Principles or Logistics and Supply Management - Kellogs DC - Case Study Example

Principles or Logistics and Supply Management Name Tutor Name Course Date Executive Summary Although the terms distribution centre and warehouse have often been used interchangeably, the two terms are not synonymous. A warehouse refers to a commercial building used for storage of goods to be redistributed to retailers or directly to the customers. On the other hand, a distribution centre refers to a warehouse or a speciliased building that stores goods and concentrates on adding value to the goods to be redistributed to the retailers, wholesalers or directly to the customers. This report examines the case of Kellogg’s National Distribution Centre. Indeed, in the present case scenario, logistics activities are depicted as playing an essential role in adding value. The report describes ‘logistics value proposition’ with regard to Kellog’s DC. It further defines the terms ‘warehouse’ and ‘distribution centre’ and how each adds value to products. The differences between warehousing and distribution centre operations are also examined. Further, the roles of Linfox Lion’s, BMW Group Australia and Kimberly-Clark Australia national distribution centres are also analyzed. The report concludes that the conceptual principles behind a warehouse and a DC are indeed intimately related since their primary functions are storage of products. However, the difference lies in the manner in which they conduct their product movement. Table of Contents Executive Summary 1 Table of Contents 2 Introduction 3 Logistics value proposition 4 Role of Warehouse and distribution centre 5 Differences between warehousing and distribution centre operations 6 Role and function of three DCs 8 BMW Group Australia 8 Linfox Lion’s 9 Kimberly-Clark Australia 10 Various operations conducted at a DC 10 Crossdocking 10 Consolidation and break-bulk 12 Sorting 13 Using ICT tools to add value to the logistics operations 13 Conclusion 15 References 16 Introduction In the modern-day supply chain environment, the distribution facility is interlinked with the supply chain. In addition to functioning as a storage warehouse for inventory, it concentrates on adding value to the goods to be redistributed to the retailers, wholesalers or directly to the customers (Krmac 2008). Distribution centres have hence become a critical part in the supply chain. Indeed, they are instrumental in confirming industry standards, replenishing stores, packaging and effectively managing inventory. This report examines the case of Kellogg’s: National Distribution Centre that is currently managed by Linfox Logistics, a major logistics company (Linfox 2013). Indeed, in the present case scenario, logistics activities are depicted as playing an essential role in adding value. In which case, warehousing and distribution centres are a critical part of logistics systems (Dexion 2012). Logistics value proposition Logistics value proposition refers to integrated efforts aimed to value-addition to logistical operations to ensure customer satisfaction at the least total cost. Logistics that are performed in this manner create value to a distribution centre. Essentially, a wide range of logistical services can be achieved if the distribution centre is willing to apply the required relevant resources to ensure they provide logistical services at the lowest total cost (Bititci 2004). In the modern-day operating environment the cost and not technology is the limiting factor. For instance, a company can maintain a dedicated inventory at close proximity to its major customer base. Additionally, to promote faster and cost-effective order processing, a company can maintain a dedicated communication on real time between a supplier’s logistical operation and a customer. Because of the enhanced logistical readiness, a distribution centre can deliver products within minutes of identifying the needs of the customers. Therefore, developing logistics value proposition relies on reviewing and analysing the costs, benefits and the value that a business can deliver to the customers (Baker 2004). In the case study, Linfox for Kellog operates a distribution centre at Botany that is almost 43,000 square feet in size that use more for the company’s cereal products manufactured at the Botany manufacturing facility (Linfox 2013). Kellog’s transports truckloads of breakfast cereals to the national distribution centres in Perth and Asia Pacific markets near the customers. The products are afterwards distributed to the chain stores in consistency with the demands of the customers at the least total cost. Linfox Kellog’s distribution centres has robotics, storage and retrieval systems, IT hardware and conveyer belt, all which are aimed at cutting labour costs and promoting efficiency (Dexion 2012). Consequently, logistics value proposition can be interpreted as a promise to deliver value to the customer the least total cost, and the belief on the part of the customer that value will be created. It can further be depicted as positioning of value, in which case “Value = Benefits – Cost.” Role of Warehouse and distribution centre Although the terms distribution centre and warehouse have often been used interchangeably the two terms are not synonymous. Indeed, the difference between the two is based on their major functions. A warehouse can be defined as a commercial building used for storage of goods that are to be redistributed to retailers or directly to the customers. Conversely, a distribution centre may refer to a warehouse of r any other speciliased building that aside from storing goods, concentrates on adding value to the goods, which are to be redistributed to the retailers, wholesalers of directly to the customers. In principle, a distribution centre deals with the entire order fulfillment or processing element (Tseng, Yue and Taylor 2005). Distribution centres are also demand-driven and focus on logistics activities. In the case study for instance, while the cereals are at the distribution centres at Kellog’s plant in Botany, customer orders are received from across Australia. The orders are checked to check that cereals are ready and that credit conditions have been met. The order detailed are then passed to the distribution centres that are at close proximity to the customers where the orders will be labeled, repackaged and reconditioned to fulfill the customer demands before they are scheduled for delivery to the customers (Baker 2004). Concerning warehouses, Kellog’s