Process Flows Operating In the Current Finnforest Supply Chain - Essay Example

Case Study Analysis Assignment on E-Business Logistics and Operation Table of Contents FINNFOREST SUPPLY CHAIN 3 Process Flows Operating In the Current Finnforest Supply Chain 3 Opportunities for Reducing the Overall Supply Chain Lead Time 6 Suggested E-Business Model of Finnforest 8 Impact of the Proposed E-Solution on Finnforest’s Operations 13 FINNFOREST SUPPLY CHAIN Process Flows Operating In the Current Finnforest Supply Chain Finnforest is one of the leading manufacturers of timber products in Europe. To meet the changing demands of the industry, the company is redesigning its supply chain network. To meet the international standards of the industry, the company has been concentrating on three of its vital processes- engineering, construction and fabrication. In order to meet the challenges of the market, Finnforest is keen to develop a unique supply chain model which would help the company to minimise the costs incurred in manufacturing the products. The company is always on the search for discovering advanced processes and techniques by which the total production process, starting from the collection of raw materials to the delivery of finished products, can be made cost–effective. To remain competitive and retain its market position in the competitive global scenario, the company is searching for suitable production processes which would enable them to offer cost-effective products to their customers. To achieve this end, the company is relentlessly making efforts to minimise the production costs, resulting from huge lead times, excess inventory or inability to strike a balance between supply and demand of the market. The company mainly serves three types of customers- the industrial sector, the DIY retailers and the timber merchants. The main objective of the present supply chain network was to minimise the lead times in the total production process thereby reducing the chances of producing waste products. This would help the company to control its production costs and minimise the costs incurred in eliminating production bottlenecks, which would indirectly facilitate the company to meet the customer demands on-time. The supply chain network of the company can be divided into five main processes, which can be listed as follows: Raw material Inventory: For Finnforest, the forests of Finland serve as their raw material inventory. The company collects the entire wood required for its production from these forests. Primary or the initial stage of manufacturing: The wood collected from these forests is then transported to sawmills situated in Finland. In these sawmills, the wood is processed into timber which is required for manufacturing their end products. Second stage of manufacturing (‘Secondary Manufacturing’): Timber is then transported to UK through sea route. In UK, this timber is then worked upon according to the client specifications and is converted into finished products (Chapman P., et.al, 2001). Warehouses or factory storage spaces: This is the place where the finished products are ultimately stored before being delivered to the retailers. The items are dispatched, according to the demand from the retailers. Outlets (‘Retail Outlets’): The finished products are ultimately made available to the retailers from these warehouses (Chapman P., et.al, 2001). According to the survey conducted to get a clear picture about the lead time taken by a particular operation in the entire production process, it was found that the process of transporting the timber to UK and the subsequent production process of converting this timber into the ultimate finished product takes a maximum of about 14 days which indirectly slows down the entire production cycle. The total lead time in the entire production process was estimated to be about 50 days. The company should take suitable measures by which this lead time could be minimised significantly because increase in lead time adds to the overall cost of manufacturing a finished product. Proper analysis of lead time helped the company to estimate the processes which added value to the entire production process and how the indirect production processes increase the cost finally borne by the company. To ensure better customer satisfaction, the company should devise methods of decreasing the lead time (Chapman P. et.al. 2001). It has been found that the semi-finished items were stocked in warehouses for many days at a stretch before they were moved on to the next production stage. This increased the total days of inventory stored to an abnormal 161 days. This would also increase the total cost of the entire production process as huge costs are incurred by companies to stock raw materials, semi-produced goods and finished goods in warehouses. Timber products are large goods and are stored in bulk so it would need large storage space which means that the rent of these warehouses would also be much higher than that charged by small warehouses. Moreover, adequate attention has to be paid to protect the timber from damages caused by ticks/pests and weather changes. The finished goods were found to stay 46 days in the warehouses before being finally delivered to the retailers. This time needs to be minimised. Increase in lead time increases the inventory levels abnormally which slows down the working capital cycle and thus increases the entire cycle time of operation/production. If suitable measures are not taken to minimise the lead time taken by each production process, it can affect the reputation of the company on a long–term basis as it will not be able to meet the customer demands on-time (Chapman P., et.al., 2001). In-depth analysis of the present supply chain network of the company showed that the total production