Build To Order Supply Chain Management Commerce Essay
Build-to-order Supply Chain (BOSC) is viewed by many researchers as an effective way to achieve high customer value because BOSC can fulfil an individual or a group of customers’ orders while maintaining low cost, cutting inventory cost, eliminating waste, and achieving short response time through flexible manufacturing and integrated logistics. BOSC is needed to support mass customization, which is the ability to make high variety and low cost products and deliver them quickly to meet the diverging needs of customers. Mass customization can be achieved by implementing modularity-based manufacturing practices, postponing production steps that determine product features and performances, and applying IT to coordinate actions and speed up final production and delivery. BOSC also emphasizes the importance of partnership with suppliers and customers, web-based technologies, and rapid transport and delivery.
This research aims at the study of factors that affect built-to-order supply chain and the issues related to BOSC and what stops an organization to implement BOSC in their organization.
Introduction
Background
Developing trends in international arena has forced many global firms to revisit their operations strategy. Their operations are moving from centralize to decentralize in order to gain markets. In order to accomplish this, companies have gone through number of changes in terms of strategies, tactics, and operation with the goal of matching the market needs. There are multiple competitive performance objectives on which companies’ compete today like quality, price, responsiveness, flexibility, and dependability. To achieve these objectives an efficient supply chain required in which mass production is converted into mass customization. Mass customization has become a major objective of many Fortune 500 companies (Gunasekaran & Ngai, 2005).The idea of mass customization is seen as ―ability to use of flexible processes and organizational structures to produce varied and often individually customized products and services at the price of standardized, mass-produced alternativesâ€- (Hart, 1996, p. 13). To-wards this end, firms have developed a build-to-order supply chain (BTOSC) to be flexible and responsive (Gunasekaran & Ngai, 2005).
Due to the increasing competition in today’s market every company wants to have a competitive advantage over their competitors so that they can survive in the market and make profits. BOSC is a way of providing the customer the option of mass customization and maintain low inventory which helps the company provide a variety of products to its customers without incurring huge inventory holding cost.
Build-to-order supply chain (BTOSC) means a demand-driven manufacturing approach, in which the products are planned and built against to a confirmed order received from a final customer or consumer. In this supply chain, it excludes the all intermediaries, like dealers, sales companies etc., between final customer and the original equipment manufacturer (OEM) (Parry & Graves, 2008). The order placement system is very sophisticated, as it takes information from forecasting system and the received orders, and then directs the suppliers according to the product ordered. All parts are not scheduled as BTOSC, but the expensive parts would schedule using BTOSC.
Research Question
How do factors like organizational competitiveness, Information technology, Operations and Development and Implementation affect build-to-order supply chain in an organization?
Literature Review
Supply Chain Design
There are four types of supply chain design:-
Built-to-stock
The BTS supply chain gives fastest response time to the customer. The product is manufactured before receiving any kind of order. Customers order is satisfied from the retail outlet or from the stocking point of that product (Blanco, 2002). The BTS supply chain is used for low-value products, which customers consume on daily basis, like Diet Cola, Ariel Detergent, etc. And customer values immediate response for such products, so such type of products is manufactured and supplied using BTS model. We agree that the price of such goods is low, but choice of selectivity is also low. There is no room for configuration in these products (Blanco, 2002). The customer has to buy what is on the shelf. The BTS model lacks flexibility in offering choices to consumer. Some of the critical components, like aircraft components are supplied using BTS supply chain (Reeve & Srinivasan, 2005).
Configure-to-order
The product is assembled when order is received with standard modules and components, like desktop and laptop computers. The CTO supply chain initiates on the arrival of order, than assembly of product starts from components which have already been replenished in-to the inventory (Papadakis, 2003). In this model, the customer enjoys greater final-item choices. The automobile industry is another good example. The automobile manufacturers are implementing the initial stages of CTO model with the close cooperation with their distributors and dealers. The intention is to offer customers a combination of options than normally available at the dealer’s showroom (Miller & Wacker, 2000). But still, the customer has to wait for the vehicle until it is assembled according to the specifications. The main issue with the CTO model is how promptly customer’s needs are satisfied, especially how much lead time they are able to reduce from assembly to the final delivery. The North American automobile industry is now targeting delivery of a custom-assembled car within a week of the order being placed, compared to the multi-week window in which it operates today (Willcox, 1998; Reeve & Srinivasan, 2005).
