Company X operates a copier facility just outside of Charleston, SC. This facility has been plagued by a host of problems since it was acquired two years ago. The problems exist at multiple levels within the supply chain, and each should be addressed in order to return the facility to optimal operation. Since problems in a supply chain often compound issues further down the chain, it is helpful to understand each problem before suggesting any course of action. Often, fixing one problem will relieve others.
The first problem experienced in the Charleston facility is caused by irregular shipments from distributors. The distributors wait until their warehouses are full before making a shipment to Charleston. This results in frequent bursts of heavy activity, as the facility is flooded with large shipments of copiers in need of repair. This puts a strain on the personnel, physical facility, and parts inventory, as each must be prepared for a sudden influx of units needing repair. Additionally, since these shipments are based on the physical storage space of each distributor, Charleston faces a difficult task of estimating when these surges will happen.
Charleston maintains an inventory of repair parts for the incoming copiers. The purchasing department is dealing with two related problems. The first is a self-imposed requirement to double-check every purchase request that comes from the inventory department. This lack of trust is probably based on some historical precedent. Unfortunately, this additional verification step adds time to the repair process. The purchasing department is also trying to maintain inventory based on five-year-old Economic Order Quantities (EOQ). Economic Order Quantities are modeling formulas developed by businesses to minimize the total cost of inventory. The formulas are designed to determine the most cost-effective order size and when to place the order (Piasecki, 2001). Unfortunately, since the Charleston EOQs are five years old, it is likely they are wildly out of date with respect to the current business. Additionally, the uneven flow of incoming stock makes any modeling difficult at best.
Finally, the personnel department has given up on obtaining temporary workers to handle the surges in workload caused by the periodic shipments from distributors. Instead, they have decided to maintain staffing levels to cover the peak workloads, even during times of relative inactivity. The result is a workforce that is too large for the facilities standard workload. In addition to the increased costs in terms of compensation and benefits for the additional employees, the morale of the workers is impacted by these frequent periods of low activity. As Gary Dessler (2008) indicates, employees are motivated by appreciation and “challenging work assignments” (p. 486).
As the list of problems indicates, the source of many issues is the infrequent shipments from distributors. This has put a strain on several departments and has forced them to implement non-optimal processes in order to facilitate the constantly shifting workloads. When addressing problems within a supply chain, a decision must be made as to whether a process should be outsourced or vertically integrated. Outsourcing is the process of utilizing outside organizations to manage some aspect of a company’s operation. Vertical integration is the exact opposite. In the case of vertical integration, a company tries to manage all aspects of the supply chain itself (Collier & Evans, 2009).
The Charleston facility can be characterized as vertically integrated except for the supply of repair units. The delivery of these units has been outsourced and is completely at the discretion of the distributors. In many supply chains, a failure at this level could be corrected by changing the company providing the outsourced good or service. Unfortunately, the Charleston facility does not have that luxury. Therefore, the best option is for Company X to integrate the pickup and delivery of units needing repair into their Charleston operations. The result of this integration will be the addition of an entire trucking operation. Although this adds another layer of operation to the existing Charleston supply chain, normalizing the rate of incoming units will have an impact on each proceeding process in the chain.
Since the flow of incoming units will be normalized, the purchasing department will be able to create updated EOQs to more accurately estimate parts inventory order sizing and timing. Although the addition of a trucking operation to the facility does not address the purchasing departments mistrust of purchase request coming from the inventory department, the regular inflow of units will make inventory estimation much easier. In order to rebuild the trust between the two departments, the purchasing department can implement a quality control process to ensure that purchase requests from the inventory department are mistake free. The purchasing department can inspect a subset of the total incoming requests and infer the quality of all requests based on the results of testing that random sample (Triola, 2008).
Finally, the normalized influx of units needing repair will allow the personnel department to determine a more appropriate staffing level. This will likely mean that less plant workers will be necessary. A reduction in force on the facility floor will result in lower operating costs. If the inflow of units is still periodic, the personnel department should consider outsourcing the management of temporary workers to an agency. This will relieve the burden of managing temporary staff procurement. If the integration of the unit supply is successful, this step should not be necessary.
Collier, D. A., & Evans, J. R. (2009). OM 2008 edition. Mason, OH: South-Western.
Dessler, G. (2008). Human resource management (11th ed.). Upper Saddle River, NJ: Pearson.
Piasecki, D. (2001). Optimizing economic order quantity. IIE Solutions, 33(1), 30. Retrieved April 17, 2009, from MasterFILE Premier database.
Triola, M. F. (2008). Elementary statistics (10th ed.). Boston: Pearson