International Logistics in the Manufacturing Industry - Tate and Lyle - Case Study Example

?International Logistics Introduction The manufacturing industry is one of the most important industries for the circulation of goods and products for domestic and commercial use. Indeed, in the absence of manufacturing, the needs and wants of people would hardly be met. Other industries would not also get their raw materials to undertake major duties, should manufacturing seize. It is for this reason that the survival of the manufacturing industry is extremely important to the growth of global economy. It is therefore not surprising that several national economies focus most of their attention on growing manufacturing industries and revamping least performing once (Yankson, 2005). As much as governments try to sustain the manufacturing industry in various global economies, it is also imperative that individual manufacturing companies themselves put in place structures and systems that would help in ensuring that they experience growth and stability. There are several economists and industrial managers who point to a number of ways and strategies that can be used by manufacturing companies to ensure rapid and speedy growth. Among these is the need to have a generic strategy that puts a company at a better competitive advantage over rival companies. In the case of Tate and Lyle, the company has among its internal structures for growth, the adaptation of inventory hosting. Though several theorists are not in support of inventory holding for modern economic practice, Tate and Lyle depends on this in warehousing facilities. This essay shall there assess the most economic manner in which the company can manage its warehouses and make the best out of it. Overview of International Logistics There are laws and regulations that guide the general shipment of goods and products across waters. These laws and regulations are controlled by international bodies with international statues to ensure that there is absolute compliance to the laws and regulations. The laws and regulations are also given an international appeal to focus inter-national uniformity, harmony and cohesion. Indeed, it would be troubling if an exporter should have to deal with different regulations and laws on the shipment of goods and products once the exporter moves from one country to the other. Most of the laws and regulations that boarder on international shipping are on packing, labeling, documentation, and insurance requirements and this is the basis for international logistics (Incoterms, 2010). In the bid to ship or export products also, exporters are opened to four major alternatives in the form of shipping they would want o undertake. These forms include the arrangement of personal shipping, the reliance on freight forwarders, using the services of the Shippers Association and choosing express delivery and mail services. It is important however to note that notwithstanding the form of shipping selected, the basic international logistics (laws and regulations) remains unchanged. The implication of this to Tate and Lyle, which has selected to rely on the shippers’ association by requiring the co-operation of the Port of London’s tugs to ensure their safe navigation, it is very important that the company put structures in place to ensure that it is confirming to international logistics and not breaking these in anyway. This way, the company can win the trust of customers over other competitors and ensure massive growth and development in its manufacturing and shipping services. Background to inventory holding and warehousing in the manufacturing industry Contrary to modern advocacy against inventory holding (Hanson, 2006), Tate and Lyle rely and practice warehousing to a very large extent. Before touching on the merits and risks with their decision, it is just right to mention that Tate and Lyle are only holding on to a practice that has been in the industry for such a time. The Management Study Guide (2012) notes that though companies may have varied and overlapping responsibilities, “some key aspects like supply chain management, logistics and inventory form the backbone of the business delivery function.” This assertion explains the importance of inventory holding to a company like Tate and Lyle. Specifically with inventory holding, it has been touted as having the power of determining the health state of the supply chain as well as impacting the financial health of the balance sheet of the company (Management Study Guide, 2012). This means that the company cannot operate and run a supply chain without a strong inventory management. Defining inventory as “an idle stock of physical goods that contain economic value, and are held in various forms by an organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time” (Management Study Guide, 2012), it would be just right to say that Tate and Lyle implement inventory holding through warehousing as the company takes stock through the warehoused products. The threat, however, has to do with the fact that inventory holding has been described in different literature as being a necessary ‘evil’. The mark of ‘evil’ simply means that there are ways that Tate and Lyle must trend to ensure that it avoids the demerits associated with warehousing and inventory holding in general. The following sections address these cautions. Merits of Tate and Lyle adapting Inventory Holding (warehousing) as a logistics strategy There is an African proverb that states that a person does not sell his hen for nothing when there are cocks. Indeed, Tate and Lyle would not hold inventory and adapt warehousing as a logistics strategy against expert caution if there were no positives the company gets out of the venture. First, the act of warehousing as an inventory holding strategy has the potential of playing a multi-purpose and multi-dimensional role for the company. It is, therefore, advocated Tate and Lyle and explores the numerous ways in which their warehouses could be designed in ways that serves purpose of just the holding of products awaiting inventory. For instance as a larger producer of sugar products and in the midst of limited space in the trade sector of most supplying countries, the company could double the function of its warehouses as retail centers. In the diagram below, a modernized warehouse structure is exhibited to explain the multi-dimensional state that warehouses could take. Source: Rajuldevi, Veeramachaneni and Kare. (2009) In the diagram, it can be seen that the warehouses are equipped with large and heavy duty industrial racks, with a dispensary system, whereby products that are ready for sale could be placed beneath palletized and wrapped