- Discussion Replies: The Great Inventory Correction
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For each thread, students must support their assertions with at least 2 peer-reviewed journal articles in current APA format. The thread must include a reference list, and each question/answer must be delineated under an APA heading. Each reply must demonstrate a substantive discussion.
Discussion Thread: The Great Inventory Correction
School of Business, Liberty University
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to
Sylvia Lloyd. Email: [email protected]
DISCUSSION THREAD: THE GREAT INVENTORY CORRECTION 2
Discussion Thread: The Great Inventory Correction
The external environment is dynamic and ever-changing. The supply-chain industry is not exempt from these changes as customer demand fluctuates or disruptions occur within the supply chain. These issues, along with a competitive environment, require businesses to focus on finding ways to optimize their revenue. In addition to managing cash flow, controlling inventory costs is essential. Remco (2020) posited that management resiliency when dealing with issues in the supply chain helps to lower the negative impact of disruptions that may occur. This discussion will review the changes three businesses made to counter inventory issues.
Because of a decrease in customer demand, Altera changed its inventory process. As part of the change, the company decided to delay the production of its components by storing them rather than “packaging and testing” them (Simchi-Levi et al., 2021, p. 188). They would then resume testing and ship the components only after verifying an order. Regarding their “mature” (p. 188) parts, Altera would build those as ordered. Lastly, they discontinued producing their products without having a customer purchase them. They would now require an order before creating a product. The changes were necessary because Altera had excess inventory on hand due to a decrease in customer demand. As a result, the company had to write off over a hundred million dollars worth of inventory, which affected its profitability.
Assessment of Altera’s New Strategy
I agree that Altera’s new strategy using dies will be successful, as previous studies on inventory management strategies support this assessment. Kim et al. (2022) discuss steps similar to Alera delaying its production and refer to it as a postponement strategy. The authors mentioned that postponing the production of dies is effective as it helps a business have less inventory. This method is advantageous because it allows a manufacturer to contain its expenses as it reduces or eliminates excess inventory. They said that implementing a system using dies to store products promotes responsiveness whenever there is a change in demand. Also, Rau et al. (2021) noted that a postponement strategy allows a business to better manage in times of uncertainty.
A disadvantage of postponing the production of items is that only products are available once they are created (Kim et al., 2022). The postponement method is an example of what Simchi-Levi et al. (2021) discussed, as they mentioned the “push-pull supply chain” method (p. 174). A drawback mentioned was that it could be challenging to implement when lead times are longer.
Assessment of Customers’ Reaction to New Strategy
Altera’s customers may initially not understand the new strategy, as change is often complicated, and people resist it. A disadvantage could be a decrease in customer satisfaction as they may panic because products will not be ready for them immediately, and an order must be completed first. An advantage of the new strategy is cost savings for the customers because Altera will no longer have the expense of storing inventory.
Information Flextronics Possesses Over its Clients
Flextronics had historical information on inventory and the items they produced (Simchi-Levi et al., 2021). They had this information as they did business with several clients. Their vice president commented on other companies that experienced issues going through the supply chain cycle as he said they failed to review historical information.
Leveraging the Information
Flextronics can use the information to leverage its ability to forecast customer demand. Bedi and Toshniwal (2019) said that using historical data and current observations aids in better prediction. If Flextronics successfully forecasts customer demand, it could aid in decreasing its inventory-related expenses.
IBM’s Management of its Suppliers for an Effective Pull Strategy
IBM manages its suppliers by working with a small number of suppliers, each assigned based on the product type (Simchi-Levi et al., 2021). Because the pull strategy is based on verified demand, costs are lower as inventory levels are reduced (Simchi-Levi et al., 2021; Xanthopoulos & Koulouriotis, 2021). Because they work with fewer suppliers, IBM can also manage their resources better, as Simchi-Levi et al. (2021) indicated this advantage.
Kim, D., Park, Y. S., Kim, H. W., Park, K. S., & Moon, I. K. (2022). Inventory policy for postponement strategy in the semiconductor industry with a die bank. Simulation Modelling Practice and Theory, 117, 102498. https://doi.org/10.1016/j.simpat.2022.102498
Rau, H., Daniel Budiman, S., & Monteiro, C. N. (2021). Improving the sustainability of a reverse supply chain system under demand uncertainty by using postponement strategies. Waste Management (Elmsford), 131, 72-87. https://doi.org/10.1016/j.wasman.2021.05.018
Remko, V. H. (2020). Research opportunities for a more resilient post-COVID-19 supply chain – closing the gap between research findings and industry practice. International Journal of Operations & Production Management, 40(4), 341-355. https://doi.org/10.1108/IJOPM-03-2020-0165
Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2021). Designing and managing the supply chain: Concepts, strategies, and case studies [E-Book]. In McGraw-Hill eBooks (4th ed.). McGraw Hill.
