Logistics Management - Designing and Managing the Supply Chain - Case Study Example

Topic: Logistic Management Student’s name Course name Lecturer’s name 4th July 2011 Executive summary Supply chain management is a discipline that touches on the activities that involve the management and planning of all activities involved in sourcing, procurement, conversion and all logistics management activities. It also includes collaboration and coordination with channel partners which can be suppliers, third party service providers, intermediaries and customers. Supply chain management integrates supply and demand management within and across companies. Successful supply chains have an enterprise to enterprise point of view and they have a system approach across all organizations in the supply chain. It is imperative to note that one part of the supply chain management is the management of procurement activities in the company. One of the most important functions of procurement in the company is to identify, select and evaluate the suppliers to be incorporated in the supply chain. This involves identifying and stating the needs of the organization and how well different organizations (suppliers) can meet these needs. It is estimated that costs incurred during the procurement process range from 60 to 80% of the revenues generated by the organization. In this regard, organizations strive to maintain the procurement costs as low as possible in order to maximize on the generated profits. The focus of this paper is to explore the issues surrounding logistics problems facing Trento Company such as procurement, transportation and warehousing activities which make it difficult for Trento to meet the expectations of its customers such as Elle Sport in terms of delays in supplying expected or requirement goods at the scheduled time. The ways of resolving the above problems will also be explored in this paper. Table of Contents pg 1.0 Introduction………………………………………………………………....5 1.1 Procurement problems…………………………………………………….5-8 1.2 Warehousing problems…………………………………………………….9 1.3 Transportation problems…………………………………………………..10 2.0 Resolving problems in the company……………………………………...11 2.1 Technology………………………………………………………………..11 2.2 Order……………………………………………………………………...12 2.3 Processing…………………………………………………………………12 2.4 Forecasting………………………………………………………………..13 3.0 Conclusion………………………………………………………………….14 4.0 Reference list……………………………………………………………….15-16 5.0 Appendices………………………………………………………………....17 INTRODUCTION Trento Company is facing problems related to procurement, transportation and warehousing which makes it difficult for the company to meet the demand of its customers such as Elle Spot. The continued inability of the company to deliver and cater for the needs of its different customers has led to withdraw of some of the company’s customers. Elle Spot is the company’s major customer and the inability of Trento to meet the demand of Elle Spot may also lead to the loss of the company’s major customer. Management of demand is one of the greatest aspects that drive business across the supply chain. Demand management is defined as the creation across the supply chain and its markets of a coordinated flow of demand. Demand management can therefore be perceived as the ability of the company to foresee or project future demand (Allen and Morton, 1994). A company with an effective demand management strategy increases its production capacity when future demand is projected to increase and it also reduces its stocks when the future demand of a given product is projected to decrease (Turban, 2002). Demand forecasting accuracy or inaccuracy impacts greatly on all other logistical issues because a projected increase in future demand results into a proportionate increase in the amount of raw materials the company procures from its suppliers (Paul, 1998). It may also lead to the automation or computerisation of the company’s production activities in order to ensure that adequate stocks are maintained for supply. Procurement problems in Trento Company Order management comprises of all the activities that take place in the period between the time the firm receives an order and the time the firm’s warehouse is notified to ship the goods to fill the order. Hence, when the customer places an order, it is the responsibility of the firm to fill the order by ensuring that the order is met within the designated time schedule (Baily, 2008). The four stages of the order cycle must therefore be met and these include order transmittal, order processing, order picking and assembly and order delivery. One of the most important and differentiating factors for success in any given business is customer service. The logistic department in any given firm must strive to satisfy users in terms of dependability, time, convenience and communication (Baily, 2008). These aspects ensure that the customer remains satisfied and assures the firm the continuity of the business. It is imperative to realize that it is more difficult for business competitors’ to imitate customer service than it is for the business competitors to imitate price reductions. Hence, customer service objectives must be specific, measurable, achievable and cost-effective. In order to achieve the above customer service objectives the firm must enhance its procurement strategies or procedures. Procurement refers to all the activities involved in ensuring that raw materials are available in the organization or the firm for production purposes. One of the objectives