process had incurred maximum wasted time during the time of harvesting the trees, during the time of secondary manufacturing process, and also at the time when the finished goods were ultimately stored in the factory warehouses. This wastage of time has to be eliminated or reduced to insignificant levels in order to hasten the entire production process. The turnover time of the logistics also needs to be addressed considerably to ensure higher productivity and profitability. The company, till date, has not been able to ensure total quality management over all its production processes. This is evident from the huge idle time and the lead time between each of the production processes. This has also increased the total cost of production. Moreover, the absence of proper quality checks in the entire production process is quite evident as the quantity of waste products produced is large .This is also adding to the total cost of production. This signifies that the production process of the company does not strictly follow the principles of total quality management. The company must also implement quality checks on the raw materials as it greatly affects the quality of the end product. It must deploy proper vendor management techniques and processes, which seems to be absent at present. It seems that the company has not made conscious efforts to ensure that all the intermittent production processes and the entities related with the production process meet certain quality standards. This has also played a significant role in increasing the overall production cost. Opportunities for Reducing the Overall Supply Chain Lead Time To reduce the overall supply chain lead time, one needs to identify the processes or the steps in the production process which are adding on to the same. One of the most important steps in reducing the lead time is to identify the processes that are adding value to the overall production and devising methods to achieve them effectively. Another method is to eliminate the redundant processes in the entire production chain. In the case of Finnforest, starting from the initial stage, the distance of the raw material inventory and sawmills should be considerably reduced. The company should try to locate some nearby areas from where the logs can be readily transported to sawmills where it can be converted into timber. This would help the company to minimise the time for which these logs are generally kept stacked in the forest, presently estimated to be about 14 days (Chapman P., et.al., 2001). From the very first stage of production, the demand of the customers and the rate of production should be matched as closely as possible thereby minimizing the chances of over-production which adds to the cost of the company. This would help the company to reschedule its production processes accordingly, increasing the cycle time of operation. Care should be taken to minimise the inventory levels at each stage of production starting with the raw materials, the WIP and the finished products. Proper mode of transportation should be arranged so that the turnover time of the vehicles transporting the raw materials to sawmills can be considerably reduced. Moreover, as the company has its secondary manufacturing unit in UK, it should try to find out a sustainable raw material source within the boundaries of UK as transportation from Finland to UK adds to some unnecessary costs that have to be borne by the company. It also increases the lead time with the transportation time being a sheer unproductive part of the production process. The company needs to remodel its logistic operations as that has been found to be one of the prime factors increasing the total lead time of the entire operation. The overproduction of finished goods should be lowered significantly. Judging the size of an order the company should start the production process accordingly. Moreover, sophisticated techniques should be adopted so that the changes occurring in the market trends can be taken into due consideration which would reduce the chances of producing finished items, that have already become backdated, before entering the market. It may so happen that the company manufactures certain wooden furniture which becomes out of fashion by the time it reaches factory warehouses. This could lead to huge losses so the company needs to remain updated about the changes going on in the market and modify its design specifications accordingly. One of the major causes which has been increasing the lead time of the company is the time taken to stack the raw materials, work-in progress products and finished goods in the different warehouses of the company. So, the company needs to speed up the entire production process by considerably reducing the idle time. This can be done by redesigning the logistic system, assessing the market trends and scheduling the production process accordingly. Suggested E-Business Model of Finnforest Finnforest, being one of the leading timber manufacturing companies, needs to remain competitive with the increasing challenges of the market. In order to do so, the company needs to redesign its supply chain using the latest technologies available to minimise the lead times of the various production processes. One of the major objectives of such remodeling is to ensure the optimum utlisation of the resources available and minimise the levels of inventory which would enable the company to meet the demands of the customer on–time. After analysing the various processes constituting the supply chain of the company, it has been found that the company needs to develop a model by which it could track the progress rate of each of its processes and identify the causes which are creating the bottlenecks. This would help the company to find out suitable techniques