Supply and Distribution Chain Management of Johnson Toy Company - Assignment Example

ASSIGNMENT # 01 From the standpoint of an individual concerned with accounting controls, discuss and evaluate Johnson Toy Company’s present policies for handling returned items. Accounting Controls Personnel The present policies for handling sales returns of Johnson’s Toy Company seems very simple but quite fragile for the company as it is indicated that in matter of crisis for the company, it turns out to be extremely risky for them. Their policy is listed below: For small accounts, their policy is that a sales person inspects a merchandize when a sales call is made; they pick it up and give the retailer credit off the next order. The other policy is that they take more than the defective merchandize as part of the sales tool. From accounting point of view, this policy seems to be playing the wait game a little too much without using any risk management tricks which makes it very risky. There is no account for the number of items that could be returned, this means that in case a product fails; the amount of loss could not be evaluated totally. A strong company would never leave such important aspect to risk. A proper policy should be there which is able to manage the risk factor and the loss in advance. 2. Answer question1, but from the standpoint of an individual interested in marketing. Marketing Personnel From a marketing standpoint, the policy for handling returned items is bent upon to make the customer happy. It allows the retailers to return merchandizes whose sales are slow giving them maximum amount of flexibility with the minimum amount of risks involved. As far as marketing is concerned, the impression on the retailer is very good because it gives them the impression that they won’t have to suffer a loss in case the product fails. Moreover, the retailers could in turn offer their customers more flexibility. The company’s advertising policy still seems missing and the sales return policy is without a risk management plan. In case of a hazardous situation, this policy would fall straight on its face. 3. Propose a policy for handling returns that should be adopted by the Johnson Toy Company. Be certain to list circumstances under which exceptions would be allowed. Should it apply to the Jungle Jim dolls? The return policy should concise and well publicized. This means that the retailers and the sales people should be well aware of it. Johnson’s Toy Company should adopt the following policy: If the retailer is not satisfied with the product for any reason he could return it within 15 days of purchase. In case of long distance retailers and shortage of warehouse close by, the return time could be increased to a month. The freight charges would only be given to the retailers if the error is on our part. Meaning if the return is due to a defective item, only then the company would pay for the freight charges. If the retailer does not have any other issues then the company would give a full replacement to the retailer. The process time of the replacement or refund would vary according to the placement of the retailers and his requirements. The above policy could not be applied to the Jungle Jim dolls because, the sales have already been made and this would hamper the credibility of the company to develop a new policy. This policy would definitely help control the loss due to the failure of the Jungle Jim dolls but it would be disastrous for future sales because it would break all the existing retailers currently associated with the company. The retailers and the sales people must know about the return policy before hand. 4. Should this policy, if adopted, be printed and distributed to all of the retailers who handle Johnson Toy Company products? Why or why not? If it should not be distributed to them, who should receive copies? The policy should be well publicized so that the retailers and the sales people both know what they are fishing for. It should be printed on the sales receipts so that they could be later referred, in case of a problem. It should be pasted on the walls of an appropriate place like a warehouse or where the sales meetings are held. It should also be present on the company website so that the customers know and understand that the company is honest and credible. 5. Assume that it is decided to prepare a statement on returns to be distributed to all retailers and that it should be less than a single double-spaced page. Prepare such a statement. RETURN POLICY & PROCEDURE Johnson’s Toy Company, Return policy: Satisfaction Guaranteed We at Johnson Toy Company ensure customer satisfaction to the maximum and that is why we offer a 15 day return policy in case you are not satisfied with out product for any reason. This means that the product could be returned for a total refund within 15 days of purchase. Sometimes some situations are beyond anybody’s controls and in that case we want our customer to be happy. This policy is being made available for our retailers so that they are aware of our procedures and have full confidence in us. Damaged, Defective or Incorrect Products In case of damaged, defective or incorrect product a total replacement is offered by the company if the company is notified within 15 days of purchase. Special situations would be dealt with special care. Refunding of Shipping Charges The freight charges would be paid only for defective or incorrect products. The company would not suffer for shipping charges if the retailer is not satisfied with the product because the overall sales are not satisfactory or for any other reason. The Return Process After a return has been received, it would take 1-2 weeks to process. However, we would try our best to process faster. The refunding would be done in the due time and if it is a replacement requirement then the company would ship the order to the retailer. 