of procurement is to manage purchasing process effectively and efficiently (Baziotopoulos, 2008). The second objective of procurement in the firm is to manage the supply base. It is evident that procurement is one of the major problems facing Trento Company (Baily, 2008). The problem of procurement in the company arises from a number of factors. First, the employees in the procurement writing the order incorrectly or the writing of the order are ineligible. This results into redoing of the purchase order again. Given that the procurement process in Trento is done manually since the company has not computerised its procurement process the incorrect writing of the purchase order results into serious delays of the procurement process which in turn results into delays on the production process. The transportation of finished products into the company’s warehouses is also delayed giving rise to the company failing to cater for the customers’ needs. The diagram below shows how delay in procurement as a result of inefficiency in the part of the procurement workers impacts on all other processes in the company. Raw materials and Factory Inventory of finished Warehouse customers parts goods Delay in procurement of raw materials, parts and components by one day results into delay in processing of the raw materials into finished goods as well as delay in delivering the finished products to the customers. This is one of the major reasons why Trento has failed to meet the 10 days delivery period stipulated in the contract between Trento and Elle Sports. The other major problem with the procurement procedure in Trento Company is the fact that the logistics group which is responsible for distribution, warehousing and inward freight is independent of the procurement department. Every department is allowed to work on its own procedures (Paul, 1998). This creates a great disconnect in the manner in which different procedures are handled in the company. For example, the inward freight and the procurement departments and procedures are all part of the purchasing process. There must be significant connection between the two departments in order to ensure that the procured materials for processing are transported within a designated time to the factory for processing. However, as it stands now the great disconnect between the logistic groups responsible for inward freight and the procurement department is the second major cause of delay in the procurement procedure in the company. This delay results into subsequent delays in all other procedures making it difficult for the company to meet its delivery within the required time. Thus fragmentation of the procurement processes in the company has resulted into the procurement problems experienced in the company. The other factor that has resulted into procurement problems in Trento Company is the manual handling of procurement procedures. It is important to realize that logistic and information technology are inseparable because IT or information systems in the company enhances order processing and reduces the lead times (Bloomberg and Murray, 1996). Information technology is one of the most important ingredients in the procurement process because it also enhances electronic data interchange (Bloomberg and Murray, 1996). For example, logistics technology helps in sorting, analyzing, evaluating and distributing needed, timely and accurate information to logistic decision makers. From the cases study it is evident that Trento Company has 15 local suppliers and 20 overseas suppliers. Electronic procurement is one of the specific influences of logistics and it is also an effective method of procurement because more than 30% of the population in the world use the internet to carry out different processes (Bloomberg and Murray, 1996). Hence, lack of proper integration of information technology in the procurement department is one of the factors that have resulted into procurement problems in the company resulting into serious delays in the delivery of finished products to the company’s customers. Warehousing problems facing Trento Company Warehousing includes all the logistic system processes responsible for product storage. The products stored may be raw materials, parts, goods in processes and the finished goods (Cooper, Lambert & Pagh, 1997).Warehousing refers therefore to all the activities related to storage at the between and at the point of origin and the point of consumption. (Cooper, Lambert & Pagh, 1997). It is evident that Trento Company has the longer-Haul transportation system where goods move from the producer to the warehouse before going to the factory or to the retailer or consumers. This can be demonstrated as follows; Communication (through post or call) Australia 15% local lost two major clients ELLE (supplier) Trento M/F 15-20 days coverage Target is 10 days No computer system 50 x outlets Warehouse From this diagram, goods move from the producer or suppliers and they are transported to the Trento’s warehouse. From the warehouse, the goods must be sorted out before they are transported to the company’s factory for processing. After the raw materials are processed they are transported back to the company’s warehouse or storage before they are transported to the retailer (Elle Sport) for selling. From the supplier the finished goods are transported to the retailers distributed across the market in Australia. All the above activities take 15 to 20 days due to the increased number of activities in the warehouse. It