization. In this context open source refers not simply to the code, it means the ability to utilize other software components in a broader IT system. A key to a successful and effective supply chain from an IT point of view is that it permits the integration of varied types of supply chain architecture by suppliers represents differing frameworks and standards and making all of these work as one system. The system has to ensure that all participants are able to access and obtain the information they need, in the forms that interface with their systems and permits them to utilize the primary supply chain autonomously as well as with other entities comprising its operation. The IT architecture must permit these networks to collaborate in all facets of operational requirements easily and securely which open source provides
In order for a supply chain to be effective, a detailed overview of all component, assembly, delivery and related flows need to be seen or measured in real time, or as close to real time as possible, and information linking the varied suppliers, assembly operations, delivery and output functions connected at only of the points need to have access and information as to the supply and or function lines that feed their aspect within the chain as well as outputting information to the next affected point(s). The foregoing can represent materials, work in progress, finished components, parts delivery, finished component pick ups, raw material supplies, production run planning, out put yields and well as system demands, new order input realities and or projections, etc. The importance of confidence as well as the elements of supply chain management will be examined in the following segment to provide a clear understanding of what the process is, thus leading to how it can be optimized utilizing open source base software – Linux/windows.
1.2 Supply Chain Management
Lee et al (1995, pp. 42-63) state that a supply chain represents an autonomous network or a semi-autonomous network of various business entities working collectively to procure, manufacture and distribute products and or services to customers. The importance of logistics is being able to deliver the right materials, components and or products in the quantities needed, at the right time and place at the lowest cost (Mujtaba, 1994, pp. 80-122). The areas representing delivery reliability along with delivery times are components of supply chain management that go towards satisfying customer service. The preceding is dependant upon having the right components, raw materials and or products in the right quantities delivered to the right points in the supply chain at the correspondingly right time.Supply chain management represents the process of implementing, planning and control of the components and operations of the supply chain with the objective of satisfying customers in as efficient a manner as possible (Silver et al, 1998, pp. 471-475). It can also include after sale services, returns as well as recycling. The key element concerning supply chain management is that in most instances it entails information and material coordination representing a number of companies. The inter related nature of the supply chain means that the decisions and actions of one company in the supply chain can have an influence and or effect on the actions, decisions and profitability of all other members in the supply chain (Silver et al, 1998, pp. 471- 475). The purpose of the supply chain is to enlist the cooperation and aid of all of the varied firms to work towards the objective, delivering the finished product and or services to the customer on time, as ordered and as efficiently and cost effectively as possible.
Poor coordination can be costly, resulting in the inefficient utilization of resources, production, warehousing, high inventory costs as well as high transport costs resulting from rush delivers or a faster delivery mode representing higher costs. One such manifestation is called the ‘bullwhip effect and or whiplash effect’ (Sterman, 1989, pp. pp. 321-339). It is analogous to the manner in which traffic on a highway congests and then opens up, which is also termed as the ripple effect, and represents an increase in the variables as varied fluctuations travel up the chain. In most instances the overall customer demand remains fairly constant, however, when inventory levels and back orders fluctuate it causes changes in the flow of the supply chain resulting in the bullwhip or whiplash effect, which varies in intensity depending upon the amount of disruption.
The varied factors which can cause the preceding are (Sterman, 1989, pp. pp. 472-474):
- Lead time variables which can change the variables affecting the firms, components, suppliers and other aspects in the supply chain,
- Demand forecasting,
- Pricing fluctuations,
- Batch ordering,
- Orders that are inflated
The preceding can be corrected through a number of management techniques depending upon the type of problem:
1. Vendor Managed Inventory
The preceding represents a term that describes a number of business models whereby the product buyer provides information to a supplier concerning that product and thus the supplier takes on the obligation to have the specified material and or components maintained in inventory. The aforementioned location for holding the inventory can be in some instances at the store location of the buyer, representing the buyer’s location of consumption (McIntyre et al, 2001, pp. 430-454). The benefit of Vendor Managed Inventory is that is reduces the likelihood that a company will run out of stock. In addition, the method reduces inventory held in the supply chain. As the methodology usually is utilized without purchase orders the system is based upon the agreement between the buyer and supplier that runs in trust in maintaining the inventory levels. The system prevents the bullwhip effect and increases services levels and prevents out of stock problems. The system is based upon a close coordination between both parties and the success or lack of success in this regard is the determining factor as to whether the system works or fails (McIntyre et al, 2001, pp. 430-454). This system was pioneered by companies such as Wal-Mart and Home Depot, which have since moved onto a co-managed inventory method that permits the buyer to control the supply chain and also permits them the opportunity to push stock back in the supply chain (Supply Chain Management, 1998, pp. 10-11).2. Just In Time
This inventory management system was pioneered by the Japanese in the early 1970s’ and is based upon a series of signals which advise the production lines to make the next piece or part (Katterhenry, 1995). The system is triggered by the absence of a part on a shelf as monitored by computer systems. The main objective of just-in-time manufacturing and supply chain use is to (Koletic, 2005):a. Increase the ability of the company to compete with rivals as well as to remain competitive over the long term.
b. Increase production efficiency through productivity improvements as well as a reduction of costs.
c. Reduction of material waste, time and effort.
The short term or immediate objectives represent (Koletic, 2005):
a. To be responsive as well as identify customer needs which in turn aids the as to customer demands and resulting what is required of production processes.
b. To optimize quality and cost through the application of zero-defect manufacturing production processes. The benefit is that the closer the company comes to achieving this objective, the more it eliminates wasted resources as well as efforts entailing inspections, reworking and the replacement of defective parts and or products.
c. Reduction of waste, in particular those that do not add to the product’s value.
d. The development of a reliable supplier relationship. This aids in management of a more efficient process concerning inventory management, delivery system(s) and the management of materials and helps to assure that the supply is stable as well as available when needed.
e. Plant designs that maximize efficiency aids in manufacturing productivity gains and maximization of resources.
f. And maintain an atmosphere that strives for continuous improvement.
The just-in-time process focuses on frequent deliveries in smaller quantities as a means to meet immediate demands, its drawback is that the methodology with regard to re-order is based upon historical demand, thus is demand rises above this factor as a result of say peak levels their could be an inventory depletion problem (Koletic, 2005).
3. Strategic Partnership
An alliance formed between two companies or associations to accomplish a specific goal, task or outcome represents a strategic partnership. In the context of supply chain it generally entails a larger firm that represents the capital, product development, manufacturing, marketing and distribution abilities linking with a smaller company which provides specialized creative and or technical expertise.Achieving the foregoing, having items in the supply chain system in the right place, in the right quantity, at the right time calls for management decisions in the orchestration of the supply chain on three levels:
Strategic aspects in supply chain management signify the area where long term decisions are made, representing location, inventory, production and transportation (Bidgoli, 2001, pp. 181-188). In terms of location, decisions representing this aspect are the number, size, as well as geographic location with respect to supply chain plants, distribution centers and inventory. Inventory refers to the decisions in managing them within the supply chain in order to have the right materials and or components on hand when needed without over or under stocking and managed to meet peak, normal and slack demand. Decisions concerning production entail which products and or product types to produce, where they should be produced, the suppliers to utilize in this process, the plants selected to supply distribution centers and related decisions. And lastly, transportation decisions entail the types of transport to utilize.
The information age has aided in the development of integrated supply chain management, which has impacted upon theory. A key aspect of this theoretical change is the shift from manufacturer based markets to retailer markets. Evidence of this is found in Wal-Mart which has caused a host of manufacturers to bring about an improvement in the way they manage inventories because of the firm’s market presence (Chandran, 2003, pp. 6-12). Information technology, integration and the power of retail companies have helped to create a surge in the interest in supply chains, and the promise offered by eBusiness has created even stronger excitement as a result of the potentials offered. A key example of the preceding is Amazon, which has become excellent in its management of funds and information flow through the utilization of the Internet along with the electronic transfer of funds. The new challenge facing companies is how to effectively and efficiently manage product flow.
A discussion of supply chain management represents a large number of disciplines that utilize a host of qualitative and as well as quantitative tools (Worthen, 2003). Ganeshan et al (1999, pp. 839-879) advises that there are twelve supply chain areas that can represent issues a company might be confronted with. In each instance an analysis and or decision support tools can be applied
a. location
b. forecasting and inventory
c. transportation and logistics
d. sourcing and supplier management
e. marketing and channel restructuring
f. service and after sales support
g. information and electronic environments
h. product design, new production introductions
i. outsourcing along with strategic alliances
j. green issues and reverse logistics
k. incentives and metrics
l. global concerns and issues
The following explain these areas:
a. Location
Facility location decisions entail qualitative as well as quantitative aspects as represented by facility location models, country differences, geographic information systems, transport costs, duties and taxes, as well as governmental incentives (Drezner, 1995, pp. 121-150). The category also includes the affects of exchange rates as well as economies of scale. The location represents the physical structure the supply chain will take and thus is the constraint for other areas; such as tactical. Methodologies utilized in this area consist of spreadsheet models, binary integer models and qualitative analysis (Drezner, 1995, pp. 121-150).b. Forecasting and Inventory
When reviewing and analyzing supply chain problems, the area of inventory costs represent on of the areas that is easiest to pinpoint (Silver et al,1998, pp. 31-41). Stochastic inventory models are a means to identify possible cost savings that can accrue from sharing data with partners in the supply chain, however in order to coordinate more complex multiple locations, different models are required (Silver et al,1998, pp. 31-41). Imputed penalty costs represents where a shortage at a higher level results in additional costs. Utilizing a multi level system, one can break it down into a series representing stages when it utilizes a centralized control and thus optimize ordering policies. The preceding was postulated by Whang et al (1999, pp. 633-640) whereby measurement methodologies based upon performance allow for decentralized control, thus each manager can make independent decisions.c. Transportation and Logistics
This aspect represents all of the varied issues connected to the flow of items through the chain which includes transportation, material handling and warehouse. Gendreau et al (1996, pp. 3 – 12) inform us that this category includes areas such as fleet management that consist of global positioning equipment as well as what is termed as merge in transit, along with cross docking, materials handling for sorting, retrieval and storage (Brandeau et al, 1999, pp. 65-80). The impact of globalization has caused considerable attention to be focused upon this area recently concerning the importance of logistics in gaining an advantage competitively.d. Sourcing and Supplier Management
Decisions such as make/buy and global sourcing are in this category (Kelley, 1995, pp. 39 - 42). This category addresses the location of the company’s suppliers and also includes supplier relationship management. In some instances companies are putting specifications on the Internet whereby a number of companies can bid, and in other instances, others are reducing suppliers (Pike, 1998, pp. 2 - 4). The foregoing is increasingly becoming an important variable in that the number of suppliers and structuring these relationships in supply chains.e. Marketing and Channel Restructuring
This aspect represents foundational thinking with regard to the structure of the supply chain and its interface with marketing resulting from dealing with customers that are downstream (Narus et al, 1996, pp. 112-120). Channel management represents one of the elements contained in this segment, along with the bullwhip effect that can occur in the supply chain structure as a result of material, delivery and other problems (Anderson et al, 1997, pp. 59-69). An interesting aspect of the bullwhip phenomena is that it would seem that the inventory held in central warehouses should buffer factories from this effect and thus smooth production runs. Empirical data as compiled by Cohen et al (1998, pp. 72-83) suggests that in fact the opposite occurs as orders at the higher levels of the chain indicate more variability than the ones closer to the customer, thus the bullwhip effect happens as depletion from the inventory stock means replacement and thus production runs to replace this depletion causes the effect. Padmanabhan et al (1997, pp. 93-102) indicate that retailers as well as distributors tend to over-react with regard to shortages and thus over order. Padmanabhan et al (1997, pp. 93-102) illustrate that there are four rationale factors which contribute to the bullwhip effect, these are:1). Demand Signal Processing
This represents a factor whereby if there is an increase in demand, companies order more basing their increased orders on the probability of continued increases without firm proof. The preceding thus represents the creation of an artificial demand level.2). Rationing Game
In those instances where a shortage might either be anticipated or is a fact, companies tend to order in excess of the forecast so that they will receive what is needed as well as add to the items in short supply.3). Order Batching
When costs are fixed at a particular location it can potentially lead to batching of orders to take advantage of the price.4). Manufacture Price Variations
This aspect encourages bulk orders thus contributing to the bullwhip effectThe utilization of order batching as well as manufacture price variations generate large orders, these are then followed by small order and thus creates increased upstream chain variability. Increased communication regarding demand on the part of consumers which has been brought about through the Internet as well as data exchange electronically along with what is termed everyday low pricing, which eliminates bulk ordering, are aspects that reduce and or mitigate the bullwhip effect through better forecasting resulting in even production runs (Cohen et al, 1998, pp. 72-83). The benefits of ordering as well as receiving orders through the Internet and via electronic data exchange has undergone tremendous expansion as a result of the foregoing. Davis et al (1999, pp. 183-203) indicate that the foregoing provide the means to supply chain partners to be immediately informed as to order status, and that these aspects along with vendor managed inventory, coordinated replenishment and forecasting as well as continuous replenishment are initiative to help to mitigate the aforementioned bullwhip effect.
