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QUESTION
https://www.peachyhomework.com/wp-content/uploads/2023/04/Nokia-Supply-Chain-Management-2.docx
MGMT7043 Supply Chain Management
Continuous Assessment 2 2023
Individual Assignment worth 60%
Report (45%)
Report
Your report should be font size 12 and 1.5 line spacing.
As a guide, the report document should be approximately 3,000 words in length excluding
references.
Referencing: material sourced from books, articles and websites for use in your report
should be clearly and correctly referenced. Please use Harvard reference Style.
Report Requirements (45%):
Please read the case study Nokia’s Supply Chain Management and conduct further external
research as required.
· Introduction: Overview of the importance of supply chain management within the business landscape.
1. Describe Nokia and Ericsson’s approach to the management of their supply chain networks prior to and following the disruption under the following headings:
(a) The importance of information, how this information should be managed & controlled and how critical information influences strategic supply chain decisions for both organisations.
(b) Discuss the relevant impact for each organisation of inadequate supply chain integration
including information, inventory management and supply chain relationships.
2. Following analysis of the case study, please comment on:
(a) The strategic decisions that Nokia undertook to minimise disruption to its supply chain.
(b) The failure of Ericsson to adequately react to the supply chain crisis.
3. Review the supply chain risk management strategy of both organisations regarding the
following:
(a) What sources of risk need to be addressed into the future?
(b) What risk mitigation strategies could be employed to make both organisations more
resilient?
· Conclusion: Summary of key aspects of the report.
ANSWER
Supply Chain Management
Introduction
Supply chain management (SCM) involves integrated planning, coordinating, and controlling business activities, from raw material procurement to final delivery of the end products and services to customers. Jamaludin (2021) indicates that effective SCM is essential for optimal business performance. According to the author, companies with effective SCM will obtain operational efficiency, improve customer satisfaction, reduce business costs, and gain a competitive advantage in the market (Jamaludin, 2021). In contrast, ineffective SCM can lead to production and delivery delays, increased costs, excess inventory, and poor customer service (Jamaludin, 2021). In light of these issues, companies must strive to optimize their SCM practices. This paper analyzes Nokia’s and Ericsson’s SCM practices and proposes strategies for strengthening the supply chain.
Nokia and Ericsson’s SCM approach
Importance of Information
The value of information in SCM cannot be overstated. Information is one of the most valuable resources in supply chains (Lotfi et al., 2013). It can lead to inventory reduction, reduction of uncertainties, early problem detection, elimination of the bullwhip effect, cost reduction, efficient inventory management, strengthening of SC relationships, and improved resource utilization (Lotfi et al., 2013). Accurate and complete information allows managers to make informed, strategic decisions. When managers have accurate and updated information on inventory levels, production schedules, supplier capabilities, etc., they can effectively respond to business changes and optimize their SC operations (Lotfi et al., 2013). For example, managers can use SC information to monitor, anticipate, and ensure that customer demands match their inventory levels. SC Information gives SC managers the knowledge and insights to make informed decisions, identify threats, and develop contingency plans to address these problems.
Managing and Controlling Information
Companies need a functional information management system to control and manage information effectively. This information system should comprise data collection, storage, analysis, and dissemination tools. To ensure data security, the company must also have clear policies and protocols for data sharing with third parties. Using Enterprise Resource Planning (ERP), Web technologies, and Electronic Data Interchange (EDI) can help integrate information sharing in the SC while ensuring data safety and security. These technologies can help companies ensure that information is relevant, accurate, complete, relevant, and readily available to those who need it.
Impact of Critical Information on Supply Chain Decisions
Critical information is crucial for strategic supply chain decisions. Information on inventory levels, customer demands, transportation modes, and supplier capabilities can help companies optimize their supply chain operations. Companies can use demand and supply forecasting information to plan and ensure inventory and resource plans are aligned. For example, Nokia gathers information using its dynamic systems. It then uses this information to monitor its suppliers’ significant shipments and create contingency plans for anticipated crises. Information on competitive threats, regulatory changes, and market trends can help businesses effectively adapt to anticipated market changes.
Nokia and Ericsson’s Approach to Supply Chain Management
Nokia’s strategies for minimizing SC disruption
Nokia diversified its supplier base to minimize SC disruptions. Due to Philip’s production delays, Nokia would have lost 5% of its annual production (Walker & Wilson, 2016). To mitigate these risks, Nokia considered alternative suppliers. The company found new suppliers from the United States and Japan to deliver three required components within five days (Walker and Wilson, 2016). This diversification reduced Nokia’s reliance on a single vendor, minimizing the risk of a significant SC disruption.
