3. OPSMGT. 370
Contents
Executive summary
Organizational Background
The Supply Chain
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Problem Description
Approach 1: focus on consistent quality management practices
Approach 2: incorporate sustainable supply chain management
Approach 3: Think through a ‘systems thinking’ lens
References
4. Executive Summary
Thisreportaddressesthe operationsmanagementissuescurrentlypresentinthe New Zealandbaby
retail store,the babyfactory.It will dothisbylookingathow the babyfactory wentaboutorganizing
theirprocessesaroundthe challengestheyare facing andthe possible approachestohelpmitigate the
problem.Afterdoingresearchonthe babycare industrywe discoveredalotof concernaround quality
management,inparticularsafetymeasuresandthe durabilityof products.Howeverafterinterviewing
the current ownerof the babyfactory, DavidLowe we revealedthatalthoughthe babyfactoryhas
qualityissues,these wereonlythe symptomsof the problem.The actual core problemwasthe poor
supplychainwhichhasresultedinanumberof issues.The baby factoryis a prominentparticipantinthe
babyretail industryinNewZealand.Theircurrentsupplychainconsistsof outsourcingfromChinaor
Vietnam.Althoughthe currentsituationdeemstobe approvable,there are anumberof issuesthatthe
currentsupplychainsituationcauses.The firstisthe lackof consistencyinthe qualityof theirproducts
due to the differentmethodsthateachmemberusestomanage qualityaswell asonlyfocusingon
appraisal coststo inspectproducts,anapproach to deal withthisisthroughhavinga closerrelationship
withboththe supplierandsubcontractorwhoinspectsproducts,implementingasupplierrelationship
managementsystemtoensure quickresponsestomistakesandcreate a transparentcommunication
linkandto manage qualitythroughpreventionmethods.The secondissueisthe factthat the company
doesnothave a setof constantcertifiedsuppliersandtherefore donothave a stable relationshipwith
theircurrentsuppliers,thishasledtoa massive strainonthe consistencyof qualityontheirgoodsand
have cost the companyvast amountto returnlow qualityproducts.Anapproachto reduce the impact
of an unstable supplychainisthroughincorporatingsustainablesupplychainmanagement,throughthis
practice each memberwill complywithaconsistentsetof qualitystandardsandwill helpdevelopa
strongerlong-termrelationshipwithboththe manufacturerandsupplier.The thirdissue tobe discussed
isthe lackof systemsthinkingacrossthe supplychainwhich hasresultedinafragmentedsupplychain
where coordinatingactivitiesamongmembershasbecome achallenge.Anapproachtodeal withthis
issue isto implementcoordinationthroughinformationexchange andintegratingmembersthrough
performance measurement. Havingamore opencommunicationchannel andthe same performance
measurementstocomplywithwill resultonboththe supplierandthe babyfactoryto worktogetherto
generate the bestoutcome ratherthanfocuson optimizingtheirownoperations.
5. Organizational Background
The baby factory is a family run business that has become New Zealand’s leading Babywear and
Nursery furniture specialist. Currently there are 27 stores nationwide as well as an online
shopping service (The Baby Factory, 2013). The company was incorporated in 1987 .Prior to the
development of the baby factory John owned three stores which were under two different
names; however they were both tailored towards providing baby clothes and goods. The
success of the baby factory wasn’t until John decided to go into partnership another David who
had two stores operating under the baby factory name. The partnership resulted in the joint
decision to have all five stores run under the same baby factory name as well as setting up
another store and warehouse centre in New Lynn. The baby factory focuses on offers trained
staff and an extensive clothing, furniture and toy range.
The Supply Chain
SWOT Analysis
Strengths
The baby factory acquires numerous capabilities that provide it with a strong competitive
advantage. The organization's culture places great emphasis on its staff training and company
branding. The result has enabled the baby factory’s positioning as a market leader for baby
6. wear and nursery furniture stores in New Zealand. Having been in the baby apparel industry for
over 25 years, having a well established brand means that they do not have to allocate allot of
resources into marketing and getting brand recognition (The baby factory, 2013).Highly trained
staff has also allowed the company to uphold a brand that is trustworthy and has also enabled
consumers more willing to purchase items. This is important especially for the comprehensive
range of products they provide. For example prams and furniture have allot of aspects (such as
how the product works and its features) which the buyer would have to consider before
purchasing. Having good customer service and knowledge on their products in store will allow
customers to have less doubt on purchasing items as they would know everything they need to
know. This enables their target audience being pregnant mothers more likely to make that
purchasing decision.