The impact of vendor managed inventory within supply chain management has been so beneficial that it bears additional mention in the context of Marketing and Channel Restructuring. Vendor managed inventory entails a partnership whereby in general the supplier, which is usually the manufacturer, reseller or distributor, renders the primary replenishment decisions. As a result the supplier monitors the inventory of the buyer, through either physical counts or electronic messaging, and then makes decisions concerning order amounts, shipping and delivery timing. Instead of transactions being started by the buyer, they are initiated by the supplier. In fact, an acknowledgement from the supplier might be the first notice concerning the transaction, with a shipping notification informing the buyer that the order is in shipping. In this manner, the supplier has responsibility for maintaining inventory levels that is stored at the distribution facility of the buyer.
f. Service and After Sales Support
This aspect represents the key area of service and parts for service which can represent an area whereby a firm can build a reputation. Slow moving items usually fall within this segment and it represents an important part of inventory management in having the right inventory allotments available were needed to service customers.g. Information and Electronic Environments
The application of information technology in the reduction of inventory, along with the utilization of electronic commerce represents the area of information and electronic environments (Schonfeld, 2000, pp. 115-124). Typically, this aspect of the supply chain system entails the examination of the role of systems information and science as it applies in the supply chain, bringing with it Enterprise Resource Planning (ERP) software as SAP, Oracle and Peoplesoft. These applications help to provide the opportunity for cross functional integration concerning strategy and information technology that improves system functionality.h. Product Design, New Production Introductions
Issues such as delayed differentiation, mass customization, modularity and related areas representing new product introduction are components of product design and new production introductions. A popular application within this context is what is termed as postponed product differentiation (Lee et al, 2001, pp. 116-121). The foregoing is a development of globalization in that traditionally the products designed for global markets are customized to suit the tastes of local markets which are an inventory management nightmare as a result of the differences. Utilizing postponement product differentiation the preceding is redesigned whereby it is customized in the distribution channel, therefore the product is produced in generic form at the factory thereby permitting the generic version to be shipped to those locales where it is selling well and customized (Matthews et al, 2004).i. Outsourcing Along with Strategic Alliances
The resulting rapid growth in logistics providers has created aspects such as supplier hubs that are managed by third parties. The impact of the foregoing has increased strategic alliances and outsourcing as technologies and services expand.j. Green Issues and Reverse Logistics
Environmental issues along with the reverse logistical issues represented by product returns are the components of this segment (Rudi et al, 1999). The growth in environmental concerns as well as governmental legislation and corporate governance has made this area an important managerial consideration. The foregoing has compelled companies to deal with this aspect in environmentally friendly means, as well as efficiently. Product recovery entails the handling of used and discarded components, products and materials and at the same time attempts to recover as much value as can be extracted while reducing waste (Thierry et al, 2001, pp. 114-135). The concerns regarding the eventual realities of product recovery and green issues have caused manufacturers to consider the end results of eventual product recovery and green issues in the design and engineering phase. Aspects such as eventual product disassembly, reuse and recovery are design and engineering considerations representing green issue costs and compliance. An example of the foregoing is provided by water treatment chemicals in reusable containers whereby customers do not need to touch either the chemicals or dispose of the used containers (Castillo et al, 1996, pp. 48-60).k. Incentives and Metrics
This sector deals with measurement in the supply chain along with industry benchmarking and represents the link between performance and the improvement within the chain through the use of metrics.l. Global Concerns and Issues
All of the preceding categories are impacted, influenced and or affected by global issues when the company operates in multiple markets. Kouvelis (1999, pp. 625-668) explains that this area includes such aspects as currency exchange rates, taxes and duties, customs, governmental regulations and freight.As illustrated by the foregoing, the areas comprising supply chain management are complex, representing a broad array of areas, inter linkages and relationships that work in combination and impact each other in sophisticated ways.
1.3 Supply Chain in Business Organization
The importance of the functioning of the supply chain in terms of the business operations and organization can not be over emphasized. It represents the core of how the company produces its products and then gets them to its varied markets, whether the company is a manufacturer, supplier or retailer, the delivery of the right number of product to the right locations at the right time is the functional aspect of being and remaining in business. An illustration of this importance is illustrated in the automotive industry as well as computers. The production of automotive vehicles represents a supply system comprising on average 20,000 parts (Kim et al, 2002). The preceding comprises a long hierarchical supply chain that consists of several supplier levels.An explanation of the preceding is evidenced by the utilization of manufacturing of dashboards as an example. The automotive manufacturer out sources the module to a primary supplier who in turn out sources varied sub parts to other suppliers, who may or may not out source their segment of the dashboard component they are responsible to deliver within a specific time frame back to the source they received their order from who in turn does the same. The complex nature of coordination is obvious and further exacerbated by the fact that in a hierarchical supply chain the time for information exchange is lengthened and can result in frequent errors, thus inefficiency in the automotive industry representing design, development, procurement, logistics and manufacturing abound (Kim et al, 2002.
The key example of supply chain efficiency is demonstrated by Dell Computer which was ranked as the top supply chain operation in 2004 and 2005 based upon a study by AMR Research (AMR Research, 2005), leading:
2). Proctor & Gamble
3). IBM
4). Nokia
5). Toyota Motor
6). Johnson & Johnson
7). Samsung Electronics
8). Wal-Mart
9). Tesco
10). Johnson Controls
11). Intel
12.) Anheuser-Busch
13). Woolworths
14). The Home Depot
15). Motorola
16). PepsiCo
17). Best Buy
18). Cisco Systems
19). Texas Instruments
20). Lowe’s
21). L’Oreal
22). Publix Super Markets
23). Sysco
25). Coca-Cola
The importance of listing the preceding indicates the difficulties the automotive as well as computer firms are having. Maintaining and increasing market share is a function of increased productivity, quality and lower costs as well as delivering a product to market on time. Internally, this means that business organizations need to optimize the manner in which they do business throughout their organization. In today’s global marketplace the customer is king as the plethora of competitive products offer selection that is unrivaled (Subramanian, 2002). The supply chain in today’s environment is increasing dependent upon electronic information technologies that aids companies in conducting transactions with buyers, sellers as well as the other elements in their matrix to increase product quality, productivity, deliverability, customer services, reduce costs and open new avenues to increase sales and profitability. In addition to supply chains driving product manufacturing, and delivery, it drives internal operations which are focused on delivering to the customer. Dell’s supply chain model functions in this manner as it is a business organization supply chain around which the entire company is build and run.
Dell accomplishes the results in achieving sales through the focus on customers, “… one customer at a time” (Jacobs, 2001). The company maintains just four days of inventory in comparison to many of its competitors who maintain inventory levels of 20 to 30 days, considering that Dell manufactures approximately 50,000 computers per day, the preceding is impressive (Jacobs, 2001). The supply chain in Dell’s business model is the backbone of the company’s retail strength, as it also is for Wal-Mart, Tesco, Nokia and the other firm’s indicated on the list of the ‘Top 25 Supply Chains for 2005’ (AMR Research, 2005), as well as the firms that are not listed. The company maintains a “… supplier report card on every supplier, and tracks each supplier’s performance against a set of metrics maintained by Dell” (Jacobs, 2001). The tight scheduling and rigid controls Dell imposes throughout its organizational profile is geared to sales and supply chain delivery.
Dick Hunter, Dell’s vice president of Americas Manufacturing Operations, states that “… information is increasingly replacing inventory…”, adding that the identification, “… gathering and sharing new types and levels of data…” (Jacobs, 2001). The preceding is indicative of the importance of the supply chain in its business organization. The company’s success rests upon that simple tenet which works in Dell’s favor enabling it to tackle small problems quickly and effectively. Dick Hunter explains that the production lines are scheduled “… in every factory globally every two hours…”, thus, Hunter elaborates “… we have not inventory and no warehouses in any of our factories…” (Jacobs, 2001). The efficiency of the supply chain management in Dell’s business organization permits it to gather the materials required to produce at factories based upon actual orders thus saving critical money by not having inventory stocking. The company’s Ariba Buyer, a software customization it collaborated on with Ariba, Inc. eliminated the three part manual hand coded procurement order system that required 10 signatures to its present Dell Internet Requisition Tool which provides for automated order validation, saving the company an estimated $110 per requisition (Jacobs, 2001). Furthermore, the preceding reduced the requisition completion time frame by 62%, as well as the cost factor on completing the lengthy hand coded forms by 61% and vastly reduced errors (Jacobs, 2001).
Dell’s example of the effectiveness of integrating its supply chain into its business organization has enabled this computer manufacturer and retailer to become one of the industries best through its attention and focus on the customer as its operational objective.
1.4 How to Optimise Supply Chain in Business Organization
The background provided on the importance and impact of supply chains on business effectiveness and efficiency as well as profits and customer focus have indicated the invaluable nature of the practice. As mentioned previously, the increased competitiveness of business in today’s global marketplace leaves companies with no room to miss opportunities to improve in these areas on an ongoing basis, least their competitors gain ground and or catch up. One of the keys to increased competitiveness is represented by a firm’s operational efficiency in administrative as well as production and sales methodologies, all of which have the singular purpose of meeting and exceeding customer expectations. The Seeburger Company in a White Paper on this subject stated that those companies that have become market leaders have understood that managing their businesses fundamentally was a key to successes which they capitalized upon through the utilization of technology (Seeburger Company, 2005). RFID (Radio Frequency Identification) represents a labeling compliance is a backbone of this new technology (Industry Week, 2005). Initiatives on the part of Wal-Mart as well as Best Buy and others in this area are requiring suppliers “… to encode unique identifiers on case and pallet tags” (Industry Week, 2005). The purpose is to permit the receiver to read these tags at the Distribution center via automated equipment, with future planning calling for this to be repeated at stores. This barcode identifier is “… coupled to an electronically transmitted advance shipping notice” (Industry Week, 2005) and permits almost immediate identification of where a shipment is and its status. The preceding represents an emerging technology that is designed to replace barcode readers and is stated to offer increased efficiencies.
The foregoing example is an illustration of how companies are seeking to improve upon their present supply chain capabilities to further reduce internal costs, minimize errors and increase customer satisfaction. As documented in the Dell examination of its move from a manually based hand code procurement system, the promise of RFID offers the same advantages, elimination of time consuming and costly shipping notices, orders and related documents. The side benefits of the implementation of a RFID system is that the suppliers will thus adopt these same techniques benefiting them as well as their suppliers and business associations.
