BA 108 THU Group 3 || FLORES | GANANCIAL GANANCIAL | RAYOS DEL SOL | SALAVER SALAVER | SAN PEDRO Case Discussion 1 Supply Chain Strategy at TCL Multimedia Problem Given the new “Dual +” strategy implemented by top management to combat the decline in the company’s sales and market share, how can TCL Multimedia (hereafter TCL) manage its supply chain to match the new corporate strategy with the company’s operations strategy? What measures should the company take to improve the efficiency and capabilities of its supply chain to be able to keep up with the dynamic industry landscape? Problem Analysis In response to the rise of smart TVs in the early 2010s and the consequent change in customer demand, TCL began to expand its product portfolio and launched several new SKUs to go against competition. In order to support the increase in production, the company must be able to adjust its supply chain accordingly, particularly its supply base. TCL currently sources critical TV components from approximately 300 suppliers worldwide, majority of which have done business with the company in the past. Unfortunately, some of these suppliers fail to meet TCL’s quality control standards, which may result in delayed production schedules and inconsistencies in product quality. Aside from this, TCL’s acquisition of Chinastar was a strategic move to gain in-house LCD production capabilities. However, Chinastar may not have been the most worthwhile investment, as it can only produce a limited range of LCD sizes. TCL still relies on its three other LCD suppliers Samsung, LG, and Philip to compensate for China star’s lacking capabilities. Based on the supply segmentation matrix 1, TCL should consider forming better relationships with its major suppliers and perhaps work on expanding Chinastar’s production capabilities to include the other LCD sizes that it currently curren tly cannot provide. The operations center was founded with the goal of a more efficient and effective management of the Supply Chain. Although there was increased efficiency achieved with this, there are still significant problems to be tackled to achieve further improvement in operations. First, because this center was assigned as a corporate-level function, it stimulated non-collaborative and authoritarian tendencies at times especially in meetings when agreements could not be reached across departments. When this happens, the director of the Operations Center often makes the final decision. Another problem encountered in the administration of the operations center is the lack of strategic vision by different departments during monthly meetings which results in inadequate planning. Notably, no master schedule, daily schedules, or intermediate and long -range planning periods are considered as TCL only plans for a four-week rolling production. Other considerations in TCL’s operations include external fact ors such as consumer behavior and social sustainability. The market has shifted towards the use of e-commerce or online shopping, which is contrary to TCL’s retailer business model causing an overall reduction in sales. In addition, it is anticipated that labor costs will increase due to the rapid growth of Chinese economy also resulting to difficulty in recruiting young workers. Recommendations SHORT TERM: 1. Supplier Evaluation Evaluation and Development Development of Major Raw Raw Material Suppliers Suppliers Evaluating over 300 suppliers of major materials and components based on a set of capabilitybased criteria would allow the company to phase out suppliers that do not comply with TCL’s quality requirements and would aid top management in building a stronger network of suppliers that can support the company’s growing supply chain. As Chinastar is still unable to manufacture LCDs beyond 32 to 55 inches, maintaining good relations with its outside LCD suppliers Samsung, LG, and Philip would ensure a steady supply of raw materials while the company develops Chinastar’s ability to fulfill all of its order requirements. Supplier development can be done through forming Product-Service Agreements between the company and its suppliers, as well as through sharing of demand forecasts and other pertinent information along the supply chain. 2. Streamlining of the Sales and Operations Planning Process Discussions during the company’s monthly production, sales, and inventory meetings should incorporate time fencing for the middle and long term in order to better prepare for fluctuations in demand and supply beyond the current production period. Four-week rolling production plans might not be able to take rush orders and other supply chain disruptions into account, and so creating a master schedule for the current fiscal year and an aggregate plan for the next few years based on historical data would help TCL and its suppliers estimate the company’s supply requirements for different time periods. In addition, the active involvement of different functions during monthly meetings would encourage proper demand and supply planning and would minimize leaving important decisions to the Operations Center director alone. 3. Development of E-Commerce E-Commerce Platforms
