Discussion: The Great Inventory Correction

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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.

Altera’s Modified Strategy

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. 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.

Conclusion

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.

References

• Bedi, J., & Toshniwal, D. (2019). Deep learning framework to forecast electricity demand. Applied Energy, 238.
• 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.
• 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.
• 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).
• Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2021). Designing and managing the supply chain: Concepts, strategies, and case studies (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).