Optimising the supply chain in a business organization is based upon the consistent elimination of paper, errors, the bullwhip effect and reducing standing inventories as well as delivering on time, just in time in the right quantities. The integrated supply chain is a business strategy that has proven itself through usage and in response to the aforementioned increased demands on the part of customers for quality, speed and delivery. The aforementioned integration of the supply chain to optimize its effectiveness needs to be at the core of a company’s organizational structure as it is the functioning aspect of why a firm is in business, to service its customers.
Thus, the first step in optimizing the supply chain within a business organization is for management to understand the preceding and take such as a mandate to achieve increased performance throughout the company, from top to bottom. The well used term information age is no longer a phrase or emerging business function, it is a proven operational core that provides the means to link all aspects of a company’s operations into useable, tangible and productive systems that in the words of Dell’s Dick Hunter means “… information is increasingly replacing inventory…”, and“… gathering and sharing new types and levels of data…” (Jacobs, 2001). This key statement underpins the basis for increasing supply chain performance within a business organization so that it can continuously work towards optimizing the operation through the embracing of new systems, technologies and methods, as illustrated by RFID.
Dell’s success in being the industry leader in supply chain efficiency and effectiveness stems from this very core, the supply chain is the company. It is how the company thinks, acts, lives and satisfies its customers and works with its suppliers. And, it has resulted in the company’s success. Evidence of the importance of adopting a supply chain organization is provided by the company selected as the top 25 in this area, starting with Dell as number 1:
2). Proctor & Gamble
3). IBM
4). Nokia
5). Toyota Motor
6). Johnson & Johnson
7). Samsung Electronics
8). Wal-Mart
9). Tesco
10). Johnson Controls
11). Intel
12.) Anheuser-Busch
13). Woolworths
14). The Home Depot
15). Motorola
16). PepsiCo
17). Best Buy
18). Cisco Systems
19). Texas Instruments
20). Lowe’s
21). L’Oreal
22). Publix Super Markets
23). Sysco
25). Coca-Cola
Each of the preceding are either market leaders or close to being such in their respective industries, a coincidence that is not simply a coincidence! All of the preceding demonstrates what Lee (2004) terms the “three A’s of supply chain excellence”:
- Agility
- Adaptability, and
- Alignment
A factor that firms must be acutely aware of in today’s marketplace is the day-today uncertainty of supply. Such uncertainties can be of an internal supply chain foundation, or as a result of external forces such as the 2002 Longshoremen’s strike in the United States, located in California, and the SARS outbreak in 2003 in Asia. High product complexities, multiple country markets, dispersed manufacturing and distribution facilities and the shortened time frame for product life cycles means as Lee (2004) terms it, the “… clock speed…” of the pace in industrial sectors is increasing. A fast changing competitive landscape along with the varied risks as well as opportunities means that changes present themselves rapidly, and disappear just as rapidly, and a company must be able as well as operationally ready to pounce on opportunities as well as side step risks, this means that in adopting a supply chain strategy, it must be constantly upgrading and improving itself in the face of changes within the technological and information base it is constructed upon, as well as the effectiveness and efficiency it brings to the chain itself. Change is a fact of life, and thus an effective and efficient supply chain must be organized, monitored and maintained with the preceding as a structural and managerial component.
In optimizing a supply chain from a corporate administrative and functional aspect, it, the supply chain, also has to be optimized from a disruptive view as well, thus requiring the indicated ‘Agility, Adaptability and Alignment’ (Lee, 2004):
1). Agility
This facet enables a supply chain to respond to disruptions in a flexible, rapid, reliable and cost effective manner.. The foundations of agility are- a strong supplier relationship,
- accompanied by capacity set at the appropriate levels,
- the proper amount of buffer inventory,
- product design that includes process adjustment that allows for differing component interfaces,
- a overall parts commonality
- a logistics system that is efficient,
- contingency and back up plans for supply as well as logistics
- and an information system which provides for and allows information to be transmitted quickly and accurately concerning demand as well as supply conditions in all facets of the supply chain to permit proper decision making choices
In order to achieve the preceding a company needs to plan its supply chain strategy in new product engineering through a design process that incorporates the indicated flexibilities that will permit the company to make component adjustments if called for as a result of a potential disruption. Nokia, Zara and Japan’s Seven Eleven are examples of this facet. Zara outsource its manufacturing to Portugal and in its home country of Spain, and although the company pays a 10 to 15% premium in costs, the local nature of the production permits it to make faster changes thus beating the competition in agility and getting desired items to the marketplace. Its retail life cycle of 30 days as opposed to three to eight months enables it to change stock and keep shoppers coming into the stores to look at the new offerings and this has contributed to the company’s 10 percent growth rate over the past 10 years and its profit margin of 10% is above the industry average of 3 percent.
2). Adaptability
Original Equipment Manufacturers (OEMs) attempt to design supply chains that are efficient in an effort to better serve their customers. The preceding represents optimizing supplier locations, contracted manufacturing, distribution, systems for logistics as well as retail channels. Having adaptability means that if supply conditions or demand changes then the OEM can change the parameters in the supply chain to result in the most effective solution for these new variables, and then if necessary, change back again if warranted. Some of the options in effecting the preceding entail:- the relocation of manufacturing,
- Adaptations to the supply base,
- Utilization of differing distribution and or outsourcing suppliers and or services,
- new sales channels and.
- the modification of product designs to fit the new variable(s)
3). Alignment
The key to a strong supply chain lies in all of the suppliers working in conjunction with the master plan that maximizes resources and efficiency for the entire chain. Thus, if one supplier seeks to improve on their relative positioning in terms of its own variables it could negatively impact others in the supply chain thus weakening the overall effectiveness and efficiencies for all. Thus, in planning the supply chain for optimization the company must devise relationships as well as contractual parameters that define and set boundaries as well as limits and other aspects to ensure optimization does occur through aligning supplier interests with the company’s as well as the supply chain. The preceding means that in every instance the maximized solution can not be achieved, because if such were the case there would be less than desirable circumstances for some partners. Through the achievement of a balance whereby the needs of the entire group are optimised in consideration of the whole, the supply chain, optimisation then does occur. Through sharing with suppliers and partners the design an aims of the supply chain, the necessary accommodations can thus be reached.The second dimension represents the alignment of identity, which are the responsibilities and roles of the supplier / partners. In this aspect issues such as responsibilities for:
- replenishment,
- order fulfillment,
- forecasting,
- and customer service,
are clearly defined. In the vendor managed inventory the responsibility of replenishment management rests in the hands of the seller. Under a collaborative planning methodology, these aspects are shared.
The third dimension represents the alignment of incentives which entails elements of risk as well as reward and cost sharing schemes to cause the chain partners to work together in maximizing the performance of the system whereby each partner thus receives an equitable and fair return.
The importance of optimizing the supply chain is illustrated by a component problem that hit both Dell and Apple computers at the same time. In 1999 an earthquake hit the island of Taiwan and both companies were advised that it would be weeks before components could be delivered. Apple’s upper line products were affected and they were unable to fulfill standing orders, while Dell was able to shift components as well as change incentives in its online site to offer a temporary better buy to those computer lines not affected thus weathering this disruption. The preceding is an example of how optimisation of the supply chain can enhance business performance and organization.
1.5 Supply Chain Initiatives in Business Organization
The rapid pace of change in the global business environment is a refrain that is repeated throughout this examination as it is this foundation which is fueling the pace of development, interest and attention in supply chains as an important competitive answer. An initiative represents “…the power or ability to begin or to follow through energetically with a plan or task…” (Houghton Mifflin, 2006). The foregoing is an important understanding whether the firm is at the pinnacle of supply chain development, as is the case with Dell, or suffering from the inoperability of U.S. based automotive manufacturers. In the instance of being the leader in the field, the initiative is to look for new and innovative ways to improve upon what is already in place and further refine the system in keeping with the Three A’s, Agility – Adaptability – Alignment (Lee, 2004).
Initiatives can thus take on many forms and strategies depending upon management’s analysis and the objectives to be achieved. And to accomplish this, management must have a clear and accurate assessment of exactly where their supply chain stands in terms of its ability to deliver products to the end customer on time, in the right quantities at the lowest possible and achievable price. In addition, management needs to access the supply chain’s adherence to the twelve areas as indicated by (Ganeshan et al, 1999, pp. 839-879):
a. location
b. forecasting and inventory
c. transportation and logistics
d. sourcing and supplier management
e. marketing and channel restructuring
f. service and after sales support
g. information and electronic environments
h. product design, new production introductions
i. outsourcing along with strategic alliances
j. green issues and reverse logistics
k. incentives and metrics
l. global concerns and issues,
to determine how their supply chain stacks up against the preceding. Once it has a clear assessment, as well as information from its historical use, the problem points should be easy to locate. However, the obvious is not always the answer in many situations, and in some cases what is wrong may not present itself in a manner that can be uncovered through statistical and historical information. The relationship a company has with its suppliers means that they have their own supply chain methods as well as overall company goals and objectives to achieve. If the two are not on consort with each other, from their perspective, then this represents a hidden problem that might not readily reveal itself through management analysis of records, data and statistics. Once again, Dell provides a classic example of how to approach and achieve results in this area. Thinking that the use of Dell as a model in this instance means that what is applicable in computers is not analogous to automotive manufacturing, canned goods production, clothing manufacture and delivery, or even stock the shelves at Tesco is not true. In fact Dell has and is applying its supply chain model and methodologies to printers, handheld devices as well as flat screen televisions in addition to other products with the same results (Mentzer et al, 2004). Mentzer et al (2004) explain Dell’s success as an attribute of it’s “… culture of execution” in addition to the company’s continual attention to find ways via which to improve upon the system.
One of the key’s to Dell’s success is the relationship it has with its suppliers. From the onset of its refinement and development of its supply chain that aspect has been a central component in the design, planning and structure of the supply chain matrix, because the system is more than components, parts and numbers, it is operated and run by companies and individuals. It has built excellent relationships with its suppliers and thus maintains leverage as well as inputs on improvements and ways to make things function better, in addition to the company’s own internal efforts and reviews in this area (Labitzky, 2001). Thus, corporate initiatives in its business organization with regard to supply chain initiatives represent understanding what is working, what is not working so well and what needs to be either fixed or changed, as an ongoing process. In the case or instance of a company that knows its supply chain is in need of changes and modifications, then the approach needs to analyze the most glaring problems and introduce fixes in consort with a broader and long term analysis of the entire chain so that the problems and changes are something it can build upon in the future rather than moving from one fix to another in the hope that repairing the problem will solve the problem.
Thus, in launching the first step, an in-depth, accurate, honest appraisal of the supply chain seeking and encouraging inputs from all quarters, specially suppliers, is the foundation from which to understand the state and status of aspects which might be already known as problems, but not identified with regard to solutions. Thus, there are problem to be encountered with changing over a supply chain to open source, however, the state of the problem can be liked to continuing a car race with an engine prone to breakdown, or replacing the entire motor, while that latter takes more initial work, the later stages result in less work. Patchwork solutions in a highly competitive environment where failures in supply chain functionality spell. Such an example, there are numerous others, is supplied by Nike in 2001 when is found that announced sales for a quarter were $100 million lower than reported as a result of problems in its supply chain which did not account for all inventories (Taylor, 2003). Then, there is the example of Cisco Systems which had to take a $2.2 billion write down on inventory that was no longer useable as a result of their having problems in the supply chain (Taylor, 2003). These types of costs, mistakes, problems and expenditures are not the exception. Thus, the costs associated with making changes to accommodate an open source Linux based system, pales in comparison to the eventual problems that a company could be facing.
