A Look at a Baxters Food Groups Distribution Strategy in Meeting Delivery Performance - Essay Example

? Coping with e-commerce – A Look at a Baxters Food Group’s Distribution Strategy in Meeting Delivery Performance Total Number of Words: 2,999 Abstract Baxters Food Group Limited specializes in the manufacturing of microwaveable gourmet soup bowls, chilli bowls, pickles and other food preservatives such as jams, marmalades, and jellies, chutneys and sauces. Applied in the case of Baxters, this report provided a clear analysis on how the company was able to maximize the use of e-commerce as the company tried to expand its actual distribution network and improve its overall delivery performance. Bottle-neck within the production system can lead to poor delivery performance. Aside from discussing the significance of zero-inventory-ordering policies, staggering delivery, and just-in-time (JIT) concept in the establishment of lean production and distribution system, this report identified and discussed several factors that can trigger operational bottle-neck within a food manufacturing company. Furthermore, this report tackled the importance of using e-commerce in expanding the existing distribution system of Baxters. Table of Contents Abstract …………………………………………………………………… 2 Table of Contents …………………………………………………………. 3 I. Introduction ………………………………………………………. 4 II. Common Factors that Directly and Indirectly Causes Distribution and Delivery Performance Problems on E-Commerce . 5 III. Importance of Establishing Lean Production and Distribution System on E-Commerce .............................................. 7 IV. Significance of Zero-Inventory-Ordering Policies, Staggering Delivery, and Just-In-Time (JIT) Concept in the Establishment of Lean Production and Distribution System ........... 10 V. Baxters Food Group’s Distribution Strategy in Meeting Delivery Performance …………………………………………….. 12 VI. Conclusion and Recommendations ………………………………. 14 References ………………………………………………………………… 18 Appendix I – Fishbone Diagram of Factors that Causes Distribution and Delivery Performance Problem ……………………………. 22 Appendix II – Significance of E-commerce on Baxters’ Distribution Strategy ………………………………………. 23 Introduction Formerly known as W.A. Baxters & Sons Limited, Baxters Food Group Limited was established back in 1868 as a local food manufacturing company in Scotland that specializes in the manufacturing of microwaveable gourmet soup bowls, chilli bowls, pickles and other food preservatives such as jams, marmalades, and jellies, chutneys and sauces (Baxters 2012a; Bloomberg Businessweek 2012). Today, the company manufactures its food products throughout Australia, Canada, and Poland (Baxters 2012b). Despite the global economic uncertainties during the past couple of years, the use of e-commerce enabled Baxters Food Group able to maintain the efficiency of its distribution and delivery performance. Even though the company’s monthly sales were down by 2% from ?125.8 million as compared to ?129 million in 2010, Baxters Food Group reported approximately 6% increase in its pre-tax profits as of 2011 (McCulloch 2012). Delivery performance of Baxters is highly dependent on its ability to establish a lean production system. Since Baxters Food Group is a local food manufacturing company in Scotland, it is necessary to identify and discuss all factors that could create flaws on its production and distribution line. In relation to the distribution strategies used by Baxters Food Group, this report will focus on analyzing the factors that made the company able to maintain its efficiency despite the volatility in the demand for canned food products. Using the principles, theories, frameworks, and techniques of modern manufacturing strategies, this report will discuss how the Baxters was able to maintain its daily operational costs low without sacrificing the company’s ability to meet the demand of its target markets. Common Factors that Directly and Indirectly Causes Distribution and Delivery Performance Problems on E-Commerce There are a lot of factors that can either directly or indirectly contribute to the development of problems on Baxters’ distribution and delivery performance when using e-commerce. As a standard operating procedure, Baxters would manufacture food items based on the order they received from the customers. In line with this, the company’s ability to deliver the ordered food products on-time are highly dependent on the availability of raw materials, efficiency of human resources, quality control measurements, and the reliability of the machines (Levinson 2007). These four (4) identified factors (i.e. materials, manpower, machine, and quality control measurements) are all interrelated with one another in the sense that the inability of the corporate managers to effectively manage the incoming and outgoing of raw materials, work attitude and behaviour of each employee, quality of the available machines, and measurements can lead to controllable operational down-time errors. Therefore, the efficiency of Baxters’ delivery performance is all about effectively managing these four factors. Aside from the lack of experience in handling and maintenance of the machines, tardiness and poor attendance among the packers and food machine operators can lead to inefficient production time. To ensure that the company is able to maintain the efficiency of its delivery performance, the HR management of Baxters should provide necessary trainings on the use of food manufacturing machineries and e-commerce aside from making employees feel motivated at all times. The availability of the raw materials is another major factor that can