Increasing operational efficiency for both customers and suppliers

After reading the articles of how to improve operational efficiency in the supply chain, I found a research of this topic. In the research, it says that the final achievement of a supply chain is to satisfy customers’ demands. According to this week’s reading, this statement is true. In the IKEA’s case, why IKEA wants to reduce the products’ prices by saving the cost from manufacturing, designing and shipping etc. It is because customers want low price products and, of course, satisfying quality. One of the most important aspects of how to reduce the product’s price is improving operational efficiency. In the IKEA’s case, the article mentioned how IKEA increased operational efficiency by making the suppliers compete with each other. From a different point of view, this research focused more on how suppliers increase their operational efficiency by forming a cooperative service agreement with their customers. This situation is most common in manufacture industry. By forming this kind of relationship, the suppliers can become partners of their customers and take responsibility for their customers’ processes while customers can focus more on their main business.

The following pictures indicate how the relationship between suppliers and customers change using the supply chain and demand chain. VOP is value offering point. OOP is order penetration point.

This kind of relationship can help customers reduce the time span between when they make an order and when the suppliers finish shipping the requested products to customers because the suppliers will analyze the current situation and give prediction about the future. In the meantime, not only the customers’ operation efficiency is increased but also the suppliers’ operation efficiency is amplified. The suppliers have more opportunity like centralize the inventory to reduce their cost by forming the cooperative relationship with their customers. Also, because the suppliers can analyze the demand of their customers, they can produce products which fit the demand correctly. This can cut the waste of suppliers’ material and time so that the operation efficiency is improved. From all aspects, the suppliers should change their roles in the business. But how to analyze the demand of the customers correctly is the main problem to suppliers. Although the suppliers can have a better view of customers’ demand, they need to transfer the demand into useful information.

After reading this research, one problem comes into my mind. If the suppliers take responsibility of planning and making sure the right operation, then the suppliers will have stronger bargaining power according to porter’s five forces model. In my opinion, this is a disadvantage for the customers to reduce their products’ prices. How to manage the balance between outsourcing some services to suppliers and maintaining a low bargaining power of suppliers is a critical problem for customers.

reference: http://lrg.tkk.fi/logistics/publications/Op_efficiency_through_customer_service.pdf