1.6 Background Problem
In equating the possible background problems in optimizing a business organization’s supply chain, a number of areas and aspects are background problems to be considered and broached in this context. The first assumption that is made in making this analogy is that the company is relatively stable and healthy with an average supply chain. With this as a starting point, the following will seek to identify the background problems encompassing the optimization of an organization’s supply chain:1. Management
As evidenced by and referred to multiple times throughout this examination, management is the starting point for any supply chain initiatives. At this level, management must have a clear understanding, plan, objectives and perspectives. Management must be willing to commit the necessary resources as well as budgetary allotment to enable the task to be carried out properly, also assigning the dedicated assessment and evaluation team to review the entire supply chain and provide recommendations, solutions and rationales for each aspect uncovered. The preceding means that the company’s management needs to develop a supply chain strategy to identify and meet the needs and objectives of the company (United Parcel Service, 2005).2. Organizational Focus
Dell’s example of understanding that the company ‘IS’ its supply chain, and that this process represents the means and manner in which it is able to offer, fulfill and deliver products to its customers is the organizational focus required to implement and maintain an effective organizational focus on the importance of the supply chain as the business core. Dell’s singular commitment, focus and attention on this aspect has proven successful in execution as well as bottom line profits as the firm’s products are not inherently better than their competitors, it is their service and delivery which are products of a superior supply chain (Labitzky, 2001). Management must inform, educate, communicate and activity provide staff with information on the change to stave off any resistance to change which is a frequent occurrence in all manner of companies concerning something new (Worthen, 2006). Management must effectively convince, show and advise employees as well as suppliers why the change is beneficial to them and the advantages over the software being replaced as familiarity is the factor that must be conquered.3. Assessments
As indicated throughout, Linux as an open source solution provides more options for customization as well as system flexibility, however, when implementing something new, mistakes are a part of the process which must be located and corrected. In addition, a full review as well as extensive research into the working of the supply chain identifying those areas which work and those which are not is integral in having an accurate assessment of what factors to concentrate on in implementing open source, and any change.4. Supplier Coordination and Inclusion in the Process
A supply chain is only as strong as its weakest link, and the suppliers represent the links in this process. As these are individual firms with their own operational objectives, process, purposes and goals, any changes must enlist their full support as well as inputs and suggestions acknowledging what will work and explaining what will not and why. Careful attention to understanding that suppliers as much a part of the business as are customers is an understanding that Dell, Tesco, Toyota Motor, IBM and others in the top 25 in supply chain efficiency know and incorporate into their culture.5. Testing and Phasing in
The varied problems in installing open source are relatively straight forward entailing known aspects following a procedural path, what constitutes the unknown are mistakes, misinformation, misunderstandings in what is required or needs to be included and or understood, the human factor. Open source is simply technology, and as Worthen (2006) stated “… new supply chain systems process data as they are programmed to do…”, but as he added “… technology cannot absorb a company’s history and processes…” as well as tendencies and variables regarding differing situations that have occurred in the past, or are new variables which the company wants and needs to be alerted to. The foregoing are human processes and aspects which need to be reviewed, tested and phased with the understanding that mistakes and oversights do occur.6. Ongoing
Given the preceding aspects, it is obvious that the process of operating a supply chain is a moment to moment process whereby things can and do change both within the system and as a result of technological innovations outside of the company. Therefore, the constant and consistent monitoring of internal processes with an eye to improvements, additional inputs and simplification where possible in a complex system is always needed.1.7 Research Question
The optimization of a business organization’s supply chain utilizing open source base software, Linux/windows as equated from the preceding examinations of various areas, is a complex yet procedural process that first demands and understanding of the supply chain process. The preceding is a complex and sophisticated system that reaches into every nook of a company’s operation in administrative, manufacturing, production, shipping, customer service, supplier and more. The extensive examination of the aspects of the supply chain from its workings through to what open source is and can accomplish has been reviewed in the previous segments to provide the necessary understanding from which to equate the answer.1.8 Motivation
The motivation to utilize open source, Linux, are the cost saving benefits as well customizations that can be achieved via software that does not have the proprietary source code problems that limit the ability to make changes without the supervision as well as inclusion of the vendor. In addition, open source permits stack customization which optimizes each application and each supplier system thus increasing the efficiency and effectiveness of the entire chain. As an open source system easily interfaces with all manner of system types and permits easier integration for all users as well as access and usability of information in both directions. The importance of an efficient supply chain can spell the difference between being competitive in an industry sector, or letting competitors gain market share and profits through their ability to compete on cost, delivery, service and customer satisfaction. Per Kehagias et al (2003) open source permits integration of differing software standards and its adaptability in working with different forms of technology permits the interface between autonomous systems to work under a common source.1.9 Aims and Objects
The aim of the research as well as purpose of the examination is to investigate the benefits as well as disadvantages of utilizing open source as the basis for optimization of an organization’s supply chain. The selected company is Backcountry.com which is an internet based company that sells various outdoor, casual and sporting clothes and gear for men, women and children. Backcountry.com is not a big company in the outdoor sporting goods market, but as a result of its innovative approach to IT is has garnered explosive growth, almost doubling its sales in the calendar year 2005 (Base Camp Communications, 2005). The case study of Backcountry.com will delve into its utilization of Linux and MySQL open source software as its foundation for the company’s supply chain and the steps, strategies, hurdles and obstacles it had to undertake to accomplish this.1.10 Decomposition of Research
The case study of Backcountry.com will investigate the varied facets that Backcountry.com needed to address in its implementation of open source as the basis for its supply chain system. The research will breakdown the complex components of the supply chain system as well as the variables it entails to seek to find the most important components as well as theories representing where open source can offer the most promise and delivery. Through an analysis of this example, utilizing the preceding points as represented by prior chapters as a basis for understanding the complex variables that comprise the operation of a supply chain, the benefits of Linux as an open source alternative to Windows will be illustrated.Chapter 1 – Literature Review
The optimisation of a company’s supply chain through the utilization of Linux based open source represents a methodology that has many potential approaches. Christopher and Lee (2001) in their examination of supply chains provide the basis beginning point in explaining that the entire system represents a trust and confidence factor as suppliers must believe that the information being relayed to them in terms of component manufacturing schedules, delivery cycles or whatever their function within the system can be relied upon as an accurate assessment of what is needed. If there are too many instances whereby the information transmitted represents over or under ordering or delivery, completion time frames they stand to loss money through either inventory or work scheduling and related cost areas thus confidence in the system is lost and they will tend to seek their own interpretations of what is needed and when. This foundation represents the basis for the entire examination, the accurate assessment through the supply chain of what is needed and when.
“The Evolution of Supply Chain Management Models and Practice at Hewlett-Packard” by Lee and Billington (1995) explained the workings of the supply chain system in the organizational structure as well as its importance to the ability of a company to produce and deliver. The entire purpose and function of a company is to fulfill customer order expectations whether this represents a single consumer located in the United Kingdom, or a multi national corporation expecting the delivery of 10,000 units to its own supply chain. Mujaba (1994) delved further into the preceding in “Enterprise Modeling and Simulation: Complex Dynamic Behavior of a simple – Model of Manufacturing” emphasized that the function of the supply chain is to delver what is needed when and where it is needed in the right quantities at the right time. The profitability of the members of the supply chain is the object of the system, not just the main company, as explained by Silver et al (1998) in “Inventory Management and Production Planning and Scheduling” and is best accomplished through the cooperation and coordination of all the firms utilizing the chain. Sterman (1989) advises that lead times, demand forecasting, pricing fluctuations, batch ordering and inflated orders can generate a bullwhip effect which disrupts the deliveries and system up and down the supply chain. The preceding is managed through just-in-time scheduling (Koletic, 2005), vendor managed inventory (McIntyre et al, 2001) and strategic partnerships (Bidgolic, 2001).
Optimisation of the supply chain represents the means via which companies either stay in business and match competitors or achieve an edge (Jacobs, 2001), and is illustrated by Dells pioneering and innovative approaches that begin at the management level making the importance of the supply chain an integral aspect of its corporate culture. Lee’s (2004) “The Three A’s of Supply Chain Excellence” states that companies do not compete for market dominance, supply chains do and cites agility, adaptability and alignment as the means to that end. Actualizing optimisation of the supply chain represents a business initiative on the part of firm’s strategies to implement changes and improvements (Mentzer et al, 2004). Linux as an open source potential in the solution of the varied complexities facing firms in the operation of their supply chains is a result of the fact it can be customized to fit any system, suppliers, as well as provide information flows and information accessibilities to suit the specific needs and dictates of the situation (D’Agostino, 2006). The benefits of open source over Windows is explained by Kehagias et al (2003) in “Open Source Supply Chains” whereby they advise that open source provides a better framework for multi user systems to work together for the dissemination as well as distribution of information through its ease of modernization. The limitations of Windows based systems is that customization entails a laborious process of obtaining permissions from the vendor as well as the future customization limitations and time frame delays associated with working with a third party. Kehagias et al (2003) further explain that Linux represents the new edge of technological developments that is permitting supply chain design to be modified, customized and altered in house whenever the need(s) arise thus offering company’s with the instant ability to effect the aforementioned and thus work towards optimization.
The limitations of third party supply chain based software systems, such as Windows, has caused the European Committee for Standardization to recommend open source, which includes Linux, as a standard for its member states to utilize in their governmental systems as well as encouraging companies to embrace the utilization of open source as well (Lorenzelli, 2005). The foundational basis for plugging in differing systems, applications and the important facet of customization are/were the reasons behind that stance, by the European Committee for Standardization, as well as the problems encountered with working with third party vendors, notably, Microsoft (Lorenzelli, 2005). Schonfeld (2000, pp. 115-124) in his work “The customized digitized have-it-your-way economy” points out the benefits of open source in providing companies with options to, in his words, for them to “…have-it-your-way …”.
The fast changing pace of developments in the competitive arena as well as technology and supply chain demands as represented by improvements which companies should be constantly seeking, are the reasons for the support of open source as a methodology to effect change. Schonfeld’s (2000, pp. 115-124) position is that open source aids companies in management of their supply chain through improved information flows which lead to reduced inventories, and thus improved bottom line results for all supply chain participants. Whang (1999, pp. 633 – 640) in “Decentralized Multi-echelon Supply Chains: Incentives and Information” makes references to the benefits of customization in the utilization of multi level systems whereby companies can break down their supply chain systems into more manageable stages which permits the locartion of areas for improvement easier, as well as permits for faster modification and customization as a result. The preceding is not a benefit of Windows based systems without the aforementioned vendor collaboration methodology that is a time consuming process.
The preceding has been emphasized by Ganeshan et al (1999, pp. 839 – 879) in “Quantitative Models for Supply Chain Management” where they detailed the twelve areas of supply chain management that represent important aspects in its operation. These points provide management with a clear set of tools for assessing the effectiveness and efficiency of their supply chains to aid it its optimization. Mentzer (2004) offered Dell as an example of how utilization of these points benefits supply chain participants as a model of efficient operations achieved through customization. The literature utilized provided the means to equate the problems and well as solutions open source offers in permitting companies to manage the complex variables that are the supply chain.
Chapter 2 – Actual Work
The examination of Linux based open source software in supply chain systems represents the ability for companies to develop and customize their supply chain software through the writing of code which is not an option utilizing proprietary software applications and operating systems. The open source system permits all firms tying into the system to have access to the information they require and its adaptability permits it to be customized to fit any suppliers operating system methodology thus giving the operating firm more flexibility in its selection of suppliers and tying them into its system almost immediately as functioning components. Through the examples and samples reviewed the importance as well as reliance that companies have upon their supply chains has been illustrated. The examination uncovered that proprietary software has code that is guarded by their vendors and any changes require working with said vendor in a slow and laborious process that can spell undue delays in the fast paced world of retailing, manufacturing, supply or any of the other aspects associated with the production and sale of products.
Open source provides the means to customized software to deal with the specialized needs each firm has in the construction and functioning of its supply chain in the manner that companies deems as the best methodology to accomplish the tasks at hand. More importantly, it permits ongoing revisions and changes whenever the company desires thus permitting it to amendment the system to eliminate operational flaws or aspects which could be better sourced. The research uncovered that is has and is becoming the preferred system operational foundation as a result of the foregoing. In addition the examples indicated that there is not such thing as the perfect supply chain, but rather that they are systems in a constant state of evolution and upgrading as a result of historical trending information, new technological developments and ideas emanating from both inside the company as well as from vendors and suppliers. The preceding holds true for even top rated systems such as Dell which is constantly undergoing revision and upgrading.
