Supply Chain Management - Case Study Example

SUPPLY CHAIN MANAGEMENT A REPORT ON ITS FUNCTIONS & IMPORTANCE TABLE OF CONTENTS Page 3 2 Company Background 4 3 Importance of Purchase in SCM 4 3.1 Benchmarking 5 3.2 Purchasing Complexities 7 4 The Supply Chain 8 5 Conclusions 10 6 Bibliography 12 1 Abstract Supply Chains are the lifelines of a company. They assume greater importance when the company operates in International environments facing competition from other global and local players in its chosen field. Supply Chains begin from Purchasing and end with Deliveries and therefore encompass a multitude of operations within a company. Efficiency and Logistics play a vital role and will impact bottom lines positively when an efficient system is in place. A full description of the Supply Chain system and its implications has been discussed in the presentation and it has been concluded that Coca-cola Amatil company has an efficient system in place that meets international standards. To the CEO Coca-Cola Amatil Company, Australia. It is our pleasure to present a report on the Supply Chain Management system adopted by the company. 2 Company Background. Coca-Cola Amatil Company (CCA) is the largest soft drink bottler in Australia. Its headquarters is at Sydney and it supplies to a host of countries in the Asia-Pacific region. In Australia, where it has a 60 percent share of the soft drink market, Coca-Cola Amatil has eight manufacturing and more than 70 distribution sites, each with different products and distribution requirements. It requires several suppliers across many countries to supply various products that go into manufacture of its soft drinks and juices. The presentation covers the need and importance of Supply Chain Management (SCM) for the company. 3 Importance of Purchase in SCM Purchase is the foundation of making an effective Supply Chain. A good purchase will often result in better margins. Organizations have specialist purchase departments. They are informed of the requirements and in turn they organize purchases according to previously laid down policies of the organization or company. Larger organization may have more than one purchasers or even a group of people making purchase decisions. Since there are individuals who finally make decisions their judgment, whether individually or in groups, are influenced by the environment they work in. Kohli (1989) proposed that influence is a function of personal resources or power. Every person has a demographic background that largely consists of his personal resources comprising mainly of ethics and education. His decision is influence by these. The status hierarchy determines the level of power but that can be moderated by the influence of the size, similarity and cohesiveness of the group he works in and the risk, time and pressure of the situation. These factors when combined influence behaviour in purchase decisions. These are decisions that can actually reduce the cost of purchase as well ensure quality and time bound deliveries. This adds value to the organizational purchases. Sheth (1973) maintains that the psychological world of the decision makers affects purchasing behaviour. This will include the special knowledge the purchaser has acquired, the training he has received, the skills he has developed and the seller networking he commands. This expertise together with the stake he has in the decision finally leads to efficiency in placing Purchase Orders. With higher level of these factors the purchaser is able to make best possible purchase decisions which result in cost effectiveness for the company. Cost is not solely determined by price alone, and is a result of deliberation and consideration of quality, delivery schedules and quality of service. All of them are critical characteristics (Robinson, P. et al) and a purchase decision that has taken all these factors into consideration will result in the best cost of purchase and this will in turn affect the selling price of the manufactured or finished product and add to the profitability of the organization. 3.1 Benchmarking Benchmarking is the tool that is used to advance the practice of purchasing from ordinary to exceptional. It can be used to set targets that are required to be ultimately achieved by the purchaser. It can be utilized to assess the company’s strength or weakness in the purchase process vis-à-vis the suppliers and competitors. These actions finally bring about Best Practices. Best Practices evolve over a period of experimentation and result in setting parameters of quality and terms.. In the past ten years, benchmarking has become a common practice in purchasing departments (Carr and Smeltzer, 1999). This has helped in getting better products at better prices and on better terms. Therefore Benchmarking has made a positive impact on the purchasing function and has improved performance. A high performance level of purchasing functions results in high levels of business performance. Bench marking also became necessary because business expanded to other geographies and often with diverse suppliers. It would be difficult to place order for the same item which was perceived differently by different suppliers. There had to be a standard fixed by the purchaser that was understood equally by all suppliers to ensure uniformity of quality standards. The evolution of benchmarking ensured that when suppliers understood the exact requirement, minimum communication was needed and automatically deliveries were received without delays. This in turn ensured that Production could be fed in time. A side effect was that inventories could now be controlled better and more efficiently. Fortunately technology saved the day and with introduction of automation and dedicated software a quantum jump was made into making purchasing a more organized and efficient function. The concept of quality and delivery schedules got more importance than price. It became possible to evaluate the performances of the various vendors against benchmarking and ABC analysis made them perform better if they wanted continued patronage from the Purchaser. The Purchaser too became accountable as his track record now became transparent and in turn his position became respectable in the company. With Globalization of business international procurement commenced and the concept of supply chains evolved. From a one sided piece meal order, purchasing was transformed to collaborative efforts between the Production department and the Supplier with the purchaser acting as the conduit and controller of events. Orders were made for prolonged periods and larger repeated quantities of standardized benchmarked products and delivery schedules were spaced according to the requirements of capacities. This collaboration between production, inventory, supplier, and the purchase department was the new beginning and was facilitated with introduction of sophisticated software and Supply Chain Management systems. 