Weaknesses
A company’s weaknesses consist of the aspects that put it at a disadvantage relative to others
(Mangram, M. E. 2013). The baby factors primary weaknesses include its focus on a highly
specific market and its higher price range. Focus on a specific market (for example, newborn to
toddlers age range) make the company more vulnerable to external forces such as a decrease
in the number of births in New Zealand and an increase in competition. In order to deal with
these issues they would require an adaptable supply chain that can deal with market changes.
They currently do not have any partners that are agile to the extent that they require.
Opportunities
Opportunities are external factors that have the ability to enhance a company’s profits in a
particular setting. The baby factories have an opportunity to grow with its presence in the
online world. Their website means that the company is able to provide for the consumers in the
rural areas in New Zealand that do not have easy access to such retail stores (The baby factory,
2013) They currently only have three stores in Australia under another name and they have the
opportunity to expand further overseas if they are willing to. There is also an increasing concern
over product safety. This is an opportunity in itself as they are able to tap into their market and
demonstrate that they provide high quality safe products.
Threats
In contrast to opportunities, threats are environmental factors that have the potential to
negatively impact an organization (Mangram, M. E. 2013). The baby factory’s biggest threat is
the number of competitors striving for market share in the baby product industry. A number of
these competitors include farmers, Baby city, Warehouse, Kmart, Kiwi baby, other stores on the
website. Companies that have an online presence are the biggest threat. They are able to offer
more variety at lower prices. Since the company does have an online store they are able to
make prices cheaper online. However there is a trade-off, with the consumers only turn to
shopping online. They would waste the operating costs of the retail stores if there are less
people going there (Small, J. 2014).
7.
8. Problem Description
The core problemthe babyfactoryis facingisitscurrent supplychainsituation.The currentsupplychain
consistsof a supplierinchina whichfocusesonproducingchildrenclothingandamanufacturerin
Vietnamwhomanufacture nurseryfurniture.Althoughtheseare the mainsuppliersatthe moment,the
babyfactory howeverdoesnothave aset of constantlong-termcertifiedsuppliersastheyare alwayson
the lookoutforcheaperproductsand manufacturers.Thismakesitdifficultforthe companytocreate a
stable strongrelationshipwithitsmembersacrossthe supplychain.The lackof communicationand
relationshipbetweenitssuppliersultimatelyhasa negative effectonitsproducts.Intermsof qualitythe
differentmethodsof managingqualityforthe variousproductsmeansthatthere isan inconsistencyin
the qualityof products.Thishas resultedingreatfinancial costsforthe companyas theyhave hadto
pay fortransportationcoststo returnlow qualityitemsbacktothe suppliers.There isalsoagreat lack of
alignmentbetweeneachpartner,astheyare all focusingonoptimizingtheirownperformance fortheir
ownfinancial gain ratherthanaim to optimize the overall outcome togenerate higherprofitswhich
wouldbe more beneficial forall members.
Approach 1: focus on consistent quality management practices
The baby factorysell a range of productsall that are readymade.All the productshave different
methodsof ensuringqualityanddifferentspecificationsforeach.Thiscausesa lackof consistencyinthe
qualityof theirproducts.Forexample intermsof furniture suchasprams,cots etc.,theyhave standards
for compliance putinplace toensure safety.Theybuytheirfurniture fromasupplierinVietnamand
have a relationshipwiththembecause intermsof theirfurniture,theyneedtobe able totrust that
Vietnamwill dothe checksrightandthe safetyspecificationsare met.The furniture isagaininspected
for safetyandothercritical aspectsinthe baby factorywarehouse.
For goodssuch as blankets,the inspectionprocessisnotthatcritical,itisonlydone once overseasby
an overseassubcontractorusingachecklist,sothere islesscontrol overthe qualityof the products.If
the qualityof the blanketdoesnotmeetthe specificationlimitsof goodqualitythenthe babyfactory
will still purchase themandsell thematalow price.In some situationsthe subcontractordeemed
productsof goodqualityandlateron turnedoutto be poor. Thisproblemcommonlyoccurreddue to
errorsin the checklistitselfandgeneral mistakesof the subcontractors.Whenthishappensthe Baby
factorystill sellsthe poorqualityproductsbutata loss. These problemscouldhave beenavoidedby
having a closer relationshipwiththe supplierofthe products and the subcontractor for the inspection
process and making sure that check sheetsand specificationsheetswere correctlywritten through a
leansix-sigmaapproach to reduce waste, and preventrework etc. Also withtechnologysuch as a
Supplierrelationshipmanagementsystem,suppliersandothers in the SC can respondquickly to
mistakessuch as in the checklistand therefore create transparency so errors can be communicated in
real time.
