BMT1070 Purchasing and Supply Chain Management Assignment Sample 2023
Introduction
Purchasing and supply chain management are major functions that determine the smooth functioning of an organization. Effective management of inventory is necessary to ensure the proper flow of orders from the factory to retailers. This eventually helps an organization to fulfill its customers’ demands efficiently which assists them to ensure the sustainability of their company. This study aims to discuss purchasing and supply chain management of an organization through simulation games. The simulation games played can help the factory professional to make better decisions based on their orders and inventory.
Main Body
Discussing the experience with a simulation game
Supply chain operation in the simulation
Supply chain operation in both simulation games 1 and 2 involves various members such as factory professionals, distributors, wholesalers, and retailers. Both simulation games 1 and 2 analyze the supply and demand patterns of supply chain management for 52 weeks. The simulation games played helps the supply chain management professionals to understand the demand pattern for their products (Hidayatno et al., 2019). The average order quantity for the factory has been estimated to be 20, whereas the maximum order has been estimated to be 200 with the standard delivered order standing at 48.6.
The average order quantity of other members in the group such as distributors, wholesalers, and retailers were 19, 18, and 89 respectively. Whereas, their maximum order quantity has been estimated to be 120, 200, 300 respectively. This graph indicates that all the members in the group have a smooth flow of orders in simulation game 1 (van den Berg et al., 2017). However, statistics of simulation game 2 reflect that the maximum order quantity of factories is 1400 whereas it is 80 in the case of retailers. This reflects that there is an issue in the flow of orders from the factory to retailers which affects overall purchasing by the customers.
Role in simulation
The individual is identified to be a factory professional whose role is to look after the inventory and orders in the factory. Analysis of data gathered from simulation game 1 reveals that the factory gained a significant gain in its order quantity between 1st and 17th week of the supply chain management simulation game. However, the order quantity of factories after the 17th week went dramatically down and stood at 0 (Salvini et al., 2020). This resulted in a significant increase in backorder quantity in the factory. Simulation game 2 also reflects that the order quantity in the factory increased significantly between the 1st and 16th week of supply chain management and dropped to 0 order quantity at 17th week.
Personal and group performance in simulation games 1 and 2
Personal and group performance as estimated from simulation games 1 and 2 reflects that both factory and group started the supply chain management effectively. The initial order quantity of the factory in game 1 has been recorded to be 8 which reached 200 by the 17th week. Data of backorder quantity reveals that the factory has failed to fulfill its order between the 8th to 17th week (Lee & Sikora, 2019). On the other hand, the factory held an order quantity of 1400 between the 1st and 16th week with a backorder quantity standing at -588 in week 16th. The total cost of the factory was estimated to be 6906.5 dollars in simulation game 1 while simulation 2 evaluates the total cost of the factory as 23916.1 dollars in total.
Failing to fulfill the orders placed by customers from the factory’s end has affected the overall supply chain network. The overall order quantity of the group was moderate to high in the first 17 weeks of the game in both games. However, the order quantity gradually decreased after the 17th week. This indicates that due to stocking up insufficient amounts of products the factory has failed to supply its products to the group which has negatively been reflected in the back order quantity of orders in the case of the group (Abasian et al., 2020). The total team cost estimated in simulation game 1 has been estimated to be 121,336 dollars while in simulation game 2 it has been estimated to be 237, 920 dollars.
The overall cost ratio which reflects the actual profit from the supply chain has been estimated to be 0% in the case of factories in both the games. Moreover, the cost ratio of other members of the group has also been estimated to be neutral and negative (Hoffa-Dabrowska & Grzybowska, 2020). It can be stated in this context that supply chain management has not been handled properly by factories and the group due to which the supply chain network has failed to achieve success.
Group Strategies of ordering decision or inventory
The group members in the supply chain network have planned to keep purchasing products from factories to ensure a steady flow in their business. In simulation game 1 it has been estimated that the distributor and wholesaler were keeping their stocks at a slow pace till the 47th week of the game (Tang et al., 2017). The retailer on the other hand has been procuring products from the wholesaler in significant numbers till the 45th week of the game.
This eventually resulted in successful backorder delivery by the distributor whereas, the wholesaler and retailer failed to fulfill their backorders by the end of the game. It has been estimated from game 1 that the overall profit ratio of the group was 0% in which the cost ratio of retailers was -1% (Liu & Wang, 2019). The results obtained from overall stats of the group performance reveal that the group has planned to procure as much as possible in the initial weeks to fulfill their customers’ demands and eventually failed to fulfill their orders by the end of the game.
Personal strategies of ordering decisions and inventory
The factory on the other hand has planned to increase the demands of its products and so it stopped procuring products from suppliers and vendors and manufacturing their products after the 16th week. This has significantly increased the demands of its products in the market due to which the factory could fulfill its backorders effectively till the end of the 52nd week of the simulation game (Zhu & Krikke, 2020). A similar instance has been obtained from simulation game 2 where the factory has stopped stocking its products by the mid of the game.
