Analysis of the Manufacturing Logistics - Essay Example

?Manufacturing Logistics Introduction It is a great challenge for the manufacturers to distribute their products in a cost effective manner and reachthe consumers in various parts of the world. Effective use of the developments in technology, telecommunications and the management processes is called for to improve efficiency and reduce cost. This paper seeks to study and analyze manufacturing logistics for recommending changes for enhancing competencies and business restructuring in relation to Aston Enterprises in West Midlands, manufacturing and distributing variety of healthcare appliances at the high end of the market. According to West Midlands Regional Assembly (2007), the West Midlands Region is home to more than 5 million people – a major market for buying and selling goods and services and at the heart of the nation’s strategic road and rail network and its Freight Strategy has considered key regional trends and issues for each of the modes of freight transport: Road, Rail, Air, Pipelines and Inland Waterways. The factory of Aston Enterprises is strategically located to take advantage of the transport networking in the region. Manufacturing Logistics Merriam-Webster Dictionary defines ‘logistics‘ as the aspect of military science dealing with the procurement, maintenance, and transportation of military material, facilities, and personnel. In the business context manufacturing logistics is concerned with receiving, inspecting, storing, maintaining and transporting or disposing and the host of other activities which includes controls, reporting and other support services. According to the Council of Supply Chain Management Professionals (CSCMP), logistics management can be defined as, "that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements." Uncertainties in the supply chain needs to be resolved on priority basis in the logistics perspective to maintain the flow of production and clear the obstacles in the distribution of the products. Li, L. & Schulze, L. (2011) state, “Along the logistics network, uncertainty can appear anywhere. At the beginning of the network, even the most reliable supplier could have a late delivery. In the middle, a new machine could fail to work; even it’s just been purchased”. Warehousing Material flow and scalability largely depends upon the design of the warehouses, headroom available, overhead crane facilities, entry and exit gateways, etc. Total control of a warehouse should ensure faster traceability, accuracy in identification, easy cargo movement and on-line planning. Handling equipment and storage facilities should be utilized safely, efficiently and optimally. The control of material flow starts with goods reception, storage (include handling for the purpose of storage and delivery) and dispatch. The module of Warehouse Management System should be integrated with the other modules to lend complete support facilities to the warehouse processes and operations with paperless mobile working procedures to ensure cost efficiency, avoidance of congestion and timely delivery. Synchronization of yard management with reference to timings, space, etc. in respect of loading and loading in trucks and trailers and the functions of gate keeping with the warehousing processes is very important in the overall system for effective control of material flow. Tarca, N., Vatuiu, T. & Tarca, I. (2010, p. 351) state “Logistics planning may include, in addition to transport activities, storage and loading optimizations related to goods or products: stacking, optimizing product placement in relation to the storage”. Material flow in the domestic and international warehouses of the company should be defined with reference to the different interfaces in the system, order management and historical data. Agarwal, G. & Vijayvargy, L. (2011) states “One of the important open issues in logistics is the effective integration of logistical cost component such as transportation cost with facility location models”. In the picking assignments within the warehouse, calculation of volume and weight should be inbuilt in the system taking into account, efficiency in usage of pallet space or pallet racks, choice of packaging materials and handling equipments. Gangway and transport route planning is important in avoiding damages, accidents and congestion in the warehousing operations. Barcode scanning in handling the materials, video monitoring coupled with wireless radio and the advanced online planning would not only reduce the labor strength and overheads in the warehouses, but also results into reduction in picking error, faster stock verification and improvement in overall efficiency. Radio Frequency Identification (RFID) using ‘readers’, and tags which consists of integrated circuit for information processing and antenna for signals, are increasingly used for tracking goods in inventory, traffic, shipping and distribution management. According to Islam, M. T. (2010, p. 6) an advanced automatic identification technology such as the Auto-ID based on RFID technology reduces the source of errors and labor cost in inventory management and successfully used by Wal-Mart and US Department of Defense. 