9. Anotherproblemrelatestothe costsof goodqualityandthe costs of poor quality.The babyfactoryonly
focusesonappraisal costs,to inspectproductsforquality,whichisnotthe mostefficientwayof
ensuringqualitybecauseitisa reactive approachandis one of the most expensive.Thismethodstill
allowsproductstohave qualityissuesbecausethe babyfactorycan onlyinspectforqualitytoan extent,
e.g.theycannotwash all the clothes andsee if the colourfades,or checkeverysingle clothingif all the
buttonsare placedon.The companyexperiencesinternal andexternal failure costs.The internalfailure
costs varyfrom reworkcostssuch as sewingbuttonsbackonclothestoprice reductionssuchas
receivingpoorqualityblanketsfromasupplierthathadto be soldcheaperthanoriginallypurchased,
makinglosses.Theyalsoexperience external costssuchasproduct returnsfromcustomersdue to
defectsinproducts. Asquoted by PhilipCrosby,“Do it right the firsttime” Crosby stressesthat the
way to manage qualityis by prevention,not detectionand testing.Therefore the company should
create relationshipswiththeirsuppliersand together,focus on investinginsystemsand processesto
preventdefectsand bad quality products from the source and findproactive ways to ensure better
quality not reactive.This is a more effective approachto reduce poor qualitythan just spending
heavilyin appraisal costs such as inspections.
Anothercause of the problemsof qualityinthe babyfactoryis unreliable suppliersandalack of solid
relationshipsinthe SC.Since the companyisconstantlychangingsuppliers,theydonotcreate
relationshipswithany,exceptforthe suppliersof furniture andtherefore badqualityproductsoccur
due and the babyfactory cannot preventdefectsfromthe source. Ifthe company createdrelationships
with theirmain supplierthentogether theycould create betterquality.For example,the company can
builda supplierrelationshipmanagementsystemwiththeir suppliersandhelp investand plan ways
of preventingbad qualityproducts from the source. Investingheavilyinpreventioncosts and working
with the supplierto designproducts and processescan minimise qualityissuesand therefore the baby
factory needsto have a strong relationshipwithsuppliers.
Approach 2: incorporate sustainable supply chain management
One of The Baby Factory’smainoperationsmanagementissuescurrently,isthe inconsistentpartnership
throughouttheirsupplychain,whichresultsinanunstable supplychainandaninconsistentqualityof
productsbeingreceivedbytheirsuppliers.
The Operations Management Approach to a Solution
A solutiontothisproblemistoincorporate sustainable supplychainmanagement(SSCM). Althoughthis
practice may take time to developfullyinthe company.If done correctlyitissure toreap rewardsboth
upstreamanddownstreamthe supplychain. Byimplementingsustainablesupplychainmanagement,
The Baby Factory can developtheirrelationshipwiththeiroverseassuppliersandmanufactures,which
can eliminate the inconsistencyaroundthe qualityof the products.Bydevelopingalong –term
10. relationshipwiththeirmanufacturersandsupplierstheycandevelopamutual code of conductand set
of standardsthatall membersof the supplychaincanabide by.