This resulted in the factory failing to fulfill its backorder in the first few weeks; however, it was successful to fulfill its backorders in most of the weeks due to its strategy of stocking up the products in the initial weeks and not releasing the products after the 17th week. However, the final cost ratio estimated from business reveals that the factory has incurred a 0% cost ratio which means it has not acquired any profit in both the simulation games (Lawrence et al., 2019). This suggests that strategies implemented by the factory need to be reviewed and changed to incur benefits from the supply chain network.
Discussion on what went right and wrong in both the games
Drawbacks measured in both the games evaluate major issues that happened in both simulation games 1 and 2. It has been reflected in the excel sheet consisting of all the data of simulation games that the factory has stopped providing products to distributors and other members of the group after the 16th week. Due to this, the group was facing difficulties in fulfilling their orders and ensuring sustainability of their business. This kind of issue mostly occurs due to a lack of mutual understanding and communication gaps between the group members (Zhang, Luo & Tan, 2017). The supply chain network was running smoothly in the initial weeks of the simulation game. This is because both the factory and other group members had similar objectives and business planning. However, after a certain week, the factory stopped releasing its products to the distributors which has created a disturbance in the overall supply chain management network.
Suggesting why things went wrong in the two games
One of the most common causes of this kind of issue in supply chain networks is the communication gap which occurs due to a lack of a proper communication plan. Besides, the difference in strategic alignment of business is another reason which has caused chaos among the supply chain group. The difference in decision-making in the case of a factory and other group members has created a rift between the factory and the group. Due to this the group members failed to procure their products on time and fulfill their customers’ demands (Wei, 2020). In both the games the factory has implied the same strategy of holding its products to increase customers’ demand for its products. However, the distributors and wholesalers were releasing their products to retailers to satisfy customers’ needs. It can be stated in this context that the factory and group failed to fill their communication gaps due to which their supply chain network failed.
Changes required in group strategies of ordering decisions and inventory amid simulation
The group such as distributors, wholesalers, and retailers requires to align their strategies with each other and make supply and procurement-related decisions together. This can help the group to understand when to hold their orders and when to release by forecasting their market demands effectively (Han et al., 2017). Proper decision-making regarding stocking and releasing the products based on market demands can help distributors, wholesalers, and retailers to ensure the success of their business. This will also ensure a smooth flow of products and business throughout the supply chain network.
Changes required in personal strategies of ordering decisions and inventory amid simulation
Factory on the other hand needs to have effective communication with the group before making any vital decision regarding its product quantity and stocking of products. Inefficient communication can lead to major drawbacks in business for both the factory and the group. The factory is one of the major sources of procuring products for distributors, wholesalers, and retailers (Baryannis et al., 2019). In the case of the two simulation games provided, it has been analyzed that both the factory and group members have failed to make a profit in their business due to a lack of effective strategies and proper business equations. Therefore, it can be significant for the factory and the overall supply chain network to make several changes in its purchasing and procuring decisions.
Conflicts between the group and personal strategies and ways to resolve it
The group and personal strategies of a factory and other group members of the supply chain network have been identified to be different. Factory wanted to increase the demands of its products and so it was not releasing its products after several weeks in both the simulation games. The other group members on the other hand were focused to fulfill customers’ demands initially and they released all their products in the initial weeks of the games. This resulted in insufficient products to fulfill backorders by the mid of the simulation games (Ivanov et al., 2018). The factory on the other hand has failed to fulfill its backorders in the initial weeks and later fulfilled all its backorders. However, it has faced losses in those months when it failed to fulfill its backorders. Due to this, the factory failed to make a profit in its business.
Other ways to improve overall performance in simulation games 1 and 2
Implementation of TCE (Transaction Cost Economic) in the supply chain network can help the factory and group members of this supply chain network to improve their overall decision-making process. TCE is a widely used supply chain management theory that helps various members of a supply chain network to negotiate effectively and make collective purchasing decisions that can be beneficial for all the members involved in the supply chain network (Merkuryeva, Valberga & Smirnov, 2019). Integration of this theory enables make-or-buy decisions readily available for the members of the supply chain network to ensure proper decision-making regarding supply chain management.
Application of learning outcomes to improve the performance of supply chain
As the learning outcomes of this study suggest, application of effective supply chain management and purchasing theories is required to improve the supply chain network provided in simulation games 1 and 2. The data provided by the simulation games played on supply chain management reflects that all the members of the supply chain network are struggling to manage their orders and profits. This is an indicator of bullwhip effects in the supply chain management (Yerpude & Singhal, 2017). This effect represents a phenomenon of demand distortion in a supply chain network. This kind of demand distortion occurs from the retailers’ end and rises through manufacturer and wholesaler due to variance of demands. This indicates that the number of orders might be greater than the actual sale.