Build-to-order
In the BTO supply chain, the fabrication and production process start on the customer or-der. The end-item produced under BTO model in highly customized and is quite costly to manufacture. The requirements for the BTO are sketched in usual material requirement planning (MRP) structure (Fredriksson & Gadde, 2005). In this model, there has to be integrative relationship between supplier and manufacturer. Once all the requirements, of the received order, are in place, the production starts to meet the specific quantities and lead times. Because BTO follows a scheduled production period so MRP activities has to be very coherent. The whole BTO supply chain has to be very closely knitted, because any disruption in material flow could delays in the delivery. That is the reason the MRP chain has to be open to changes in purchase due dates, dispatch list and customer promises. This leads to variation in the capacity of overall supply chain (Reeve & Srinivasan 2005).
Engineering-to-order
In ETO, the supply chain starts from the design phase. This model offers us a truly customized product that requires unique drawings and parts. These products are manufactured for very specific purposes, and are very expensive to develop (Gosling & Naim, 2009). The product is custom in nature which takes long lead times to develop. For this reason, the MRP system comes in play to take care of components requirements in ETO. The ETO mostly recognizes as single-lot job shop environment where prototypical processes take place. The upstream planning is often complex and varied to downstream distribution system. The transportation of finish product is often done in single units (Reeve & Srinivasan, 2005). The examples for ETO products are NASA space station, high-end customized saloon, sports car, etc.
Build-to-order Supply Chain
BTOSC is a fusion of leanness, agility and Just-in-Time (JIT). First, we will make connection between lean, agile and JIT approaches. Lean manufacturing was first introduced by Toyota, in their Toyota Production System (TPS), and JIT was part of TPS program, and even the TPS and JIT were used interchangeably back in 1980s (Hallgren & Olhager, 2009). According to Narasimhan et al. (2006), we can say production is lean if it is achieved with least amount of waste, minimal inventory and efficient operations. Lean manufacturing is all about performing operations efficiently, with the help of JIT. Because JIT helps in eliminating inventory, and delivers components and parts when they needed in assembly process (Hallgren & Olhager, 2009). While agile manufacturing is about efficiently changing in response to state of uncertainty and fluctuating demands (Narasimhan et al., 2006). Sharifi & Zhang (2001) stress that agility not only as responding to the change environment in quick time but also exploiting those changes and taking them as opportunity to build ad-vantage in the market. Agile manufacturing also allows introducing new products into the system, with very short lead time (Sharifi & Zhang, 2001). This encapsulates these three concepts for BTOSC, and shows that BTOSC is blend of lean, JIT and agile manufacturing approaches (Hallgren & Olhager, 2009).
In BTOSC, the customer triggers the supply chain by placing order. This manufacturing strategy is demand-driven, where the product is planned, built and pulled through the chain. The final customer by-passes the all intermediaries, like dealers, and directly place the order to the OEM. But OEM also has to build a platform where customers can contact and confirms his/her order. It also gives flexibility to the customers to change it specifications of the confirmed order (Parry & Graves, 2008). But before that the OEM has to be responsive and flexible in its operations, to fully respond to the customers ‘demands. Here in BTOSC, it’s not only OEM who has to be flexible and responsive in their operations but suppliers should be totally complying with the standards of the OEM, so that they respond efficiently to customer orders. Some suppliers work closely with the OEM, where other produce parts following build-to-stock (BTS) production approach. The suppliers follow BTS produce parts like tyres, windscreen wipers and non-expensive items. Where the sup-pliers who work in close proximity with OEM provide expensive modules like engines, transmission, exhaust system, interior items etc., because such items have different variants, from where customer can choose. And that is why these suppliers follow BTOSC production approach (Parry & Graves, 2008; Gunasekaran & Ngai, 2005).
The global arena is changing due to severe competition between companies which is forcing them to revisit their operational strategies to secure market share and improve their profit margins (Gunasekaran & Ngai, 2005). Particularly, BTOSC market, which is driven by mass customization and e-commerce, are putting pressure on manufacturers and retailers to shrink planning cycles, compress manufacturing lead times, and speedy distribution system (Tyan et al., 2003).
Advantages
Provides a level of responsiveness, cost effectiveness, and flexibility that enables companies to deliver the products that customers have chosen at the time they requested it.
BOSC results in substantial cost advantages by eliminating the inventory, forecasting, expediting, and setup required to customize products or services.
BOSC helps companies utilize people, machinery, and floor space more efficiently
BOSC allows a manufacturer to react on time with the market and even shape the behaviour of the market.
BOSC can be utilized to manufacture a low volume of products of a pre-determined high variety using a cluster of components.
Disadvantages
Order-processing is time consuming and costly
Multiple revisions of specifications are required
Delivery dates are often not met
Last-minute changes take up an increasing portion of resources
Production plans are often inaccurate and over-ruled
Global operations create issues such as exchange rate, political stability etc.
