Planning, Coordination, and Inventory Management in the Supply Chain

What are some obstacles to creating a flexible workforce? What are the benefits?

  Flexibility is essential to create resilient supply chains, the most flexible resources are often human resources since employees are usually flexible and can be shifted from one task to another. This flexibility becomes even more important with uncertainty from changes in consumer behaviour. These changes together with shortages in manufacturing resources lead to system wide disruptions that effect the supply chain (Costa. Et al., 2023). Some of the obstacles in having a flexible workforce would be the labor laws on overtime rules, union agreements, and the skill gaps where employees need training. These obstacles can create an additional cost if companies need to hire additional personnel to cover longer hours that could otherwise be covered by a single employee working overtime, as well as the costs associated with the downtime in productivity when training new employees on new tasks. Another obstacle can be the risk of retention if employees do not feel comfortable in multi-tasking, variable hours, or floating between sites. As for the benefits, these may include a quicker response to demand variability without the need of hiring or firing employees, ability to reassign people during disruptions such as worker absences and supply changes. Finally, having a flexible workforce can can make jobs more engaging and improve operational efficiency within the company.

Discuss why the use of subcontractors to handle peak demand can often allow a company to meet demand at lower cost even though the subcontractor price is higher than the average unit cost of the company.

  A subcontractor charges a higher marginal price but avoids the fixed cost investment and the ongoing under utilization cost. If the incremental cost of adding capacity divided across the full demand volume is higher than using a subcontractor only during peaks, outsourcing peaks is cheaper overall. Additionally, a subcontractor has specialized skills for peak demands, and using a subcontractor can help manage demand risk without locking into a fixed cost and time associated with hiring a new employee. Hence, allowing a company to keep capital resources aligned with their core operations.

In which industries would you tend to see dual facility types (some facilities focusing on only one type of product and others able to produce a wide variety)? In which industries would this be relatively rare? Why?

  The industries where one might see dual facility types can include automotive, consumer electronics, and the apparel industry. Some automotive facilities can be dedicated to high volume models, while others are flexible platforms that have the ability to change models. consumer electronics can also have dedicated facilities for particular chips and flexible facilities for testing. As for the apparel industry, they may utilize high volume centers for basic sewing, and flexible factories for seasonal clothing items. On the other hand some industries where such practice would be rare may include oil, cement, and pharmaceutical companies. Some chemicals, oil refining, bulk cement processes can be expensive to operate, while some pharmaceutical companies may be tied to regulatory and process constraints that make switching products costly and time consuming.

  The reason why we can see a difference in industries is because each industry has product variety, different design changes, and difference in seasonality benefits from a mix of specialized and flexible facilities. Industries that have heavy regulations, or very high changeover costs may be better off with facilities that focus on only one type of product.

Discuss how you would set up a collaboration mechanism for the enterprises in a supply chain.

  Supply chain governance mechanism for collaboration can be divided into formal and informal governance. Formal governance mechanism include goal alignment, incentives, coordination, and contractual agreements, while informal governance includes commitment and trust (Li. Et al., 2024). The way I would set up a collaboration mechanism for the enterprises in a supply chain would be to implement executive sponsorship and governance by assigning a senior leader and a cross company committee with clear decision rights. According to governance theory, choosing an effective supply chain governance mechanism can balance the interests and conflicts between enterprises and help them achieve their performance goals (Li. Et al., 2024). Additionally, I will foster shared objectives in which defined joint metrics in supply chain profit, inventory turns, and forecast accuracy align with incentives in order to encourage shared demand & supply forecast data throughout the supply chain team for transparency and trust.

What are some product lines that use common parts across many products? What are the advantages of doing this?

  Some product lines that use common parts across many products include automitive, electronics, furniture, and computers. This is because the products used can be used across multiple products, such as, engines, fasteners, screws, USB ports, batteries, display modules, screws, frames, and power supplies. The advantages to doing this would be having economies of scale for production while also having simple inventory for faster assembly for new products or for replacing parts with new spare parts for service management or repairs.

Discuss how a company can get sales and operations to work together with the common goal of coordinating supply and demand to maximize profitability.

  In order for a company to foster collaboration among sales and operations to improve supply and demand for better profits, the company should implement incentives that align sales and operations compensation to inventory forecasts and goals. Additionally, there should be sales promotions with estimated demand changes, where operations provides capacity implications and costs. Finally, a company should implement scenario planning in order to have a simulation of promotions, supply delays, and capacity changes before execution to allow team members to see possible consequences of expedited orders, stock-outs, or emergency overtime so sales understands operational trade offs.

How can a firm use pricing to change demand patterns?

  A company can use pricing to change demand patterns by increasing prices during peak demands, and discounts for lower business demands. Companies can also encourage early buying to smooth demand and improve forecasting, while also implementing subscription based pricing to lock in recurring revenue. Finally, just as airlines, hotels, and Uber react to demand and supply surges, a company can adjust their prices to demand patterns in real time based on the actual demand at that moment.

Why would a firm want to offer pricing promotions in its peak-demand periods?

  The reason why a company might want to offer pricing promotions during peak demand periods could be to get higher margin add-ons by using promotions to bring in customers where up-sells generate higher profits. Another reason can be due to affiliate relationships with key partners who expect promotions during peak selling seasons. Finally, the company might want to take advantage of strategically placing promotions during high demand periods to take advantage of the higher willingness of customers to pay while they perceive discounts as great deals.

Why would a firm want to offer pricing promotions during its low demand periods?

  During a companies low demand periods, they may want to offer pricing promotions in order to increase demand to use idle capacity, and attract new customers to stimulate customer acquisition. Offering great promotions during slow cycles can also help improve cash flow when the company lacks organic sales.