Relating this phenomenon to the simulation game 1 and 2, it can be stated that the retailer has been procuring more products than the actual demand in the market which has created a disturbance in the overall supply chain network. Bullwhip effects are caused in the supply chain network due to various reasons such as improper demand forecasting, order batching, price fluctuation, and rationing (Huber, Gossmann & Stuckenschmidt, 2017). It has been evaluated from the simulation games that the retailers failed to predict the demand effectively and were procuring products consistently more than the sales of the products. This has caused an increased number of backorders which eventually has increased the cost for retailers and decreased the profit levels for the retailers.
The data also suggests that the factory has rounded down its order quantity which eventually causes issues in supply chain management. This scenario can be evaluated with the help of an example. Week 12 data provided in the simulation game 1 suggests that the factory has predicted demand of 40 products and so it is manufacturing 40 products. The distributor on the other hand has forecasted a surge in demands and has ordered 82 products from the manufacturer (Ma et al., 2018). Wholesaler on the other hand has predicted a down urge of demands and ordered 35 products from the distributor, while the retailer has predicted an upsurge in demand and ordered 100 products from a wholesaler. This uneven forecasting of demands eventually results in an imbalance in supply chain management which eventually causes the entire network to fail.
This bullwhip effect can be reduced within a supply chain network by sharing effective knowledge from manufacturer to retailer. It can be significant for all the members of this simulation game to predict what information is causing this overreaction. Improving communication and response time with the help of modern technologies can also help factories and other group members to resolve this issue and take effective actions when required (Taleizadeh, Moshtagh & Moon, 2018). Several ways that can help to reduce the bullwhip effects are reducing lead time, improving forecasting methods, and limiting price fluctuation. Besides, integrating proper planning and performance measurements for each member of the supply chain network can reduce the overall bullwhip effects from supply chain management.
Dynamics and vulnerabilities of the supply chain need to be measured and mitigated effectively to ensure sustainability and success of a supply chain network. Modern supply chain networks are more complex and consist of a range of parallel information and physical flow occurring. This mostly happens to ensure that the products are delivered at the right time to the right place in a cost-effective manner. A recent shift of supply chain networks towards leaner supply has made the process more vulnerable (Wang, He & Jiang, 2019). There are several risks that make the supply chain network vulnerable. For instance, accidents in manufacturing units or operational difficulties caused due to improper demand forecasting and purchasing. Furthermore, conflicts with suppliers can also cause problems in managing the supply chain network. These vulnerabilities often affect the overall performance of a supply chain which results in low profitability or loss in business.
Dynamics in the supply chain are caused majorly due to complex supply chain systems involving multiple firms with organizations having different goals and objectives. Multiple companies having different business goals makes it difficult for a supply chain network to fulfill all the demands of those companies while achieving its objectives (Ni, Xiao & Lim, 2020). For instance, supply chain networks as shown in the simulation games might deal with different companies with various business aims (Wen, Choi & Chung, 2019). The wholesalers and retailers might be dealing with a large number of businesses and to fulfill their demands they order products in huge quantities from the distributors. It can be difficult for the factory or manufacturer to produce such a large quantity of products based on the different demands of companies. This in turn can create dynamics in the supply chain network.
Mitigation of supply chain vulnerabilities and dynamics is important to ensure proper management of the supply chain and to achieve profits from a supply chain network. Implementation of RBV theory can help the supply chain network to mitigate its vulnerability and dynamics and ensure the success of its overall network while enhancing its performance (Bustinza et al., 2019). Resource-based view is a framework that provides an effective view of the resources and determines the strategic resources available to an individual that can be exploited to achieve sustainable competitive advantages. Implementation of this theory in supply chain management can help a supply network to analyze the resources available to them and also to evaluate the demands of customers effectively which can help different members of the supply chain network to order and release products effectively when required.
Better forecasting of demands can help supply chain networks to execute various processes involved in supply chain management efficiently which eventually ensures the success of a supply network. In the case of this study, it is significant for factories and other members of supply chain management to implement the RBV framework in their business and determine their available resources effectively to analyze their future business process (Min, Zacharia & Smith, 2019). Proper determination of available resources can help all the parties involved in a supply network to make strategic make-or-buy decisions that can be beneficial for their overall business.
Simplifying supply chain operation and decision making focuses
The provided data suggests that the factory has stored the products previously for two possible reasons. The first reason is to create a gap in the supply chain management so that demand for that product is created. Second possible reason is to create a positive impression among the consumers in the business market. It has helped this organization to create a secured position in the consumer market by continuously supplying the products to the customers (Lin, Spiegler & Naim, 2018). In this aspect, customers have become dependent on this factory and generated more revenue. On the other hand, retailers, distributors, and wholesalers have not understood this strategy properly and faced a loss in their business.
