A Bar of Cadburys Milk Chocolate - Assignment Example

A bar of Cadburys Milk Chocolate Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 11th December 2012 Introduction Supply chain management (SCM) is a combination of processes involved in transforming raw materials in to finished products and services. SCM helps firms to balance the relationship between profitability and satisfaction of consumer needs. When a company’s sections work together firms are able to increase revenues, regulate costs and meet consumer needs. Cadbury is a multinational company that produces Cadbury Milk Chocolates. The process of supply chain in producing Cadbury Milk Chocolates should be efficient, affordable and able to offer high quality products and services to customers. A supply chain combines raw materials, suppliers and manufacturers of different components and retailers. This kind of vertical integration and new product timing creates product competitiveness. Vertical integration helps to reduce market uncertainties. This is achieved by controlling distribution channels that are involved in production of new products. Vertical integration creates effectiveness and efficiency. However, it creates an “inward” internally focussed company (Wailgum 2008). This tends to make the company to focus on maximisation of its products by copying them across various business lines. The aim of this study is to analyse the supply-chain management processes involved in the Confectionary industry. The main product to be involved in this study is the bar of Cadburys Milk Chocolate. This product is made from real chocolate. Some of its ingredients are cocoa, butter cream dairy milk and palm oil. The value adding processes in the supply chain and the nature of the transforming processes in the chain are also examined. The paper has also studied where and how inventory is managed and the role that technology plays in the supply chain. Lastly, the paper examines the risks involved in the chain and the impact of supply chain on the environment. The Supply Chain and the linkages between products, suppliers, manufacturers and retailers in the chain Source: (Beamon 1998) Supply Chain involves several processes that link products, suppliers, manufacturers and retailers. This makes it necessary for companies to manage all the resources involved in meeting consumer needs. Suppliers start the supply chain by providing the raw materials necessary in the production process. The manufactures form the second level of the chain by buy the suppliers’ produce. The retailers form the third level of the supply chain. There may be more than one level of retailers. The consumers are the last in the supply chain. Production Planning and Inventory Control Process: businesses aim at responding to consumer needs by introducing new products into the market. This creates the need for involving various suppliers and consumers in the development of a new product. Production planning entails design and management of the manufacturing process (Beamon 1998). For example, the production of Cadburys involves coordination of the procurement and production departments. Suppliers provide raw materials involved in production of Cadburys Milk Chocolates. Some of the suppliers are the farmers and milk creameries who supply fresh milk, cocoa, palm oil and other products. This process also entails inventory control which designs and manages the storage policies and procedures for converting raw materials to final products. The final products can be transported to the retailers directly or they can be stored in distribution facilities. The distribution facilities eventually transport products to retailers. The management of inventory, transportation and delivery of final product is essential in this stage (Beamon 1998). Distribution and Logistics Process: this entails retrieving products and transporting them from the warehouse to retailers. Once the Cadburys Milk Chocolates are produced they are sold to retailers. Some of the retailers are the supermarkets, restaurants, cafes. Some retailers also use mobile trucks to distribute the products to consumers. These act as the next to final destination for any given product. It is from here that consumers buy finished products. There are other retailers that distribute their products door to door or to convenient customer locations. This reduces the time spent between production and consumption. It also increases demand. Some retailers establish warehouses to store goods that are awaiting sale. Invoicing and receipt of payments occurs during this stage. Supply chain also involves the return process. Some companies have to organize a way of receiving back excessive produce. They may also need to provide support in form of repair of faulty products. For example, Cadbury may organize to have stale chocolate bars returned back for replacement (Beamon 1998). The value adding processes in the chain Products and services flow downstream the supply chain while money flows upstream the supply chain. Information on the other hand flows both upstream and downstream. Value is can be defined as “what you get” versus “what it costs”. “What you get” involves products and services of preferred quality, reliable processes and production of products that meet consumer needs. For example, in the production of Cadbury Milk Chocolates, Cadbury produces high quality products with the desired sugar to chocolate to milk ratio (Clements 2007). The milk flavour creates the signature taste that distinguishes Cadbury’s Milk Chocolates from other milk chocolates. This creates the preferred quality that can meet consumer needs. “What it costs” involves costs of producing goods and services, lead time (time between delivery and payment), indirect costs of production and service requirements. For example, during production of cadburys, there are costs of buying sugar, cocoa and milk. Additionally, there are indirect costs of production such as labour and materials such as machinery (Clements 2007). Lead time between order and delivery of production facilities is also a cost that Cadbury incurs. The company also incurs costs related to servicing of its machinery. Value is attained when the benefits of producing Cadbury Milk Chocolates exceed the costs incurred in the production. In order to achieve value in the supply chain Cadbury reduces inventory, labour and financing costs. On the other hand, the company improves its cash flows, lead times, product profitability and the general company and product reputation (Clements 2007). The diagram below shows flow of products