6. On the basis of the policy in your answer to question3, develop instructions for the Johnson Toy Company distribution and accounting departments with respect to their roles and procedures in the handling of returns. Instruction for Distribution Department a) The distribution dept. should make the list of returned items that are supposed to return along with the names of the in charge sales representative of that area. b) The department should also keep a list of the returned items that are in the company warehouse. c) It should keep a track of customer records and should also maintain a list of customer requiring either a replacement or a refund. d) In case of replacement or refund, they should keep track of the refund or replacement progress. They should be strict with the deadline. e) All the lists should be forwarded to the accounts department in a timely fashion. Instructions for Accounting Department a) The accounts dept. should do further proceedings on the lists. b) It should maintain a proper list of due and already returned items and their total costs. c) In case of replacement items, the company should also maintain a list of freight charges. 7. Assume that you are Cheryl Guridi, the firm’s logistics manager. Do you think that the returns policy favored by the logistics manager would differ from what would be best for the firm? Why or why not? No, since the company is not using third party logistics and it has its own logistics management system; therefore, it is very unlikely that the favorable returns policy would be different from the best interests of the company. The reason for this being that since the logistics of the company depends on the overall progress of the company. 8. Until the policy you recommend in your answer to question 3 takes effect, how would you handle the immediate problem of retailers wanting to return unsold Jungle Jim the Jogger dolls? The only good thing about the whole Jungle Jim scenario is that the company and the retailers do not have any returns policy that they agree on. In this case the best that the company could do is communicate with the retailers and let them know that the company would only offer discounts of some sort to retailers having ‘selling’ problems with the Jungle Jim dolls and offer full replacement to defective items. This would enable the company to have lesser amount of recycling items and hence an overall lesser amount of loss. The second strategy depends on the recycling capability. This means that a proper analysis should be made and the creative team should come up with the most useful item that could be made of the recycled Jungle Jim dolls. If the overall cost is anywhere near to saving the company from the loss then all retailers shall be asked to return the dolls and take a total refund excluding the freight charges. COMPARISON OF OUTSOURCING SUPPLY CHAIN MANAGEMENT WITH IMPROVEMENT OF THE PROCESS Abstract The company is a glass importer from Czech Republic. It has 100 retailers all over Australia but most of the glassware is sold in Sydney and Melbourne through small gift shops. It faces the problems of unprepared cash flows, ad-hoc order placement, warehousing issues, late payments, inventory management, and several other issues. The Board of Directors is considering the options of either to outsource the whole supply chain management process to a third party or to improve the SCM by some other means. This paper compares and contrasts the options in this regard and tries to reach on a conclusion relating to the issue. “Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.” The purpose of the supply chain management process is to solve the following problems: Distribution Network Configuration This keeps the details of the number of suppliers, their location, productions facilities, distribution centers, warehouses and customers. Distribution Strategy This strategy involves the approach of the company towards distribution of its products. There could be a number of strategies that a company could employ for example, Centralized versus decentralized, direct shipment, third party logistics, etc. The approach taken by any company depends on a lot of factors. Information This involves the integration of different processes in such a way that valuable information is communicated in an organized and beneficial manner. Inventory Management One major responsibility that comes under supply chain management procedure is to resolve issues related to the management of inventory in the most effective manner. Cash Flow: At the end of the day, the company is always concerned about the in-flow and out-flows of cash. SCM also manages the cash flow in the supply chain. The above mentioned areas make it clear, how integral a supply chain is for a company. That is why correct method of managing the supply chain is also very important. The challenges faced by the company are all related to the effective planning of the Supply Chain; 1. The customers place orders of less than 1000 which make them expensive to process and deliver. 2. Retailers have high expectations regarding the delivery of orders. 3. When the orders are received by the retailers, being fragile; they are sometimes broken or damaged and a lot of time is consumed in dealing with returns and refunds. 4. There is a central warehouse in Melbourne but it seems to be extremely costly to manage the supply chain. 5. Invoices are paid late by the customer. 6. There is no record of the demands of the customer and the company has to order 3 to 4 times during the year. 7. Management of inventory is poor. 8. Individual pricing is maintained by the company which is very costly and difficult to maintain. 9. There is a potential order that could double the amount of sales but the distribution and warehousing seems to be the problem. The above mentioned problems that are being faced by the organization indicate that the company needs to re-examine its Supply Chain Management policy. Two options are under consideration: 1. Outsource the whole logistics process to a third party. 