by which such interruptions in the production process can be significantly reduced. The company needs to develop a business model which will be flexible enough to be modified according to the changes taking place in each step of the production. For example, if the time lag in transporting the timber from Finland to UK is taking a huge time, then the company can find out how the other processes can be adjusted so that this time lag can be compensated. Some factors are uncontrollable but the company needs to identify those factors. If transportation is seen to be one of the major bottleneck faced by the company, then the company should redesign its logistic chain so that some alternative sources are detected by which these issues can be addressed duly. The company can take care of the following shortcomings by developing an e-business model which would regulate the supply chain network of the company. This model would be developed in line with the ERP model. This e-business model would help the company to have an integrated approach rather than having to view all the functional components of the company as isolated units. Though every aspect of the company’s supply chain cannot be controlled and neither an ideal situation of zero inventories be achieved, the lead time of the various production processes can be controlled to some extent. The company with the help of this e-business model can estimate the demand trend of the market and control the possibilities of overproduction. The amount of wood needed to deliver a particular order can be estimated and accordingly wood can be collected from the forest. This would minimise the need of storing wood in the warehouses for a long period of time at the initial stage which would in turn help to reduce the expenses of the company. To minimise the storage time in warehouses, the company needs to maintain an integrated technologically updated system such as Enterprise Resource Planning to have an overall view of the entire progress of the production. Any change or alteration in any of the production processes would revise automatically the entire chain of processes. The company should share a technologically updated interface with the retailers and the end customers. To adhere to the delivery schedules the company should chalk out the exact time when the production process should initiate and calculate the time when the products would be ready to be delivered. This e-business model would integrate the logistic functions of the company along with the various channel operations. With the help of this e-business model, all the operations can be performed in real time. This virtual network would help the company to track the market changes and reschedule its production process accordingly (Ptak C. A. and Schragenheim E., 2003). For example, if the company tracks a particular fashion trend of wooden furniture in the market and finds it to be in demand in the market, it must make sure that the demand will not die out by the time the product reaches the market. If the demand has died out when the product reaches the market, it means that the company has not been able to track the changing fashion statement of the industry. In this case, the company has no other alternative other than storing all such furniture till it finds potential customers. In that scenario, production costs would increase and as the demand for that type of goods will have fallen, the company may incur huge losses by having to sell them at lower prices. The chances of incurring such losses can be minimised with the help of the e-business model. It will not only help the company to share a common interface with its suppliers, retailers and customers but would also enable the company to track the progresses made in each step of the production process. Any change in fashion or market change can be easily understood with the help of this e-business model which would suggest the necessary changes that the company should perform to avoid losses. If the market preference for a certain type of furniture has fallen abnormally within a short span of time, the company can alter the design specifications. The main objective of this model would be to help the company to adapt to the changes needed to avoid unnecessary production of redundant goods which in turn would help the company in minimising the inventory levels. The e-business model would primarily hint at striking a balance between the demand and the supply of the finished products in the market. Any change in the demand of a particular type of product can be consequently taken into consideration and the total chain of production process can be altered accordingly. It has been found that the lead time of the company increased due to two major causes, one, due to ineffective modes of transportation and the other, due to increase in the storage time at the warehouses during the various steps of production process such as storage of logs after initial cutting of trees, storage in Finland warehouses before transportation to UK, storage in UK ports before moving into the warehouses and storage in UK warehouses both before conversion of timber into finished products and as finished products before being dispatched to the respective retailers. The e-business model would entirely be focused to hasten the production cycle and to eliminate the bottlenecks which would increase the lead time. It would help in controlling the inventory levels. In case of any environmental hazards such as poor weather conditions which may severely affect the quality of wood, the e-business model will take care of such contingencies by predicting the weather conditions. The company can then take alternative measures by finding out some other sources from where it can get the required raw material to meet the demand