and services between suppliers and consumers: The green arrow shows the downstream flow of products or raw materials from suppliers to consumers. The blue arrow shows the upstream movement of information and money from customers to suppliers (Clements 2007). Source: (Beamon 1998) The nature of the transforming processes in the chain Transforming processes in production involve changing inputs into outputs. Cadbury Milk Chocolates are produced by transforming raw materials such as cocoa and milk in to chocolate bars. There are transformed and transforming resources in a given production process. The transformed resources are treated inputs such as materials, information and customers. Materials can be transformed by manufacturing them, transporting them, owning them (retailers) or by storing them (warehousing). For example, the milk, sugar and cocoa are transformed when they are manufactured in to milk bar Cadburys. Additionally, they get transformed when they are transported to various retailers such as supermarkets (Simonson 2009). The retailers transform the Cadburys by owning them and storing them. The consumers also transform the products by buying and consuming them. Information can be transformed by professionals such as accountants who compile and compare sales figures with costs. The transforming processes carry out the transformation process. The main transforming processes are facilities and labour force. Facilities include buildings, technology and machinery involved in producing Cadbury Milk Chocolates. Staff or labour force partake the operations process by transforming raw materials in to finished products. This is made possible by use of the transforming facilities. The nature of facilities and staff differs with the nature of operations (Simonson 2009). For instance, staff that work in a factory producing Cadburys need high levels of technical skills. On the other hand, staff that work in an accounting firm will need high level skills and experience (Simonson 2009). For example, Cadbury employees are required to determine the correct ratios required in production of Cadburys. They also determine the duration that it should take to manufacture a given Chocolate Milk bar. Therefore, the transformed and transforming processes have to work together to produce high quality milk bars (Spaulding 2003). Where and how inventory is managed There are various methods of inventory management. One of the approaches used is the Vendor Managed Inventory (VMI). This is also known as supplier-managed inventory. In this case the manufacturer makes inventory replenishment decision for the consumers. Therefore, the supplier observes the buyer’s inventory levels and delivers resupply units periodically. As a result, the buyer’s orders are initiated by the supplier. Some of the producers of Cadbury use this strategy in order to make sure they do not run out of stocks. For example, Cadbury uses this strategy in order to ensure that there is enough stock in the market. This strategy is also referred to as match strategy. This is a moderate approach that ensures there is no wastage or excess supply. This is because the company only produces what it requires and it only sells what is demanded. Cadbury also employs the lag strategy of inventory management. This entails adding capacity only when the organisation is operating at full or beyond capacity. This is meant to increase demand. Though a conservative approach, this strategy may lead to loss of expected customers. The other inventory management strategy used by Cadbury is the lead strategy. This involves adding more production capacity in expectation of increased demand. This approach is aggressive and its main aim is to lure customers from competitors. However, it results in to excess inventory which is wasteful and costly. Just in Time Inventory Management system in the Cadbury industry would not work because there should always be supply in the market. Therefore, Cadbury manufacturers use one or more of the other methods to manage inventory with their main aim being to remain competitive. The role that technology has within the supply chain A supply chain involves all the processes from production to sale of a given product. It has become necessary for manufacturers to pool resources necessary in production. Supply chain has become essential for manufacturers to reduce costs and to maximize profits. Therefore, in order for manufacturers to establish a proficient supply chain network, they need to establish an effective information technology system. Information enables managers to determine the level of market demand, stock levels, order time, the amount to order and the shipping time. This brings in the role of IT in the supply chain. For example, through IT a Cadbury manufacturer is able to determine the level of milk chocolates available, the market demand and consumer feedback. This information can enable the manager to analyse consumer demand and determine the right time to order for inventory. Some of the soft wares that are used in supply chain management are the ERP (Enterprise Resource Program) software. This software helps companies to improve data integrity. ERP is real time which means it can make optimum decisions. It enables electronic data interchange which enables employees to improve their relationships with suppliers. Technology also enables companies to collaborate. For example, suppliers can be linked with distributors so that when supplies run low, an automatic replacement order is placed in order to reduce stock outs. This can happen between manufacturers of Cadburys and suppliers of production materials such as cocoa and milk. Therefore, with soft wares such as ERP, Cadbury has been able to stay ahead of competition. Risks involved in the chain and how to minimise There have been major challenges in the supply chain. These challenges have resulted to reduced economic growth. Some of the risks involved in the supply chain are: Lack of sufficient Working Capital: businesses are sourcing for non-traditional sources of working capital. Therefore, they are forced to reduce their inventory in order to cut operating costs. This makes buyers to extend their payment terms while suppliers aim at collecting receivables. Such steps are likely to create tension between buyers and sellers. It will also create a need for financing in the supply chain. This risk can be minimised when the credit environment pushes buyers and suppliers to analyse their trade flows. Economic Downturn Risks: factors such as fluctuating energy costs cause unstable prices for