affect the company’s delivery performance. Therefore, it is crucial on the part of Baxters Food Group to enhance its supply chain management system. Aside from strictly implementing a zero-inventory-ordering policy, staggering delivery, and just-in-time (JIT) delivery (Sargut and Qi 2012; Lai and Cheng 2009; Huang, Chew and Goh 2005), the purchaser should also have adequate knowledge on the required quality of food ingredients. Other significant factors that could negatively affect the delivery performance of Baxters’ e-commerce include the possibility of machine break-down and poor quality control on food safety and quality standards. According to Levinson (2007), performing a regular preventive maintenance is the best way to control operational down-time related to machine break-downs. To ensure that machineries are in good condition, machine operations should be obliged to provide a regular real-time report on machine maintenance and breakdown. Significant changes in the environmental temperature and humidity is more than enough to trigger the growth of bacteria and other microorganisms on processed food (Food Safety 2012; Levinson 2007). Processed food products that are infected with microorganisms are dangerous to the health of the consumers. Therefore, the company will have to reject the batch of contaminated food. By re-scheduling the production of a specific food item, there is a higher chance wherein Baxters may not be able to deliver the ordered food items on-time. In relation to the manufacturing of low quality food standards, the company should invest on quality control personnel who will be assigned to look after the food safety and quality issues. (See Appendix I – Fishbone Diagram of Factors that Causes Distribution and Delivery Performance Problem on page 22) With regards to the use of e-commerce, the absence of uniformity and data integration could make the use of information system less effective. For this reason, Olugbode et al. (2008) strongly promotes the need to ensure that business information of Baxters (i.e. market demand, supply chain system, production and delivery schedules, etc.) are well integrated on a real-time basis. Importance of Establishing Lean Production and Distribution System on E-Commerce The three major steps that contribute to a successful food manufacturing company includes: (1) the ability of the corporate managers to effectively remove all factors that could lead to the development of production and delivery constraints; (2) develop food products that is in conformity with the food standards as expected by its target consumers; and (3) expanding the company’s existing distribution network through the use of e-commerce. The word “lean” is often used to describe a systematic way of identifying and avoiding unnecessary waste of time and valuable resources by continuously improving the company’s efficiency in responding to the consumers’ demand (Saxena 2009). Wong, Wong and Ali (2009) mentioned that a lean manufacturing system focuses on developing efficient “scheduling, inventory, material handling, and work processes” among others. By effectively managing the company’s supply chain and distribution system, several studies strongly suggest that a lean management system can enable the local manufacturing companies to deliver a wide-range of products to its target consumers within the shortest possible lead-time (Gahagan 2008; Shah and Ward 2007). In the case of Baxters, the company decided to invest on a reliable and efficient IT network that is capable of integrating information related to inventory, production, and distribution system among others (i.e. a list of food product design all the way down to its product development and distribution). Without sacrificing the company’s ability to meet the demand of its target markets, one of the best and most effective strategies to keep Baxters’ operational costs low is to establish a lean and efficient production and distribution system (Taj 2005). In line with this, several studies explained that the development and implementation of lean production strategies are necessary in order to improve the company’s overall quality of food products, reduction in the actual work-in-progress (WIP), improvements on just-in-time deliveries, higher net income and profitability, decreased operational costs, better utilization of human resources, maintaining a lower inventory level, higher return on investment (ROI), enhanced quality in food production, better space utilization, lesser need for tool investment, maximize the use of available machineries, and improved employees’ overall skills and work performance (Ferdousi and Ahmed 2010; Papadopoulu and Ozbayrak 2005; Taj 2005). Based on the research study that was conducted by Ferdousi and Ahmed (2009), the implementation of lean management strategies can make manufacturing companies improve their productivity level by 10% to 60%, improve the quality of food products by 8% to 80%, and reduce their production lead time by 8% to 50%. By establishing lean strategies in the production and distribution system of Baxters, this company could effectively reduce the costs of its daily operations. For this reason, it makes sense that the application of this particular manufacturing strategy could create a long-term competitive advantage for Baxters Food Group Limited. Significance of Zero-Inventory-Ordering Policies, Staggering Delivery, and Just-In-Time (JIT) Concept in the Establishment of Lean Production and Distribution System The concept of just-in-time (JIT) is very much applicable when setting a lean production line. Basically, JIT is all about the use of effective scheduling