Difference between Traditional Supply Chain Management (TSCM) & BOTSC
Traditional Supply Chain
Built to order Supply chain
Marketing
Push-Sell from stock
Pull-build to customer order
Production
Fixed order line-up
Customer demand focussed
Logistics
Mass Approach
Fast, reliable, Customized
Consumer Relationship
Dealer Owned
Shared across the extended enterprise
Managing Uncertainty
Finished goods inventory buffers
Strategic part buffers and information management
Finished Goods Inventory
High Stock Control
Low, condensed dealer stock levels
Suppliers
Long Lead Time
Collaborative/ Responsive
BOSC and Organizational Competitiveness
While developing BOSC, it is very important to study the factors that force the company to implement BOSC supply chain. For example, Dell uses Internet as a medium for placing order and hence successful implementation of mass customization delivery products to its customers. Therefore, factors external to an organization such as economic scenario, inflation, currency fluctuation, industries policies and so forth influence the strategies of a business organization and these factors should be taken into account when developing strategies for BOSC.
Economic factors
Many a times, companies fail to achieve their goals because of poor strategic planning, So, it is very important for a company to be a visionary and keeping in mind the changing global environment plan its strategy or align its strategies according to the market situation and develop long term strategies.
For instance, interest and currency exchanges have an impact on the economy and that in turn affects the buying capability of an individual, there is a speculation in the market and the people tend to spend less money as a result the demand decreases. People tend to buy good or commodities that very important for their living. At present we can see, the market is fluctuating, in the past few months rupee had a downfall and the companies that import products had to pay more to their foreign counterparts. When people have less money to buy goods and go for standardized products then the company can alter their supply chain accordingly. Considering the agile characteristics of the economy, a more agile organization such as BOSC would be more suitable in helping a company compete not only in terms of service quality, but also in terms of the timely fulfillment of orders.
It is seen that in order to be successful the company needs to fulfill the customer requirements and provide them something better than their competitor at a reasonable price. As we all know China is a manufacturing giant which provides products at the cheapest price but the quality is also very poor. So a section of Indian society buys China products because they can’t afford other company products or they buy products that are use and throw.
The economic depression, stock market crash, dot.com bubble all these major global events affected the business in a big way and forced the companies to revisit their strategies and align them according to the market requirement, BOSC was an outcome of such an organizational change to meet the changing market dynamics.
This indicates that when developing a company’s strategies, external factors should be given very close attention, including the issue of developing BOSC. Without the support of the environment, pursuing BOSC could prove to threaten the very survival of a company.
Market Forces
Market forces include the nature of the market, market growth, globalization, customer demand, regulation, product/market innovation, technology and its spread, business risk, and the economy. Porters 5 forces model barriers to entry, the threat of substitution, the bargaining power of buyers, the bargaining power of suppliers, and rivalry among firms helps evaluate an industry whether it is profitable to enter that particular industry or not. When taking decisions regarding BOSC above factors should be taken into consideration also, the characteristics of BOSC are defined by the product portfolio, number of suppliers, information technology and automation.
The generic marketing strategy options of low cost, differentiation, and focus remain the dominant strategy decision models. According to the market demand and changing market and technology requirements on the customer it is very important to strike a balance between the product variety and the production costs. Now days, the manufacturing firms are focussing a lot more to optimize their manufacturing process like six sigma, Kan Ban, Lean manufacturing, Total Quality Control, hence BOSC is one of them which helps them provide a variety of products, less inventory cost, good quality and minimum lead time.
Market forces influence the infrastructure of BOSC in terms of strategic alliances, partnerships, customer relationship management, information technology and systems, performance measures and metrics.
Competitive Factors
Competitive forces include customers, suppliers, rivals, new entrants, and substitutes. Dell Computers was one of the first companies to implement BOSC in its system. Michael Dell started with the motive of mass customization only. His objective was to provide computers according to their requirement and latter on that model became such a success that it was adopted by giants like HP, Compaq and Gateway. BOSC gave the competitive advantage that to bring in the latest technology first because it dint have any inventory. As soon as a new technology was launched it was incorporated by Dell which gave them a competitive advantage. Global competition, advancements in technology, industry deregulation, and rising customer expectations are only a few factors that are placing unprecedented demands on business enterprises (Papazoglou et al., 2000). More research is required on the implications of factors external to the organization on the performance of BOSC in terms of costs, benefits, and customer service. The following are the major factors of competitive success: innovation, new products, cost, quality, speed, and the ability to attract customers (Kraemer and Dedrick, 2002). These factors are to be embedded in BOSC in various forms with the ultimate objective of meeting the requirements of individual customers on time and in a cost-effective manner.
