Reasons for Supply Network Design - Essay Example

?Running Head: Supply Networks Supply Networks Full s Details s Table of contents Introduction 2. Reasons of Supply Network Design (Task 1) 2.1.1 Own company changed 2.1.2 Customer change 2.1.3 Supplier change 2.1. 4 PL change 2.2 Criteria to be considered/evaluated 2.2.1 Logistics infrastructure 2.2.2 Proximity to customers 2.2.3 Import/Export 2.2.4 Stability 3. Factors relation to Supply Network Design (Task 2) 3.1 Consolidation in relation to Supply Network design 3.3 Deconsolidation in relation to Supply Network design 3.4 Distribution in relation to Supply Network design 3.5 Regional distribution in relation to Supply Network design 4. Network Design Strategy - Case study: Target Australia (Task 3) 4.1 Advantages of network design strategy 4.2 Disadvantages of network design strategy 4.3 Information technology 5. Conclusion INTRODUCTION The contemporary business society has led to the demand of supply network management in many industries in developed countries. Supply network management is a discipline that should be applied more holistically and cohesively for more success. In order to understand this topic better, we first need to understand the definitions of supply chain and supply network as well as there differences. Supply network can be defined as a model in which products are moved through distribution channels from manufacturers to customers while at the same time consequently adding value to the products. A supply chain is an inter-connection of processes forming a chain. Supply chain network is the process of planning, implementing, controlling effective and efficient forward and reverse flow of products and also the storage of services and goods in relation to point of origin or point of consumption in the intention of meeting customers’ requirements. Reasons of Supply Network Design (Task 1) For the last few years, the process of supply chain designs has evolved considerably. According to Paolo Mondo (2009) of Accenture consultants, “Supply Network Design and Coordination is designed to accommodate the realities of a procurement environment that is concurrently global, multi-tiered, and unprecedentedly interdependent” (9). The process of supply chain network helps in improving customer service, acquiring capital, materials, technology, necessary data and human resource in meeting wants and needs of customers. Supply chain network can be described as a customer-oriented operation management. The following diagram is an illustration of the supply chain network process. However beneficial the supply chain designs are to a company’s growth, there are a few flaws to these designs. For example, there is the issue of variation in minimum cost objectives. Still on the case of Sun Orchard, supply chain design objectives will be more beneficial only in the distribution of physical goods (Sun Orchard, 2012). Thereby, Sun Orchard should apply supply chain designs that mainly focus on proximity rather than the costs involved. Consequently, the application of the supply chain designs is not a guarantee that they will bring diversity and applicability to the business. Supply Chain Example: for Sun Orchard juice production. Sun Orchard is a juice producing company in the United States. The company specializes in the production and distribution of all kinds of juices with a global presence in America, Australia, Asia and Africa. A simple process of the supply chain network process in Sun Orchard shows the links between the farm, the production plant to the distribution outlets and how materials and information is shared between these links. Supply Chain: Sun Orchard farm Juicing plant National Regional Shops, Distribution Distribution Supermarkets Centers Centers Vending machines The above supply chain is a simple illustration of the way information and material flows from the sun orchard farm, right through the process of production to the customers. Company change Nestle has successfully managed to apply supply chain management strategies for more business growth. The company’s innovation center uses this process to determine and evaluate when and where change is needed. According to the annual report for 2012, the use of supply chain network helped the company stem down operation supply chain costs by 5 to 15% for its year ending September 2012 (Nestle, 2012). The supply chain network has helped in the rationalization of its national manufacturing and distribution networks which has helped in the identification of the most economical supply chain network. For a company to successfully embark on the plan of implementing an integrated supply chain design, it should take in to consideration the expected challenges for a momentous development in its internal operations, essential for the success of the supply chain design. Sun Orchard recorded an increase of 83% from its focus on achieving higher service levels. In terms of changes in demand and supply chain visibility change, sun orchard recorded an increase of 80% and 74% respectively (Nestle2012). Customer change The use of supply chain networks by has ensured swift response to customer pressures ensuring growth in its revenue base. This has been brought by the optimization of the balance between service level requirements, warehousing and shipping costs improving timely delivery of products (Mondo, 2009). The largest jumps in customer change for Capri-sun were born of improved customer service and demand forecast. An effective supply chain design for Sun Orchard includes a highly competitive and customer-enriching supply system that is mostly focused on developing solutions that are innovative and synchronizing flow of services, products and information to meet customers’ wants and needs (Capri sun, 2012). .Supplier change The use of supply chain networks by Citrus Bay CO has helped in performing contingency panning in its supplier network. This has helped in planning for unpredictable events in the supplier network by presenting its effects on service levels, profits, revenues and costs (Citrus Bay Co, 2012) consequently, this has led to the development, interaction and evaluation of contingency plans which have helped to