of the market. This can be achieved by strengthening the research and development wing of the company which would help the company to meet any uncertainties. With the help of the e-business model, the company can track down the nearby suppliers who would be able to meet the immediate raw material requirement of the company and can save the company from suffering huge losses. As Finnforest depends on sea transportation, it can be severely affected by poor weather conditions which can increase the lead time by many days. The company can strengthen its logistic system with the help of this e-business model and can make several adjustments in the other production processes to compensate the delay in getting the semi-finished items on due time. With the help of the integrated e-business model, the time taken by the subsequent production processes can be decreased accordingly to meet the demand deadlines on time. The retailers and the suppliers can also keep a track of the entire production process with the help of this model. Whenever the inventory levels would fall below the safety levels, the suppliers would receive a system generated intimation to supply the necessary raw material to prevent bottlenecks in the production process (Mercado E. C., 2007). This would also ensure an uninterrupted production process which would eliminate the possibilities of Finnforest losing its competitive position in the global market. By adopting this approach, the company would be able to render higher levels of customer satisfaction. The total cost of maintaining links with the various business partners can also be significantly lowered with the help of the latest web technologies. Any change in design specification can be easily intimated to the suppliers and their viewpoint can also be taken into consideration. E-business model would help the company to strengthen its ties with the suppliers as well as the retailers. Tender bidding can be easily done via this virtual network. It serves as an e-marketplace and a common platform where the suppliers can exchange their viewpoint and can intimate the company of their position on a daily basis. Finnforest should adopt the e-business model as it helps mutual collaboration leaving no room for misinterpretation of important facts and helps in establishing a collaborative environment amongst the partners of the supply chain network. This would certainly help the company to reduce its lead time thereby hastening the cycle of conversion of raw materials into finished goods. Besides, adapting a business reengineering approach, it would be better if the company follows a more technologically upgraded approach of Enterprise Resource Planning (ERP). The e-business model suggested has been developed keeping in mind the flexibilities and the advantages offered by implementing an ERP model in an organisation. This model would provide an integrated platform for the company to manage all the processes of its supply chain and would help to build stronger collaboration ties with all the other functional areas accordingly. It will help the company to accommodate the slightest change in any of the production processes without hampering the entire production flow. Business process reengineering aims at improving each process to deliver maximum efficiency but in this modern era of technological changes, an e-business model developed on the basis of ERP concepts would ensure better utilisation of assets thereby maximising the overall productivity. Impact of the Proposed E-Solution on Finnforest’s Operations With the help of this e-business model, the company can first of all, keep a thorough check on the quality of the products manufactured. This would ensure total quality management (TQM) of the entire production process. Any bottlenecks can be easily removed as all the functional components of the company will be integrated with the help of this virtual network. This e-business model would resemble the ERP model increasing the overall efficiency and effectiveness of the entire production process. This model will help the company to adopt a proactive approach thereby enabling it to identify the constraints hindering the smooth flow of the production process. Measures to prevent the occurrence of the actual problem can be taken beforehand with the help of this approach. This would minimise the chances of errors and production of wastages. ‘Internal failure costs’ and ‘prevention costs’ can be minimised subsequently. The company would be able to thoroughly check the movement of each of the production processes, the time needed to complete each step of the process and would be able to build a strong coordination between each process. This would minimise the lead time significantly and thus the company will be able to reduce the days for which an inventory is stocked in the warehouses. The total operation cycle will also speed up as a result and the company will be able to launch its collection of new products much earlier than its competitors. This will help the company to build a competitive edge. This model would help the company to establish a sound inventory control management system. This e-business model would facilitate the company to meet tight deadlines, retain its goodwill and enhance customer satisfaction. The logistics of the company can also be systematically arranged with the help of this business model. On-time shipment of goods would help the company to lower its lead time between processes. It has been found that improper logistic system has been one of the vital causes responsible for the production delays which may have been due to the lack of proper communication between the logistics department and the company. This can be systematically eliminated with the help of this virtual integrated network. The