Xanthopoulos, A. S., & Koulouriotis, D. E. (2021). A comparative study of different pull control strategies in multi-product manufacturing systems using discrete event simulation. Advances in Production Engineering & Management, 16(4), 473-484. https://doi.org/10.14743/apem2021.4.414
DISCUSSION: THE GREAT INVENTORY CORRECTION 2
Discussion: The Great Inventory Correction
School of Business, Liberty University
September 7, 2023
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to Tammy Vazquez
Email: [email protected]
Discussion: The Great Inventory Correction
Altera, a prodigy in the high-tech industry, has ventured into unchartered territories by reconsidering its traditional supply chain management strategies. The company is at a juncture where it has shifted, moving from a conventional build-to-stock model to a more agile and responsive build-to-order approach. While the change is significant for Altera, it is not unique. The strategy is present throughout the industry, with major companies like Flextronics and IBM embedding the principles of information valuation and supply chain integration into their operations.
The value of information and supply chain integration is vital in fostering a corporate environment that is both efficient and adaptable. Specifically, these factors facilitate smooth operational dynamics and catalysts that redefine market strategies, empowering businesses to develop resilient, informed, and forward-looking pathways (Hsu et al., 2021; Rahman et al., 2020; Simchi-Levi et al., 2021).
Altera's Strategic Modification
Evolution of Strategy
Altera is transitioning from a push-based strategy to a more balanced push-pull strategy and even incorporating elements of a pure pull strategy to improve supply chain efficiency and better match demand with supply. In a push-based strategy, production is driven by long-term forecasts, which can sometimes lead to surplus inventory and higher holding costs (Simchi-Levi et al., 2021). However, this strategy can result in obsolete inventories due to a mismatch between produced goods and actual market demand (Campuzano-Bolarín et al. 2019).
By incorporating a push-pull strategy, Altera maintains a flexible inventory with a minimized value-add at the push stage of the supply chain, wherein typical products are stocked in die banks before packaging and testing (Simchi-Levi et al., 2021). This approach allows for a quick response to customer orders. Once an order is placed, the strategy shifts to a pull approach, where products are packaged and evaluated according to the customer’s specific demands, pulling products through the supply chain based on actual customer demand, thereby reducing lead times and avoiding obsolescence. Furthermore, Altera adopts a build-to-order strategy for mature products, which is a clear example of a pull strategy, relying entirely on actual customer orders to spark the production process.
Explaining the Strategic Shift
Altera’s strategy is progressing towards a pull strategy with a substantial embrace of push-pull strategies to maintain a balance, aiming to circumvent obsolete inventories’ drawbacks and effectively harmonize supply with actual demand. By implementing these strategies, Altera mitigates the risks associated with obsolete inventories, as they can more precisely match supply with demand (Campuzano-Bolarín et al., 2019; Simchi-Levi et al., 2021). This transition focuses on enhancing the value of information and achieving superior supply chain integration. The motivation behind this strategic modification develops from a meaningful evaluation of previous deficiencies where the previous method was financially draining and fell short of meeting customer demands effectively. By leveraging the lead time demand in the supply chain to dictate inventory and order processes, Altera has fostered a system grounded in efficiency and responsiveness to market demands.
Potential of the New Strategy
Benefits and Drawbacks
Analyzing Altera’s revised strategy, the company now supports a model where mainstream products are built and stocked in die banks, ready to be packaged and shipped once an order is placed. This approach could potentially lessen the impact of the bullwhip effect, as being more responsive to actual demand reduces the likelihood of overstocking or understocking products based on forecasted demands, which can often be inaccurate (Hsu et al., 2021; Rahman et al., 2020). Altera’s innovative approach depends on adaptability, intending to accommodate the fluctuating demands of high-tech products accurately (Hsu et al., 2021; Simchi-Levi et al., 2021). While this strategy enables the corporation to reduce unnecessary sales discounts stemming from stock accumulation, research indicates that it necessitates a higher degree of collaboration among supply chain members, sometimes slowing the response rate to rapid market demands (Hsu et al., 2021).
Altera’s new strategy, involving a shift to a more make-to-order and postponed manufacturing approach, has fundamentally more logical and potentially successful elements than its previous strategy. The method aligns better with the dynamics of sophisticated and high-tech products, which tend to become obsolete rapidly (Campuzano-Bolarín et al., 2019). This shift can potentially moderate the bullwhip effect. In this phenomenon, slight changes in customer demand can cause more significant fluctuations in orders when moving up the supply chain, introducing a host of inefficiencies in the supply chain management process (Simchi-Levi et al., 2021).