In order to simplify the supply chain operation, proper communication between the two parties is very important. The retailer must understand the future market demand of a particular product by discussing that with the factory, wholesaler, and distributors. As the retailers are the direct communicator with customers, it is their duty to convey the current market requirements for the particular products (Heising et al., 2017). However, lack of awareness about the market demand and poor communication with the other aspects of this entire supply chain management has created a major communication gap. As a result, this communication gap has caused major losses to all these members of the group.
The factory has created an ethical issue that has impacted the entire supply chain group and this is not appropriate for business conduct. In this case, the factory was supposed to keep supplying the products to its wholesalers so that the continuous market demand can be fulfilled. The activities conducted by the factory to capture the consumer market are wrong to some extent (Chang, Chen & Lu, 2019). On the other hand, it is not completely wrong because, in this current competitive business market, every person is hungry for profit-making and revenue generation. However, as customers directly communicate with retailers for purchasing a particular product, they have become dissatisfied with the retailers. In this aspect, total sales figures of the retailers have reduced and they have been highly affected by this issue. Backorder quantity refers to the number of orders placed for a product that is temporarily out of stock. It can be assumed that the factory professional had kept its order quantity on hold to increase the demands of a product.
The activities of the factory caused a scarcity in the market regarding the product and it provided huge profit to this factory for releasing them after the retailers have not been able to supply them anymore. It is necessary to acknowledge for every business organization that in a business sector collaboration is highly important for a long-run business (Banerjee, 2018). The activities obtained by this factory have broken the trust and reliability of the supply chain group. In this aspect, there is a possibility that the supply chain group will find other factories that manufacture the same or equivalent products and through proper marketing, they will be able to capture the consumer market. Besides that, a negative image will be created for the factory, and in future wholesalers, distributors, and retailers will not show their interest to collaborate with this factory.
This study is an example that indicates that in order to ensure success in business, an organization must maintain a transparent relationship with all its supply chain partners. It is recommended to the factory that it needs to remember that the huge amount that has been earned by this factory may not sustain for a long time. However, in terms of ensuring long-term business sustainability, it is important for this factory to collect market information from the supply chain (Kavilal, Venkatesan & Kumar, 2017). Additionally, based on the market demand, this factory needs to manufacture products and supply them to the wholesalers. After that, the wholesaler will supply those products to the distributors and they will supply them to the retailers. In this process, customers will be able to purchase their required products anytime due to its continuous supply.
Transaction cost economy is the framework that can be followed by the factory and the other supply chain members. As stated by Ketokivi & Mahoney (2020), it is considered to be the theory of corporate governance that helps an organization maintain business codes and conduct. According to this theory, the supplier and buyer relationship needs to be transacted based on vertical integration through internalizing. The above discussion suggests that complexity has been created between the factory and the entire supply chain network due to poor communication and lack of transparency. This theory is beneficial to simplify this type of complexity and improve the relationship between the supplier and buyers.
In order to improve the relationship between the stakeholders, it is important that proper transactions happen between the partners. For example, in this case, the factory has not met its roles and responsibilities towards its stakeholders or the other supply chain network. In this way, this organization has ruined its image in front of its entire supply chain team and increased its possible business threats. In case the truth is revealed by the supply chain members in the consumer market, an ethical issue will emerge (Hossain, Akter & Rahman, 2021). It will create threats for this organization in its business and that will affect its future business sustainability. In this aspect, the factory has also faced losses in its business along with other supply chain members. This dramatic drop in the order quantity of factories has affected the overall order and delivery quantity of the entire group such as distributors, wholesalers, and retailers.
In this case, if the factory wants to generate more profit then it needs to enhance its negotiation skills so that it can negotiate with its supply chain members and not repeat this same mistake. Proper communication is required in this aspect because poor communication among the team members has increased the gap that has influenced the factory owner to obtain this unethical step. The transaction cost economy suggests the factory needs to enhance its capability to search about the information cost, bargain cost, and understand the pricing and enforcement costs (Ketokivi & Mahoney, 2020). This framework is effective in taking care of the transactions between these parties and ensures sustainable organizational success. Moreover, in terms of decision-making, this framework is way more effective as it considers all the associated members and parties in the transaction process.
Conclusion
It can be concluded from this study that supply chain management is a complex process that involves various members and their objectives. It reflects how conflicts between various members involved in a supply chain network affect the overall performance of a supply network negatively. The study concludes that mitigation of bullwhip effects and dynamics and vulnerabilities in the supply chain is necessary to ensure competitive advantages and profits in supply networks. The study further concludes that implementation of TCE and RBV frameworks can help supply chain network to manage their inventory effectively.
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