The Supply Chain for the Coffee - Literature review Example

By The of the The of the School The and where it is located The Introduction The decision on determining the future of new procurement strategy or supply for Tesco from Africa and South America lies in the intensive analysis of the factor inherent in the supply process for the any company which wishes to establish itself. Global supply chain is typically challenging especially with regards to complexities attached to logistics and transport process is always ritual to it. Extreme process of communication and subject to various local regulations determines the success of such business ventures. Certain legal, quality and other financial oriented obligations must be undertaken to ensure that the business runs expected and successfully without insolvency being entailed. The location of the processing point of the coffee determines very critical factors regarding profitability as intense wastage in transportation can hugely be reduced immensely. Uganda is closer to London in terms of mileage distance meaning that wastage in transport can be hugely reduced and thus increasing the profit margin. Peru is contrastingly far to London thus profit maximization may be hard believing that London has the main processing point. In the case quality factors remain constant then Ugandan coffee should be preferred to the Peru coffee. The report looks at the recommendations regarding modeled way of managing global supply process management from Africa and south amerce thus helping expanding the business empire for Tesco and thus consequently widening the income base for the company. The report aims at assessing the best location to source, Mode of entry and outlining the supply chain design for the new product and thus allocating intensive regards on the impact of decision, plummeting the business risks and outlining of the best advantages to the stores and entire customer base. The prospected advantages are targeted for the consumers and the company in general thus helping in raising the company fraternity (Giovannucci & Koekoek, 2003, pp.56) . Best location to source coffee Assuming that the quality of the coffee obtained from Peru and the once obtained from Uganda have the same quality then extreme regards should be placed for the coffee sourced from the closest point to the processing point. Peru is 9,777 km from London while Uganda is while distance from Uganda to London is 9765.6 km. The investment or the cost of input in terms of the transport cost matters hugely in rendering the business venture a successful process. Model selected for transport cost may actually reveal the cheapest model selected. The essence of the location aims at reducing the expenditure on transport factors and thus contributing to reducing the eventual cost of the product emanating from the production process. The costs of transport may be evaluated through considerations of the sea, the air and consequent road transport. The transport expenditures vary with global changes in transport. Due to close difference in distances of Uganda and Peru from London considering that London has the main processing point then further analysis is critical in enabling selection of the best optimized point of gathering products. Naturally, the location of the business is highly crucial decision since it creates a chief impact on profits as normally businesses depend on seeking locations that inherently maximize revenues and therefore minimize costs. Conventionally it agreeable that (high revenue - Low cost = High profit) (Giovannucci & Koekoek, 2003, pp.67). The main essence for moving into a new zone may be due to push and pull factors that eminent in the new zone selected by the company. The company aims at possibly conquering new territories after subduing the UK market and thus increasing the business performance in the new locations. Having started from small stalls in the London streets years ago and now is prominent suppliers of varied groups of products the company invests in the production model that would avail the maximum income with least assessed risk to the company. South American and African regions do not have excellent processing plants for coffee thus making an excellent point for investment consideration for Tesco. Any eminent competition from the established companies would only mean a great risk if Tesco would wish to establish a plant in these regions. Shipping of the collected coffee for processing in London increases the production capacity of the plant without having to place asset base investment points for the coffee products. Value addition to the coffee products in UK plants is typically higher as compared to the most of the African and South American companies thus placing huge returns for Tesco to invest in the production plants to widen its routes in the process. Collection of coffee from Uganda and Peru may further be predicted or categorized according to other inherent factors that affect the production process. The other typical push factors, that determine the direction of the production process, includes the rising competition in the South American region as compared to Ugandan region. Ugandan shillings are highly weaker in the global market thus making the coffee from Uganda is cheaper as compared to Peru. Cost of transport is fairly similar in the two scenarios. The communication systems between the two countries are another stringent and relevant reason for consideration while undertaking the evaluation of the investment process. Ugandan communication system is contrastingly low as compared to Peru communication infrastructures. Communication and transport infrastructure is highly imperative while transporting the goods of this type. South American and African economies highly depend on the exportation of the unfinished agricultural products which is equally a supporting issue relevant to the two countries. Uganda and Peru both have cheap labors thus posing equal consideration as they fall in the developing nation’s brackets. The greatest obstacle to the Tesco falls in the geographical limitations from the potential source of raw products which is mainly Uganda and Peru and therefore it aims at maximizing the other factors to ensure that other inherent risks are totally reduced from the investment process. Normally production and manufacturing firms must usually locate themselves close to the sources of the common raw materials, markets and transport links to enable their businesses run effectively and smoothly. While the raw must be processed at a center point, then distance from the market infers that consideration of the distance from London to other parts should be considered. Every distance of transport means a unit increase in the cost of final products, and thus the reduction of the profit margin or raise in the eventual cost to ensure business runs effectively. Mode of entry Consistent with (Giovannucci & Koekoek, 2003, pp.78), the mode of transport or entry of the coffee is basically through consideration of two main channels; the air or water transport. Water or the sea transport through shipping is slower and meant for very products while the air transport is faster, more efficient and meant for perishable goods. The