The new variables and or potentials uncovered through this examination represent the abilities of management to delve deeply into the functional aspects of their supply chain system and correlating what the company is, does, wants to be or is, as well as what competitors are doing and the direction that new developments are driving the industry and supply chain management and systems in. This seemingly abstract context is the atmosphere from which new innovation flows and thus is the open ended equation in the consistent striving for the edge to provide a firm with the operational system to improve efficiencies and effectiveness.
Chapter 3 – Methodology
The examination of the mechanics and system underpinnings of supply management represented research into what supply chains are, its management and the logistics involved as well as the methodology of the software and vendor tie ins that permit it to function. The research entailed secondary research analyzing the mechanics of the preceding as well as what open source is permits and accomplishes in this environment. Through the investigation of various theories and actual applications a foundation for understanding the manner in which a Linux based open source system can aid companies and specifically the case study example was arrived at.
Studies as well as utilizations by companies such as Hewlett-Packard, IBM, Oracle and Novell have found that open source can provide companies with a competitive advantage through enterprise applications. Optimising open source is a manifestation of what is termed “… Christensen’s law of conservation of modularity” (Koenig, 2004) which refers to where software layers are adjacent and interdependent software stack layers whereby applications within these layers can be optimized (Koenig, 2004). Koenig (2004) adds that under “Christensen’s law of conservation of modularity…” the modular and conformable operating system such as Linux serves to erode margins for other operating system vendors…” such as Microsoft, Sun Micro Systems and Wind River. Dell runs Oracle’s 9i Real Application Cluster (Dell, 2006) which comes in a Linux version thus providing the “…law of conservation of modularity…“ (Koenig, 2004) referred to by Christensen. This same software bases was utilized for Electronic arts, the game software company saving it an estimated $1.3 million over the UNIX version of Oracle’s software.
Putting new and better applications to work within a system at the foundational level for something that is already up and running might serve to cause some managers to re-think the proposition as a result of the initial insertion costs and or time spend in shifting applications and bringing suppliers and vendors up to speed. Wallace (2006) states that “… the key benefit of OSS is that users have the option to customize the product to meet their business’s exact needs”, adding that this includes the ability to integrate it with varied legacy solution and most importantly “… the ability to customize the software gives users…” (Wallace, 2006), the freedom to do these things. The drawbacks associated with proprietary software is that the vendor maintain control over the source code, thus any changes are orchestrated by them thus causing delays as well as constraints that the fast paced environment of supply chains does not have the luxury of. As pointed out, in order to maximize efficiency as well as innovate, the supply chain matrix needs to be under constant review and revision to incorporate the latest in software or technologies as well as changes and improvements resulting from monitoring and examining the system.
The complex variables constituting supply chains can vary even among firms in the same industry sector in the same line of business as it is a living and functioning extension of the corporate culture as well as its vision on attacking the marketplace and servicing its customers. The nuances can be either subtle or dramatic and represent innovation as the key to arriving at a competitive edge through calculated use of existing theories as well as the development of new untried measures offering promise. Open source is the foundation that permits the preceding.
Chapter 4 – Findings and Analysis
The utilization of a Linux based open source system for the supply chain at Backcountry.com represented a massive undertaking for a small company in that the foundation of such a plan entailed the writing of its own code as the basis for the change over. The preceding is an expensive and risky undertaking if a firm does not have the basics as well as details firmly planted in sound strategy and planning for all aspects of the supply chain system as well as a good working relationship with suppliers. To understand some of the complexities facing Backcountry.com in this endeavor, one must understand that the company sells 250 brands representing 25,000 products (D’Agostino, 2006) which are subject to varied price fluctuations based upon seasonality and the actions of competitors. In addition, the company has to correctly forecast as well as fill orders and maintain inventory and supply controls to meet varied customer demands across this diverse line of products.
The circumstances prompting Backcountry.com’s decision to change its supply chain to a Linux based open source was a sale the prior year which was disastrous. The company’s IT administration at that time required each web page to be changed manually for each of the company’s web pages and the full line of 25,000 products (D’Agostino, 2006) In order to accomplish the preceding it needed to analyze each items and apply the proper discounts in order to be competitive across the full line. The shortage of personnel in that year did not permit the company to apply this methodology thus it resorted to applying the “… same discount to every item in its inventory” (D’Agostino, 2006). The preceding turned out to be a $400,000 mistake as this represented the money the company lost as a result of consumers opting to purchase elsewhere for many of the items discounted in the manner indicated (D’Agostino, 2006).
So that this disaster would not be repeated, the company turned to utilizing a Linux based open source platform. In order to accomplish the transition Backcountry.com had to hire and maintain an army of programmers to write code and maintain controls over their rapidly changing inventory pricing as well as order and inventory management levels with is 250 brand suppliers. Backcountry.com utilizes Linux for its operating system, MySQL for databases and Zimbra for emails which ties directly into the company’s order management system (D’Agostino, 2006). The ability of the company to write its own code enabled it to customize its supply chain software to enable transformation of pricing on each of its web pages to reflect changes to the entire system in four days as opposed to the four weeks it took under the old system.
The additional cost in programming staff has been offset by the increased sales and margins the company reaps as a result of the advantages that open source provides in being able to respond to changes across its 25,000 product line, which includes approximately 80,000 SKU’s and all of the aforementioned include lots of keywords (D’Agostino, 2006). The company utilizes a keyword base to actively track bid management which manages shippers and represents 30 percent of what the company generates in revenue as a result of savings. Careful management of this aspect is required to control inventories. The Linux open source foundation enables Backcountry.com utilize “… an open source Perl script that monitors inventory …” (D’Agostino, 2006) which monitors its inventory and permits keywords to drop off so that when stock runs down the company can effectively replenish supplies.
Backcountry actively works with its supplies to permit real time inventory counts and replenishment based upon current order level forecasts as well as anticipated demand during certain peak seasonality periods. The entire processes is a result of its utilization of its own programming that is a product of utilizing Linux open source as the basis for its supply chain management. The company’s culture and operational philosophy is based upon the realization that its supply chain is the basis for servicing its customers. The company’s Chief of Technology, Dave Jenkins, has stated open source creates value and that while the company needs to employ a large IT staff they are able to make needed system changes almost immediately rather than having to rely upon either “… Accenture or IBM…” to take months in putting changes together (D’Agostino, 2006).
The success the company has achieved through utilizing Linux based open source has helped the company shift prices and manage inventory levels in consort with changing prices on the part of competitors. Because Backcountry.com is an Internet based retailer consumers have the opportunity to compare prices easily, thus the company must be able to actively track the rapidly changing price variables and respond almost immediately to as not to lose customers. This is what Sterman (1989, pp. 472-474) referred to in:
- Lead time variables which can change the variables affecting the firms, components, suppliers and other aspects in the supply chain,
- Demand forecasting,
- Pricing fluctuations,
- Batch ordering,
- Orders that are inflated
The company’s just-in-time inventory management system (Koletic, 2005) enables it to:
a. Increase the ability of the company to compete with rivals as well as to remain competitive over the long term.
b. Increase production efficiency through productivity improvements as well as a reduction of costs.
c. Reduction of material waste, time and effort.
Backcountry.com’s use of a Linux based open source system enables it to make use of qualitative and as well as quantitative tools as described by Worthen (2003). The company’s most important operations area represents not being out of stock for items, which represents forecasting and inventory coordination as stated by Silver et al (1998, pp. 31-41).
Chapter 5 - Conclusion
The aims and objectives of this examination were to determine how open source, Linux, can and or do optimize the supply chain of an organization. The case study, as a result of the details uncovered in setting the background understanding for the analysis, served to illustrate the benefits utilizing the indicated foundation. From the examination of what a supply chain is, what supply chain management is, as well as understanding how and what open source is, and how it works within the system and where optimization could occur were and are complex and detailed subjects that required in depth explanations in order to see and determine the interlinks in the entire matrix. The preceding approach was utilized as it was determined that this represented the best manner in which to approach the context and glean the points needed.
The real find that developed as a result of the preceding is that supply chains are as different and the organizations that use them. It is a function of who and what the company sees itself as being, as well as the dictates and demands of the business it is in along with the varies nuances of the preceding. Optimising a supply chain entails understanding certain principles that Ganeshan et al (1999, pp. 839-879) indicates are the twelve areas that a company needs to understand as well as confront in reviewing as well as analyzing its supply chain whereby decision support tools can be utilized:
a. Location
b. forecasting and inventory
c. transportation and logistics
d. sourcing and supplier management
e. marketing and channel restructuring
f. service and after sales support
g. information and electronic environments
h. product design, new production introductions
i. outsourcing along with strategic alliances
j. green issues and reverse logistics
k. incentives and metrics
l. global concerns and issues
Open source does provide companies with the ability to customize their codes without the proprietary controls exercised by the vendor and therefore provides freedom in adapting the system as deemed fit from management and operational requirements. The acceptance of open source as a viable solution is supported by the European Union’s Executive Branch as a means “… of cutting public-sector costs, stimulating the local software industry and fostering interoperability” (CXOtoday.com, 2003). That singular endorsement speaks volumes in that the world’s largest multi national trading region sees open source as the means to the future.
Chapter 6 - Recommendation
Lee (2004) makes the observation that “… supply chains, not companies, compete for market dominance”. The very factors that provide supply chains with their efficiencies and effectiveness, tight inventories, just in time deliveries, vendor managed inventories, outsourcing, logistics and other benefits are the vulnerable points when supply disruptions occur. As supply chains become more efficient, they also become more complex and sophisticated which renders them as vulnerable to interruptions of an unforeseen outside variable. And while they are able to adjust to such circumstances more quickly then by any other means, such occurrences represent a challenge for corporate supply chains which have gotten longer, more far flung in operation and since they operate on razor thin tolerances to optimize effectiveness, these aspects are the weak points in the aforementioned disruptions. The preceding has been researched by Computer Sciences Corporation (Supply Chain Management Review, 2004) found that 60% of the reporting firms stated their supply chains were vulnerable to disruptions. Examples of the preceding are provided by Ericsson which lost 400 million euros when a fire occurred at a supplier’s semiconductor factory (Wall Street Journal, 2001), and Land Rover of the United Kingdom had to lay off almost 1,400 employees as a result of a supplier becoming insolvent (IBL, 2002).
A supply chain is a multi agent user system and open source provides the framework for permitting varied system architectures to work in conjunction with one another for the dissemination and distribution of information (Kehagias et al, 2003, p. 3). In addition advised Kehagias et al (2003, p. 3) open source offers the opportunity for the ease of modernization in all facets of the supply chain system. The open source framework of Linux is in keeping with new technological developments that provide for the wider utilization of “… open standards and open source software” (ZDNET.com, 2001). Industry, in general, is moving in the direction of open source as a foundational framework for supply chains in order to harmonize a common technological and methodology for building blocks in consideration of the global nature of the process. The capability to utilize all manner of software applications an innovative programming under the open source framework is a must for the fast paced developmental cycle supply chains live in whereby they are constantly being upgraded, added to and modified. Further, the addition of new supply chain partners with differing systems means there needs to be a common ground to enable these new additions to quickly interface with the chain and other functioning members. The following is a summary list of these benefits (Kehagias et al, 2003, p. 6):
1. Differing Software Standards
Open source provides for “… independently operating nodes…” (Kehagias et al, 2003, p. 6), which enables them to operate with varied supply chain models regardless of their software standards.2. Adaptability
The ability of open source to work with differing technologies as well as standards is an important aspect of a supply chain functioning for all of its partners and offering ease of integration and use.3. Communications
Interface between autonomous systems permits differing communication modes to work under a common source.The utilization of open source as a foundation for supply chain architecture is supported by the European Committee for Standardization which sees this approach as providing the means for a technology interoperability level consisting of building blocks which will enable as well as sustain the establishment of said building blocks along with lifecycle management that provides the framework and foundation of evolution using open source as the foundation (Lorenzelli, 2005). The operational methodology behind Linux is that it is the kernel of the operating system which manages the hardware (Siever, 2005). It provides the foundation that in conjunction with the operating system makes the system useable. Thus Linux consists of a broad array of libraries, system utilities as well as programs along with commend shells (Siever, 2005). In the context of this examination, the reference to Linux refers to the ‘distribution’ of Linux which is the complete system whereby the source code is available to read as well as modify.