3D simulation software, a virtual tool for interaction, planning, operations and decision making in warehousing processes, is effectively used in logistic companies to maximize productivity and efficiency and minimize overheads. Manufacturing Production forecast, planning and budgeting are the fundamental concepts to be followed in a manufacturing set up. Yimmee, R. & Phruksaphanrat, B. (2011) state “Aggregate production planning (APP) is concerned with matching supply and demand of forecasted and varying customer orders over the medium term, often from 3 to 18 months in advance”. Modern methods of inventory management like ‘just in time’ inventory management calls for uninterrupted flow of production processes. Richter, M. (2010, p. 49) states “Logistic concepts are combinations of allocation and delivery process models. Allocation concepts define how materials or raw parts are supplied to assembly systems (e. g. just in time delivery). Delivery process models describe the flow of materials or raw parts between the companies involved (e. g. reserve stock procurement)”. Labeling process starts with downloading of work order internally for in-house identification of the goods in the process. While this process is linking the components to suppliers, it is also linked to external label in packaging of goods in outward transportation for delivery which facilitates traceability. The technological advancements in production management have brought about vast developments in the field which aim to achieve reduction in lead time, manpower cost and overheads. Benchmarking of various functions in the supply chain will eliminate inefficiencies and leads to overall improved performance. The performance measurements in terms of time, steps and volume in various processes results into better utilization of resources. The system should enable easy tracing of the origin of spare parts used in manufacturing of a product. Speed and accuracy in traceability is very important for arranging replacement or rework and for accounting purposes. Real time variance analysis of actual v budget or plan is important to intervene effectively for rectifying the irritants in the production processes to maintain the uninterrupted flow of manufacturing operations. Variance analysis is not restricted to analysis in terms of financial implications, but also focused to volume or quantity for better understanding at the shop floor level to avoid slippages in production. Preventive maintenance of the plant and machinery is given importance to reduce the level of breakdowns to maintain the flow of production in the shop floor. Shipping & transportation Manufacturing logistics is greatly influenced by the shipping and transportation of the finished products in the supply chain. Interruptions in the area of shipping and transportation can put enormous stress on storage as well as manufacturing, sooner than later. Moreover, pressure due to emergencies in this area of supply chain can lead to dislocations in the production planning. Multi-modal transportation on global basis in logistics solution in the management of orders from inception to delivery to the customers on time at reasonable cost is a challenge to the manufacturing companies. Cost cutting measures rigorously implemented to be competitive in the business forces the logistics providers as well as manufacturers to concentrate more and more attention on alternate transport system for delivery of goods. Department for Transport says the project Urban Consolidation Centres envisages “first to reduce or eliminate the number of inappropriately sized vehicles entering particular urban area, and secondly to avoid the need for vehicles to deliver part loads into urban centres. These objectives can be achieved by providing facilities whereby deliveries (retail, office or residential) can be transshipped and/or consolidated for subsequent delivery into the urban area in an appropriate vehicle with a high level of load utilization” which is relevant to the sales within Europe. In the case of domestic sales, which constitute 15% and sales in the UK and 25% in Europe railways are cheaper in certain routes. But, the cost of loading, unloading, stuffing and de-stuffing of the consignments in transit at the railway yards, and the timings should be taken into account in the process, since the reach of railways compared to the roads is limited. There is also flexibility of door delivery in road transport of the consignments at various points on the road. For transport of the goods by rail, the Convention Concerning International Carriage by Rail (COTIF) is the system of law which applies in the 45 states in Europe, North Africa and the Middle East that are members of OTIF, the International Organisation for International Carriage by Rail. (Business Link) Transportation of goods involves planning, procurement of transport (through bidding process for regular offloading at fixed points at predetermined prices), planning of routes for cargo movement, breaking up of the consignments into small parcels for delivery, deciding the type of vehicle considering the weight and size of the consignment, payment of toll charges, execution of the order and feed back or reporting. The process involves lot of coordination in the case of long distance transportation involving transshipment in various modes of transportation such as sea, air, road and rail. In a global marketing situation, in addition to all the activities related to the domestic transactions, the coordination in respect of various aspects such as the regulations related to the various foreign countries, documentation formalities with regard to shipping, banking formalities and customs inspection and clearing are involved with the agencies like clearing and forwarding agents, export management companies, shipping agents and port authorities. Since only 40% of the sales