inventory items, which are placed on top of the racks (Rajuldevi, Veeramachaneni and Kare, 2009). Again, there is a major advantage of inventory holding through warehousing and this advantage has to do with the fact that companies can depend on inventory holding as a “hedge against various external and internal factors, as precaution, as opportunity, as a need and for speculative purposes” (Management Study Guide, 2012). Already, it is known that Tate and Lyle undertake both raw material and finished product inventory warehouses. This means that the company can easily meet all forms of variations that may arise in the course of production and industry demand. For example when there occurs a season when sugar products such as those produced by the company runs into scarcity, the company would be in an excellent position to meet up the artificial increase in demand that would be created as a result of the warehousing system that it runs. What is even more, the company has the advantage of not having to buy raw materials in bits but depend on their inventory stock and this would save them from higher expenditure because the act of spending in bits is generally more expensive than when purchases are made in bulk (Gauja, 2006). The simple principle underlying this phenomenon is in the fact that when the company have to purchase raw materials in bits, it would have to do so against changing rates in inflation, exchange rate and other economic indicators that determines the prices of goods and services. Warehousing and its role in generic strategy for Tate and Lyle If Tate and Lyle would want to maintain its present strategy of depending on warehousing, then there remains so much that the company should do to maximize the advantages and merits involved – especially over other competing companies. One of the simplest ways to do this is to channel the warehousing and inventory holding principle into the generic strategy of the company. There are three generic strategies available to the company and these are differentiation, low cost and best value (Mind Tools, 2012). Relating the inventory holding principle to these generic strategies, it can be seen that once the company has the advantage of keeping their products in bulk and thus defeating market price determinants like inflation, exchange rate and interest rate, which affect prices of goods, the company can still be in an excellent position to keep the prices of their products very low when prices are high on the general market and among other competitors. This way, it would be true to say that the company is in a very good position of adapting the low cost generic strategy. Without any doubt, the global economic crunch that was experienced some years ago continues to cast its shadows on buyers today. Because of this, most buyers are always looking for means to create value out of their money (Gilbert and Roberts, 2007). This way, they seek after cheaper goods that can assure them of quality. As long as this assertion continues to prevail, Tate and Lyle as a company have a major advantage over their competitors because they will be commanding a lot of customers in the industry. Challenges in adapting Inventory Holding (warehousing) as a strategy Having outlined the importance and merits of inventory holding by the use of warehousing as a strategy, it is also very important and necessary to point out some challenges and cautions that need to be taken in the implementation of the strategy. To Tate and Lyle, adhering to these red flags would be an indication for them to be masterminding prudent ways of ensuring that they cleave on to the first position they hold in the sugar product manufacturing industry. This is because the challenges will be pointing out to loopholes that they need to block so that their competitors do not take advantage over their weaknesses. The first of such challenge has to do with having an effective inventory management in place. As a matter of fact, inventory holding should be recognized by the company as part of the supply chain and the core corporate management responsibility of the company. To this end, every attempt should be taken to ensure that the company does not practice inventory holding without any specifically laid down management principles. The Management Study Guide (2012) notes that it takes only an effective inventory management system to ensure that there is a balance in the inventory holding to ensure that optimum inventory levels are achieved. The guide continues to warn that any excess inventory will result in incremental costs of maintaining inventory and affects the financials of the company as it blocks working capital. Tate and Lyle are, therefore, advised to have a whole management team that is controlled by learned professionals in the area of corporate accounts and finance to ensure a smooth running of the inventory holdings of the company. Another visible challenge with the adaption of inventory holding that Tate and Lyle must avoid at cost has to do with the use of inventory holding as a cover up for inefficiencies in the industry (Huggain and Maxwell, 2004). Research has showed that when internal systems do not work well and supply cannot be effectively resourced, inventory managers tend to use inventory holding as a means of creating safety stock. Meanwhile, the true motive behind inventory holding and warehousing for that matter should not be for the creation of safety stocks or having an inventory buildup. Rather, it should be for the storage of readily available finished products for onward delivery. As a manufacturing company, the need to also sell out stock to make way for further production is the most viable way to ensure continuous amassment of revenue. If inventory managers are not checked to ensure that they become proactive towards their responsibilities but use up inventories to cover their inefficiencies in supplying then the company has a lot to loss. One other major challenge has to do with the security of warehoused products. Once inventory are kept over very long period, the need to increase security becomes eminent. This is because the Management Study Guide (2012) cautions that “inventory over a period of time is susceptible to loss, theft, pilferage and shrinkage.” The cost of security could also be very expensive for larger companies like Tate and Lyle. In fact these security systems may add up to more than a third of their original cost (Jamasi, 2001). Competitive analysis of Tate and Lyle in the face of their current strategy Tate and Lyle have several competitors in the sugar product manufacturing industry. Most of these companies are well structured across the globe and have all intensified means of ensuring that they