A potential solutiontothisproblemistofocusonthe same strategicgoal where theycanall work
togethertogain mutual benefitsthroughoutthe supplychain.If eachmemberof the supplychainis
benefitingandsharingthe profits,itwill encourage all partnerstocontinue keepingahighlevel of
qualityandcontinue tostrengthenthe relationshipbetweenpartners. Supplychainpartner
developmentplaysanimportantrole inachievingthis;the overall performance ratherthananindividual
member’sshoulddetermine performanceof the supplychain.A supplychainisonlyasstrongas each
individual.Investinginkeypartnersthatare builtontrust, as a foundationisessential,where
knowledge,informationandgoalsare alignedthroughoutthe supplychain. Because theirsuppliersare
basedoverseas,havingarepresentativefromthe companywhoregularlyvisitsthe supplier’ssite to
confirmthat the productqualitystandardsare beingmetas well asto maintainthisrelationship.Sharing
informationthroughoutthe supplychainisvital tomaintainthe qualityof the productsandto
communicate anyshiftsindemandsothatthe supplychaincan be adaptive andagile tomarket
changes.Thisissupportedbyclearand efficientcommunicationbetweenthe partners,whichallows
importantinformationupanddownthe supplychainandforall memberstobe responsible forthe
qualityof the products.If any necessarychangesneedtobe made to The Baby Factory’sproductstheir
suppliers/manufacturerswillknowthe processesandmaterialsinvolvedandbe able toadaptthe
productto the newrequirementsandinsure thatthe correctproductsare beingsenttothem.Currently
The Baby Factory isstrugglingtodevelopclose relationshipswiththeirpartners.Theyhave many
relationships.Theirselectionsof partnersare do notgo througha certifiedlistof suppliersor
manufacturerscausingthe qualityof products todecrease asthese partnersoutsource The Baby
Factory’sproductswithouttheirknowledge andbecause of thisthere hasbeenahighturnoverrate of
partners.
A solutionforthiswouldbe tocarefullyselectafew keypartnersfroma certifiedlistreputablepartners.
To ensure thatall products are made by those partnersandare not outsourcedelsewhere withoutThe
Baby Factory’sknowledge.
Approach 3: Think through a ‘systems thinking’ lens
A supplychainisa system.Itcontainspeople,processes,informationandstructure thatall work
togethertocreate a desiredoutcome.Optimizationof the whole systemissaidtoobtainbetter
performance thana numberof optimizedsubsystems(Christopher,1998).Currently,the babyfactory
has a fragmentedsupplychainwherecoordinatingactivitiesamongdifferentmembersalongthe supply
chainin orderto attainor sustaintheircompetitivepositionhasbecome achallenge.Fragmentation
across the supplychainmeansthatnot much informationisshared.Thisperspective,where each
partnerfailstolookbeyondtheirownoperationscreatesabarrierforimprovingperformance.The
11. followingexample fromthe babyfactorymay illustrate thispoint.Startingatthe at the retail endof the
supplychain,the babyfactorywouldhave to considerbothcostsand salesbetweenthe customersand
the supplyingcompany.The manufacturerorganisationhasthe pressure toreduce costsaswell asfocus
on itsproductivity.Althoughbothcompany’sfocusonthe same strategytoreduce costs,bothhave this
strategyfor theirownpersonal motivesandnotforthe entire systemitself,thisleadstoaseriesof
challenges.
Coordinationthrough informationexchange
The firstchallenge isthatmanufacturersoftensubcontractwithotherorganisationswithout
communicatingthischange withthe babyfactory.Thismeansthatthe retail companywill have
inconsistencyanduncertaintywiththe goodsthe manufacturersupplies.Goodsmaybe of a higher
qualityuntil theysubcontracttocut costs.To avoidthisissue withoutchangingthe underlyingcausesis
to exchange more andotherkindsof information.Bydoingso,itbecomesmore manageableforboth
the retailerandthe manufacturertounderstandbetterwhatisgoingon andwhat isabout to happen.It
isoftendemonstratedwithinsupplychainmanagementliterature thatinformationexchange isvieweda
necessarycomponentinanysuccessful supplychain, havingagreat impactof organisationsoperations
(ref).The babyfactoryshouldtryto emulate the desire foramore opencommunicationchannel andits
benefitsforbothparties.If thiswastooccur the manufacturerandthe retailerwouldfindwaysto
reduce coststogetherandmake more beneficial decisions.Forexample theymaychoose tocompete on
lowerpricestobecome more competitive againstonline storeswhooffercheapergoods.Inthiswaythe
manufacturercan continue tocut coststhroughsubcontractingand increase productivitywhile the baby
factorycouldofferlowerpricescomparedtoitscompetitors.Throughagreatercoordinationof
informationexchange,the babyfactoryandthe manufacturerwouldchange fromonlyfocusingon
optimizingtheirownoperationstoworkingwitheachothertoachieve the same commongoal to
reduce costsand leverage eachotherassetstoperformtothe most optimal standard.
References
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Mangram, M. E. (2013). MAM Baby Products - StrategicPlanningandLeadershipAnalyses. International
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