are related to business within Europe, which could be controlled from the headquarters, restructuring needs to be focused on the business in the rest of the world. Changes for enhancing competencies Changes in layout and systems Restructuring of warehouse, warehouse yard, terminals for transportation needs to be planned and synchronized with the operations. As far as possible, considering the space constraints, finished products may be separated from the incoming goods and components. Secondly, lay out in the case of inward goods may be suitably modified to segregate the products go into A, B and C type of products, and the finished goods into A, B and C. This will increase the speed of movement of the A category goods in the chain and reduce damages to these products that may occur in material handling processes. Barcode scanning and video monitoring may be introduced for online planning to increase efficiency in stock verification and reduce manual labor cost. The labeling system should be comprehensive with the aim of linking various inputs to the final product for tracking back the discrepancies to the suppliers or sub-contractors easily. Inventory management An ABC Analysis of the company’s products shows that 20% of the products it manufactures and sells account for 70 % of its turnover, another 30% of its products account for 20% of its turnover and the remaining 50% account for 10% of its turnover. Therefore, concentration on 20% of the A category of the product portfolio would pay rich dividends in cost reduction and increase in competitiveness. For instance, strict control procedures established in procurement, time frame for the staggered deliveries, prioritizing these products in the production plan and the continuous review of quality control and packing procedures would ensure proper distribution of the products with minimum level of rejections and rework and at reduced cost. Also, in order to enforce stricter control, the service team may be split into A and B. The team A may be entrusted with products which constitute ‘A’ category, consisting of experienced and more talented personnel and team ‘B’ with the rest of the products. This will ensure high quality of service to the customers and reduce sales returns. This will also enable the less experienced personnel in team B to improve their performance with the aim of moving to team A through promotions. Pothast, J., Gartner, H. & Hertramp, F. (2010, p. 19) state “Due to the increasing individualization of customer demands and the resulting variant diversity, companies are forced to realize production and sourcing flexibility in regard to fluctuations in demand…in which production and warehouse processes are adjusted to short delivery times and low inventory levels for the entire supply chain”. Also, in the supply chain logistics, the role of time and space in storage costs and handling charges apart from the transportation costs need to be considered and the handling frequency measured. Examples of input data are invoice records, customer records, product records, accounts receivable, warehouse records, etc. This information is often available already in the systems for establishing various control measures. Outsourcing Outsourcing of components needs to be considered from the cost angle as well as logistics angle. With the information available in the system, the inventory carrying costs should be allocated to the products as far as possible on suitable basis for the purpose of pricing of the products to be realistic. The common costs remain unallocated may be apportioned to the divisions and products on suitable basis. The idea is to identify all variable cost to the extent possible and charged to the respective products, so that the they reflect true costs. This information would be useful in taking decisions in respect of outsourcing. The outsourcing may be cheaper compared to manufacturing of some of the components due to various factors, and in such cases a decision to outsource the components reduces pressure on the logistics. I T Applications Tippayawong, K. Y. Patitad, P., Sopadang, A. & Enkawa, T. (2010, p. 26) state “Assessing the impact of specific information technology (IT) usage is important for improving plant operations…” In fact, integrating I. T. at all levels within the organization is necessary for effective forecasting, planning and budgetary exercises. Lechner, A., Klingebie, K. & Wagenitz, A. (2011) state “Variant costs, often referred to as complexity costs, are generally regarded as overhead costs and are consequently accepted as fix costs. These fix costs account for the majority of supply chain costs”. The system could be effectively used to ascertain the inventory carrying costs of the raw materials, components and finished goods stock, which is important for the purpose of control. Stock turnover could be reviewed and age-wise analysis carried out on regular basis. Based on the information accumulated through the system in respect of machine hours, periodical preventive maintenance program may be formulated to reduce the downtime of the machines on account of unexpected breakdowns to ensure uninterrupted flow of production. Somuyiwa, A. O. & Adewoye, J. O. (2010, p. 43) “IT in supply chain has enabled the gathering, storing and analysis of unprecedented amounts of data. It equally facilitates planning at all levels through data analysis and sharing, which enable planning to occur at the strategic, tactical, and operational levels. Similarly, IT gathers, integrates, and analyzes logistical data