Optimisation of an organization’s supply chain utilizing Linux based open source is a proven methodology that is employed by firms such as Dell, IBM, Tesco and the case study example Backcountry.com as a few of the numerous examples. Its operational interface permits codes to be customized to serve in a company’s best interest with respect to the design of software operability to meet the specific demands and dictates of a company’s requirements and operations. The preceding represents the most important benefit in its adaptations and use, customization which is the direct path to optimization. The costs to generate the changeover to this system can be realized through increased efficiencies and effectiveness of the supply chain operation. The case study example illustrates the preceding and this benefit that Backcountry.com achieved in reversing the $400,000 loss in sales that culminated from the inability of its supply chain software to change pricing on its web site in response to changes in the competitive environment. The subsequent utilization of a Linux based pen source system enabled the company to achieve sales increases after its adaptation and is a clear illustration of the benefits of this methodology.
In order to have the Agility, Adaptability and Alignment referred to by Lee (2004), a company must first have the ability for its software base to be able to adapt to changes, with the flexibility to work with any and all new technological forms as well as developments and user systems. The preceding is the foundation of what open source, such as Linux, brings to supply chain operation as opposed to the indicated third party limitations of proprietary vendors, such as Windows. The preceding study has delved into the nuances of supply chain operation, management, systems, vendor associations and identification of problems as well as benefits to be achieved from the utilization of a flexible software core such as Linux and represents the recommendation for the achievement of the varied ends indicated throughout this examination. Innovation as a constant that must be utilized by companies in their operation of their supply chains as a means to achieve optimization of operation through consistent modification, improvements and identification of areas and aspects to increase its efficiency from all participants in the system. Open source represents the manner in which to accomplish the foregoing.
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The Business Entrepreneurship of David Sarnoff "The Innovator"
This report considers the nature of entrepreneurship and its theoretical constructs in the context of David Sarnoff, a Time Top 100 American entrepreneur who introduced radio and television as an entertainment and news medium to the world in the early part of the 20th century.
The aim of the report is to gain an insight into entrepreneurial business development at the initial stage of business formation and in so doing, to better understand the economic, political, and social significance of entrepreneurs as change agents within modern society.
Investigate the reason why small business have a high failure rate?
The issue why there is a high rate of small business failures has been a contended issue within the past two decades. Much of the published data that deals with small businesses and the surrounding phenomenon assumes that the probability of failure increases as the size of a business decreases, and that small business failure rates are very high. However, there are a number of different meanings that are attributed to the word ‘failure’ as it applies to a small business.
The concept of planning is also an issue to contend with. There is also a range of reasons why a business can cease to exist, many of which nobody would interpret as failure in the traditional sense. A company that ceases to exist after being bought and subsumed into a larger firm is clearly different from one which becomes insolvent due to declining sales, mismanagement, and cost overruns. The subject matter here is that recorded government data and most available literature which defines and records this phenomenon are not accurate. This discrepancy has lead to renewed approaches to understanding the meaning of failure in the context of small business failures, so that accurate data and government responses to tackling this problem will run less risk of diagnosing policy responses which maybe unnecessary, irrelevant, or vice versa. The precision required in defining failure, needs to be accurately understood in interpreting small business data, as often proxies for failures are adopted, or assumptions are implicitly made about what constitutes a failure. Although, there has been strong support to understand the meaning of failure, as we will discuss in the literature review, there have been strong criticism as to the validity of failures as a way to understand the reasons why this is highly associated with small businesses.
EXISTING LITERATURE REVIEW
The need to understand why there is a high rate of failures for small firms has been stressed by researchers since the 1930’s. According to Perry (2001), there is nearly universal agreement that planning is essential for business success. However, Mintzberg (1994) argues that planning can be overdone, incorrectly done, and ineffective, while Baechler (1996) states the opposite by saying that firms have avoided planning altogether to their own delight and been very successful.
Peacock (2000) argues that the easiest meaning to understand and to measure is legal failure, where a small company is formally liquidated or in the case of an unincorporated enterprise the owner becomes bankrupt for business reasons. An alternative approach is to relate failure to the exit rate of owners or firms from the small business sector. Such discontinuances may include loss cutting procedures (to dispose of a business to avoid further losses), or because of a financial failure to make a go of it Cochrane (1981), which would include, but not be limited to, legal failures. Berryman (1994) adds that, it seems that there is little to be gained from more research to determine failure statistics. There is disagreement, but one factor seems to be unequivocally agreed and that is that firms are more vulnerable when they are young. Williams (1986), argues that there is a significant relationship between the nature and extent of intenders preparation for start up and survival. The greater the amount of consultation with knowledgeable persons and other sources of information, the better the chances of success, but he found a general lack of preparation in most cases. Now, if we use the meaning of failure to understand the reason why there is such a high rate of failure for small companies, then studies by Baldwin and Gorecki (1991); Churchill (1952); Ganguly (1985); Hutchinson et al. (1938); Phillips and Kirchoff (1989); and Williams (1993) argue that the ‘‘discontinuance of ownership’’ of a business represented failure rates ranging from 6.5% to 9% in the US. While Bates and Nucci (1989); Birley (1986); and Price (1984), argue that ‘‘discontinuance of business’’ represented average failure rates varying from 3% to 7.5% annually. Bankruptcy/Loss to Creditors was argued by Cahill (1980); Hall and Young (1991); and Lowe et al. (1991), were failure rates ranging from 0.43% to 1.2% annually. However, they generally examine only a cohort of failed firms, provide no information on the population of failed and non-failed small businesses and therefore do not estimate annual failure rates. ‘‘Disposed of to prevent further losses’’ was argued by Ulmer and Nielsen (1947), as a way to understand small business failures. However, this definition has not been used widely, presumably because of difficulties obtaining the appropriate data. Failing to ‘‘make a go of it’, was argued by Gaskill and Van Auken (1993); Smallbone (1990); and Williams (1987), stating that 71.4% of small businesses discontinued to avoid losses, to pay off creditors, or because they failed to make a profitable go of the business. Smallbone (1990) reported 37% of an enterprise agency’s clients failed within 2.5 years. Williams (1987) reported an extremely high failure rate of 25% per annum. Adding, this alarmingly high rate of failure is, at least partly, the result of the methodology used by Williams (1987) at the time. He removes completely from his data set all businesses that cease or are sold for non-financial reasons, such as retirement or ill-health. This survivorship bias overstates failure rates. Although these are facts, lack of limited data has limited its use with regard to understanding the high rate of small businesses failures. From the above, clearly the definition of failure influences reported failure rates.
Broader definitions of failure will lead to higher failure rates. For instance Garrod and Miklius (1990) reported that on average, bankruptcies represented only 9% of discontinuances. Most studies conducted of small business failure, argue that a business is at greatest risk in its first few years of operations. Jovanovic (1982) argued that younger firms are more likely to fail because they face greater variability in their cost functions while they learn about their industry and management capabilities. The lack of reliable data makes it difficult to study small business. Bannock and Doran (1980), argue that perhaps the most important gap in British Statistics, and indeed in virtually all other countries, is in statistics on new enterprise formation (births) and failure (deaths). Once a small business has closed, information becomes hard to obtain. Most information remains with the owner, as there is no systematic reporting on small businesses in the way provided for larger concerns, particularly for listed companies. From the entrepreneur’s resource (2003), it is argued that female-controlled businesses tend to under-perform male-controlled businesses on a range of measures, including revenue, profit, growth, and failure rates. However, it has also been pointed out that females tend to control more businesses in industries where success rates generally are lower, such as retail and hospitality. It has also been noted that female-owned businesses are younger than male-owned businesses, because of family concerns females have less time for their businesses than males, and females have less access to capital than males. Gray (2002), also argues that the reasons for small business failure are many, stating that the entrepreneur’s personal limitations are the primary reason. This includes, in order or priority, lack of personal qualifications to run a business, lack of experience in the line of business, lack of training, and unbalancing experience. He also states that these limitations lead to the following more specific reasons, such as, money mismanagement; poor marketing; mistaking a business for a hobby; failure to evaluate themselves realistically; failure to set and revise goals; not being suited for a home-based business; and lack of commitment. In a resounding article by Daniel (2005), he argues that there is a persistent myth that 90% of all new small businesses fail within their first year. This well publicized myth has undoubtedly kept many potential entrepreneurs from giving their dream businesses a try. He also adds that Small business administration study showed that 66% of new businesses survive for two years or more, 50% for 4 years or more, and 40% for six years or more. Even the 50% that didn’t survive for four years were not all failures. One-third of those closed successfully. They were sold, the owners retired or took other jobs, or the business was closed for other reasons besides failure. Additionally, businesses that had employees other than the owner and those with starting capital of 50,000 or more had the best survival rates. Surprisingly, those that were home-based at start-up had very good survival rates, too, probably because the capital needed was less. According to Clark (1997), the majority of the causes for small business failures can be condensed into three ‘Ms’, they are Money; Management; and Marketing. Watson and Everett (1996) realized that previous researchers had not distinguished business closures from business failures. They mentioned that closing firms could have been financially successful but closed for other reasons: the sale of the firm or a personal decision by the owner to accept employment with another firm, to retire, or the like. Jennings and Beaver (1997), add that using financial criteria does not take into account owners in tangible goals. They defined success as ‘‘the sustained satisfaction of principal stakeholder aspirations’’. Cotter (2003) also argues that the rate of business failures among small firms has trebled since 1999. He suggests that the waterfall of new legislation means that some firms are spending 2 days a weeks implementing new regulations, in which the wish list of small businesses included tax reductions, cutting red tape, and more government support, adding simply ‘‘shoot the politicians’’.
METHODOLOGY EMPLOYED
Multiple-Case Study Design
This paper uses the multiple case study method in order to enable analysis of data across cases and relating it to the theoretical perspectives in the available literature of Small businesses. This enables the researcher to verify that findings are not merely the result of idiosyncrasies of research setting (Miles and Huberman, 1984). According to Yin (1994), in such a method it is important to use: multiple sources of evidence.
The appropriate number of cases depends, firstly, on how much is known about the phenomenon after studying a case and secondly, on how much new information is likely to emerge from studying further cases (Eisenhardt, 1997). Eisenhardt (1991) also suggests that multiple case study design requires the study of at least four, but no more than ten cases.
This paper provides four case studies of small businesses, namely, Nandos Restaurant, MVC music store, Pizza Express, and Zebs (a small food retail corner shop). Analysing the various small businesses with regard to their very existence in the first place, to the duration of their operations and sales forecasts, from within each of the companies is carried out. One wants to see if there are any matches with regard to the theoretical side of small business survival and what the empirical evidence gathered says and also any mismatches. This also relates to the literature review.
Qualitative Data
Cavaye (1996) states that qualitative investigation refers to distilling meaning and understanding from a phenomenon and is not primarily concerned with measuring and quantification of the phenomenon. Direct and in-depth knowledge of a research setting are necessary to achieve contextual understanding. Hence, qualitative methods are associated with face-to-face contact with persons in the research setting, with verbal data (Van Mannen 1989) being gathered.
Qualitative data can be collected in a number of forms. One major form of qualitative evidence is questioning interview, which may be recorded and later transcribed. Qualitative data are rich, full, holistic ‘real’ their face validity seems unpeachable; they preserve chronological flow where that is important.