3.2 Purchasing Complexities As Purchasing moved to higher levels new complexities were introduced in the system this became a pivotal function for ultimate profitability of the manufactured product. David Farmer proposed four laws for the importance of Purchasing: Purchasing increases in perceived importance in direct relationship with the reduction in the length of the company’s product life cycle Purchasing is perceived as being important when the business concerned interfaces significantly with volatile markets Purchasing is perceived as being important when the business interfaces with demanding customers Purchasing is important whenever the organization concerned spends a significant proportion of its income on purchasing goods and services to allow it to do business. (Farmer, D. 1997) Purchase got itself elevated and redefined. With different organizations, both in the public and private domain, purchasing became a central point which would contribute to the various profit centers. The process of purchase was now divided into various types to fulfill diverse needs. 4 The Supply Chain Multinational Companies have evolved the supply chain system and they prefer to source their requirements form the most suitable area for a particular product manufactured in a specific country. While the preference is to source from the local vendor for price and delivery benefits, there may be occasions where special items may have to be bought from a vendor in another country involving legal and financial concerns. In such cases having multiple purchase options is a possibility; thereby adding to the complexity of the whole transactions. Use of Supply Chain software is necessary in such cases to keep track of materials. Another important feature in Global operations is the emergence of partner programmes where the vendor becomes a part of the supply chain process and has contract to supply materials to several locations. In such cases there is more collaboration than ordering between the purchase department and the vendor and the traditional relationship converts to a partnership. Under modern SCM the supplier is linked directly sales. Under this linkage he is aware of the movement of final products from the shelf and replenishment of supplies is triggered after reaching a certain predetermined level. This generates automatic orders on which he commences working without receiving formal orders. This saves time and ensures regular deliveries to production. However this requires careful planning and is applicable to regularly moving common items that do not require changes in form or content. This is applicable in order to make situations where products are rolled off from assembly lines continuously, like Coke. In cases where production planning is on made to order basis, the supplier is linked to production and their need or inventory level triggers the placement of order for the supplier to act upon. When organizations operate worldwide the Purchasing may be done either centrally or powers may be given to regional offices to procure requirements locally. Global purchasing involves understanding of different cultures and financial requirements. There are also different legal and regulatory requirements that are to be met. The Purchase department has to have a thorough knowledge of these as they will impact the price as well as the delivery times. Since most of these matters are technical in nature, the legal and finance departments are more actively involved in purchase decisions. Agreements have to be vetted by the legal division and all clauses have to be understood in depth. The exchange regulations, customs and duty involvement and other formalities like shipment modes and insurance coverage make the whole process rather complex. In companies that depend on a Global Supply Chain system an important factor is the Logistic Management. This means movement of goods, whether raw materials or finished goods must be continuously monitored through a tracking system to know exactly where the item is within the supply chain. This helps in controlling and managing roadblocks and assists crisis management. This ability is of paramount importance as it could effect supplied and actually stop production. Third Party Logistics (3PL) is a combination of services provided by a logistics company to its customer to package and moves its goods from point to point and also warehouse it in between if so required. Such destinations are often pre-determined and the frequencies worked out to manage a movement within set time frames at agreed costs. Typical services that are outsourced are Inbound or Outbound Freight, Custom & Freight consolidations, Ware Housing, Delivery to customers, Distribution Management and Order Fulfillment. Sometimes value added services offered or demanded like repackaging or return logistic management. 3PL becomes Integrated Logistics when all the above services are offered by a single firm to the company. This involves a deep understanding and close working between both parties and common understanding of problems and events. Efficient handling a turnaround are the keystones of successes for these operations. Advance planning and close monitoring are needed as well as tracking facilities must be in place to track every single item from its origin to destination. All these form part of Integrated Logistics. These are the ingredients of the modern Supply Chain Management requirements. 5 Conclusions We are glad to report that CCA is following all the requirements of an efficient Supply Chain Management System. The Purchase department has been well organized and the various benchmarks that govern raw material requirements have been in place and this ensures that the supplies ordered are specific and quality parameters are clearly defined. This reduces looses on account of below standard supplies and also helps to evaluate the supplier for his efficiency in supplying correct requirements. The 3PL ensures that deliveries are on time and the system tracking ensures that contingencies can be managed should a problem occurs. This has been possible because the company chose to have a lean ERP system supplied by Computer Associates. This was done after an exhaustive search and evaluation in 1996. CCA chose Computer Associate’s (CA) PRMS solution that is based on AS/400 platform. This has performed superbly with stability, reliability and global availability of support. The solution can also perform in several regional languages like Bahasa-Indonesian and Hungarian. The suppliers are linked to production and as such they are aware when the raw materials and various components are required to ensure that production planning can be organized on lean methods to reduce inventories. This also gives enough time for various suppliers to organize themselves to supply in a pre-programmed environment that reduces their own costs. This in turn helps them to offer competitive prices and favourable terms to the company. Both the ERP and CRM are of International standards and conform to industry norms and have served CCA well. Indeed it will be correct to observe that an efficient Purchase department and good supplier relationship management has resulted in an efficient supply chain that is so vital for the company remaining competitive in the Global Markets. 6 Bibliography Carr, A.S. and Smeltzer, L.R. (1999), “The relationship among purchasing benchmarking, strategic purchasing, firm performance, and firm size”, The Journal of Supply Chain Management, Fall, pp. 51-60. Farmer, D. (1997) Purchasing myopia – revisited European Journal of Purchasing and Supply Management, Volume 3 Number 1 March 1997, Butterworth-Heinemann Kohli, A., “Determinants of Influence in Organizational Buying: A Contingency Approach”, Journal of Marketing, Vol. 53 No. 3, 1989, pp. 50-65. Robinson, P., Faris, C. and Wind, Y., Industrial Buying and Creative Marketing, Allyn and Bacon, 1967. Sheth, J. N., “A Model of Industrial Buyer Behavior”, Journal of Marketing, Vol. 37, 1973, pp. 50-56. Read More