How ORC Can Attain Low Costs, Place Utility and Time Utility - Case Study Example

Logistics Management Student’s Name Course Tutor’s Name Date: Introduction As Internet usage for business activities increases, so too are the potential business opportunities therein. Notably, for any company that has a product or service to sell, the distribution method is crucial since it determines whether the consumers will get their preferred products or services to the right location in the right time in a manner that serves customer demand effectively. The newly created online retailing company (hereunder ORC) featured in the case study, just like the traditional retail companies has to move products and materials from the manufacturer to the consumers. As such, logistics will be an important function in the movement of goods and services, just as is the case in the brick-and-mortar retail companies. It has been argued that compared to the traditional distribution channel, the Internet will provide “wider coverage with lower operation costs” (Rao, Goldsby & Iyengar 2008, p. 107). However, the lower operation costs can only be realised by retailers if they strategically choose their suppliers, and if they strategically manage the supply chain. Similarly, retailers that want to attain place and time utility must also engage in strategic management practices that will enhance their chances of realising their objectives. This essay offers details about how ORC, which is the subject of the case study, can attain low costs, place utility and time utility through: supplier selection; international transport; and Australian customs, quarantine and inspection clearance. Supplier selection According to Beil (2009, p. 1), supplier selection “is the process by which the buyer identifies, evaluates and contracts with the suppliers”. Some of information sources from which ORC can obtain information regarding potential suppliers include Internet research, trade fares, service providers, business networks, and existing databases such a trade directories. In order to ensure that the Singaporean suppliers have the desirable expertise and knowledge to deliver on ORC’s objectives to attain low costs and add value to place and time utility, the company must identify qualified potential suppliers, evaluate them, and choose the supplier that is most capable of attaining the company’s objectives. Low cost For starters, being an online retailing company, ORC will need to ensure that the Singaporean supplier has technologies that can meet the demands of online retailing. The demand for online retailing capacity will be the most basic requirement for the suppliers; however, ORC will also need to screen Singaporean suppliers to ensure that they have the capacity to deliver the desired (identified) goods at the right time, in the right condition, and at an agreed price. In other words, and as aptly stated by Beil (2009, p. 4), the supplier will need to be screened in order to reduce the “likelihood of supplier non-performance, such as late delivery, non-delivery, or delivery of non-conforming (faulty) goods”. As indicated by Hedderich, Giesecke and Ohmsen (2006, p. 2) in reference to supplier selection in China, supplier selection is “...the art of filtering out the suitable suppliers”. Singapore is no different, and ORC will undoubtedly engage in the art of filtering out different suppliers in search of the right one. Notably, in order to determine the best suited supplier, ORC will need to engage in a typical search process which includes product analysis (in which case the identified Singaporean supplier will be needed to supply car accessories, leisure products, and electrical household items as identified in the case study); supplier identification; supplier evaluation; and supplier selection. In relation to product analysis, some of the major aspects that ORC should consider when determining its suppliers include: labour content (this is because in most Asian countries, wage cost is a major determinant of the overall product cost [Hedderich et al. 2006, p. 2]); cost-saving potential (i.e. ORC should consider the purchase price plus quality, administration and logistics costs) in order to determine whether sourcing products from Singapore will avail the desired cost benefits to the company as indicated by Tracey and Tan (2001); purchase volume (since ORC is just starting off, it will need to find suppliers who can agree to low volume purchases released in small batches) – as indicated by Hedderich et al (2006, p. 2), some large suppliers refuse business with small companies, and may even charge higher prices in order to deter small orders. Place Utility One of the ideal ways by which ORC can enhance its possibility of attaining place utility is to ensure that the products supplied by the Singaporean supplier conform to Australian standards. In other words, ORC should be ready to provide product specifications to the Singaporean supplier(s) in order to ensure that they understand the Australian import standards, and are willing to abide by the identified standards. In other words, the supplier(s) must be made to understand the various Australian import requirements. For example, the “minimum documentary requirements policy” in Australia makes it mandatory for imports to have the company name, address, electronic signatures, and meet Australia’s import conditions among other specifications (Commonwealth of Australia, 2012a). Time Utility ORC can ensure that products are available when the customers need them hence time utility by ensuring that suppliers are able to live up to the demand patterns of identified products and that the products are supplied in good time hence – short lead times (Aguezzoul & Ladet, 2009, p. 2). For example, an increased demand for leisure products would coincide with the holidays, while the demand for car accessories and electrical household devices is continuous and predictable. ORC would hence have to share market insight with the supply chain to make it easier for the suppliers to increase their production and shipping of specific items at specific times in order to utilise increased demand for the same products in the market. The above identified factors in product analysis would indubitably enhance ORC’s position in relation to obtaining low costs, place utility and time utility. As indicated by Bhutta and Huq (2002), in order to attain the goals of consistent high quality, low costs, and quick and flexible delivery, organisations need to adopt supplier selection approaches that foster cooperation