match the company boot for boot. Examples of these competitors include Samyang Corporation, Daesang Corporation, xingtai jingjing pharmaceutical co., Ltd, just to mention a few. In terms of strategies it would be seen that many more of the companies are strategizing to get more advanced and sophisticated with inventory holding. There are some others who have also opted out of inventory holding and ventured into Just in Time (JIT) techniques of meeting the needs of their wholesalers. With any of these two strategies, Tate and Lyle Company really have a lot to look out for if it wants to match up the competition. The company is strongly admonished to fasten its warehousing system to ensure that modern theories in warehousing are stacked to. A lot of these theories focus on the need to match up the traditional system with technology to create a readily available supply system. For instance, Samyang Corporation is noted as enhancing its warehousing system with an electronic commerce facility whereby suppliers are able to trade directly with the company through e-trading (Trade Korea, 2012). This way, the company leaves the responsibility delivery into third party companies. The company is therefore able to have sufficient time to run internal processes of actual manufacturing. Daesang Corporation, on the other hand, uses Just in Time system of supply and ensures that supply is made just in time as customers put up the demand. This way, customers have no need to worry about delay in delivery of products. Theory of warehousing to Tate and Lyle’s products It has already been stated that the company needs to adapt itself to modern theories of warehousing. In this section, two of such theories are briefly discussed with ways of maximizing any of the theories to the advantage of Tate and Lyle. The first has to do with centralized warehousing. In this system, the guiding principle has to do with good economy, control and efficiency. These are achieved because companies practicing the centralized warehousing allocate the warehousing services to one particular business unit, which provides services to the entire company (Mahesh, Ranjit and Sridhar, 2009). In terms of decision making, policies are created at the centralized point and disseminated to the whole network. The merits of centralized warehousing includes improved productivity through balancing, the bundling of product flows, combined use of production flows, control on the system, uniformity in the process and improved efficiency (Mahesh, Ranjit and Sridhar, 2009). One other system is the opposite of centralized warehousing, which is de-centralized warehousing. In this system, individual businesses units in the company are given the autonomy to manipulate their own resources without any coordinated considerations over the other units. This leads to the creation of many isolated units of warehousing units and could therefore be expensive. The advantages however include the facts that the system allows for rapid adjustment to changes, flexibility and innovation. These are achieved because there would be different personnel and experts handling different affairs of the company at any given time (Jamasi, 2003). Again, there is very little probability that the company would experience a generalized failure, should something go wrong with the inventory holding. In case of any failure, it would be only specific unites that will be affected. Even more, there is low startup cost and customization and catering to individual needs if possible (Mahesh, Ranjit and Sridhar, 2009). Conclusion This essay has been backed by a consented effort to critically review how the adaptation of inventory holding and for that matter warehousing as a strategy by Tate and Lye can be utilized as an effective means of ensuring that the company gets the best out of the strategy. By and large, it can be concluded that contrary to current literature that advises against inventory holding, the company could still hold on to the strategy as a means of securing the generic strategy of low cost. This is because through inventory holding, the company would be in a better position to meet the demand and pressure of wholesalers even when stocks run short and other suppliers are increasing the cost of their products. In such times when companies are increasing prices, the company could still keep its prices low as a major competitive advantage over other companies. In the midst of all this, it is being cautioned that there remains very crucial challenges that the company needs to look at for. These challenges must be addressed with the prevailing market forces in mind. The challenges must also be taken with the strategies being used by other competitors in mind. On the whole, the company may adapt itself to either the centralized or decentralized theory of warehousing. Judging from the merits that exist among the two, however, the writer suggests that the company adapts the decentralized system. REFERENCES Gauja, A., 2006. Enforcing Warehousing? Towards a regulatory of intra-industrial management. Canberra: Democratic Audit of Australia. Gilbert, B. & Roberts, W. (eds) 2007. The Oxford companion to Canadian Warehousing. South Melbourne: Oxford University Press. Hanson, H., 2006. Inventory Holding: the wrong message. Canberra: Democratic Audit of Canada. Huggain, S. & Maxwell, G., 2004. American Industrial Practices. AQ: American  Quarterly, 56:1, pp 30-40. Incoterms, 2010. International Logistics [Online] Available at http://export.gov/logistics/index.asp [Accessed April 15, 2012] Jamasi, D., 2001. The Modern Manufacturing Practices, South Melbourne: Macmillan. Jamasi, D., 2003. The Theory of Warehousing, South Melbourne: Macmillan. Mahesh K. R., Ranjit V. & Sridhar K., 2009. Warehousing in Theory and Practice. [Online] Available at http://bada.hb.se/bitstream/2320/4995/1/Kare%2c%20Kumar%20Rajuldevi%2c%20Veeramachaneni.pdf [Accessed April 15, 2012] Management Study Guide, 2012. Inventory Management. Available at [Online] http://managementstudyguide.com/inventory-management.htm [Accessed April 14, 2012] Management Study Guide, 2012. When to avoid holding Inventory. [Online] Available at http://managementstudyguide.com/when-to-avoid-holding-inventories.htm [Accessed April 14, 2012] Mind Tools, 2012. Porter's Generic Strategies: Choosing Your Route to Competitive Advantage. [Online] Available at http://www.mindtools.com/pages/article/newSTR_82.htm [April 14, 2012] Trade Korea, 2012. Sugar: Products, Manufacturers, Suppliers, Exporters. [Online] http://www.tradekorea.com/products/153408/Sugar.html [Accessed April 15, 2012] Yankson, J., 2005. Corporate Legal Practices in Inventory Holdings, Canberra: Democratic Audit of Australia. Read More