and inventory control strategies that could minimize unnecessary costs associated with having a high level of non-moving inventory and inefficient storage system whereas the materials requirements planning (MRP-II) is a computerized operational planning system that aims to increase the competitive advantage of manufacturing firms by enhancing the operational flow of a manufacturing company (Lai and Cheng 2009). In other words, MRP-II is a computer-based inventory management system that incorporates operational planning issues related the sales and marketing, order management, finance and accounting, inventory system, the actual delivery system and other significant business matters into the main production operations (Hou 2010; Wisner and Stanley 2008). A successful JIT supply chain logistics is the key towards having an efficient yet low operational cost and on-time delivery of Baxters’ food products. In order to increase the competitive advantages of Baxters, Roy (2005) strongly suggest that the concept of JIT scheduling should be integrated with the use of MRP-II. By doing so, the company can easily preserve the simplicity of its MRP-II design as it allows the end-users to easily understand the main purpose of using the MRP-II. The concept of JIT and MRP-II aims to reduce the operational bottle-necks that could hinder the normal flow of Baxters’ production and distribution network. For this reason, the success of JIT scheduling in the production and delivery system of Baxters is highly dependent on its employees’ ability to maximize the use of the MRP-II. Since actual demand for canned goods is subject to volatility, the actual movement of the Baxters’ supply chain system is constantly changing. Therefore, the use of a demand-driven supply network is very much applicable in the case of food manufacturing companies (Faraoni and Petretto 2009). It means that Baxters should maintain zero-inventory-ordering policies to avoid the risk of food items spoilage when storing slow moving raw materials (Sargut and Qi 2012). By strictly implementing a zero-inventory-ordering policy and applying the concept of JIT in Baxters’ production and distribution system, the company can definitely improve the quality of its delivery performance. Furthermore, the application of this particular manufacturing strategy can make the company save a large amount of money from unnecessary warehouse rent expenses and excessive manpower who are assigned in managing the company’s available supplies (Dalci and Tams 2012). The practice of ordering raw materials by bulk could give the company the privilege to bargain the unit cost of each type of raw material. Even though the purchasing manager decided to order raw materials by in large quantity, the corporate management should implement a staggering delivery policy and agreement with its accredited suppliers (Huang, Chew and Goh 2005). Using this particular ordering strategy, Baxters Food Group can have more bargaining power over its accredited suppliers without the need to invest a lot of money on maintaining a large warehouse to store its monthly requirements of raw materials (Cutierrez et al. 2008). Baxters Food Group’s Distribution Strategy in Meeting Delivery Performance Earlier, it was mentioned that having a lean production system can lead to a more cost-efficient operational cost and better delivery performance. According to Pacek and Thorniley (2007), the ability of Baxters to create an efficient distribution channel will serve as one of its competitive advantages as compared to its close competitors. Considering the fact that the use of e-commerce is one of the most cost-efficient ways of communicating with Baxers’ target customers (Hutt and Speh 2010), this section will focus on discussing Baxters Food Group’s distribution strategy in meeting a competitive delivery performance. The company is currently operating four (4) major store outlets at the following locations: (1) Selkirk in Dunsdalehaugh; (2) Ocean Terminal in Edinburgh; (3) Blackford, Perthshire; and (4) Fochabers in Moray (Baxters 2012c). Through the use of e-commerce, the company is maintaining a cost-effective distribution network in reaching its target consumers throughout Australia, Canada, Poland and the rest of the world (Baxters 2012b). Aside from the use of a traditional telephone line, the company is also maximizing the use of its official websites when taking direct orders from its customers and interested retailers (Baxters 2012e). For example: Instead of heavily relying over the Baxters’ official website for its target customers in Scotland, the company also created another corporate website which was exclusively designed to communicate its product line and capture the interest of its target consumers in other countries like Australia, Canada, and Poland. Effective communication plays an important role behind a successful e-commerce. Since there are some people in Canada cannot speak the English language, the company managed to translate the webpage content into French (Baxters 2012d). Transportation plays a significant role in meeting on-time deliveries. In order to lessen the compliations associated with the transportation of Baxters’ food products, the company can either hire a trucking company to do the actual delivery of goods or make use of distribution intermediaries in reaching its target consumers (Amazon 2012; Cold Storage 2012; Food Safety 2012; Tseng, Taylor and Yue 2005). Today, Baxters is not only dependent on the use of its official corporate website as its strategy in expanding its distribution channel but also uses the corporate website of other large-scale grocery retailers such