selection of the air transport means extreme expenditure position, but it indicates improved quality of the final processed goods. Shipping process by the use of the water vessels takes a lot of time and may not be relevant to economic processes. The supply chain design for the new product The supply chain for the coffee will mainly take eight crucial steps from the sourcing or collection to warehouse or the client consumption. Sourcing of the coffee from the best quality ascertained areas in Uganda or Peru depending on the quality and costs analysis. African and South American agricultural products have been in the limelight regarding poor use of chemicals in the growing of the crops. Health of the clients and reputation of the company must always remain at high levels. Manufacturing process depends on the clients regards for the goods they consume. Any little information regarding poor or unsatisfactory quality may propagate a series of events that may lead to the fall of the company. Uganda and Peru have both good quality coffees. The coffee from Uganda is mainly the Robusta type which is grown in relatively warm areas as compared to the Arabica version which is normally grown in the highlands. Uganda is a landlocked country which mainly depends on Kenyan ports while Peru has its own infrastructure to enable it undertakes the business without any hindrances (Giovannucci & Koekoek, 2003, pp.45). Design of the coffee quality variations is equally important. Customer services charges and other charges expected in the created centers for consolidating coffee products from the producers is nearly equal from the two points of farming coffee. Ugandan and Peru coffee farmers have nearly equal returns or charges as most of the agricultural products from Africa and South American have their prices decided by the consuming or global markets, as opposed to other goods. The international markets bases on the quality of the products produced disregarding the nation that produces the products (Giovannucci & Koekoek, 2003, pp.67). Inventory management of the process from Uganda and Peru is equally the same as this model depends on the company’s format of inventory management. Following collection of the quality coffee beans, they will be flown on to their eventual destination for processing hence there is no need for warehousing at the collection points. Temporary warehouses can be created in both two locations as collecting points to enable gathering of the sufficient amount of products. The two countries have well established system of the air transport connecting or linking the two locations for faster communication and transport process. This will mainly establish the best and modelled way thus allowing excellent way of transport. The process of packing of the coffee subsequent to collection or can be undertaken by local laborers in the countries. Most of the South American and African countries lack relevant technology and machinery to aid in excellent processing of the agricultural products which creates a hindrance to most of their agri-products entry into western or the European market. Tesco invests in this essence as the main reason to outdo the local coffee handling or producing companies for the best prices. Competition from grassroots countries where collection points are can always be reduced by assigning of comparatively higher process to enable local producers prefer the coffee export process than import business (Giovannucci & Koekoek, 2003, pp.152). Decision Impact Company According to (Giovannucci & Koekoek, 2003, pp.342), the decision impact on the selection of Peru or Uganda has great and intensive impacts on the profitability of Tesco. The greatest impact and disadvantage of Tesco lies in the distant of collection of the raw coffee inputs. Value addition to the coffee processing lies on the technology applied by processing model. Finally, the decision on taking Peru or Uganda falls under the consideration of the transport costs. Comparison most flights from Uganda (Entebbe) to London reveals that a rate of $739, $810, $813, $822 and $885 for most of the cheapest flights while the air tickets costs around $480 for most of the flights from Lima (Peru) to London. This transport variation gives Peru an edge over Uganda consideration that logistics is an immense issue in the process of transportation of the coffee products. Believing that transport difference applies equally to transport on coffee cargo for processing then Peru has a better option being the best point for selection of the supply point. The eventual costs of input for collection of coffee from Peru will eventually results in greater profit margin as compared to the points. The transport costs are the main cost point which may create a stumbling block for the manufacturing process. The decision on Peru hence comes from a mixture of entailed process and costs generating factors that must be considered for entailed evaluation (Giovannucci & Koekoek, 2003, pp.317). Profit margin =total revenue –cost of input Cost of input = (transport costs + productions costs+ labour costs + energy costs+ water supply and other costs). For the logistics management process main costs emendates from transport processes, the communication process, labor costs, local authority charges and miscellaneous. After evaluation of the totals costs incurred in the supply process, then it is significant noting a great deal of money or expenses is incurred in the transport process as compared to other factors. Most of other factors are paid once as starting subscriptions while other entailed charges are typically low or small in financial magnitude to cause or create tangible loses while undertaking the deals of similar magnitude (Giovannucci & Koekoek, 2003, pp.313). In conclusion, supply chain which commences in Peru is the source of the material, goes to London for process and later in the global market as the sales for quality coffee products is typically an intense process. It treads on a tight rope with steps of value addition at every point. Clear regards are kept concerning handling of the coffee from the source to final consumption point to ensure that the products do not incur increased levels of input costs which could equally inhibit the process of maximization of profits. In summary, selection of Peru as a source supply point for coffee marks the excellent starting point for the product chain thus creating a continued process which ends with eventual consumption. Most of other factors of production between Peru and Uganda are equally similar. Cheap coffee beans source, cheap labor for skilled and non-skilled in combination with excellent processing quality then coffee assured of high sales in the global market. Any other additional costs will be spent equally on the administration of the collection, consolidation and an eventual supervision of the transport process. This portion falls within the inside environment of the company and therefore it has a great ability to control it so as to maximize on the profits at the end point. Bibliography Giovannucci, D., & Koekoek, F. J. (2003). The state of sustainable coffee: a study of twelve major markets. [Geneva], United Nations Conference on Trade and Development. Read More