Working Capital

1042 words | 4 page(s)

While companies grow in complexity and size and tend to internationalize, it is of critical strategic importance to maintain and improve the performance of working capital. Once a company intends to improve working capital, it strives to maintain a positive balance between the finished goods inventory and customer service. Top competitive companies achieve high customer service levels through low levels of finished goods inventory. They attain such results by predicting the demand on item level and further ensure its timely delivery to the right location.

There are three constituents of working capital, namely inventory, accounts receivable, and accounts payable. Top companies create much value by effectively managing inventory and effectively using supply chain capabilities to achieve the positive levels of inventory reduction. Thus, the top companies struck a balance between low and moderate finished goods inventory and high customer service by accurately forecasting item level demand.

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Some companies think that the more channel inventory is, the higher customer fill rates will be ensured. That’s a common misconception that causes poor performance of working capital. Indeed, there is an insignificant correlation between better fill rates and higher inventory levels. The top-performing companies therefore much emphasize on the management of product complexity while the amount of products in inventory is crucial for the effective performance of working capital. Competitive companies strive to create sustainable supply chain capabilities.In particular, modular supply chains assume high degree of interchanging and flexible relationships among suppliers and customers. Supply chain modularity is subject to the generic methodology applied within supply chain management which enables to better understand and cope with the problems arising in supply chains. There are various benefits involved in the concept of modularization, including labor division, effective modularization, effective interaction between suppliers and customers etc, though all these largely depend on actual capabilities of suppliers.

The modular approach has been implemented in various sectors. For instance, modular systems enhance the coordination, design and productivity processes in automotive and computer domains. The modularization of components and related design and production processes, as well as interactions between suppliers and customers enables to save costs and advance product flexibility. As such, numerous modularity applications enabled to enlarge and widen product variety without worsening operational performance. At that, modularity has become critical in terms of repetitive production and design of standard components and their integration.

Modular products benefit from the application of a modular supply chain since module suppliers, even though they are geographically remote, can use their independent ownership and managerial structures. Further, the concept of supply chain modularity provided solid grounds for outsourcing developments, especially in PC industry to save on the purchasing cost. Compared to integrality, the modularity framework enables high degree of component independence wherein components do not affect each other geographically, functionally or physically. Such interchangeability allows smooth coordination and communication of modularization processes. Various product developments performed in accordance with module integration framework enable product co-designers to eliminate material costs and development time, as well as to improve the features and functionality of products. In case of outsourcing of product modules, the interdependence between supplier and customer increases since supplier becomes maximum responsible for the design of the outsourced modules and the solution of technical problems in the course of product development. Furthermore, immediate chain design improves overall interaction, coordination and understanding of the joint processes between suppliers and customers on all stages of product development and/or innovation.

On the empirical agenda, however, the situation is worse since the sources outlining examples of product modularization are scarce and mainly indicate how supply chain performance is improved through to the supply chain design and coordination. In practical terms, the modular product approach assumes the standardization, reusing and sharing of components, which enables the launch of new products due to the combination and interchangeability of various design modules. Therefore, to reach full-fledged optimization of supply chain and operational performance new empirical studies and researches are needed with definite emphasis on the integration between supply chain design and coordination and product modularization. At that, product modularization will have positive effect on supply chain design, while the quality of supply chain coordination will depend on product innovation.

The supply chain management methodology involves reconfiguration of the supply chain structure, coordination of the supply chain, and continual advancement. Hence, supply chain management methods are applied in the construction industry to analyze, coordinate and enhance construction supply chains. The applications are various, including: reduction of logistical costs, assessment of supply chains impacts on site activities to reduce the duration and site costs; transfer of site-based activities to the higher stages within the supply chain. In particular, supply chain management enables to save time resources and costs to increase and balance products with the estimated prices. At that, product and marketing developments regarding materials within the supply chains are becoming more efficient and effective. However, chain suppliers should beware of the insufficiency of logistical competence, competitive limitations, as well as the necessity of strong focus on the industry’s projects.

Within the framework of supply chains, modularity determines non-proximity of constituents, whereas integrality determines the degree of their proximity. The architectures involving products, processes, and supply chains should be considered within the integrality-modularity framework. Supply chain modularity determines labor division with clear allocation of duties among the companies and interactions among actors involved in the common process. At that, the separation between design and execution responsibilities is of paramount importance. On the contractual basis the companies are allocated specific responsibilities as a part of the same process. However, the ‘design-and-execution’ model enables the combination of the related as a part of modular supply chain. Therein, a single organization is responsibe for design and construction functions, for example. At that, the general contractor bears overall responsibility for project completion and coordination of design and execution functions and processes. Solutions to the related problems require modular approach towards reengineering, procurement process, logistics and product development programs. At that, various actors implement joint activities within the boundaries of sole chain to solve common tasks or problems. Therefore, the successful application of supply chain modularity in the construction largely depends on the actors’ ability to share common vision and develop the same approach to problem-solving and seeking new opportunities for further improvement.

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