as Tesco, Amazon.com and online cold storage as a strategy in locating for potential direct buyers, retailers and wholesalers who are interested in playing the role of distribution intermediaries for Baxters food products (Amazon 2012; Cold Storage 2012; Food Safety 2012). (See Appendix II – Significance of E-commerce on Baxters’ Distribution Strategy on page 23) To ensure that the distribution strategy used by Baxters Food Group is effective, Hutt and Speh (2010) explained that food manufacturing companies such as in the case of Baxters Food Group should not only evaluate the online channel efficiencies but also examine the benefits of using marketing intermediaries such as the practice of sharing marketing information using other related channels. For example: As compared to Amazon.com, it can be more effective to enter into a business agreement with Tesco since Tesco has already established its name as a large-scale grocery retailer as compared to Amazon.com. Conclusion and Recommendations To achieve a successful zero-inventory goal, a manufacturing company should invest on reliable IT system that could enhance the company’s ordering processes based on its daily production schedules (Olugbode et al. 2008). Investment on e-commerce can provide Baxters’ employees with real-time data concerning the actual demand for Baxters’ food products, flow of its daily operations, and real-time scheduling of deliveries. It will also useful in reducing large stocks of non-moving items (Ferdousi and Ahmed 2010). By keeping its production system limited to the market demand of its target customers, Baxters can enjoy the business benefit associated with the use of this particular cost-saving strategy (Ferdousi and Ahmed 2010; Ferdousi and Ahmed 2009; Olugbode et al. 2008). In general, e-commerce only serves as a centralized real-time data gathering with regards to the actual demand and supply of Baxters’ food products. With regards to the actual delivery performance of this company, other internal factors such as the availability of raw materials, skills and expertise of human resources with regards to the manufacturing of Baxters’ food products, the actual measurement and control on food safety and quality, and reliability of the machines could either directly or indirectly affect the delivery performance of food manufacturing companies. Although IT system can be used in gathering real-time orders from different locations around the world, food manufacturing companies such as in the case of Baxters Food Group can also take advantage of the e-commerce when locating and establishing a network of potential market distributors. By taking online orders directly from Baxters’ end-consumers, accredited retailers and wholesalers, the company can design and implement a list of lean manufacturing strategies throughout its production and distribution system (i.e. implementation of JIT policies on inventory management, production, and delivery scheduling, the use of a demand-driven supply network, and the implementation of zero-inventory-ordering policies among others). Within a food manufacturing company, effective management of the company’s available raw materials, machineries, quality control procedures, and human resources are all equally important when trying to improve the company’s actual delivery performance. To avoid controllable business losses, Baxters should implement a regular real-time reporting from its machine operator(s) (i.e. the scheduling and provision of regular machine maintenance) to ensure that necessary actions will be provided to cut down on potential ‘down-time’ errors due to machine break-down. Aside from making sure that the machine operator(s) will observe regular maintenance on machineries, the company should also provide trainings with regards to the proper use of each machine. The availability of raw materials could also significantly affect the efficiency and quality of Baxters’ operations. In general, on-hand raw materials that are not in use are considered a waste on the part of the company’s available resources. For this reason, the top management of Baxters should maintain strict control on its purchasing department. Aside from strictly implementing a zero-inventory-ordering policy, staggering delivery, and just-in-time (JIT) delivery among its accredited suppliers (Sargut and Qi 2012; Lai and Cheng 2009; Huang, Chew and Goh 2005), the top management of Baxters should also educate its employees with regards to the importance of implementing a “first-in first-out” inventory system. By doing so, Baxters could easily avoid the risk of food spoilage. For instance, the top management of Baxters could encourage its purchaser(s) to communicate directly with the machine operators with regards to the exact quantity and specs of food materials needed. Since it is the machine operators who are more knowledgeable with regards to the quantity of raw materials needed to produce a certain volume of food products, it is more logical to enhance the communication line between the production department and the purchasing department using a well integrated information technology system. 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Process Management: Creating Value Along the Supply Chain. Mason, OH: Thomson South-Western. Wong, Y., Wong, K. and Ali, A. 2009. Key practice areas of lean manufacturing. Proceedings of the International Association of Computer Science and Information Technology, (pp. 267-271). Singapore. Appendix I – Fishbone Diagram of Factors that Causes Distribution and Delivery Performance Problem Appendix II – Significance of E-commerce on Baxters’ Distribution Strategy Read More