An interesting point emerged from the case study. According to Walker and Wilson (2016), the first thing Nokia did was to consider whether a chip redesign would allow the firm to get alternative suppliers. This statement implies that Nokia accessed new suppliers by redesigning its chip components or opting for different chip designs. Chips are vital production components and are highly customized to device specifications. They can contribute to business competitiveness by allowing a company to develop products that are unique in the market.
A personal opinion is that firms should have flexible supply chains, but this flexibility should not be at the cost of product quality. Redesigning the chip designs means Nokia must use different materials, manufacturing processes, or component configurations that ultimately affect product quality. Product quality might decline if the chip redesign is less efficient and reliable than the original component, harming a business’ reputation. Concerns about whether this component redesigns protect a firm against replication threats should also be considered. Although production redesigns support flexible supply chains, managers should consider the impact of these practices on product quality.
Nokia’s proactive management also helped reduce SC disruptions. When faced with bubble bursts, Nokia’s management slowed hiring and stopped new product development initiatives (Walker and Wilson, 2016). They maintained a proactive approach to managing critical information. Nokia established clear communication and collaborated with various departments, sending daily alerts regarding the fire to personnel and instituting a monitoring system (Walker and Wilson, 2016). The company also created an executive hit squad to make on-ground decisions without going through bureaucratic channels. This approach ensures efficient operation by eliminating bureaucratic delays and speeding up decision-making. Walker and Wilson (2016) also claim that this hit-squad team collaborated with other institutions after the fire incident. Due to this collaborative approach and decentralized decision-making, Nokia minimized SC disruption.
Nokia’s also invested in new technologies to minimize SC disruptions. According to Walker and Wilson (2016), Nokia improved its SC operations by adopting dynamic systems. These systems allowed Nokia to monitor input supply and manufacturing operations, enabling the company to forecast demands accurately and manage inventory levels. By adopting dynamic technology, Nokia could track suppliers’ shipments and create contingency plans for anticipated crises.
Ericsson’s Failure to adequately react to the supply chain crisis
Poor communication and information sharing was the primary factor contributing to Ericsson’s crisis. While Nokia sent daily alerts to all personnel and prepped its resources to locate alternative suppliers, Ericsson’s team was unresponsive. Walker and Wilson (2016) reveal that Ericsson was unprepared for the news and tried to downplay the crisis. Instead of promptly looking for alternative suppliers, Ericsson relied on Philip’s recovery. Walker and Wilson (2016) also claim that Ericsson had already moved to make Philips its sole provider by the time it understood the magnitude of the problem.
Moreover, Nokia had already acquired the extra supply of chip components, making it difficult for Ericsson to find the required components. These factors forced Ericsson to rely heavily on Philips for its critical components, making it vulnerable to SC disruptions. When Philips could not meet its obligations, Ericsson delayed production due to the lack of critical components. These factors led to revenue and market share losses.
Ericsson also lacked comprehensive risk management or contingency plans to address SC disruptions. The lack of contingency plans made it difficult for Ericsson to respond quickly to crises, causing poor business performance. The firm implemented various strategies to reduce the SC disruption, but these strategies did help the company recover. For example, it stopped independent manufacturing and entered a 50/50 production venture with Sony. This venture reduced Ericsson’s market share from 7.6% to 4.5% (Walker and Wilson, 2016). It also tried to adjust its shipping configuration to minimize future shortages, but business performance in the mobile division did not improve. Ericsson’s response to the SC disruption was slow. Even though it later implemented strategies to minimize these disruptions, its business outcomes did not improve.
It lost physical assets, revenues, and acquired a poor brand image. Due to the component shortages, Ericsson incurred revenue losses worth $400 million in 2000. In 2001, Ericsson’s mobile phone division lost about $1.68 billion and 3% of its market share to Nokia (Walker and Wilson, 2016). The losses incurred by the mobile phone division were attributed to component shortages. In 2010, Ericsson’s size had significantly reduced to 82 500 employees. Its net sales stagnated, and its operating income decreased by 65% to $834 million (Walker and Wilson, 2016). Ericsson’s case demonstrates that the effects of supply chain disruptions are not short-term. SC disruptions can affect a business years after the initial disruption occurred. Therefore, firms must be quick in their response to SC disruptions.
Sources of risk that need to be addressed in the future
Nokia
Nokia has adopted dynamic systems to track suppliers’ shipments, conduct risk management assessments for each supplier, and create contingency plans for various problems. According to Katsaliaki, Galetsi, and Kumar (2021), information infrastructure breakdowns and systems cause almost half of SC disruptions in the modern market. System issues such as cyber-attacks, data breaches, and loss of technical talent can cause SC disruption. Since Nokia has adopted dynamic systems to manage its SC, it must consider these infrastructural and system risks.
