Supplier Selection and Evaluation, Freight Management - Assignment Example

Executive Summary The feasibility of procuring machinery and components from overseas has immensely grown, and numerous products are now easily obtained from far away countries. The complexities of this process have increased with the increasing trend of procuring activities; companies must deal with numerous issues ranging from culture to language, currency differences, regulations, tariff, codes, terms, restrictions, and quota levels, among other issues. This organization requires transporting thermal coal on the forthcoming 500km railway which will run from the township of Alpha in central western Queensland to Abbot Point Port in northeast Queensland. This report will therefore describe the role of logistics management for this project, following the need to procure 40 standard gauge locomotives, 600 x 106-tonne wagons as well as their spare parts from Asia Pacific Rim Corporation. The report will focus on logistical issues such as procurement, sea/air inland freight management, activities at the ports, materials handling, warehousing and inventory requirements. Page of Contents Background Information………………………………………………………………………….3 Procurement ………………………………………………………………………………….…..4 Supplier selection and evaluation…………………………………………….………..….4 Terms of sale and payment……………………………………………………………......5 Freight Management ……………………………………………………………………………...6 Spare-parts Logistics……………………………………………………………………....7 Port Activities……………………………………………………………………..………………8 Materials Handling…………………………………………………………………………….….8 Warehousing and Inventory…………………………………………………………………….…9 Recommendations………………………………………………………………………………..10 Conclusion…………………………………………………………………………………….….11 References………………………………………………………………………………………..12 Appendix………………………………………………………………………………………….14 Background Information This project entails the logistics of procuring 40 standard gauge locomotives, 600 x 106-tonne wagons and their spare parts from Asia Pacific. The machinery and spare parts are to be delivered to the mine site in central western Queensland. The locomotives and wagons will be delivered on soon-to-be built 500km railway which goes from the township of Alpha in central western Queensland to Abbot Point Port in northeast Queensland. A review of the railway network in Queensland and the rest of Australia, given the international scale of this project, are fundamental. Australia has the following commonly used rail gauges: the standard gauge, the narrow gauge; and the Irish broad gauge covering a distance of 17, 678 km, 15,160 km and 4,017 km and with a gauge distance of 1,435 mm, 1,067 and 1,600 mm, respectively. The locomotives and wagons to be procured are standard gauge, therefore our focus will be on the standard gauge network. The standard gauge railway line network is used all over the National Railways’ interstate lines of Australia and allover New South Wales. This is also the primary gauge by the USA, Britain, Europe and many other nations. In the high speed lines of the France TGV, the Germany ICE and indeed the bullet trains of Japan, the standard gauge railway line is the most commonly used (infrastructure.gov, 2010). Since railway construction began in Australia in the 19th century, the standard gauge system was adopted from England and Europe and the broad gauge from Ireland were used by engineers in many parts of the continent. In Queensland, Western Australia and Tasmania, however, it was the narrow gauge system that was used in the mining and the timber cutting industries because of its efficiency with engineers who found it easier to construct because they required less earth to be cut out of the hill sides when building the lines (infrastructure.gov, 2010). Standard gauge in the state of Queensland is therefore not commonly used and is therefore key priority. The following key logistics areas are fundamental to this process. Procurement Supplier selection and evaluation Effective processes for supplier selection and evaluation are of vital significance for this project. This is because any mistake when making this decision has the ability of rendering the project ineffective and could adversely affect the strength of an organization in the chaotic competitive environment of the present day that has no tolerance for mistakes. Market globalization is increasingly quickening its pace, and has in effect increased the number of potential suppliers as well as the factors to put in consideration (Cheraghi et al, 2009).The supplier selection and evaluation processes have been influenced to a large extent by the emergence of Internet based technologies that have introduced new criteria to the supplier selection and evaluation process. According to a survey carried out of purchasing professionals, the Internet has emerged to be a supply management tool that has the potential of saving time, reducing costs, locating new suppliers and helping track the performance of suppliers therefore significantly contributing to a company’s profitability and competitiveness (Enarsson, 2006). The use of e-procurement, for example, has the potential of minimizing inventory costs as well as increasing cycle times, hence should be considered in this project. Hossein Charaghi et al have carried out a research on this process and have reviewed key factors that were published in the Journal of Applied Business Research under their article Critical Success Factors For Supplier Selection: An Update have identified a variety of factors that are fundamental in the selection and evaluation process of suppliers, comparing the factors as they were considered between the 1960s and 1990s period and the present time. The current ranking has listed Quality factor as the most important factor to put into consideration, followed by delivery, price, repair service, technical capability, production facilities & capacity, financial position, management & organization, reliability and flexibility as the top ten highest ranked factors. Quality tops the list and has done so for very many years. It is important to identify the following components that make up quality: quality of conformance, which states that quality is determined by the lack of defects; and quality of design, which states that quality should be measured by the degree of customer satisfaction with the characteristics and features of a product. In supplying products or services, there are three essential parameters that determine their saleability, namely: quality, delivery and price. Products of a given quality should be delivered by a given time and should be at a price that reveals value for money (Murphy & Wood, 2008). Terms of sale and payment The terms of sale determine the movements of products, hence effective logistics decisions need to be made as these decisions greatly impact the costs and service quality. This is emphasized