References:

Costa, Thürer, & Portioli-Staudacher. (2023). Heterogeneous worker multi-functionality and efficiency in dual resource constrained manufacturing lines: an assessment by simulation. Operations Management Research, 16(3), 1476-1489. https://doi.org/10.1007/s12063-023-00371-2Links to an external site. 

Li, Hu, & Zhang. (2024). Impact of governance mechanism on supply chain ambidexterity and enterprise cooperation performance: a combined perspective. The Journal of Business & Industrial Marketing, 39(2), 161-172. https://doi.org/10.1108/JBIM-10-2022-0462

-Miguel Virgen, PhD Student

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Further Discussion and Responses

I found your analysis of the flexible workforce to be both accurate and insightful. Your reference to Costa et al. (2023) effectively highlights human resources as a vital source of flexibility, which is essential for managing the predictable variability discussed in Chopra’s S&OP framework. The main challenge lies in the costs and complexities of navigating labor laws and skill gaps, which can diminish the advantages of enhanced operational efficiency.

This brings us to the strategic choice of subcontracting during peak demand, where financial reasoning often outweighs the differences in unit price. Companies find this approach more cost-effective because it avoids the fixed costs associated with maintaining idle capacity for most of the year. By opting to pay a higher marginal rate to a subcontractor, we essentially transform a potential fixed overhead, related to building and maintaining maximum internal capacity, into a variable cost. This decision aligns capital resources with core operations and serves as a proactive measure to prevent the supply chain from becoming inflexible.

Your discussion on dual facility types highlights a key tradeoff in supply chain design. The scarcity of dual facilities in industries like bulk cement or oil refining is due to the significant capital investment required and the low-margin, high-volume nature of their standardized products. In these cases, the efficiency gains from maximizing utilization in a single, specialized facility far outweigh any benefits from the flexibility of a mixed network. This is similar to the choice made by Joseph in Genesis 41:34-36 when he advised Pharaoh to create storage cities for grain, a specialized network of large reserves, rather than relying on constant production flexibility, understanding that the high fixed costs were justified by the catastrophic risk of famine.

Finally, your proposed collaboration mechanism, which emphasizes both formal governance (like executive sponsorship and joint metrics) and informal governance (such as trust and commitment), is crucial. This integrated approach helps the company avoid the silos that often hinder tactical planning. As Seeling et al. (2022) found in their case studies on finance's role, true success in S&OP depends on translating operational goals into clear financial outcomes. By aligning the compensation of Sales and Operations with metrics like inventory turns and supply chain profitability, we ensure that every promotional decision and capacity allocation supports the unified goal of the firm. This strategic alignment, backed by transparent data sharing and governance, transforms S&OP from a simple forecasting tool into a mission-critical business process.

References:

• Seeling, M., Kreuter, T., & Scavarda, L. F. (2022). The role of finance in the sales and operations planning process: a multiple case study. Business Process Management Journal, 28(1), 160–180.

• Chopra, S., & Meindl, P. (2019). Supply Chain Management: Strategy, Planning, and Operation (7th ed.). Pearson Education.

• The Holy Bible, English Standard Version. (2001). Crossway.

• Costa, D. P., Puga, D. P. & Pereira, J. E. (2023). Flexibility of human resource in supply chains: A systematic literature review and research agenda. International Journal of Production Economics, 263, 108960.

• Li, X., Wang, Y., Zhu, Y., & Fang, Z. (2024). Supply chain governance mechanism for collaboration and performance in different cultural contexts: A moderated mediation model. Journal of Business Research, 173, 114441.

  
  

-Jacquelyn Waters, PhD Student

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Hi Miguel,

       I appreciated your insight on the collaboration and the peak-demand period questions. You went into the macro-view of supply chain collaboration by addressing formal and informal governance, which is a great way of laying the groundwork and establishing rules for the collaborative work that is done along the supply chain. In the response referencing peak-demand promotion, you addressed affiliate relationships with key partners and catering to their expectations. Taking partners into consideration through all steps of the supply chain is a fantastic way of building trust and incorporating the well-being of all players involved.

      Going back to peak-demand production, my findings pointed to the intent of poaching competitors’ customers during peak-demand times through the offering of promotions. Because brand switching, whether it be temporary or permanent, is a real issue, it is important for retailers to respond to the promotion strategies of other competing retailers to ensure that they keep their customers (Ren et al., 2023). This points to the complexity of promotions and discounts. A company needs to research and ensure that offering a promotion or discount is advantageous for the company, while simultaneously researching what competitors are offering to ensure that their deals are not going to take away their market share. This applies especially to retailers in direct vicinity of each other (Ren et al., 2023), but with today's virtual shopping culture, this net needs to be expanded nationally for almost all products, excluding things like groceries. I found it interesting that competing retailers can respond by either retaliating, accommodating, or going independent in their responses to promotions (Ren et al., 2023). Respectively, these terms mean that retailers also drop prices, or they promote other products that the competition did not promote, or the retailer has no reaction at all (Ren et al., 2023). The decision-making that includes competitor reactions highlights the interconnectedness of the market and how business decisions are rarely made in a vacuum, but influence the business, shareholders, and competitors alike.

Reference

Ren, Y., Li, X., & Loy, J. (2023). Spatial transmission of price promotion for German beer retailers. Regional Studies, 57(10), 1967-1980. https://doi.org/10.1080/00343404.2022.2137296

-Anamaria Alexander, PhD Student

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Publisher Note

Miguel Virgen, PhD Student. I have no known conflict of interest to disclose.

Correspondence concerning this article should be addressed to

Miguel Virgen, Email: support@doctorsinbusinessjournal.com