Redesigning the Supply Chain

After analyzing various options the company has vowed to William Navallez a manufacturing company to a distribution, keeping some of their handicrafts.

This paper presents the proposed vertical society that can form between the firm of William and Norwegian furniture company.

Also explains how you can optimize the management of the supply chain to maximize profits for both organizations and will include some of the metrics to be used to evaluate performance.

Vertical integration

The proposed vertical integration process is part of a strategy designed to meet the competition, reduce costs and obtain and exercise market power arises because as Blois (1972) "The benefits and positive effects of vertical integration are: the decrease transaction costs of market transactions are stabilized, you get greater certainty in the provision of materials and services, improved control over product distribution, improved quality control, allows a prompt review of policies for production and distribution, improved inventory control, additional fringe benefits are achieved or the possibility of charging low prices to the final product. "

In this case it is about creating a company in which participate in the ownership and control of both the furniture company William as the Norwegian. This is a integraci�nvertical forward, which the company resulting from the agreement subsidiaries distribute and sell the products of the two furniture factories.

He prefers the creation of a new subsidiary, to Membership of a distribution, since we hope to build a long term relationship in which mutually benefit the companies involved and in these conditions is not possible to cover the eventual contract situations that may arise in development of the business relationship.

The proposed type of integration reduces transaction costs and as Williamson puts it (1996) "Transaction costs are particularly important when agents make specific investments in their relationship."

Managing the Supply Chain

Proper management of the supply chain should be aimed at improving the productivity of operational logistics system, increasing the level of customer service, implementing actions to manage operations more efficiently and build lasting relationships with both suppliers and key customers .

As exposed Sasson (2008) "A successful supply chain delivery to final customers the right product at the right place at the right time, the required price and the lowest possible cost."

In order to optimize the management of the supply chain and maximize profits for the two organizations should apply the principles proposed by Accenture that allow balance the needs of an excellent customer service while complying with the requirements of profitability and growth.

Customer segmentation based on the needs of different groups and adapt the supply chain to serve these markets profitably. This requires making an ongoing study that allows to anticipate demand and opportunities that arise.

Adapting logistics network requirements and profitability of customer segments. We will design a network of dynamic adjustment. Given that the physical property storage, transportation and ability to retail fixed cost represents the largest business networks should be evaluated logistics providers and retailers, to optimize the effort of the company since the profitability and competitiveness in the long term depends on the right capacity and location of physical assets.

Constantly studying the market and align demand planning with the entire supply chain, based on consistent forecasts that allow optimal allocation of resources. To Brealey & Mayers. (2004, p. 523) forecasts can be classified into "four basic types: qualitative analysis, time series of related causes and simulations"

Differentiate the product as close to the end customer. Although the production stage will be held in Norway, using the experience and capacity Guillermo furniture will be customized to some extent the customer orders making them specific characteristics or adaptations that represent a competitive advantage.

Manage sources of supply strategically. In this case, although the main sources of supply are the partner companies, furniture William and the Norwegian company who are responsible for the production of furniture, in the process of distribution and marketing is necessary to consider other sources of supply of items such as packaging, accessories, carriers and logistics operators and others, which must be integrated into the overall strategy of the company.

Develop a technology strategy for the entire supply chain. Technological tools will be used as the Management of supply chain (SCM, Supplier Chain Management) integrated ERP or Enterprise Resource Planning of emrpesa, so it is possible to improve internal logistics mechanisms in all links of the chain is ie purchasing, supply, inventory management, transportation and maintenance. The monitoring of logistics procedures can improve the productivity of the company which is necessary to implement inventory control, warehouse management, transportation and distribution. This way you can have full visibility of the supply chain so as to make informed decisions.

Adopt performance measures for all channels. There will be ongoing monitoring of performance through the use of indicators and performance metrics and then track how the company is facing challenges from all three dimensions. Doing this exercise can significantly improve efficiency and profitability.

In order to apply best practices in managing the supply chain will implement an operating model based on the reference model of operation of the supply chain ( Supply-Chain Operation Reference-model SCOR) proposed by the Supply Chain Council, which as discussed Calderon and Lario (2005) "is a strategic tool that allows a global view of the specific CS and each of its elements and processes, analyze, measure, set performance targets, identify opportunities for improvements, identify best practices and systems, and prioritize projects. "

In line with the new perspectives that speak of a supply chain "green" approach to this issue must be done from three perspectives: environment, strategy and logistics. The environmental component is essential in the wood furniture industry since more often consumers are demanding that the raw material comes from certified plantations and throughout the transformation process, production and distribution policies are implemented environmentally compatible.