Nokia’s risk management strategies can also raise cost-related risks. According to Walker and Wilson (2016), risk-aversive strategies may spread out suppliers over an extensive geographic range, significantly increasing costs. For example, the multi-supplier strategy ensures a constant supply of components, but the business must incur the costs of sourcing from a large geographical region. Moreover, expanding the supplier base increases the supply chain complexity, making monitoring and managing risks difficult. Firms will suffer from the indirect costs of SC disruptions unless risk management costs are considered. This study suggests that implementing a risk-aversive strategy cannot mitigate SC disruption costs (Walker and Wilson, 2016). Therefore, companies must consider the trade-offs between avoiding disruption and the costs of risk-aversive strategies.
Another risk that needs to be considered is geopolitical risks. Nokia and Ericsson both diversified their supplier base to minimize SC disruption. There are geopolitical risks associated with this strategy. A diversified supplier base can help minimize SC disruptions, but it is not foolproof, as the suppliers can be universally affected by regional or global disruptions. Each supplier is in a different geographic region, meaning each supplier is subject to disruptions unique to their localities. Apart from local disruptions, the suppliers are also subject to regional disruptions (e.g., economic sanctions, political instability, and trade wars) and global disruptions (e.g., natural disasters and pandemics such as COVID-19). Organizations with suppliers in different geographical regions must also consider geopolitical risks.
Ericsson
One source of risk that Ericsson should consider is its lack of visibility. Nokia has adopted systems that monitor input supply, manufacturing operations, and suppliers’ major shipments. The company uses this information to create contingency plans and respond to SC disruptions. In contrast, Ericsson has limited visibility of its SC, making it difficult for the firm to promptly identify and respond to disruptions risks. Another source of risk is over-reliance on a single supplier. Although Ericsson considered diversifying its supplier base, Philips remained its primary supplier. The company’s heavy reliance on one supplier makes it vulnerable to SC disruptions. Ericsson’s response to crises is slow. The company’s communication approach is also ineffective, possibly explaining its slow response to crises. Lastly, Ericsson lacks contingency planning. The company does not have a contingency plan for resolving potential SC disruptions.
Risk Mitigation Strategies
Gružauskas and Vilkas (2017) indicate two approaches to enhancing SC disruptions. The first approach involves quickly reorganizing organizational resources to increase SC flexibility. Ericsson and Nokia have diversified their supplier base to improve their SC flexibility. These firms should also consider flexible transportation modes to strengthen their SC resilience (Katsaliaki et al., 2021 & Tang, 2006). As mentioned earlier, global or regional disruptions can affect suppliers spread across different geographical regions. Using flexible transportation can help mitigate such disasters. For example, using multi-carriers, multiple routes, and a variety of transportation modes, e.g., trucks, ships, or helicopters for delivery, will mitigate against geopolitical disruptions such as labor strikes, landing rights, route blockages, heavy traffic jams, and delays at coast ports.
The second approach for enhancing SC resilience involves maintaining redundancy. Companies can maintain redundancy by increasing their production capacity and having a high safety or buffer stock to satisfy customer demands during disruptions. Various studies have pointed out that a safety stock can enhance SC resilience (Gružauskas and Vilkas, 2017; Tang, 2006; Tomlin, 2006 & Walker and Wilson, 2016). A safety stock involves holding a “just in case” safety stock to mitigate against SC disruptions and satisfy customer demands.
However, Ericsson and Nokia must be cautious when implementing this strategy. The telecommunication industry is fast-paced, and the product lifecycle tends to be short. Therefore, holding inventory or keeping a safety stock might lead to obsolescence costs. Instead of stockpiling, Tang (2006) recommends that firms consider storing inventory at strategic locations, e.g., in distribution centers or warehouses, to provide SC partners access to this inventory. For example, Nokia or Ericsson can place chip components and other critical inventory at certain locations so nearby manufacturers or logistic providers can access this inventory. When inventory is placed strategically, SC partners can access and continue production even during disruptions.
Another strategy for mitigating disruption involves improving coordination among SC actors through effective information-sharing practices. According to Gružauskas and Vilkas (2017), firms must enhance collaboration and utilize information effectively to strengthen their SC resilience. Gružauskas and Vilkas (2017) claim that firms must enhance coordination and relationship between different SC actors, promote decision synchronization, and improve demand forecasting to achieve a resilient SC. In line with these recommendations, Ericsson and Nokia must consider strengthening relationships and information-sharing practices between SC actors.
This collaboration must be characterized by effectively sharing general information, strategic plans, and equipment or materials with all supply chain partners. Every SC actor must be able to access complete and accurate information. This strategy particularly applies to Ericsson, given their poor information-sharing practices. The firm can deploy various SC management systems, such as vendor inventories, transport, and warehouse management to improve SC visibility and information-sharing practices.