to streamline local and global supply chain”. Management Information System Revamping MIS in tune with the developments in technology and telecommunications is important for a sustainable development. Also, the advanced beneficial features of technology should be properly integrated into the systems. The company needs to introduce changes in the information processing and reporting based on the data recorded on a continuous basis in the production processes and warehouse. Kisperska-Moron, D. (2010, p. 26) is of the view that the young managers should be developed with good skills in fully automated information systems. Inventory reports properly classifying the stores which goes into the production of A, B & C categories of products should reflect the levels at which replenishment of stocks takes place with details regarding stock in transit, orders already placed and orders under processing to ensure continuous flow in the supply chain. Analysis of stock with reference to handling frequency, redundancy, deterioration in quality, damages would be useful in taking actions such as disposal of the materials on discount sale or follow-up with the suppliers for replacement or rework as the case may be. The reverse logistics involved in this process includes disposal of the products returned by the customers. Rogers, D. S. & Tibben-Lembke, R. S. (1998, p. 2) state “The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal”. These actions will release the space occupied by these products in the supply chain as well as avoids hindrances in the movement. Chan H. K. (2010, p. 61) states: “As the environmental awareness has been increasing over the last decade, however, companies are attempting to reuse, remanufacture and recycle more end-of-life or returned products in order to reduce the negative impact on environment (Chung and Wee, 2008)”. Recording of information with regard to actual performance should be integrated well within the system through proper codification, so that actual performance could be compared with the budgets for reporting purposes. This should enable analysis of variances with reference to time, quality, inputs and outputs. The management in this case would in a position to probe into the causes for deviations and take necessary corrective action on time or revise the budgets to be realistic. Business restructuring The business restructuring involves firstly rationalization of the current operations and secondly taking measures to reduce the pressure on logistics in the long run taking into account cost competitiveness and efficiency in providing service to the customers for a sustainable growth and development. Manufacturing facilities and warehousing The company needs to take certain investment decisions relating to expansion of the manufacturing facilities and/or warehouses, for implementing the plan suggested under ‘Changes in layout and systems’ above, because the changes envisaged could not be implemented completely due to constraints faced by the company in the existing building plan and the space available. Therefore, apart from embarking on temporary changes in line with the current requirements, the company needs to firm up its capital investment plans which are long term in nature for a sustainable development in future. For the restructuring purposes, simulation techniques need to be adopted for ideal solutions with regard to layout, capacity, construction or extension of warehouse or other facilities, keeping in tune with the scalability and future logistics demands. Simulation techniques would reveal the quantum of savings that might result consequent upon the proposed changes under various alternate plans with different layouts for production facilities and warehouses, capacity considerations, additional capital investments required, bottlenecks envisaged and human resources. Also, the factors such as forecast of the economic situation, availability of resources, capital market conditions and factors related to the industry and external environment should be considered by the management. Overseas expansion Presently, the company forwards the consignments to the warehouses of regional head quarters of the company which are responsible for the activities of distribution within the region: Chicago in US (25%), Mumbai, India (5%), Shanghai, China (6%), Sydney, Australia (8%) and Porto Alegre, Brazil (4%). For the rest of the countries, the consignments are shipped to the dealers or distributors against their orders. In the case of US with 25% of the total sales, the company needs to restructure its operations in view of the existing sales and potential for expanding its business in the region. Here, we can visualize two options for the company which are contingent upon the company’s policy on overseas capital investments. The first one is to establish two more regional offices additionally for efficient distribution and service. The second one is long term in nature involving additional capital investment in establishing an assembly plant, initially with CKD strategy and subsequently outsourcing some of the components locally. The Latin American markets could be effectively handled by the US division. The economic development in the BRIC (Brazil, Russia, India and China) countries calls for reorientation of the company’s strategies in these regions. The population especially in China and India and the emerging strength of the middle class people in these countries need to be analyzed critically in respect of product promotion and logistics in these regions. The