According to studies conducted in the European Union green supply chain raises profits for companies that apply, as it provides competitive advantages, cost cheaper, greener products and better integration with suppliers. According Suris (2004) firms with more developed environmental profile have a 4% increase in value above the industry average.

In order to implement a green supply chain the United States Environmental Protection Agency (EPA) made four recommendations that should be addressed by the integrated firm so as to facilitate their penetration in the U.S. market: identifying environmental costs generated by the action company, determine the areas that offer opportunities for improvement and develop specific actions in these areas, to assess different options and implement and monitor progress in this regard.

Measurement parameters

For proper performance monitoring is necessary to establish metrics or key performance indicators (KPI Key Performance Indicators ) for determining the effectiveness of the measures proposed or possibly take timely corrective actions.

According to Colin Snow, vice president of performance management of supply chain Ventana Research is important to establish metrics related to business performance in at least four categories:

Accuracy of demand forecasting: a way to establish the difference between projected demand and actual orders.

Perfect Order Index: Those orders are complete, arrive on time and undamaged.

Time cash to cash cycle: These indicators are the cash conversion cycle

Cash conversion cycle = (stock period average collection period +) - Average period of payment.

Administration costs of the supply chain for measuring internal efficiency and effectiveness. In this aspect determines the weight of each of logistics costs, costs of supply management, warehousing, inventory planning and movement, transport and distribution and order processing, compared to total costs.

It is also important to consider other metrics to establish:

Indicators of Compliance: no problems as invoices, deliveries complete, timely deliveries, returns and exhausted.

Stock Indicators:

Goods Inventory turnover indicates how many times the inventory turns in cash or in accounts receivable can be calculated as:

Cost of Goods Sold in Period / Average Inventory of Goods

Days of inventory on hand: It is calculated as

X 365 Average Inventory / Cost of goods sold.

Transport indicators: such as compliance in receiving the goods, delivery fulfillment.

Indicators of reverse logistics: reverse logistics deals with waste management and inventory returns, customer, product and inventory seasonal obsolete.

Indicators such as customer service is the satisfaction rate, rejection rate, rate of litigation, mid-term resolution of incidents, among others.

Finally, it is possible to use other indicators such as the Dupont model for integrating an indicator of profitability with an activity, so as to establish whether the return on investment comes from the efficient use of resources to produce sales or margin utility that such sales generate.

The profit margin on sales can be calculated as:

Net Income / Sales

The rotation is calculated:

Sales / ActivoTotal

Multiplying these relations we obtain the potential value that indicates the utility that the company generates about investing in assets linked to its operation and is calculated:

Net Income / Total Assets


Combining the strengths of Guillermo furniture company with the Norwegian company, in a vertically integrated company, will meet the demand for furniture in the U.S. market faster, cheaper and better than they could do each one individually.

For a vertically integrated company like the proposal, the implementation of the SCOR model unifies terms to describe supply chain, value processes with appropriate indicators, finding opportunities for improvement, review best practices that can be implemented and propose future improvements.

In summary, the above one can conclude that for the vertically integrated to form furniture William and the Norwegian company establishing a synchronized supply chain requires a knowledge of the needs of its customers, total quality management, a philosophy continuous improvement of processes, adequate and flexible channels of communication and agreement on key performance indicators.


Brealey & Myers. (2004). Fundamentals of Corporate Finance (4e.) Mexico City: McGraw-Hill.

Cadavid, J, Garcia J, Lopez, G (2004) F ROUNDS theory of vertical integration . EAFIT University. Retrieved on March 19, 2010

Calderon, J, Lario, F (2005) Analysis of the SCOR model for the Management of the Supply Chain. Retrieved on March 21, 2010 of

Castaner, M (2004) thinks green industry. Mecalux News Magazine No. 97. Retrieved March 20, 2010 of

Nieto, A (2008) Improvements to the supply chain. Retrieved on March 19, 2010 of

Sasson, R (2008) Supply chain. Retrieved March 20, 2010 of

SCOR 90 (2010) Overview Brochure. Supply Chain Council. Retrieved March 20, 2010 of

Schoeniger, E (2010) Supply chain: Assessing priorities. Retrieved on March 21, 2010 of

Thompson & Strickland. (2004). Strategic Management (14 ed.). Mexico: McGraw-Hill. Retrieved on March 19, 2010, the Website of the UOP.

UOP (2010) Case One Retrieved on March 19, 2010 Website MBA/S551 UOP in Resource Optimization of resources


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