products that are used in production of Cadburys and others. This arises due to fluctuating exchange rates. Additionally, there is financial risk that arises as a result of supplier bankruptcy. This risk can be minimised by re-evaluating the supply chain in order to eliminate weak supplier links. Consumers can be protected from counterfeit goods through the Consumer Product Safety Improvement Act (CPSIA). Supply chain faces risk from errors in predicting inventory levels. The risks involved are differences in port time and clearing, weather calamities and geological threats. Businesses also face threat from suppliers who default to supply as expected. Language barrier and cultural differences also cause stock loss during translation. To minimize these risks companies should examine and redesign their entire supply chain. If this is done smoothly loss of flow can be minimised. Companies can outsource efficient service providers in order create new flows, trade lanes and hubs. It is also necessary for a given company to assess or examine a region or supplier before operating business in order to maintain quality, flexibility and geographical presence. It is also necessary to establish a reward programme for suppliers that create loyal partnerships. This would also mean firing inefficient suppliers. Increased economic downturn resulting from rising fuel prices are making companies to operate businesses closer to their home area. This is meant to reduce a company’s exposure to risk from international trade. Such risks arise from currency variations, taxation and trade barriers. For example, Cadbury obtains its materials from local suppliers in order to cut transportation costs and to take advantage of stable and more predictable forex, interest and taxation rates. The impact on the environment Some of impacts that supply chain has on the environment are: Misuse of clean water: many companies misuse the available water resources. For example, some processes such as machine cooling can be done using dirty water but some companies still use very clean water. This strains the water resources that are already very scarce (Lee 2002). Handling and storage of toxic waste: companies such as Cadbury produce toxic wastes during the course of their production activities. These processes generate wastes that are harmful to the environment such as carbon dioxide and sulphur (Lee 2002). Forest preservation: supply chain processes such as obtaining of raw materials cause loss of forest cover. For example, companies that use timber as their raw materials do not organise to replace the trees that are cut down. Air pollution: toxic chemicals are emitted during production and transportation of products in the supply chain. Therefore, they cause air pollution. Depletion of the ozone layer: carbon, sulphur and other toxic elements emitted during production cause depletion of the ozone layer. As a result, skin cancers have increased as well as change in weather patterns. Recycling of used materials: companies that engage in recycling reduce pollution by reducing the number of unnecessary plastic bags and plastic containers. Through recycling, less plastics are exposed to the environment. This reduces accidents and health hazards (Lee 2002). Protection of wildlife: some companies (especially in the leather industry) pose a threat to wildlife. This has resulted in some animals becoming extinct and others are endangered species. Creation of dumps and landfills: manufacturers and suppliers that engage in mining, drilling and excavation activities leave dumps, pools and landfills that pose threat to wildlife and the general public. Global warming: toxic emissions that are produced during manufacturing cause global warming. This results in change in the weather patterns. This has caused floods and droughts in various parts of the globe. Conclusion Cadbury is a global producer of Cadbury Milk Chocolate. The elements of the supply chain involved in this process are suppliers, retailers and the final consumers. Supply chain entails the processes that are involved in production of finished goods from raw materials to the final consumption. The suppliers provide raw materials such as sugar, palm oil, cocoa and milk. Cadbury produces Milk Chocolates from these and sells to retailers such as supermarkets. The final consumer completes this chain and passes over product information up the stream. The paper has linked the various parties involved in the supply chain and creation of efficient and effective production. Value creation is the main aim of any given company. Therefore, Cadbury should aim at reducing its costs relative to its income. The transforming process and the transformed processes are part of the supply chain. They coordinate to ensure that the final product is of optimum quality. Cadbury uses Vendor Managed Inventory (VMI), match strategy, the lag strategy and the lead strategy in managing its inventory. These approaches are meant to reduce inefficiency and increase production value. This means that VMI or match strategy would be the most efficient inventory management approach for the company. Information Technology has a role to play on the supply chain. For example, ERP and other soft wares help companies in determining production and demand levels as well as order amounts and order time. Economic and financial crisis are a risk to the supply chain. Such factors cause uncertainty and increased commodity processes. Manufacturing processes cause environmental pollution. Global warming, misuse of clean water, air pollution and landfills pose are a health risk to people. On the other hand, companies that recycle used plastics reduce pollution. References Beamon, B 1998, Supply Chain Design and Analysis: Models and Methods, viewed 11 December 2012, . Clements, M 2007, A Transfer Pricing Apparatus for Measuring Value Added along the Supply Chain: Reflections for Internet based Inter-Organisational Relationships, viewed 11 December 2012, . Lee, D 2002, Supply Chain Relationships in Apparel Retail Product Development, viewed 11 December 2012, . Simonson, S 2009, Transforming Your Fresh Food Supply Chain, viewed 11 December 2012, . Spaulding, A 2003, An Analysis of the Relationship between Supply-Chain Management Practices and New Product Development Time: A Case of the North American Confectionary Manufacturers, viewed 11 December 2012, . Wailgum, T 2008, Supply Chain Management Definition and Solutions, viewed 11 December 2012, . Walter, M 2001, Vendor-Managed Inventory in the Retail Supply Chain, viewed 11 December 2012, . Read More