Engaging in a more reactive strategy to the actual demands and reducing reliance on inaccurate forecasts, Altera can reduce the fluctuations and variances in the supply chain, thus mitigating the bullwhip effect to a certain extent. Moreover, this strategy could enhance customer satisfaction by aligning production more closely with the precise specifications and requirements of the customers, reducing finished goods inventory, and minimizing sales discounts due to obsolete inventory (Campuzano-Bolarín et al., 2019; Hsu et al., 2021; Rahman et al., 2020). However, this necessitates greater collaboration and management with subcontractors and customers, introducing complexities that might amplify the bullwhip effect if not properly overseen. Specifically, postponement of the manufacturing process could introduce delays, requiring a highly responsive supply chain to avoid worsened bullwhip effects from more significant order variances (Hsu et al., 2021). A significant issue that could arise would be the inability to rapidly respond to customer demands due to the products needing to be fully built and ready to ship immediately (Simchi-Levi et al., 2021). Therefore, Rahman et al. (2021) posit that a well-coordinated supply chain management approach to prevent the amplification of demand fluctuations is necessitated to avert the bullwhip effect.
A significant aspect of the new strategy involves meeting customer specifications without expanding inventories, realizing stability between operational efficiency and customer satisfaction (Rahman et al., 2021). Although there is potential to streamline operations, the strategy brings forward challenges, including increased wait times for customers, necessitating a balance that does not compromise quality or timely delivery.
Anticipating Customer Reactions
Altera’s strategic shift fosters opportunities and challenges for its customer base. While the potential for enhanced collaboration and customization has distinct advantages, concerns over increased lead times and the deeper level of involvement required in the supply chain processes might be perceived as downsides. Altera’s customers’ ultimate reception of this strategy would significantly center on the firm’s ability to manage these trade-offs effectively, leveraging the value of information and supply chain integration to offer a seamless, responsive, and customer-centric service (Iranmanesh et al., 2023). Research indicates that clients must are kept informed and engaged, ensuring a transparent transition to this new operational standard, wherein the focus is as much on value creation as it is on product delivery (Iranmanesh et al., 2023).
Advantages and Disadvantages
Altera’s clients may have misgivings concerning the new strategy, especially potential delays in order fulfillment. However, the strategy could offer a positive outcome. Specifically, by translating the cost savings from reduced inventories to price reductions for customers, this approach would foster a better collaborative environment for business transactions (Iranmanesh et al., 2023). The strategy supports greater customization, which means the company can tailor specifications to individual client needs.
Additionally, while the innovative approach opens avenues for more vital collaboration between Altera and its clientele, it potentially complicates the buying experience for customers focused more on effectiveness than the niche market specifications of the products. Customers seeking uncomplicated transactions could perceive the collaborative demands as arduous and troublesome.
Information Disparity and Strategic Leveraging
Flextronics has a distinctive position with access to key demand and supply data inaccessible to its clients. This valuable position allows Flextronics to influence collected data for trend analysis, risk mitigation, and resource pooling, developing a mutual relationship with its clients and suppliers (Simchi-Levi et al., 2021). This unique access to information gives the company detailed insights into the supply market production process and a view of logistical challenges and opportunities.
Flextronics could provide data-driven data to better assist clients in product development and offer assessments that facilitate the development of products more aligned with current market demands (Jordan & Messner, 2020). Furthermore, the company can employ predictive analytics to predict market shifts, direct its clients through fluctuating demands, support potential savings, and circumvent overproduction and underproduction (Jordan & Messner, 2020). The company can develop risk mitigation strategies to realize more efficient operations and protect clients from unanticipated disruptions (Simchi-Levi et al., 2021).
Pull Strategy Dynamics
IBM enhances its pull strategy’s effectiveness, a strategy built on actual daily demand with information flowing from market to management, by nurturing a robust relationship with its suppliers (Simchi-Levi et al., 2021). IBM maintains a rolling forecast spanning ninety days, updated weekly to align suppliers with the prevailing demands. This move actively averts potential discrepancies in forecasting that can incur losses and additional inventory costs (Jordan & Messner, 2020). IBM ensures a collaborative and responsive supplier management system that actively mitigates potential supply and demand discrepancies, fostering a resilient business model. IBM’s strategy underscores the imperative of precise forecasting, where quantitative techniques are employed to arrive at forecasts close to real scenarios, guiding supply chain strategies adeptly to avoid pitfalls of over or underproduction (Simchi-Levi et al., 2021).
Altera’s drawing inspiration from the successful pathways realized by Flextronics and IBM is realigning strategically toward a sustainable and collaborative business environment. The company’s strategic shift in its supply chain management, established with the understanding of the value of information and embracing the potential of supply chain integration, provides a path toward enhanced efficiency and customer satisfaction, albeit with specific potential challenges. The tactic signals a positive direction, highlighting reduced lead times and closer collaboration with customers standing out as significant benefits. However, for a smooth transition to this model, Altera would need to address developing challenges such as potential increases in lead times and nurturing a collaborative culture with customers. Moreover, companies like Flextronics and IBM demonstrate the meaningful role of judicious information utilization in shaping successful strategies, thus underscoring the critical role of data in modern supply chain configurations.
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