packaged breakfast cereals are moved in pallets from the manufacturing facility in Botany. In addition, snack foods are also transported in pallets from Charmhaven plant and stored on central warehouses. The primary roles of these central warehouses are primarily to hold the stock for further shipment across Australia, New Zealand and the Asia Pacific. At this point, no value-addition services are added to the products, which primarily remain hand-stacked in shipping containers (Dexion 2012). Differences between warehousing and distribution centre operations Instead of merely offering static storage like the warehouses, distribution centres offer value-added services. Therefore, a well-organized distribution centre will offer value-added services such as refrigeration, air-condition, labeling, order-fulfillment and transportation in addition to other services that complete the cycle such as order processing, order preparation and performance measurement (Tseng, Yue and Taylor 2005). In addition, distribution centres are customer-focused and whose primary mission is to offer outstanding services to the customers. Conversely, a warehouse is focused on applying the most cost-effective and efficient method of storing the goods. Further, distribution centres are typically technology driven. A modern-day distribution centre has state-of-the-art facilities essential for processing the goods. They also use inventory management, warehouse management and transport management systems that help in receiving, scanning barcodes, locating and storing the goods efficiently (Baker 2004). Unlike warehouses, distribution centres are relationship-centric. This implies that a distribution centre is focused on building customer relationships by satisfying customer needs, whether the customers are within or outside the company. Essentially, a distribution centre is a key link between the customers and the supply and therefore unlike a warehouse, must be familiar with the customer needs as well as the most cost effective and efficient techniques of meeting those needs. On the contrary, a warehouse is focused inwardly. Therefore, in most cases, warehouses have little understanding of the customer needs (Tseng, Yue and Taylor 2005; Baker 2004). Role and function of three DCs BMW Group Australia Over the past decade, BMW Group Australia has reported significant growth attributed to the rise in consumer demand that has see sales increase by some 85 percent. The Group’s Melbourne warehouse has had to cope with catapulted sales, from 9,318 in 1997 to 17,197 in 2007. This made it critical for the company to review its logistics in terms or service and capacity. The company established a national distribution centre in Moorebank, Sydney (MHD 2008). Today, BMW Group Australia runs a national distribution centre in Sydney that has been instrumental in achieving first-rate service objective by increasing availability of spare parts and speedy delivery across Australia. In addition to stocking full range of spare parts and accessories, the 12,600 square-meter DC has various facilities that increase the quality of services offered to the customers. For instance, the national distribution centre in Sydney today operates a comprehensive bar-coding system covering the goods received, dispatched, bin management and stock auditing. Instant file update and tracking is also ensured using an inventory control system. These have served to offer premium service and to meet customer needs and demands. For instance, as of 2008, BMW Group Australia’s Sydney national distribution centre could deliver nearly 95 percent of the daily cost-effectively by road overnight (MHD 2008). This has reduced total operational cost and increased sales. Linfox Lion’s Lion, which is, a major Australian food and beverage company operates a large in-house logistics through Linfox, a major logistics company (Colby 2012). Through the distribution centres run by Linfox, Lion has been able expand its dairy and drinks footprint among its production facilities in Australia, New Zealand, Indonesia, Malaysia and Singapore. Linfox established two major national distribution centres in Melbourne and Sydney in 2011 and 2009 respectively (MHD 2011). In particular, the Laverton national distribution centre is a state-of-the-art facility with a storage area of 28,600 square metres holding an estimated 26,000 pallets under temperature controlled conditions (Colby 2012). Mechanisation of the facility has improved service delivery to customers, with nearly 100,000 cases delivered each day, as of 2011. The DC in Laverton was built with the major focus of optimizing storage system safety to reduce total operating cost. For instance, since Lion was initially affected by high operation cost due to broken pallets, Linfox helped prevent damage during the storage and retrieval of pallets by modifying the storage system (Colby Protect-a-Racks) to fit the high beam level on all upright racks. End-of-aisle protection was also ensured. Safety of the consumers through delivery of properly refrigerated products and prevention of the system from wear and tear was therefore a primary concern over the life of the DC (MHD 2011). Kimberly-Clark Australia Kimberly-Clark Australia makes and markets health and hygiene products across Australia. The company has manufacturing plants in South Australia and New South Wales. In 2009, the company established three distribution centres with automated pallet building and handling to serve its Australian consumers (GS1 Australia 2012). In 2006, the company decided to change its supply chain strategy to shift focus from supporting manufacturing to satisfying the specific needs of its customers. Initially, orders would be shipped from different location to the same cost. Transportation costs were high. However, with the establishing of distribution centres from 2008, distribution centres would ship to customers directly. This has seen a number of improvements (Cooke 2013). A critical one is the reduction in the total cost of transportation of finished products to the customers. Further, the company has been able to match the shipments with actual demand using point-of –sale data originating from customer purchases (GS1 Australia 2012). This has enabled the company to efficiently and cost-effectively replenish retail and grocery stores to meet the demands and specific needs of the customers. The distribution centres also use Demand forecasting management (DFM) software that use sales data to makes