in the business-supplier relationship. Specifically, it is argued that the business has to cooperate with its suppliers in areas such as expertise, benefits, and costs (Bhutta & Huq, 2002). Additionally, the business and suppliers need to understand each other’s strengths and weakness, since only such understanding can foster long-term partnerships, which can culminate in single sourcing (Bhutta & Huq, 2002). International transportation from Singapore to Australia Transport is critical in moving products from suppliers to buyers (Aguezzoul & Ladet, 2009, p. 10). With this in mind, ORC has two viable options of moving products from Singapore to Australia: by air or by sea. Although fast, air transport is not convenient for bulky or heavy goods, and also has the disadvantage of high-cost involvement. On the counter side, sea transport is slower but cheaper and is better at handling bulky or heavy imports. Low cost To attain low cost in international transportation, ORC needs to consider several things as indicated by Hedderich et al (2006, p. 76). These include the geographical proximity of the two countries, the transport connections, the delivery terms, the logistics costs, and the warehousing costs. Lambert and Stock (1999) further states that transporting products that have high value per tonnage is less costly compared to transporting products that have low value per tonnage. This therefore means that if a product’s value per tonnage can justify its being transported by air (especially if there are urgent orders), then ORC should be willing to arrange for such transport. The same however does not apply for products that have low value per tonnage, which even if availed fast, may not be profitable to ORC. In normal times however, ORC and its Singaporean supplier(s) should be able to forecast demand and arrange for products to be transported via the cheapest transport system. Place utility To attain place utility, ORC will need to ensure that the products are available as and when needed by customers. In other words, the distribution system within Australia will need to be effective in order to ensure that customers’ requests are delivered in good time. Again, this is an aspect of logistics, in that customer requirements must be made available in the different locations where they are needed. In an online environment, the dynamics of place utility especially regarding international transportation is complex, in that it is determined by the effectiveness (or lack thereof) of the import infrastructure. Such include cargo dispatch from Singapore, the mode of transport and the speed thereof, cargo handling at the point of entry in Australia, storage, clearance, and navigation to retail outlets in Australia. In addition, ORC may need to choose a logistics provider who can offer services such as inventory taking, inspection of goods, labelling, packing, order taking, bar coding, customising some of the products, and even picking and returning empty packaging material, adding instructions/manuals, and/or training customers about the product if need be (Chopra & Mieghem, 2000; United Nations, 2003, pp. 27-28). Time utility Realising time utility in relation to international transport is linked to multiple factors which include the demand prediction, and coordinating multiple players in the supply chain in a manner that ensures that the products are availed to the customers when they need them. Ideally, all delivery schedules should be arranged in a manner that ensures that the retailer never runs out of stock (Fang & Ng, 2010, p. 12). Australian customs, quarantine and inspection clearance Ideally, the imported products and services should conform to the Australian customs, quarantine and inspection requirements in order to avoid extra costs, delays, and inconveniences. Low cost ORC can keep costs related to customs, quarantine and inspection down by avoiding: importation of goods prohibited from Australia and products that require treatment in order to avoid the accompanying charges. Additionally, ORC and its Singaporean supplier(s) should ensure that the packing list clearly identifies the imports, is accurate and matches the identification of the cargo (Commonwealth of Australia, 2012b). Place utility Ideally, the less time the imports take at the customs, the better it will be for purposes of enhancing their place utility. Ensuring that the packing list is accurate, identifying the contents of the cargo accurately, and identifying packages that may contain goods that are subject to quarantine are just some of the actions that the Singaporean Supplier(s) can abide by in order to enhance faster inspection and clearance at the goods’ point of entry, hence enabling distribution. Time utility Time utility in regard to customs quarantine and inspection clearance is closely related to practices defined in ‘place utility’ above in that factors such as ensuring that the packing list is accurate, identifying the contents of the cargo accurately, and identifying packages that may contain goods that are subject to quarantine enables timely distribution of products and hence their availability to customers Conclusion Overall, it can be seen that attaining low costs, place utility and time utility at supplier selection, international transport, and customs inspection and clearance of cargo takes will take effort from ORC. Further, it seems that the relationship that the company will forge with its Singaporean supplier(s) will play a critical role in enhancing how economical and fast the cargo will travel through the transport system into the point of entry into Australia, and finally to the retail outlets ready to be disbursed to interested customers. For example, by cooperating with the Singaporean suppliers in upholding or abiding by customs and imports, ORC will have avoided any delays in clearance of the cargo, which may not only end up increasing import-related costs, but also delaying distributions and hence jeopardising the place and time utility of the products. In the end, it is evident that low costs, enhanced place utility and enhance timed utility in every stage of the supply chain management will to a certain degree assure ORC of profits. However, and as marketing theory would indicate, other aspects of the marketing mix such as pricing and promotion must also be addressed if profit prospects are to be enhanced fully. 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United Nations 2003, Commercial development of regional ports as logistics centres, United Nations Publications, Thailand. Read More