Developing and Implementing BOSC
Developing and implementing BOSC includes designing products and coming up with a procurement process, developing partnerships and a virtual supply chain, and managing logistics. This is an important area in which numerous medium to long-term decisions are made, and their impact on the performance of BOSC is significant.
Design and Procurement
In BOSC, the production system needs to be flexible and responsive enough to meet the requirements of an individual. Reducing the time in product design, efficient procuring of raw material are important issues to be dealt with to meet the requirements of customers and be responsive. Efficient procuring of raw material is only possible when the organization has a good supplier relationship and their support helps to operated nearly on no work in progress inventory. Strategies like BOSC can be well implemented if both the supplier and the organization have a good IT infrastructure or our linked through ERP like SAP or e-procurement software. It makes the conversation between the company and its peers very simple and efficient and procurement becomes a simple exercise.
When an organization deals in products of high variety like in any automobile industry, demand forecasting and inventory management and meet customer requirements becomes a very difficult task, in these industries BOSC management should be the best alternative to survive in the market and make profits.
Development of partnerships and supplies
It is important to develop partnerships on an OEM’s core competency in order to develop BOSC. For example, in automobile industry, organization has suppliers for different parts required to manufacture a car. So the organization outsources the delivery of the parts to the suppliers which are the best in that business. So, the company doesn’t have to compromise on quality.
Logistics
Logistics involves transportation, consolidation and warehousing. Now days, the companies extensively utilize third party logistics (3PL) and fourth party logistics (4PL) which include companies like FedEx, Blue Dart ,UPS, DHL etc. 3PL is the management of logistic services beyond transportation. This might include storage, shipment and value-added services as well as the use of subcontractors. 4PL is the integration of all companies involved along the supply chain. 4PL is the planning, steering, and controlling of all logistic procedures (including flows of information, material, and capital) by one service provider with long-term strategic objectives. UPS World Wide Logistics employed a 4PL business model.
Implementation
Implementation involves putting the plan for BOSC into action. BOSC needs to be constructed based on the design and procurement of products and plans to establish partnerships, a virtual supply chain, and logistics. This requires the setting up of an implementation team, a time scale for the project, and evaluating the performance of the process of implementing BOSC.
BOSC and Operations
Planning/Forecasting
In recent years, companies have started recognizing the trade-off between the variety of products and supply chain performance, more the variety of products the more it is difficult to forecast the demand trend in the market and on that basis carry out the production plan of the organization. Organizations have started doing modern forecasting techniques to meet the demand of the customers and have a production plan to meet that demand.
When the forecasting or the demand pattern is received from the sales and marketing department to the manufacturing department, the planning is done on that basis. A Master Planning Schedule is prepared follows that is the Bill of material which lists downs the raw material required for the production. The other factor that may alter the forecasting is the bullwhip effect. If there is one manufacturer and one supplier then the bullwhip effect can be ruled out but that is practically not possible.
BOSC planning and execution involve managing partnering firms that are dispersed all over the globe. It is to be noted that the objective of partnering firms in BOSC should be incorporated in the planning. Although BOSC is based on customer orders, partnering firms or suppliers need to know the forecast of the demand for parts and components. A decision support system would enable strategic, tactical, and operational decision making in supply chains that will be helpful in BOSC. This can include a modelling infrastructure comprised of a library of carefully designed generic objects for modelling elements of BOSC and dynamic interactions among these elements (Biswas and Narahari, 2004). Although BOSC is a MTO system, there is a need for the aggregate forecasting of demand for the final products for 1-2 years. This information could be transmitted to suppliers to allow them to make available the required components and services at the right volume and at the right time.
BOSC and Information Technology
Internet, ERP and E-commerce
Information technologies such as EDI, the Internet, the WWW, ERP, and RFID facilitate the integration of customers and suppliers or partnering firms along supply networks. Since suppliers or partnering firms are geographically dispersed, an effective communication system that is a real-time system is necessary. BOSC requires a system that can keep track of all orders and is well connected with supplier firms. Since most orders will be received online, high-speed Internet connectivity is required to allow customers to check products and place orders with complete confidence. Information managers are responsible for identifying a suitable ERP system, including developing an ecommerce enabled customer-order system to facilitate the exchange of customer requirements in real-time and also to communicate with suppliers on components and other support services such as logistics. Information system managers should work with other company managers to select a suitable ERP system and/or e-commerce system based on their company’s business model, which includes the integration of the OEM’s system with those of partnering firms along the BOSC. The integration of the link between customers and suppliers is essential for BOSC. These can be achieved by suitably aligning the information system with the business model of BOSC.