company would get to know the exact time when the raw materials or the semi-finished goods need to be transported and it can make prior arrangements accordingly. This will enable the company to shift from its present approach of make-to-stock to make-to-order. Though, it is not possible to operate at zero inventory levels like Just-in-time but the company can make efforts to lessen its inventory cycle which would also fasten the working capital cycle by converting the cash into goods and then again into cash(Carroll B. J., 2002). This e-business model would help the company to minimise the complexities of the production processes. The model would be so flexible that it would help the company to easily change the methods of production. The company would be able to scan the various modes of production and choose the best alternative. When things were manual, any change in a particular process of production would mean interruption in the smooth flow of the production process but with this integrated technological approach, the company would be able to easily switch to different production modes without actually hindering the production process. With the help of this e-business model, funds can be electronically transferred. Electronic Data Interchange (EDI) and Electronic Fund Transfer (EFT) would ease out the methods of fund transfer thereby significantly reducing the lead time of the entire production process. Clarity in terms of decision making, notifying the urgencies such as immediate stock replenishment, inventory levels falling below the safety levels, can be easily communicated to the suppliers. Time taken in manually completing processes such as developing contracts and placing purchase orders can be eliminated with the help of this e-business model. This e-business model would help the company to locate local suppliers who would be capable enough to help the company meet its deadlines in case the distant suppliers are not able to supply the requisite raw material due to certain weather problems or any unavoidable contingencies. The company would be able to compare the prices offered by the suppliers for a given quantity of raw material and would be able to choose the best alternative. This would ensure superior quality of raw materials and help in establishing strong supplier relationships. Communication gaps can be taken care of with the help of this e-business model. The company, as a result, would be able to reap cost benefits and enhance profitability. With the help of such an integrated e-business model, the company can also ensure that the raw materials supplied by its suppliers conform to the order specifications of the company. The company will be able to establish quality certification standards for its suppliers which would in turn ensure that its finished products are of the best quality. With the changing trends in design, it may so happen that a sudden change in design has hit the market which would make the WIP products lose its appeal. Previously, the company would be left with no alternative than to store the WIP products until it could be used for some other purpose but with the e-business model, the company can easily accommodate such a change without disrupting the smooth flow of the production process. With any process undergoing a significant change, this updated e-business model would intimate the other following processes of the alteration and the production would continue without encountering major bottlenecks. This would also help in delivering customized products which would help the company to build a niche in the market. With the help of this e-business model, the company would be able to integrate all the functional components such as finance, human resources, marketing and distribution channels, manufacturing and supply chain network. This would ensure that the products are marketed at the right time and are able to capture the demand of the market and build more customers in the long run. This model would guide the company about the strategies they need to adopt to position their product and identify the market where this product could be successfully introduced. For example, if the company manufactures fashionable furniture, then with the help of this e-business model, the company can identify the geographical location and the segment of the society where this particular type of furniture would have high demand and devise marketing strategies to position the product appropriately in those markets. This model should be implemented accurately to maximise the chances of its successful operation. This model would help the company to launch its products at the right time and in the right market which would in turn maximise the chances of its profitability. This would also strengthen the company’s market position. On-time delivery of products would render higher customer satisfaction. In the era of modern technology, this e-business model would help the company to minimise the complexities of the production process, reduce lead time considerably thereby eliminating the chances of producing waste products and ensure total quality management over all its processes. This would ultimately strengthen Finnforest’s reputation in the global market. Reference Carroll B. J., 2002, Lean Performance ERP Project Management: Implementing the Virtual Supply Chain, Published by CRC Press, ISBN 1574443097, 9781574443097 Chapman P., et.al. , 2001, Supply chain redesign at Finnforest Corp. Mercado E. C., 2007, Hands-On Inventory Management, CRC Press, ISBN 0849383269, 9780849383267 Ptak C. A. and Schragenheim E., 2003, ERP: Tools, Techniques, and Applications for Integrating the Supply Chain, Published by CRC Press, ISBN 1574443585, 9781574443585 Bibliography Ayers J. 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