ease the general risks involve in the supply chain. An effective supply chain design improves the process of acquiring raw materials, supplies and component parts from other organizations to support the operations of the company. This helps in the management of supplier supply base, creating lasting relations with suppliers, other organizations and supporting operational requirements. Third Party Logistics (3PL) change The use of supply chain networks helps in the maximization of profits through balancing the operating costs as it regards to third party logistics. The use of third party logistics helps in the outsourcing of cost effective service providers resulting to less transportation costs thus, increasing the profit base. While choosing suppliers, Bonfun focuses on its internal factors such as policies of supplies or external factors such as legal issues that affect place and price of supplies (Bonfun, 2012). Bonfun employs the best Supply Chain Management strategies to select potential suppliers who offer affordable prices and transport. The supply chain design for Bonfun helps the company to choose the best supplier and then compare actual and expected performance after purchase of supplies Logistics infrastructure Logistics infrastructure is one of the major factors to consider in the acquisition process of a supply chain network design. The innovation center is mandated to ensure that the design will bring forth lower transport costs and pro-efficient transportation network. This helps in lowering fleet, inventory and ware-housing costs. An improved logistics infrastructure helps boost the capacity of transportation systems while reducing congestion thus, increasing reliability on the systems (Weinberger, 1998). However, having a good supply chain design does not guarantee an improvement in the logistics infrastructure. Having the warehouse closer to the customer ensures timely delivery of products upon request by the customer. This way, the company enjoys the benefit of reduced costs and efficiency in their operations. This in turn creates variation in the times of transportation making it a possibility to accurately forecast timely performance of the systems. In the case of Clamato, an improved infrastructure will mean reduced fleet maintenance costs and timely delivery of their products hence improving customer satisfaction (Clamato, 2012) Proximity to customers Supply chain helps in satisfying customers needs and wants in possession, place, time and form utility (Taniguchi, Thompson & Yamada, 2001). A good supply chain helps in improving customer service, acquiring capital, materials, technology, necessary data and human resource in meeting wants and needs of customers. Therefore, supply chain management can be described as a customer-oriented operation management. Customers get the products where they need them and at the right time. When the customers purchase these products, the ownership shifts to the buyers while manufacturers make sure that the raw materials are completed in form of suitable products that are required by customers. Producing goods and services requires an extensive supply chain management and logistics system. A good supply chain network will enable Apple orchards in this case to transport goods from the production plant and reach the customers as finished goods (Apple Orchards, 2012). Import and export An improved supply chain design will ensure an open system infrastructure for both import and export. With the current developments in international trade technologies, an efficient supply chain management system will ensure provision of the right tools and adequate resources for an enhanced conformity and improved data flow within the organization (Old Orchard, 2012). An efficient supply chain should be created to promote import and exports according to the existing trade necessities put into consideration (Bratton & Gold, 2001). A good supply chain design should be well informative to the company in terms of taxes and custom requirements, thus making the import and export processes a walk in the park for the company. Stability A stable and reliable supply chain management design will help improve customer service and demand forecasting in the organization. In Supply Chain; active components and finished products reach their target market in time, a process which is part of increasing product value and customer satisfaction. This helps in increasing company’s competitiveness and improving revenue base (Naked Juice, 2012). A stable supply chain design will ensure a constant flow of information between different stakeholders within the system. Stability in terms utility, political environment, labor market, skill set and economy will ensure a smooth operation for the company in all its regions of operation. Therefore, companies should employ supply chain designs that encompass all the above factors. Factors relating to Supply Network Design (Task 2) Consolidation in relation to Supply Network design A good supply chain network design will help increase the rate of customer service efficiency, new asset consolidation, market expansion and new products innovation. Also, this will help in cost cutting, profit maximization capacity and facility location consideration, customer service analysis, flow of materials, pricing and thus improve the company’s product portfolio (Pfeiffer & Salancik, 2003). As companies grow, systems and processes need to be constantly evaluated to make sure that they are adequately supportive and meet the dynamic demand for their products. In a bid to satisfy demand in the current business environment, there has been an increase in the network of distribution centers of manufactures. The ultimate goal of consolidation is cost reduction with the aim of improving customer service delivery levels. So as to realize the benefits of consolidation, Fruit20 should establish a distribution center of supply network design which will help carry out audits focusing on optimization factors like transportation, labor, management, warehousing and IT integration processes (Fruit20,2012). Based on these audits, Fruit20 will be able to realize the importance of consolidation and consequently