In spite of the abovementioned, qualitative data have weaknesses (Miles 1979; Miles and Huberman, 1984). Collecting and analysing data is time-consuming and demanding. In addition, data analysis is not easy, as qualitative data analysis methods are not well established. Recognised rules of logic can be applied to verbal data in order to make sense of the evidence and to formally analyse the data.
Rubin and Rubin (1995) state that it is most desirable to disclose the identities of both the case and the individuals interviewed because,
• The reader is able to recall any other previous information he or she may have learned about the same case from previous research or other sources in reading and interpreting the case report.
• The entire case can be reviewed more readily, so that footnotes and citations can be checked, if necessary, and appropriate criticisms can be raised about the published case.
Nevertheless, there are some occasions when anonymity is necessary. The most common rationale is that when the case study has been on a controversial topic, anonymity serves to protect the real case and its real participants. The second reason is that the issuance of the final case report may affect the subsequent actions of those that were studied.
In the case of this paper, the positions of the participants within the organisations interviewed are mentioned. However, anonymity is adopted to protect the Identities of the participants and the real case. Why? Because the strategies and survival techniques of the small businesses investigated has been a major topic of discussion and required resolvement of their survival has been sort after since the 1930’s, thereby revealing their names could hinder future revelations on their part.
THEORETICAL PERSPECTIVES ON SMALL BUSINESSES
It is an established statistic that businesses are more likely to fail in their first five years of trading. The chances of success increase the older and more experienced the business, and the management, but it can take up to ten years before the business is on a firm foundation. One of the major causes of failure is inexperience in managing all aspects of running a business at the same time, in other words the role of an operations manager needs to be understood.
The role of an Operations manager
There are many frameworks which attempt to describe what an operations manager does. The one to be presented here is based on that developed by Schroeder (1993) and has been selected because it is based around the concept that operations management is primarily a decision-making role. There are others who argue that operations is an integral part of any managerial role, Schonberger and Knod, (1994) and that to some extent, every employee is a manager, at least of the immediate workplace, Scott Myers (1991), including those who actually make the product or provide the service, first-line supervisors, department heads, general managers as well as technical; experts. However, a narrower definition is more common, and relates to those situated within the operations function itself. The involvement with day-to-day operations depends to a large extent on the level of the operations manager within the organisation.
Operations managers make decisions in five main areas, they are:
• Quality: Managing quality issues, controlling quality and improving it.
• Process: Selecting and designing the transformation process, selecting and using the appropriate technology, layout of facilities.
• Capacity: forecasting demand, making decisions about facility location, planning at top and detailed levels, including project planning, for the maintenance of the business and expansion in the future.
• Inventory: planning appropriate levels of inventory and methods of control, linking inventory to production planning and scheduling.
• People: managing the workforce, designing and improving jobs and satisfaction in the jobs allocated to individuals.
The decisions made by an operations manager are both short, medium , and long-term, and involve all aspects of a manager’s role: planning, controlling, staffing, Fogarty et al. (1989). The scope of operations management decisions can be summarised in four categories where the various dimensions of decision making are combined. A single decision maybe made using criteria from any or all of the four areas, and it should be noted that they are interrelated, so that decisions made in one area will affect other areas. An overall plan, strategy and direction are needed in order to determine the direction of the organisation. The overall goals can then be detailed to determine actions and decisions needed in each functional area, including operations management. The skills required for an operations manager are common with those of any manager, although there are a number of particular factors which are important. Most operations managers have a relatively high level of quantitative skills, which is useful in utilising the decision-making models which are a part of much operations management. A high level of interpersonal skill is also required, owing to the number of people involved. Some of the typical tasks undertaken by an operations manager include:
• Management of a cost centre: An operations manager is responsible for a large proportion of the organisation’s assets, and therefore controls a relatively large budget. While this does not necessarily require detailed accounting skills, a good understanding of financial matters is an asset.
• Efficiency in the short and long term: Day-to-Day activities have to be well controlled, but an operations manager also has to have a long-term view, and must consider long-term trends too. The danger is to be only short-term oriented because that is the most pressing consideration. The operations manager’s task has been described as follows: ‘the task is problem oriented….. pressure is also a distinctive feature’.
• Management of technology: The operations manager may have to manage technology both within the product itself and within the process. It is increasingly difficult for operations managers to keep up to date with technological advances in any detail, and so they should attempt to understand the level of technology employed and its purpose, rather than the details of individual technologies, which should be left to technical experts. Maintaining this balance and avoiding the temptation to get drawn into detailed technical issues are often difficult.
• Control of subsystems within the whole: Operations managers will have a number of different groups reporting to them and may be responsible to several different functions. A balance between the potentially conflicting demands of the various groups is needed, making sure they all contribute effectively to the whole. The danger is that the performance of one subsystem will be optimised at the expense of the others.
• Responsible for money and work flow: Maintaining the balance between spending money and carrying out productive work is one of the major issues for operation managers. Money is always spent until the goods are produced and it is only at that point that the organisation may begin to get money in. In order to satisfy monthly accounting targets, operations are often put under pressure to get things out at the end of the month so that money can come in, although this may not be optimal in terms of efficiency within the operations function.
3
• Managing a process characterised by tangible outputs: In the case of services, it will always be true to some extent that operations management is the management of the transformation process, which always has some form of output and which usually has at least some physical element. Because of the relative ease of measurement of the quality or other features of the output, the short-term aspects of the operations management task are often given too high a priority. Coupled with the fact that operations is not always incorporated into corporate strategy, although it is argued that it should be Skinner (1969) and Hill (1993), there is a tendency simply to optimise the physical aspects of short-term performance.
• Managing Complexity: While this is true of any managerial task, the challenge for operations managers does not arise from the individual tasks involved, which of themselves can be quite tedious, but from combining the large number of these to make something which works well and is effective for the organisation as a whole. This task is well summarised by Schonberger and Knod (1994),
‘‘Effective operations management blends the interests of customer, employee, and manager, along with those of the public, shareholders, and other stakeholders. Diverse resources, changing technologies, and hard-to-predict demands add to the challenge. Human ingenuity, diligence, and the right management tools, are required to blend all the interests properly’’.
The use of operational management (covers all aspects of running a business) here is to understand what is expected of a manager to keep a small firm healthy, and solvent.
Now, one might be a first class plumber but unless you manage your time and your work quotations in order to make a profit you will fail in business. Unfortunately, many business owners are quick to blame others when the actual cause of failure is their own short-comings. The bank manager features highly on the list of causes being blamed for the business failure due to the lack of provision of additional finance. In a recent survey conducted amongst small business, the common reasons for failure were cited as, a lack for further funding being turned down; lack of sales; late payment by debtors – cash flow problems; increased competition from larger firms. Professional advisors, however, have a totally different view on the major causes of failures – they place the blame squarely on poor management. The reasons that they give include: a lack of capital; targets are not set and properly reviewed; performance, especially financial, is not monitored; corrective action, if any, is taken far too late; market research is not kept up to date; and turnover is chased instead of profit. Small businesses that seek professional advice and training on running their businesses tend to have a greater survival rate. In simple terms, once you have established your business you need to: update your original business plan on a regular basis; constantly monitor your financial performance to enable early corrective action to be taken; concentrate on making a profit and not just the volume of sales; take advantage of as much training in all aspects of running a business as you can – in most cases it is offered free of charge or at a very small cost; and keeping a look at conditions in the market, one should not be caught out by the actions of competitors which could remove your competitive advantage. The previous mentioned strictly refers to using market intelligence to update sales forecasts on a regular basis, also assisting management when reviewing their overall strategy. It is also critical that one keeps track of their competitors. On a continuing basis management in the small business will need to find out what they are doing, what they are charging, and any new products they have launched which could compete with yours. Even when the small business thinks that their product is the best in the market there will always be someone competing with you on a different factor of the marketing mix.
The Marketing Mix
The marketing mix consists of four major components: product, place/distribution, promotion, and price.The Product Variable: A product can be a good, a service or an idea. The product variable is the aspect of the marketing mix that deals with researching consumer’s product wants and designing a product with the desired characteristics. It also involves the creation or alteration of packages and brand names and may include decisions about guarantees and repair services. The actual manufacturing of products is not a marketing activity. Product variable decisions and related activities are important because they directly involve creating products and services that satisfy consumers’ needs and wants. To maintain a satisfying set of products that will help an organisation achieve its goals, a marketer must be able to develop new products, modify existing ones and eliminate those that no longer satisfy buyers or yield acceptable profits. For example, after realising that competitors were capturing large shares of the low calorie market, Heinz introduced new product items under its weight watchers name.
The Place/Distribution Variable: To satisfy consumers, products must be available at the right time and in a convenient location. In dealing with the place/distribution variable, a marketing manager seeks to make products available in the quantities desired to as many customers as possible and to keep the total inventory, transport and storage costs as low as possible.
The Promotion Variable: relates to communication activities used to inform one or more groups of people about an organisation and its products. Promotion can be aimed at increasing public awareness of an organisation and of new or existing products. In addition, promotion can serve to educate consumers about product features or to urge people to take a particular stance on a political or social issue. It may also be used to keep interest strong in an established product that has been available for decades. The use of adverts is an example.
The Price Variable: this relates to activities associated with establishing pricing policies and determining product prices. Price is a critical component of the marketing mix because consumers are concerned about the value obtained in an exchange. Price often is used as a competitive tool; in fact, extremely intense price competition sometimes leads to price wars. For example, the supermarkets and small corner shops are engaged in ruthless price cutting in the battle for transatlantic routes. Price can also help to establish a product’s image. For example, in supermarkets, on the same aisle as brand known soft drinks like coca cola, they also sell their own brand of soft drinks, but at a lower price to compete against the already established brands.
Money
It takes a long time for a start – up company to break even because unforeseen contingencies always develop. In the interim, one will still need to support their family. Before a business is launched, a nest egg must be set aside that will allow the individual and their family to survive for at least three times longer than the time period they are projecting to achieve break-even with the small business. Using the same multiplier effect to project the operating capital the company will need; determine the maximum negative cash flow from their projections and multiply the amount by three to determine the operating capital that should be raised. As tough as it is to raise small-business capital, it is always easiest the first time around. If you raise insufficient capital and only achieve small successes by the time the money used to run the business runs out, investors in the small business probably won’t be interested in throwing good money after bad.
Additional factors that need to be considered with regard to the common causes for business failure are, incompetence where issues such as emotional pricing; spending the capital outlay of the small business on high expensive items; non-payment of taxes; no knowledge of pricing; a planning of planning; no knowledge of financial requirements of the business; no experience in record-keeping or lack of understanding the figures accrued while running the business, and lack of experience in line of goods or services, i.e. carrying inadequate inventory to run the business; no knowledge of suppliers; and wasted advertising budget, all contribute to the reason why there is a high rate of failures for small businesses. Finally, an unbalanced experience or lack of managerial experience as explained in the latter such as, poor credit granting in the practices of the management of the small firm; incurring excessive bad debts; trying to expand the business too fast; and inadequate borrowing practices, can be seen as a major factor to the increased decline of small businesses.
EMPIRICAL ANALYSIS
In this part I present four (4) case descriptions from my research on Small Business failures. The descriptions are organised in terms of the following headings; Data Collection, Organisational context, Marketing Mix Employed, Financial requirements, and Management expertise. The names of individuals mentioned have not been mentioned to protect confidentiality. It must be said that there are some differences in both the quality and quantity of data available between the projects described, but in each case there is sufficient data for comparability across the features mentioned above. Four small businesses are used to understand the concept of small business failures, i.e. how they have been successful in staying in business. All questioning interviews lasted for approximately 30 minutes (See Appendix A for the questions used to carry out the case study).Case Study 1: A Small Food Retail Shop (Zebs Ltd.)
Data Collection
Data was collected through a questioning interview with the manager at the store.