also takes a lot more time because instead of transporting goods directly to the retailers the finished goods have to be transported to the retailer (Elle Sport). In the warehouse, a number of functions must be performed. These functions include accumulating the products to the required quantities. The other function is breaking the bulk which means allocating each bulk to the orders sent by the customers. The third function is assorting or making sure that a particular product variety such as women shoes are of right quantity and quality (Cooper, Lambert & Pagh, 1997). The fourth function is sorting the products in the warehouse into different types of grades to ensure that packaging is done effectively according to the product grades. The fact that Trento has continued to experience delays in its delivery time means that its throughput is very low (Dall and Bailine, 2004). This means that the amount of products entering and leaving the company’s warehouse in a given time period is low. For instance the amount of raw materials leaving the company’s warehouse to the factory for processing is low. Additionally, the amount of finished goods leaving the company’s warehouse and transported to different customers is also low. This explains why some customers served by Trento Company had to cancel their contracts because Trento was not doing enough to supply the required amounts of products within the required time. The absence of cross-docking in Trento is therefore one of the major factors that has led to warehouse problems in the company because all the products raw and finished must go through the storage or the company’s warehouse before they are transported to the retailers (Dall and Bailine, 2004). Given that the activities in Trento Company are handled manually because the company has not integrated information technology in its processes it also means that there are numerous delays and mistakes that occur in the company’s warehouse. What this means is that the connection between inward freights, warehousing and distribution of goods to the required destinations takes more time than anticipated (Harland, 1996). This is also another problem in the company’s warehouse which needs to be addressed urgently to speed up the movement or the flow of products such as raw materials and finished goods from and into the warehouse. It is worthwhile noting that the company should source for distribution centres around its customers locations where finished products can be transported directly after leaving the factory instead of being transported back to the company’s warehouse where all the functions explained above which take place in the warehouse results into delays in transporting the finished goods to the customers (Harland, 1996). Trento has 15 local suppliers and 20 overseas suppliers. However, from the case study it is evident that the type of shoes specified by customers such as Elle Sport are not supplied in time because the raw materials required to manufacture such specified shoes do not arrive in time from the suppliers. This means that Trento experiences transportation problems which delay the manufacturing schedule. Some of the transportation problems may be out of the company’s control because different countries have different types of transport infrastructures (Harland, 1996) Hence, companies operating in countries with poor transport infrastructure are likely to take long to supply the required raw materials for the manufacturing the type of shoes requested by the customers. However, the attractiveness of a particular mode of transport used by Trento Company and its associates in the supply chain or the distribution channel should be based on the following factors; flexibility, reliability, capacity, speed, cost and capability (Harland, 1996) From the case study the fact that Trento has more overseas suppliers than the local suppliers is one of the factors resulting into transportation problems in the company. The reason for this is that goods from overseas suppliers take long to reach Trento facility for manufacturing processes (Hines, 2004). This is particularly true when the raw materials have to be transported by water (ship). Although, it is relatively inexpensive as compared to air transport, water transport is slow. It means that when the customers such as Elle Sport place their orders for a particular type of shoe, Trento has to place order for raw materials from overseas suppliers which takes relatively longer to reach Trenton facility, get processed and distributed to the retail customers. The duration taken is relatively longer than and this explains why Trenton anticipates changing its delivery time from 10 days to 15 to 20 days because it has been difficult to meet the customers’ requests in 10 days. Hence, the transport logistic problem facing Trento results from differences in transportation infrastructure in different countries where the suppliers are located and the means of transport chosen by the company (Hines, 2004). RESOLVING THE PROBLEMS Application of technology In order to resolve the procurement problems facing Trento Company, several factors should be taken into consideration. First, the logistic department and the procurement department should be interconnected to ensure that that inwards freight and procurement procedures are undertaken and monitored without delays (Imchi-Levi, Kaminsky and Simchi-levi, 2007). Manual handling of procurement documents should be substituted with electronic procurement procedures in order