In addition to these systems, both firms should consider Industry 4.0 to help mediate these information-sharing processes. Katsaliaki et al. (2021) indicate that most companies use safety stocks, multi-sourcing, and better forecasting to improve their SC performance. Although these companies often consider coordinating between these SC nodes, they act in isolation. Industry 4.0 can help address these problems.
Internt of Things (IoT) will help gather information from different points in the supply chain, increasing visibility. Instead of on-site observation, IoT, augmented reality, and virtualization can help SC actors to monitor, control, and optimize SC processes in real time through virtual tools or the internet. Gružauskas and Vilkas (2017) indicate that using big data in SCM can improve a firm’s competitive advantage. Thus, besides IoT and augmented reality, Ericsson and Nokia should consider incorporating big data into their supply chain. Big data will process information and provide analytical insights into the gathered information. SC management systems can create alerts and communication disruptions, while RFID technology can provide feedback control and assist in adapting schedules. These systems can also map end-to-end users, build risk profiles, identify hotspots, and initiate mitigation action by generating alerts about potential disruptions. SC actors can use this information to make real-time decisions and respond to changes effectively.
Lastly, Nokia and Ericsson must tailor their risk management strategies to the level, nature, length, frequency, and type of disruption they anticipate. Nokia has a comprehensive risk management strategy, but this strategy must also factor in the type and nature of anticipated disruption. Tomlin’s (2006) study recommends prioritizing sourcing flexibility over inventory holding when the disruption is a rare but long occurrence, e.g., a global pandemic. Demand management and contingent rerouting strategies are ideal for frequent but short disruptions (Tomlin, 2006). By considering the nature, length, and frequency of the disruption, the firms can develop customized risk-management strategies that balance the costs and benefits of various risk-management strategies.
These tailored strategies must be incorporated into the operational risk design supported by technology that provides the company with enough forewarning to adapt and respond to SC disruptions. Given their data processing capacity, Industry 4.0 (1R4) technologies, including blockchain, IoT, additive manufacturing and augmented reality, cloud computing, and big data analytics, can provide these firms enough forewarning on potential SC disruptions (Frederico, 2021). These platforms gather, process, analyse, and generate predictive data that SC actors can use to adapt and respond to unforeseen disruptions. According to Katsaliaki et al. (2021), IR4 technologies will also help minimize cost risks. This capability is essential for both organizations, given that they must balance the costs and benefits of their risk management strategies. The firm’s risk management program must include a comprehensive recovery program to mitigate against disruptions caused by infrastructural or system breakdowns.
Conclusion
Nokia minimized the impact of SC disruption by diversifying its supplier base and effectively sharing information with SC actors. It also adopted dynamic technologies to monitor suppliers’ shipments, input supply, and manufacturing processes. It used this information to conduct risk management assessments and create contingency plans. Although Nokia’s sales declined, these approaches enabled it to perform better than its competitors and avoid production losses. In contrast, Ericsson downplayed and inadequately responded to the fire crisis, losing market shares, sales, and revenues. These outcomes demonstrate the importance of effective management of supply chain disruptions. Although having comprehensive contingency plans and risk management strategies can help minimize SC disruptions, they are not foolproof. System and infrastructure breakdowns, geopolitical risks, and the lack of SC visibility can cause disruptions even when a company has a comprehensive contingency plan or risk management program. Supplier flexibility, transportation mode flexibility, contingency planning, safety stocks, effective information-sharing, and collaboration and cooperation between various SC actors can strengthen supply chain resilience.
Various lessons can be derived from the case study. First, the effects of supply chain disruptions are not short-term; SC disruptions can affect a business years after the initial disruption. Secondly, fast response is critical for the effective management of SC disruptions. Ericsson implemented various strategies to minimize the SC disruptions but failed to recover due to its slow response. Production was delayed, and it lost potential suppliers to Nokia, who was a fast responder. Thirdly, firms must balance the cost and benefits of risk management.
Reference List
Frederico, G.F. (2021). Towards a Supply Chain 4.0 on the post-COVID-19 pandemic: a conceptual and strategic discussion for more resilient supply chains. Rajagiri Management Journal, 79(6). doi:https://doi.org/10.1108/ramj-08-2020-0047.
Jamaludin, M. (2021). The influence of supply chain management on competitive advantage and company performance. Uncertain Supply Chain Management, [online] 9(3), pp.696–704. Available at: http://m.growingscience.com/beta/uscm/4922-the-influence-of-supply-chain-management-on-competitive-advantage-and-company-performance.html.
Lotfi, Z., Mukhtar, M., Sahran, S. and Zadeh, A.T. (2013). Information Sharing in Supply Chain Management. Procedia Technology, [online] 11, pp.298–304. doi:https://doi.org/10.1016/j.protcy.2013.12.194.
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