by Donald F. Wood in the book International Logistics, where he writes that the terms of sale entail the cost of the product, the risk of physical loss, as well as the costs of moving the product from one location to another. It is worth noting that although terms of sale and payments deal with the responsibilities of all parties to the transaction, they form a complex subject on which no one individual is expert in because of the fact that they are often manipulated to meet specific objectives of the traders, as well as the fact that identifying the point of title transfer has resulted to many court cases and interpretations all over the world (Wood, 2002, p. 275). Ann Brewer et al in the comprehensive text: Handbook of logistics and supply-chain management provide that sufficient attention should be provided to the terms of sale and terms of payment, since they become challenging particularly when the buyer and seller come from different nationalities and when there are intermediaries in the transactions involved (Coyle et al, 2009, p. 158). One of the most important issues with regard to terms of sale and terms of payment is the many documents required in an international commercial transaction, with documents such as a certificate of origin, commercial invoice, an import license, insurance documents, an export declaration and a letter of credit being mandatory. The possession of all these documents is not enough; it is critical that they are produced at every suitable moment (Brewer et al, 2001, p. 66-67). So as to avoid unnecessary long and significant delays that can cost a transaction a fortune, strategic measures should be put in place to ensure there is adequate coordination of goods flow and that the document flow is smooth as well. Freight management Freight management is a key logistics issue that requires undivided attention. Freight management is basically a set of systems-based services that work together to ensure the highest level of transportation efficiency is attained. These services consist of freight consolidation, carrier selection, mode selection, managing risks, and freight optimization. Mode selection is supreme; the purpose of the mode selection process is to realize the lowest possible transportation cost with the greatest service benefits (Murphy & Wood, 2008). In our selection process, therefore, our freight management strategies should look at specific transportation issues. The Locomotives and Wagons for this project will be assembled and tested by an overseas manufacturer; therefore freight management is of vital consideration. The freight has various practical implications that need special attention, in spite of the fact that rail movements are almost unconstrained in terms of size, volume or rail gauge. Nonetheless, it worth noting that fixed tracks can limit the ability of locomotives and wagons to efficiently and effectively work. Another very important issue to put into consideration is the possible modes of transport, in which case considering the implications of the rail transport. The locomotives and wagons as well as their spare parts will be transported using rail transport, because of the benefits of rail mode of transport, such as providing cost-effective, energy efficient transport of products over long distances. The additional benefit of moving large containers in intermodal movements is also an important opportunity that we should maximise our investments on. So as to maximize the transportation of products using this mode, it is fundamental to possess railroad tidings, for example, so that it will be possible to provide door to door service, considering the fact that the in availability of sidings will require the movement of goods using other mode, an alternative that would significantly increase costs for the company (Murphy & Wood, 2008). Spare-parts Logistics Efficient spare-parts logistics is essential, since their storage and how they will be transported when the locomotives and wagons are in operation are competitive factors that will impact on their timely maintenance and their speedy installation, consequently affecting the competitive nature of the company. Before considering the logistics when the locomotives are already in operation, it is very important to consider the logistics of the manufacturer or supplier (Branch, 2008). The manufacturer, whose focus entails the provision of quality spare parts should be considered as well as the logistics of procurement, storage and the use of spare parts as part of regular maintenance strategies on the locomotives and wagons. Strong commitment is therefore very important so that optimum services from the spare parts can be realized. This will entail a committed investment in new buildings that will house the warehouse for spare parts. A building will be very useful to ensure that the spare parts are safely stored and to improve the efficiency of retrieval. The spare parts distribution system should also be restructured, so as to improve the efficiency. This has the potential of significantly reducing the logistical effort of the storage and use of spare parts, which will eventually lead to enormous savings for the organizations. Port activities The international context of this project requires a consideration of port activities as well. It is worth noting that supply chain efficiencies can be frustrated by policies set by organizations such as Customs authorities, immigration forces, security and safety authorities, transport regulators and environment regulators. Because of security scares there are increasingly calls for tighter regulatory measures across supply chain operations and particularly at national and international frontiers. Regulatory control is not new to international trade and one of the most significant operational challenges that have affected its efficiency is non-tariff barriers (Grainger, 2009). Although in the past international trade programs were mainly concerned with nontariff barriers and customs tariffs, in the present day, with waning customs duties, and the arrival of global production structures that has led to increased volumes of trade and complexity of supply chain management, the cost of meeting the terms of trade procedures, in place of paying customs duties, has become all the time more exposed (Grainger, 2009). Materials Handling Materials handling play a great role in the logistics of the project as they influence the speed of inventory movement across the supply chain. Strategic measures to ensure effective materials handling are very important, as an inappropriate method of materials handling will result to product damages and a setback in deliveries, and as a result, subsidiary overheads. Mechanization in materials handling should be implemented as it will enhance the productivity of the logistics system. Other issues that should be considered when a