to ensure fast exchange of information from the suppliers to the company. Any incorrect details entered by the employees in the procurement department would be corrected electronically. This would go along way into eliminating the unnecessary delays caused by manual handling of procurement information (Kouvelis, Chambers, Wang, 2006). To resolve the logistic problems involving the company’s warehouse there is need to computerise the functions in the warehouse to ensure that time is not wasted in the process of sorting, assorting, allocating and accumulating raw materials and finished goods. Order The other option for the company to resolve its warehouse problems is to use distribution centres located near the customers’ locations where rapid movements of products to the customers can be achieved (Mentzer J. et. al., 2001). Several factors should be taken into consideration. First, the company should consider cross-docking as the most appropriate method of reducing time in the supply chain (Mentzer, J. et. al., 2001). This means that the company should avoid storing the finished products in the company’s warehouse. Rather the fished products should be shipped or transported to the customers the same day they are processed. This would also enhance the company’s throughput or the amount of products entering and leaving the company’s facility within a given time period. More space would also be created in the company’s warehouse for more raw materials to be stored before they are processed. As a result, the company would have surplus stock available for any urgent order placed by its customers which would also cover the 10 days stipulated in the contract between Trento and Elle Sport. Processing In order to resolve the logistic problems related to the company’s transportation of raw materials and finished goods, the company should use the rail and water transport to transport bulky goods at any given time. For example, the rail road can be used to transport bulky finished goods to the distribution centres while water transport should be used to transport bulky raw materials to the company’s facility (Paul, 1998). This would ensure that the company has sufficient raw materials and finished goods in its facility and locations to cater for the needs of its customers. Forecasting In order to ensure that suppliers do not run out of stock forecasting of future demand should be undertaken to ensure that stocks are available when required by the supplier for distribution to the retailers. Conclusion Logistic managers are faced with numerous problems in ensuring that all the processes in the firm run effectively. Some of the major problems facing logistic managers include procurement problems especially when the procurement processes are not computerised. Global procurement is the most difficult process because logistic managers have to ensure that orders placed for the supply of raw materials reach the targeted suppliers in time. Delays in procurement result from wrong procurement details and lack of proper co-ordination between the suppliers and the procuring company. The warehousing problem is another constraint that faces logistic managers. This includes delays in carrying out required functions in the warehouses thus causing delays in the amount of time the finished goods and the raw materials have to be stored in the warehouse. References Allen, T., and Morton, S. (1994). Information technology and the corporation of the 1990s. New York: New York Publishers. Baily, P. (2008). Procurement principles and management. Harlow, England: Prentice Hall Financial Times. pp. 394. Baziotopoulos, J. (2008). An investigation of logistics outsourcing practices In the Greek manufacturing sector. New York: Sage Publishers. Bloomberg, K., and Murray, L. (1996). The Management of integrated logistics: A pacific rim perspective. Prentice Hall: Riverwood, NSW Cooper, M.., Lambert, D.., & Pagh, J. (1997). Supply Chain Management: More Than a New Name for Logistics. The International Journal of Logistics Management Vol 8, Iss 1, pp 1–14. Dall, M., and Bailine, A. (2004). Service this: winning the war against customer disservice (1st ed.). Last Chapter First. Harland, C. (1996). Supply chain management, purchasing and supply management, logistics, vertical integration, materials management and supply chain dynamics. UK: Blackwell. Hines, T. (2004). Supply chain strategies: Customer driven and customer focused. Oxford: Elsevier. Imchi-Levi, D., Kaminsky P., Simchi-levi E. (2007). Designing and managing the supply chain, third edition, McGraw Hill Kouvelis, P.; Chambers, C.; Wang, H. (2006). Supply chain management research and production and operations management: Review, trends, and opportunities. In: Production and Operations Management, Vol. 15, No. 3, pp. 449–469. Mentzer, J. et. al. (2001). Defining Supply Chain Management, Journal of Business Logistics, Vol. 22, No. 2, 2001, pp. 1–25. Paul, H. (1998). "Sales Process Engineering: An emerging quality application". Quality Progress: 59–63.  Turban, E. (2002). Electronic commerce: A managerial perspective. Prentice Hall. Appendices 1. A diagram showing impact of delay in procurement in Trenton Company Raw materials and Factory Inventory of finished Warehouse customers parts goods 2. A diagram showing the longer Haul transportation system Communication (through post or call) Australia 15% local lost two major clients ELLE (supplier) Trento M/F 15-20 days coverage Target is 10 days No computer system 50 x outlets Warehouse Read More