2. Improvement in the existing structure. In order to choose the correct option which option is correct, we need to understand both the options well, and then decide based on the problems faced by the company. Third Party Outsourcing Outsourcing the whole logistics process to a third party means that the supply, distribution and warehousing is handled by a third party. Various types of third party logistics providers exist. The following are the most basic types: Standard 3PL Provider These are 3PL providers that perform basic activities such pick and pack, warehousing, and distribution (business); the most basic functions of the supply chain. Majority of the firms go for this type of logistics outsourcing. Customer Adapter This type of provider comes in when an order is placed by the customer and takes control of the whole logistics process. Standard 3PL providers fit in the criteria of the company pretty well. There could be several reasons for wanting to hire a third party for logistics. Following are the major reasons: Reduction of expenses. Better handling of logistics. More time for focusing on core strengths. The option of improving the system does not seem applicable. In order to improve such a daunting and complex process is a difficult task. The improvement involves the following factors: World Class vendor management should be established. Optimization of internal processes. Meet Customer expectations. Even if the above mentioned improvements are carried out, there would still be several issues that would be left out. For example, low cost order placement by the customers, late payment of invoices by the customer, sales returns, ad-hoc placement of orders by retailers, etc. These are issues that cannot be resolved with only improving the supply chain process. Moreover, there are no standards in the industry on which the process can be measured. This scenario makes the improvement process all the more difficult. There is another option that several companies consider when it comes to improving the supply-chain process. Appropriate software could also be used for the management of the supply-chain. However, in the absence of standard software; it is very difficult to choose the right software for deployment. Moreover, it has been observed through experience that companies that have custom-built softwares often had to suffer a bigger expense of having the software built then the expense they were originally suffering from. And in some cases it does not even solve the problem it was deployed for. A survey was carried out in 2001 by the ‘Kurt Salmon Associates and completed by leading mass retail executives’ highlighted three criteria that have defined distribution excellence, i.e.: 1. Information management -- how the flow of merchandise is handled from manufacturer to consumer. 2. Infrastructure -- how facilities and systems support merchandise movement. 3. Intellectual capital -- how support operations associates are attracted and retained. Improving the supply chain would definitely solve a lot of problems but it must be evaluated that at what cost this objective is being achieved. Sometimes the objectives are achieved but their cost is so high that the whole point of achieving them is lost. In the existence of the above mentioned problems, SCM improvement seems a difficult task. The problems that are being faced by the company seem solvable if the logistics are outsourced to a third party. Following are the potential advantages that the company could attain: Focus on core competencies: Managing a supply chain requires a lot of time and effort on the organization’s part. Outsourcing it allows the organization to focus on the requirement of the customer and pay attention towards customer satisfaction. Big guns of any industry often employ a third party logistics company to handle all the complex details of logistics and supply chain. For example Nike, one of the biggest names in sports goods, relies heavily on outsourcing. Reduction of Expenses: It has been noticed that expense reduce tremendously once the supply chain managements is outsourced. Outsourcing reduces the cost of maintaining a fleet of delivery vehicles, maintaining of warehouses, labor expenses, etc. Increase in Process Quality Since the core responsibility of the third party is handling logistics or the whole supply chain, therefore, better process quality is maintained. The issues of customer expectations, sales returns, order placement, etc. could be better handled at the end of the third party service provider. Access to Latest Technology As the organization begins to outsource it supply chain functions, it has better chances of being introduced to technological advancements. The problems of inventory management that are currently being faced by the company could be solved. The 3PL provider keeps a record of the inventory in the its warehouse and inventory in process, i.e. the inventory that is supposed to be deliver. Therefore, the organization has an exact idea of the inventory that is present. Moreover, previous placement of orders could also be analyzed for future predictions. Geographical Coverage Even if the company has potential customers in particular areas of the world, it can’t pursue them because it is unable to handle the distribution and warehousing details. This aspect is best covered by a 3PL provider. Moreover, it helps in increasing the coverage area of the company producing a competitive advantage for the company and producing more revenue. Risks Involved The major risk is that not having a relationship with the third party that is flexible enough so that it can handle business fluctuations. Outsourcing functions that the company was handling pretty well. Not identifying area that would be affected by the outsourcing. Having communication gaps between the provider and the company. Extra expenses besides the one paid to the third party. Conclusion After briefly discussing the potential problems of both improvement of supply chain management process and outsourcing, in the current scenario outsourcing seems the best option. It would also enable the company to accept big orders because the majority of the time would be employed in production without having to worry on distribution and warehousing details. Moreover, the company would not have to face damaged or returned order as they would be managed by the service provider on the company’s behalf. Thus improving the competitive advantage of the company. CITED TEXT “Supply chain management” by Wikipedia Enclyclopedia. http://en.wikipedia.org/wiki/Supply_chain_management “Advantages & Disadvantages of 3PL” http://logistics.about.com/od/outsourcing/a/3pl_adv_disadv.htm “Supply Chain Management” by Ecouncil. http://www.eccouncil.org/docs/SCM.pdf TAGG Logistics http://tagglogistics.com/articles/outsourced-distribution-fulfillment.html “40 Risks to Establishing an Outsourcing Relationship” By Jim Tompkins, President Tompkins Associates http://www.tompkinsinc.com/operations/info/40_Outsourcing_Risks.pdf Read More