system of selecting material handling are the service level to be provided to the customers, the speed required for material movement, and the volumes to be handled (Murphy & Wood, 2008). The above discussed basic principles are important in the material handling technology, and the organization should indeed come up with strategies to ensure that materials are handled according to the locomotives and wagons, and classifications such as large and heavy parts, and components. Warehousing and inventory Warehousing can be described as the activity of storing goods pending consumption. There are various options available for us to choose from, these include building our own warehouse, buying stores premises or leasing a branch of warehouse for specified time duration. Selection of suppliers will involve choosing the supplier who is able to offer the needed warehousing services (Bolten, 1997). So as to provide a continuous supply of spare parts of the locomotives and wagons as well as other tools and supplies, inventories are fundamental top ensure that there are uninterrupted manufacturing activities that will ensure maximum benefits from long productions. Inventories will enable the prompt delivery of the products from the supplier, store locations as well as to respond to planned needs and emergencies. The following types of inventory are essential for the process (Langford, 2006). Raw materials - Raw materials must be readily available after the scheduling of raw materials; they will be stored near or at the manufacturing location in private warehouses. Supplies - are another type of inventory that assists the production process. Supplies inventories will be needed in this process as they will be needed to be kept near the organization’s location. Facility location- Facility location is another area that is very important to logistics. It is important to note that a change in site allocation can change the time as well as place relationships between the markets and facilities or between the supply facilities and points (Bragdon, 2008). Such changes greatly impact transportation services and costs, as well as services and elements such as customer service and inventory requirements. Repair and replacement parts- Repair and spare parts are very important because they are needed to maintain the machinery of a company as well as the equipment. They will play a great role in repairing the supplied locomotives and wagons. It is very important to note that the level of parts inventories is very difficult to forecast, because of factors such as unforeseen events for example breakdowns and accidents lead to uncertainties. However, strategic measures will be needed to determine when the machinery wears out s that maintenance programs can be adopted and implemented. This will therefore require that locomotive manufacturers study and determine the parts that will require periodic replacement or the parts that will be damaged more frequently so as to develop sophisticated and efficient replenishing formulas (Murphy & Wood, 2008). Recommendations The most important principle recommendation that should be implemented in this project is that because of the fact that it is very early now and the infrastructure that the locomotives and wagons will be use has not been developed yet, the locomotives and wagons should not be delivered before the infrastructure is set up. Other recommendations follow: With regard to material handling, the following recommendations have the potential of significantly cutting the costs of the organization: The handling activities should be reduced to the lowest cost. The relevant distances should, be as short as possible So as to avoid lifting and lowering, the courses used should be on the same level as much as the layouts can allow Materials should be kept in activity for the longest time possible once started in motion. The equipment for materials handling should be standardized to the highest level possible. The mechanical and automatic strategies of materials handling should be implemented at all times when the routes of travel and work volume give good reason for the investment. Gravity flow should be incorporated at any time when practical The largest investment should be in movement systems not stationary equipment When selecting equipment, an effort should be made to curtail the ratio of dead weight to payload. The logistics issues discussed in this report are fundamental for this project and should therefore be taken into consideration when planning for the project. The listed principles of freight management, for example, are fundamental for the successful delivery and most importantly, ensuring that they will be delivered safely because of efficient risk management processes and at the lowest cost possible. Each of the issues examined in the report is fundamental and should be comprehensively considered because the successful procurement of the locomotives and wagons will require the blending of all the issues. By effectively managing each issue mentioned above, this will ensure that there is safe and effective procurement processes that will propel the organization forward to a competitive advantage in the market. References Bolten, E. F. (1997) Managing time and space in the modern warehouse: with ready-to-use forms, checklist & documentation, New York: AMACOM Div American Mgmt Assn. Bragdon, C. R. (2008) Transportation security, New York: Butterworth-Heinemann. Branch, A. E. (2008) Global Supply Chain Management and International Logistics, London:Taylor & Francis. Brewer, A., Button, J. K. & Hensher, D. A. (2001) The Handbook of logistics and supply-chain management, Bingley: Emerald Group Publishing. Cheraghi, H., Dadashzadeh, M. & Subramanian, M. (2009) Critical Success Factors For Supplier Selection: An Update, Wichita State University. , Journal of Applied Business Research Volume 20, Number 2 Retrieved September 20: Coyle, J., Bardi, E. & Langley, C. J. (2009) Supply chain management: a logistics perspective Cengage Learning. Enarsson, L. (2006) Future logistics challenges, Copenhagen: Copenhagen Business School Press DK. Grainger, A. (2009) Supply chain management and regulatory controls: a Case for trade facilitation, SITPRO (Simplifying International Trade), Deputy Director Trade Procedures, Birkbeck, University of London. Infrastructure.gov (2010) Retrieved September 20: Langford, J. W. (2006) Logistics: principles and applications, McGraw-Hill SOLE Press series, Avenue of the Americas: McGraw-Hill Professional. Murphy & Wood, (2008) Contemporary logistics - international edition, 9th, Pearson Prentice Hall, Upper Saddle River. Wood, D. F. (2002) International logistics, AMACOM Div American Mgmt Assn. Appendix Map of Queensland showing the route of trains in the area Source:www. railaustralia.com Rail maps of Northern and Southern Queensland (railmaps.com.au) Read More