When it comes to companies sharing business relationships, and occasionally shareholdings, as well, a Keiretsu network is often the best way to integrate and manage that group of companies (Jacoby, 2009). In that way, the relationship between the businesses becomes a partnership instead of only that of buyer-seller (Jacoby, 2009). There are many long-term benefits of this type of network, and these benefits could be carried over to the new company that builds power tools. The Keiretsu network will allow strong relationships to be created with suppliers, and that will help lower the costs of manufacturing (Heizer & Render, 2010; Nagurney, 2006).
These lowered costs are very important, as is the lean manufacturing that can be created through proper coordination with various suppliers (Heizer & Render, 2010). However, there is some risk to the Keiretsu network in that the closeness of all the companies may make shopping around for the lowest price and best value on raw materials more difficult (Oliver & Webber, 1992). Despite this concern, there are added benefits such as quality, loyalty, and dependability that will, over the long-term, make up for any perceived loss of value due to the potential of paying slightly higher prices (Jacoby, 2009).
There are other options for the power tool company, but not all of them would be practical choices. For example, vertical integration would not work well because the company would be required to purchase either a supplier or a number of suppliers who could offer the electronic and electrical components that would be needed for the power tool development and creation. With a new company, there is no demand for the product yet. Such is the case with these power tools, so the demand for the tools would not be great enough to make purchasing a raw material company worth the price. Most likely, doing that would cause the company to fail due to financial difficulties.
Buying raw materials from a supplier that is already established makes much more financial sense. The costs will be lower and the products can be produced much more efficiently (Heizer & Render, 2010). That adds a lot of value for the company, the companies that work with it, and the end users (consumers). It is very important to find the best fit for any company that is just starting up and that will need to work with suppliers and other companies in order to be successful (Oliver & Webber, 1992; Jacoby, 2009). For example, another strategy that could be considered but that would also be ineffective in the long run would be that of a virtual company.
Virtual companies use technology and the internet to create and develop partnerships. They look for manufacturers, suppliers, and distribution companies that do not have brick-and-mortar facilities (Oliver & Webber, 1992). However, since the company is making a tangible product that cannot be created in cyberspace, and it also plans to have its own production facility that it owns and operates, there is no place for it to be a virtual company. As it manages more components of the supply chain, it will need even more brick-and-mortar locations and space. Trying to start out virtually would make things much more difficult in the future, and not allow the company to get off the ground properly.
After the supply chain has been put in place, there are metrics that have to be addressed in order to make sure the chain is performing properly (Heizer & Render, 2010; Nagurney, 2006). There will be standards set by the power tool company, and if these are not being met that issue needs to be corrected as soon as possible so the company can move forward. The first one of the metrics that the company will use to measure how well its supply chain performs is how well the suppliers follow the just-in-time (JIT) manufacturing schedule. If they cannot adhere to the schedule, there will be problems, so the company has to be able to trust them.
When a company uses a JIT schedule for its supply chain, the materials have to arrive right when they are supposed to (Jacoby, 2009). Getting them to the company too early means they will have to be stored. Often, these companies do not have space for the items to be stored in, and that can result in having them stored off site (Oliver & Webber, 1992). There are, of course, costs associated with storage no matter where the company has to store the items, so it is very important that they arrive only when they are needed. That way they can move right into the supply chain and will not be sitting around waiting.
Of course, it is also very important that the materials do not arrive too late. That can leave workers sitting around with nothing to do, and can also mean that customers will lose out on getting the products from store shelves when they want and need them (Heizer & Render, 2010; Nagurney, 2006). That can be very bad for the company, and lead to a reputation that will be unfavorable. Word of mouth spreads quickly, so it is vital that a company does all it can to make sure its supply chain operates smoothly to keep everyone happy. In order to measure this particular metric properly, both delivery receipts and delivery schedule records must be accurately kept.
Another metric to be measured is the cost of the materials the company receives (Heizer & Render, 2010). If the costs are higher than what was quoted by the supplier, or if the costs are higher than what the company can get for the same thing at a different supplier, the company could lose money. These costs will be carefully tracked. Because the company will adopt a Keiretsu network, it will not be moving back and forth between several suppliers. The materials may be cheaper somewhere else occasionally, but that is to be expected. What the power tool company really wants to look at is the price over time. Consistently higher quality and lower prices at another supplier can mean that a new supplier will eventually be chosen so that the company is better able to save money and cut costs.
Additionally, the power tool company has to be mindful of the percentage of material it gets from suppliers that it has to reject. It there is a lot of rejected material seen in the supplies that are received, and this happens on a consistent basis, the company will lose money. Each time supplies are received that are poor quality and have to be sent back, the company must record this information. Good quality materials must be used (Oliver & Webber, 1992; Jacoby, 2009). If they are not, the new power tool company will end up putting out inferior products that people will not want to buy or that they will return because they do not like them. That can lead the company to have a bad reputation that will hurt them financially.
Material orders and their accuracy also matter as a metric. Any orders that are not exactly the way they were requested will have to be recorded. Having a supplier run out of material would be an equally distressing problem, and the entire manufacturing process would have to be shut down if that occurred, so it must be tracked and recorded, as well. Additionally, the company must consider a metric that will provide an inventory turnover ratio. That will be determined by the cost of the goods that are sold divided by the investment the company has made in the inventory.
Local optimization is a very important issue when it comes to proper supply chain integration (Heizer & Render, 2010; Oliver & Webber, 1992). When supply chain members make decisions that they base on limited knowledge, local optimization occurs (Oliver & Webber, 1992). This can be a problem because they do not have all the facts and information regarding supply and demand. That can cause them to either overcompensate or under compensate orders (Heizer & Render, 2010). Having too much inventory or running out of inventory are the two most common results of local optimization, and both of those can come about from a desire to minimize the losses and maximize the profits of a company based on information that is too limited in scope (Heizer & Render, 2010).
There are other issues, however, that have to be considered. One of those is the incentives that are used in order to drive sales (Heizer & Render, 2010). When quantity discounts are given or promotions are used, merchandise can sometimes be manufactured in anticipation of the larger demand. If that larger demand then fails to materialize, there can be serious repercussions all along the supply chain (Heizer & Render, 2010). The same is true of shipping larger lots that have been produced in an effort to keep the unit cost lower. Doing this fails to accurately…