forecasts that determine shipments to stores. As of 2012, Kimberly-Clark trucks over 35 million cases of its products each year to an estimated 120,000 orders (Kimberly-Clark 2012). Various operations conducted at a DC Crossdocking Crossdocking refers to the transfer of goods from an inbound carrier to an outbound one without actually entering the goods inside a warehouse or store. Hence, the goods “cross the docks” to the shipping dock area straight from the receiving dock (Kulwiec 2004). Essentially, crossdocking is a practice in logistics where goods are unloaded from an incoming truck and loaded onto an outbound one. In retail practice, crossdocking may leverage staging areas where incoming goods are sorted, stored, repackaged or consolidate and then stored to await an outbound carrier when it is ready. At this point value may be added to the goods. For instance, goods may be labelled or repackaged. Cross-docking has helped retail stores such as Walmart as well as food manufacturing companies such as Kellog. For instance, both companies have been able to achieve reductions in inventory and protection of stocks. As a result, they have been able to minimise the cost of holding inventory. It has further enabled the companies to attain purchasing economies through dealing in full truck load quantities. The outcome has been a substantial reduction in cost of sales (Kulwiec 2004). Since technology is an integral part of Linfox-Kellog’s logistics processes, particular characterised by the use of radio-frequency identification (RFID) tags on cartons and pallets shipped, this can greatly reduce costs. For instance, the RFID improves speed of efficiency in operations including in crossdocking (See Figure 1). Using RFID, pallets are stacked without considering the orientation of labels (Kulwiec 2004). Figure 1: Crossdocking Consolidation and break-bulk Consolidation involves the process of combing products from different manufacturing facilities or DCs into a single container or shipment for the customer (Anon 2013). Such services can be used by Linfox for Kenlog to take one delivery of 26 pallets from different manufacturing plans, instead of making 26 deliveries of a single pallet from different plants. On the other hand, breakbulk involves consolidating several orders at the manufacturing plan, which are then sent to a DC to be broken down into the specific orders, where they will be marched and reviewed to fit the specific needs of the customers before ultimate delivery (See Figure 2). Figure 2:Breakbulk operations Sorting Sorting involves distinguishing and categorizing of the products based on some common features and qualities. The process can be done at the DC, which can serve as a terminal for receiving bulkloads of goods which are sorted for distribution to customers in smaller units. With regard to sorting, Linfox has used the Botany DC to transform the products to a shelf-ready state to fit the retail environment in a way that can meet customer specifications. For instance, in an intimate customer relationship, Linfox may engage in efficient consumer response, just-in-time or quick response, including configuration of the products, packaging and labelling, custom unit loading or kitting (Linfox 2013, Dexion 2012). Using ICT tools to add value to the logistics operations In the modern-day chaotic supply chain environment that is embodied by agility, flexibility and time constraints, investment in ICT has become a crucial component for logistics service differentiation (Gagliardi, Ruiz and Renaud 2008). Indeed, ICT has been instrumental in cutting total costs and effectively meeting customer needs through customisation of products and services to meet the diverse customer needs. At Kellog’s for instance, Linfox Logistics Company has endeavoured to transform the scope and characteristics of logistics through use of inventory control systems and mechanisation of most activities at Kellog’s DC in Botany (Evangelista and Kilpala 2007). Supply chain technologies include technologies that are applied in the management and control of supply chain-related information and process, including exchange of information between companies. Automated quality control system: This refer to monitoring and inspection device that automatically monitoring the calibration of fixtures and conditions of cutting tools. They are often integrated into the feedback control system to influence the manufacturing process directly. Automatic identification system: This comprises a set of devices and technologies that capture data, aggregate the data and transfer the data to an information system. They increase inventory accuracy and ensure faster delivery of goods. They include barcode readers, radio frequency identification (RFID) and video and audio identification system ((Sui-Hei et al 2007; Evangelista and Kilpala 2007). Computer-aided design (CAD): This comprises standalone design tools essential for designing parts and components of products. They can be used in the DCs to design the products to meet customers’ specific needs. Customer relationship management (CRM): This comprises computer-based software used in managing a DCs interaction with the customers, and hence to tailor the products to meet the needs of the customers. This is seen they collect customer data and provide information about the buyer behaviour. Demand forecasting management (DFM): This comprises a computer-based system that has the capability to forecast information for users. It can be used to replenish stock at the DCs by forecasting on the customer needs (Sui-Hei et al 2007). Conclusion In conclusion, as established in the case study on Kellog’s National Distribution Centre, the conceptual principles behind a warehouse and a DC are indeed intimately related. This is because both of their primary functions are storage of products. The difference however lied in the manner in which they conduct their product movement. A typical DC, (as demonstrated by analysis of Linfox Kellog’s as well as Linfox Lion’s, BMW Group Australia and Kimberly-Clark Australia) serves transportation functions in situations where larger shipments would be more economical to ship compared to the smaller shipment. The focus is also often on minimizing the total cost and meeting the customer needs. Conversely, a tradition warehouse focuses on the storage efficiency and the utilization of space instead of putting emphasis on the handling and accessibility of the material. 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