adopt a consolidated and centralized supply network design. Deconsolidation in relation to Supply Network design The processes of deconsolidation can be explained as an act of breaking down goods in transit in small and several units. Deconsolidation is very important in the development and transportation of products between the domestic and international markets. Deconsolidation has been adopted by many companies like Grove Fruit Juice in a bid to help maximize their import quantities to their centers of distribution and in return cement their supply network distribution making an additional capacity in the company’s objectives (Mondo, 2009). Mostly, retailers and manufacturers use deconsolidation so as to eliminate the need for distribution centers. This helps in reducing the maintenance costs for operating the centers as they are costly to maintain (Grove Fruit Juice, 2012) Distribution in relation to Supply Network design   Distribution in supply chain management can be described as the process in which products are moved from the manufacturer to the retailer. The process of distribution if well strategized can help a company like Juicy Juice to realize profits as it has a direct impact on the cost of supply network design and also has a direct effect on the customer’s experience. Adopting a good distribution channel helps companies benefit from cost minimization while receiving response from their customers. For a supply network design to be termed as effective, there are certain factors which need to be considered. They include the following but not limited to 1) the customer needs and 2) The cost needed to meet those customer needs(Juicy Juice,2012) Customer needs influencing distribution channels in relation to supply network include product availability, response time, product variability and ease of returning goods (reverse logistics). A supply network design with good distribution channels is very vital to a company as it makes sure that goods will reach the customer at the right time thus, making sure they are available at the right time creating customer satisfaction leading to increased profits (Greatz, 2002). A less functional supply network design affects inventory, transport costs and information flow in an organization and in return affects the distribution channels. Regional distribution in relation to Supply Network design Regional distribution can be described as the process of moving goods from the manufacturer to store in the regions of operation. Regional distribution eliminates the costs of warehousing as the products are transported in the region thus eliminating the need of storage reducing the costs of storage significantly (Mintzberg, 1994). Regional distribution supply network design should be built in a way that it supports the ever growing business demand as well as customer demands. The supply network should be able to support all the function of the region in which the company operates in order to create efficiency in the process of customer service delivery, timely delivery of goods and provision of information. An example is in the way King Orchards conducts regional distribution network design surveys before opening distribution centers on those areas. These surveys are based on factors like transport, warehousing, customers and overall management requirements of that region (King Orchards, 2012) these surveys are generally done to help reduce the costs of operation and the provision of improved levels of customer service delivery. Retrieval in relation to supply network design “According to Hitachi, a Supply Chain Management Consulting Firm (2009), “In the supply chain, Web-based product information retrieval systems should be locally contextual, responsive, and evolution-prone. This paper presents an approach to the design and development of such an information retrieval system.”(1). Swanson (2001) argues that network design system requires a good infrastructure for it to support the retrieval of concurrent development, transport design network problems and the Innovative developments of design systems to sustain knowledge intensive procedures. Failure to which, the design is deemed to fail in its purpose (M&B Products.Inc, 2012). However, the costs of acquisition for the automated retrieval storage design systems at times pose a challenge for businesses. Consequently, the cost of maintenance comes in hand with the installation costs and at times, the whole process ends up being frustrating. According to Swanson (2001) “Even the most experienced AS/RS user struggles to support the changing requirements of maintaining aging technology and tired mechanization” (39) Network Design Strategy - Case study: Target Australia (Task 3) Today’s fast changing and competitive environment has posed a great challenge on the management functions of supply chain management. Traditionally, supply chain management was only based on the connections between the sourcing of materials, production, and distribution and retail sales as linked in a simple and linear function. This is no longer appropriate in today’s business environment. Traditional model of Supply Network Flow The current business environment calls for a ‘supply network’ not just a ‘supply chain’. The current approach towards supply chain management (SCM) replicates on the complex nature of supply chains and calls for a dynamic information flow chart that engages all the stake holders of the business (suppliers, business partners and the customers). For Target Australia, the traditional supply network model is not beneficial since it suffers from high domestic trucking costs, limited capacity, high labor costs as well as high storage costs. These setbacks have left businesses with no choice but to adopt the new model of supply chain network. The following diagram is a demonstration of the traditional supply chain network model as it relates to the case of Target Australia. New Model of Supply Network Flow After analysis of these events, the innovation center for Target Australia was left with no choice but to adopt the new model supply chain network. The new model for supply chain network is beneficial in the way that: It helps in the reduction of carbon