Organisational Context
The organisation concerned is an Asian Food Supermarket store based in the UK. It has about six other branches located in and around the London area. For the manager running that branch of the small chain of food stores, business started very slowly initially, but gradually over the years, the business expanded. The total number of people who work at the branch were eight.
Marketing Mix Employed
The manager who ran the store explained that they do use the marketing mix by looking at what their competitors are doing. I.e. they try and make sure that the ‘price’ they charged for basic items such as water, toothpaste, washing powder, soap, e.t.c, were not above or too far below than their competitors (major supermarket chains), however, for other items such as meat, eggs, alcohol, they charged a bit higher then the major supermarket stores. In addition, when they were trying to find a ‘place’ find a perfect location, the planners appointed made sure that the store was to be located at a place where there were a lot of residential homes with very few or no convenient stores. They did offer ‘promotions’ on certain products but these promotions varied especially during the time of the season. As stated it is a food store so they did offer a wide range of products and goods to the general public.
Financial Setup
The manager stated that initially it was tough setting up the branch, because people were not coming in to buy anything, so it was difficult for them to cover the cost of having the branch open and running. But due to the success of the other branches located in and around the London area, they had a very good bank overdraft coupled generated revenue from the other branches. With this they were able to keep the branch open and running. He also stated that their sales and cash forecast are erratic. However, during the cold season, they tend to experience higher than usual purchases by local residents in the store. The store has been open for six years.
Management Expertise
The manager stated that he did not have any educational qualifications, and that all his experience of knowing how to setup and run the business had been on-hand. However, he stated he did attend a book-keeping course to keep him in line of managing the sales, cash, and stock intake of the food store.
Case Study 2: A DVD Rental Store (MVC)
Data Collection
Data was collected through a questioning interview with the Stock taker of the Store. The stock taker acts as a senior or multiple task manager. He is responsible for stock-intakes, stock levels, ordering of items, and staffing levels.
Organisational Context
The organisation concerned is a DVD store that rents DVD’s, CD’s and other entertainment items to the general public. The total number of people employed at the branch was six including the manager.
Marketing Mix Employed
The stock taker explained that they did offer cheaper prices for their products compared to the main DVD stores such as Virgin Mega-stores, HMV, e.t.c. He added that although the location (place) of the store was predominantly down to the planners, the management wanted the store to be placed very close to a large residential area. Promotions were constantly advertised, i.e. buy 3 DVD’s for thirteen pounds etc and placards were constantly used to promote what was of recent to the awareness of the general public. The only product they offered were DVD rentals and snacks, which were a bit more expensive than when bought in a supermarket.
Financial setup
The Stock taker stated that he was not fully up to date with the ins and outs of the financial state of the business. However from what he knows, the branches located in the inner cities have had a more profitable run than branch in the outskirts. The profits generated from the branches in the inner cities is used to cover the expenses of the newer branches in the outside cities, and that after a four year period of a particular branch has not been profitable enough, head office tends to shut it down. Also, they had a good working relationship with their bank. The branch has been opened for a year and a half.
Management Expertise
He stated that he did go to university. However, he was in the job as a stock-taker for the short-term until a better job comes along.
Case Study 3: A Restaurant (Nandos)
Data Collection
Data was collected through a questioning interview with the Manager of the Restaurant. The manager was responsible for everything in the restaurant. I.e. inventories, stock – intakes, cleaning, staffing levels, the kitchen, e.t.c.
Organisational Context
The organisation concerned is a Mediterranean restaurant that specialises in grilled chicken and side menus, which they sell to the general public. The total number of people employed at the branch was twelve including the manager.
Marketing Mix Employed
The manager stated that they used the marketing mix such as the price charged for certain set menus were made very cheap and for some other items, the price charged were a bit above average. He also stated that when it came to identifying place were the restaurant was to be located, it was agreed that it was to be located in the city. Reasons being most people come to the city centre to eat and have a good time. They did not offer any promotions with regard to their items, however, they did offer a wide range of products (set menus).
Financial Setup
The manager stated that because of the reputation or brand name of the restaurant, from the very first day it was opened customers and people have poured in. This has made their books healthy, and generated a lot of revenue that they are thinking of expanding into other areas. Adding that the restaurant has not relied on the revenues of other branches, or on the allocated funds for each branch disbursed by the head office, to stay open and financially healthy. The branch has predominantly been self-reliant, whereby the branch has been opened for five months
Management Expertise
The manager stated that the company did have a management program, for training potential managers and that this enables employees to be aware that opportunities did exist within the business. Yes he did have some managerial qualifications and training.
Case Study 4: An Arts and Crafts Store
Data Collection
Data was collected through a questioning interview with the Manager of the Store. The manager was responsible for everything in the Arts and Craft Store. I.e. inventories, stock – intakes, new orders, e.t.c.
Organisational Context
The organisation concerned is a small arts and craft shop which specialises in the sale of Chinese paintings, Swords, African artefacts, antique chests and draws, carved dragons, and carved art, which is sold to the general public. The total number of people employed at the branch was four including the manager.
Marketing Mix Employed
The manager stated that they did offer promotions from time to time, and that the prices of certain items are slashed occasionally. However, as a whole the use of the marketing mix is not used.
Financial Setup
He stated that the due to the occasion sale of certain antique items that are priceless and the overdraft facility provided by the bank, he has been able to keep the business going for six years.
Management Expertise
The store manager explained that although he did go to university, the requirements to run the store, does not entail one to have a university degree or managerial experience and education.
The case studies mentioned in the above sections provides much needed evidence of the reasons why there is a high failure rate for small business. It worthwhile to note here that although the businesses mentioned are still in existence and open, it is useful to say that in order to understand the reasons why there is a high failure rate of small business, one will need to look at small business that are still open and try and identify why they have not failed. In that way one would be able to see the reasons behind this phenomenon.
CRITICAL ANALYSIS OF THEORETICAL PERSPECTIVE ON SMALL BUSINESS AND EMPIRICAL EVIDENCE SO FAR GATHERED
The critical analysis here covers all aspects relating the theoretical perspectives of small business from published books and articles, and the empirical evidence presented in the previous sections. An analysis is made as to whether there is any consistency from the published material so far gathered and the empirical evidence presented.
One could say that all the small businesses mentioned are all branches of similar stores and restaurants located in a different region. I.e. they have chosen to be located in an area where they anticipate they will be able to break-even. The use of the marketing mix has been adopted to some degree by all four small businesses. This can be said to correlate with the empirical evidence gathered, which suggest if a small business is to survive it will need to employ the marketing mix to stay in business. With regard to planning all small business but one, were involved in the planning and running of the business in some manner, however, for the arts and craft store planning was not and did not seem to play a part in its survival. In addition, the empirical evidence that suggests that firms are most vulnerable when they are young is consistent with all three small businesses, apart from the restaurant business. This is due to its already established brand name in other regions where branches of the same business are located. Also, the evidence that suggests that an educational qualification plays a part in a small firm’s success cannot be substantially justified. For example, in three of the business mentioned in the case study, all the controllers of the business where not using any form of educational knowledge to run the business, they were using common sense and on-the-go experience. However, this was not the issue in case study 3, the manager had embarked on the management trainee course provided by the business to run the business branch, which had proved successful right from its opening. As stated, data on the failure of small businesses are very hard to come by, and to a certain degree non-extent. This makes it difficult to quantify the true extent of small business failures. In another evidence presented failing to make a go for it was identified as a cause for small business failure, so as to avoid losses. This does not seem to be the case with the four small businesses investigated. The small businesses have rather gone for it in the biggest way they can, and they are still breaking–even. Money and management from a theoretical perspective seems to play an important part in the survival of small businesses. This is identified, in all four of the case studies mentioned.
Although, one has used the theoretical perspectives so far published and analysed matches or mismatches with regard to the case studies researched, there is no guarantee that in a few years time, the same situation with the four small businesses mentioned would be the case. People change, tastes, likes, dislikes, and societies change do fast that it is unpredictable to adequately pinpoint the real cause for a high rate in small business failures.
SUMMARY AND CONCLUSION
This paper has looked at past and present published material on small businesses from all over the world. Specific themes such as the meaning or definition attached to the concept of small business failure, the use of planning, the effect of government regulation (red tape), and gender differences in running a small business are all used to gather facts about the subject matter. We have also used a multiple case study design method to carryout case study analysis. Qualitative data analysis is the method used to gather empirical evidence in the paper.We have also looked at the theoretical perspectives on small businesses, namely, the role of an operations manager, the marketing mix, and money. All these have been looked at carefully to illustrate their relevance to the research carried out in this paper.
Four small businesses in the United Kingdom, is used as case studies to gather empirical evidence, of their survival initiatives with regard to running as a small business. The information gathered was categorized under the following headings, data collection; organisational context; marketing mix employed; financial requirements; and management expertise. Finally, an analysis of both the theoretical perspectives mentioned and the empirical analysis gathered were critically analysed to identify any matches or mismatches between the latter mentioned.
The success of small businesses is concerned primarily with the use of money, marketing, and proper management, in order to survive and steadily grow in the business sector which the small businesses finds itself in. However, we can see that although some of the theoretical concepts of small businesses are already embedded with these firms, not all the suggested concepts are significant to their survival. It is therefore worthwhile to state that the high rate of small business failures is not as depicted as the case maybe. There are a large number of other factors that need to be understood and taken consideration before it can be said that there is a high rate of failure for small businesses. Further research will need to be carried out to establish concrete facts about this phenomenon.
REFERENCES AND BIBILIOGRAPHY
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APPENDIX A: PRIMARY DATA COLLECTION METHODS
This research uses one method for primary data collection: a structured questioning interview.
Structured questioning interview for the four case studies.
1. What is your position in the Company?
2. Do you have any educational qualifications?
3. How many people do you employ?
4. Do you prepare any written formal sales forecasts?
5. Do you prepare any written staffing forecasts?
6. Do/Does your business prepare a written forecast of cash requirements for at least twelve months in advance?
7. Do/Did your business prepare a written capital expenditure outlay from the start to future outlays of capitals?
8. Does/did your business analyze its competition and prepare a written identification of strategies and measurable goals which extend/extended three or more years into the future?
9. Do you have a target market for your products and services?
10. How do you promote the products and services to the segmented target market?
Prepare a partnership deed to suit a partnership business of your choice
THIS AGREEMENT is made on 30th April 2005
BETWEEN:
(1) Kenneth Snotgobbler Livingstone of The Mayor’s House, Westminster, London, EC1; and
(2) Gordon Taxemtodeath Brown of 11, Downing Street, London, EC1
(3) Anthony Dissembler Blair of 10, Downing Street, London, EC1
(“The Partners”)
Market pressures as well as business expediency has seen attempts by media organizations
Market pressures as well as business expediency has seen attempts by media organizations to combine their resources and expertise in an effort to reach a larger audience through diverse media channels. The evolution of the digital media, including the internet, cable, satellite and digital television as well as wireless devices has challenged the traditional media. The variety that is available to the mass audience has meant that there is a tendency to access a number of media sources. Ratings and the advertising revenues are becoming increasingly important and the investments associated with acquisition of new media technologies are high. In such an environment, media organizations have attempted to pool their resources and expertise in order to operate synergistically and attempt to reach a greater number of audiences through a variety of channels.
A Business Case Study; A problem of Job Turnover
RAM International is a specialized supplier of sporting goods and equipment to the cricket and rugby sector. They have a current staff compliment of 14.
They have experience a staff turnover of over 100% in the last 12 months – 16 employees have left their employ in the last year. Management recognise that this situation needs to be addressed in order to bring stability to the work force, improve the environment for staff, and reduce the high overhead costs associated with such turnover.
Business and Financial analysis of a proposed company expansion
Executive Summary
This report has been prepared to analyze the varied financial as well as business considerations and variables comprising the expansion into new markets through an association with Farhorizons SA. The proposed business arrangement requires Highflyers PLC to make a considerable capital investment in order to meet the projected manufacturing volumes that are estimated to accrue as a result of this liaison.
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