reach of mobile telephony and internet in these countries augurs well for a long term development. Distributors with good dealer network could be identified in China and India, so that the export of bulk consignments to the distributors compared to direct sales results in savings in cost and reduce pressure in the logistics greatly. The distributors’ cooperation in marketing efforts could increase the export volume and reduces the cost as well as logistical problems considerably due to economies of scale. Online business The company needs to strengthen online business in tune with the strategy of expansion into the global markets for leveraging the facilities to be established in the proposal. Placzek, E. (2010, p. 46) observes “Changes that have been caused by the development of the Internet and the same e-business have an impact on implementation of all logistic processes”. Evolving suitable procedures and integrating logistical issues into the framework would improve the company’s business in the new markets, where the warehouses would be operational in future as proposed. Assumptions The ABC analysis has been done recently, and the necessary actions are yet to be taken based on this analysis. The recommended have been made on this assumption. In the existing I T system information required for MIS is already available. However, the MIS is not properly organized to take advantage of the system. The financial analysis already made by the company has been mainly related to statutory purposes, rather than control purposes; particularly not related to logistics in its day to day management operations. On account of increase in domestic business and exports, the warehouse needs to be expanded immediately and the factory in due course of time. The company is also considering expansion into overseas and the management is open to suggestions in this respect. References Agarwal, G. & Vijayvargy, L. (2011), Designing of Multi-Commodity, Multi Location Integrated Model for Effective Logistics Management, Lecture Notes in Engineering and Computer Science, Volume 2189, Issue 1, http://www.iaeng.org/publication/IMECS2011/IMECS2011_pp1390-1394.pdf Business Link, International transport and distribution, http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1074415276&type=RESOURCES Chan H. K. (2010), A Process Re-engineering Framework for Reverse Logistics based on a Case Study, International Journal of Engineering Business Management, Volume 2, Issue 2,  http://www.intechopen.com/source/pdfs/11335/InTech-A_process_re_engineering_framework_for_reverse_logistics_based_on_a_case_study.pdf Council of Supply Chain Management Professionals (CSCMP), CSCMP Supply Chain Management Definitions, http://cscmp.org/aboutcscmp/definitions.asp Department for Transport, (2005), Project: Urban Consolidation Centres, http://www.dft.gov.uk/rmd/project.asp?intProjectID=12079 Islam, M. T. 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(2010), Evolution of competencies of logistics and supply chain managers, LogForum, Volume 6, Issue 3,  http://www.logforum.net/pdf/6_3_3_10.pdf Lechner, A., Klingebie, K. & Wagenitz, A., (2011), Evaluation of Product Variant-driven Complexity Costs and Performance Impacts in the Automotive Logistics with Variety-driven Activity-based Costing, Lecture Notes in Engineering and Computer Science, Volume 2189, Issue 1, http://www.iaeng.org/publication/IMECS2011/IMECS2011_pp1088-1096.pdf Li, L. & Schulze, L., (2011), Uncertainty in Logistics Network Design: A Review, Lecture Notes in Engineering and Computer Science, Volume 2189, Issue 1, http://www.doaj.org/doaj?func=searchArticles&q1=logistics&f1=all&b1=and&q2=&f2=all Placzek, E. (2010), New challenges for logistics providers in the e-business era, LogForum, Volume 6, Issue 1,  http://www.logforum.net/pdf/6_2_6_10.pdf Pothast, J., Gartner, H. & Hertramp, F. (2010), Allocation for manufacturing companies, LogForum, Volume 6, Issue 2,  http://www.doaj.org/doaj?func=searchArticles&q1=logistics&f1=all&b1=and&q2=&f2=all&p=3&uiLanguage=en Richter, M. (2010), Flexible logistic concepts for assembly systems, LogForum, Volume 6, Issue 2, http://www.logforum.net/pdf/6_2_7_10.pdf Rogers, D. S. & Tibben-Lembke, R. S. (1998), Going Backwards: Reverse Logistics Trends and Practices, University of Nevada, Reno, Center for Logistics Management, http://www.rlec.org/reverse.pdf Somuyiwa, A. O. & Adewoye, J. O. (2010), Managing Logistics Information System: Theoretical Underpinning, Asian Journal of Business Management, Volume 2, Issue 2, http://maxwellsci.com/print/ajbm/v2-41-47.pdf Tarca, N., Vatuiu, T. & Tarca, I. (2010), A STUDY REGARDING THE USE OF THE INFORMATION TECHNOLOGY AND COMMUNICATIONS IN THE LOGISTIC ACTIVITY OF SMALL AND MEDIUM ENTERPRISES, Annals of the University of Petrosani, Volume X, Issue 4,  http://www.upet.ro/anale/economie/pdf/20100434.pdf Tippayawong, K. Y. , Patitad, P., Sopadang, A. & Enkawa, T. (2010), Factors Affecting Efficient Supply Chain Operational Performance of High and Low Technology Companies in Thailand, Management Science and Engineering, Volume 4, Issue 3, http://cscanada.net/index.php/mse/article/viewFile/1448/1629 West Midlands Regional Assembly, (2007), Regional Freight Strategy, http://www.wmra.gov.uk/documents/Transport/Freight%20Strategy%20FINAL.pdf Yimmee, R. & Phruksaphanrat, B. (2011), Fuzzy Goal Programming for Aggregate Production and Logistics Planning, Lecture Notes in Engineering and Computer Science, Volume 2189, Issue 1, http://www.iaeng.org/publication/IMECS2011/IMECS2011_pp1082-1087.pdf Read More