dioxide emission, Inland road transportation reduction and sea transportation reduction Inland road transportation Sea transportation reduction The new supply chain network model has helped a lot in the reduction of operation costs. The labor costs for Target Australia has since sunk with a reduction on the following: Minimum wage in Australia HKD$19405 (Australian Government, 2013) as compared to Malaysia’s HKD$1836 (Malaysian Government, 2012). Potential 90% saving on overheads. Inland transportation cost in Australia has then reduced by 98% in road miles. Customs and document fees have reduced significantly. The new supply chain network model has enhanced transportation efficiency with an increase in the consolidation of shipments from different origins and in the full utilization of containers (Swanson, 2001). Also, it has helped in the reduction of sea freight per CBM while avoiding void waste the space in the containers (Average volume via MIDC : 692 CBM /week) The new supply chain network model has had various impacts on the Buffer zone. They include: Avoidance of over capacity Reduction of storage cost Reduction on the inventory levels Lastly, the new supply chain network model has helped greatly in the contribution to profitability and on the Increase in management efficiency, through the use of 3PL. Advantages of network design strategy An improved network design strategy enables smooth flows throughout the supply network. The following includes some of the benefits of a good supply chain network as it relates to the case of Target Australia: This model has created split shipment in store level in MIDC instead of regional stores For this study, Target Australia just like Naked Juice has greatly benefited from Value Addition Services (VAS) in MIDC which includes store labels, GOH (Garment On Hand) and special packing for marketing promotion activities (Naked Juice, 2012). Consolidation for more shipments from other supply origins. This involves about 23 out of 54 origins included in this project and a potential extension of this project to the rest of the origins. This model has created the advantage of shorter transit time from the introduction of a new sailing route reducing sea distance (Naked Juice, 2012). Disadvantages of network design strategy However advantageous this model has been, there has also being a few limitations on the flow of business in Target Australia. They include the following but not limited to: Custom issues. The issues of custom have been a hitch towards the smooth running of business for target Australia. This is from the different custom laws from the different regions of operations from which Target Australia operates in (Greatz, 2012). Collaboration with supplier’s posses as a setback in the case of Target Australia. This comes from the in-ability of the company to provide clear instructions to suppliers, arrange deployment workshop, establishing a good relationship as well as good system integration (Erick and Christopher, 2010). Tolerance of errors during transition period causing a contingency plan in place. Cultural difference from the different areas of operation calling for training hence including the management costs. Over-capacity on the number of countries the shipments interferes with the distribution resource planning hence making it hard to make a reliable forecast in all its regions of operation. A decrease in service level calling for a clear definition of the monitor level by KPIs and regular review on the performance levels (Australian Government, 2013). High terminal handling fees calling for a better consolidation plan to minimize the number of handling. Benefits of IT in supply Chain Networks The current developments in IT have helped Target Australia in the development of its supply chain network process. Information Technology brings a smooth flow throughout the supply network. A supply chain design with system integration is able to provide an integrated transaction processing platform for the company, enhancing its overall performance and improving consistency in information relay and in improving efficiency in transaction processes. For example, the use of Electronic Data Interchange (EDI) has helped Target Australia in relaying information thus reducing the costs of sending documents. According to Mike Johnston of the Supply Chain Resource Cooperative center (SCRC), North Carolina University (2005), an EDI helps in time management, create efficiency in the management of warehouse, create accuracy in transactions, and reduce clerical/administrative costs. According to Erick and Christopher (2010), the use of Radio Frequency Identification (RFID) helps logistics and transportation companies to better track shipments and assets (24). Consequently, Johnston (2005) indicates that a supply Chain design integrated with Radio Frequency Identification (RFID) helps in Scanning Labor Reduction, Returnable Items Enhanced Visibility, Automatic Non-Line-of-Sight Asset and Tracking of products. The use of IT has helped in improving customer Intimacy in Target Australia. For example, Target Australia has been able to establish a feedback program for customers in every outlet. Target Australia can place two large tubes and green and red balls that the customers will place in the tubes with respect to satisfaction in its outlets. Target Australia also needs to avail feedback forms that the customers will be given to fill if they want. These forms are also available online. A quick crash course on customer interaction can be conducted to ensure its customers are fully satisfied by the service they receive. Also, the developments in IT have improved in relaying of information from one center to another or from the main plant to its regional distribution outlets. CONCLUSION The above is an illustration of supply chain management with a clear indication of the three major elements: business processes, components of SCM and network of supply chain. The process starts from purchasing, production and then distribution to consumers. Flow of information is a link to the whole chain of supply from supplier and manufacturer to the customer. 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