Commented [1]: - “Dual +” strategy involves vertical integration of hardware production from components to finished product, and the establishment of an ecosystem - Might be the best strategy from top m anagement’s perspective to combat the decline in market share and sales in Q1 2014 but cannot be pushed forward without managing the company’s supply chain issues first - Match corporate strategy with operations strategy - What measures should the company take to improve its supply chain capability and efficiency to be able to cope with the dynamic competitive landscape? Commented [2]: POSSIBLE FRAMEWORKS: - Operations Strategy Process: to connect corporate strategy to business strategy through strategic decisions (improvements in supply base, better S&OP, strategic planning) and distinctive competence (pushing forward of “Dual +” strategy) - Supply Segmentation Matrix: plot current strategy then highlight what is wrong with strategic items (e.g. Acquisition of tactical tactical items such as packaging packaging materials is streamlined through JIT delivery, vendor control is currently being done for noncritical items, but several issues for strategic items exist) - Fishbone diagram Commented [3]: To add: “Dual suppliers” strategy for most most major components except for LCDs due to technological constraints Inflexible supply chain Commented [4]: Operations Center Improper sales and operations planning process Corporate-level function Not a collaborative effort (i.e. if an agreement could not be reached across all departments, the director of the Operations Center makes the final dec ision) Lack of strategic planning du ring monthly meetings No time fencing for intermediate and long-range planning periods Results in four-week rolling production plans only (no aggregate plan, master schedule, daily schedu les)
Consumer behavior shift towards online shopping capabilities Sales from retail stores decrease as a result Social sustainability Shrinking labor cost advantage Expected annual increase in salaries Recruitment of young workers Commented [5]: Incorporate time fencing for intermediate and long-range planning period Strategic capacity planning to result in aggregate plan (12-24 mos) and daily schedules based on historical data (past purchase data) Proper demand and supply planning Cross-functional participation in the process (minimize leaving decisions to director)
BA 108 THU Group 3 || FLORES | GANANCIAL | RAYOS DEL SOL | SALAVER | SAN PEDRO To keep up with the changing landscape, integrating IT into the business model and maximizing the use of e-commerce platforms would help in gaining back market share from internet companies and keep TCL relevant in the lives of its consumers. LONG TERM: 1. Supplier development for Chinastar Although, TCL has acquired Chinastar, the company s till sources from other companies for its LCD needs due to Chinastar’s dimension limitations. By developing Chinastar through investing in R&D, equipment, and facilities, TCL would gain the ability of producing its LCD needs instead of sourcing externally which also gives them more control over quality, production requirements, and overall supply chain flexibility. 2. Strategic alliances with key suppliers of major components Other than LCD, there are other components to TCL’s products which also add to the problem of inefficiency of its operations. To remedy this, TCL should form strategic alliances with key suppliers of these major components especially approximately 80% of these have been engaged in long-term transactions or have done business with TCL for more than five years. To form such and make sure that partnerships go smoothly, TCL should only engage in partnerships with its most reliable suppliers and furnish product service agreements to enforce quality control and conformance to timings and schedules strictly. 3. Develop delayed customization capabilities Since key components in TCL’s products are almost identical, the company should incorporate delayed differentiation in their supply chain. By doing so, TCL would be able to cater more effectively to the customized demands of its customers. Their products also face the risk of obsolescence due to the nature of the industry and short-term life span of their products. Through this capability, TCL would reduce this obsolescence risk in addition to other benefits such as reduction in inventory costs, transportation costs, and demand variability. 4. Improve supply chain efficiency to increase bottom-line TCL’s devotion in improving its supply chain also solves its problems with social sustainability, specifically the inevitable rising of labor wages. With reduced inventory costs, transportation costs, and demand variability, higher and more consistent materials quality, and other developments that come with investing in a more robust supply chain that is aligned with its corporate strategy, TCL will see an increase in its profits which will enable the company to match the labor market’s wage demands sufficiently. Appendix 1
T CL Multimedia’s Current Supply Segmentation Matrix (as described in the case)
LEVERAGE ITEMS Not mentioned in the case
●
TACTICAL ITEMS Acquisition of packaging materials is streamlined through just-in-time delivery
STRATEGIC ITEMS Produces LCDs with a 32 to 55-inch size range through acquired firm Chinastar ● Sources LCDs of smaller or bigger size range (19 to 65 inches) from outside suppliers Samsung, LG, and Philip ● Maintains a supply base of around 300 suppliers for other major materials and components ● Follows a “dual suppliers” strategy for the 300+ suppliers Possible Strategies: 1. Supplier development for Chinastar 2. Supplier development for major outside suppliers 3. Supplier evaluation and development for suppliers of other major materials 4. Strategic alliances with remaining suppliers of other major materials in the future ●
●
BOTTLENECK ITEMS Non-critical suppliers run a vendor-managed inventory system
