MANAGEMENT DEVELOPMENT INSTITUTE OF SINGAPORE IN TASHKENT (MDIST)

ASSIGNMENT SUBMISSION COVER SHEET

Course Module Lecturer Assignment Type Due Date

: : : : :

Year 3 Logistics and Supply Chain Management Mr. Yeow Ghin Cheong Individual 20.03.2013

S/N 1

Student Name Ikboljon Kasimov

ID Number B1000430

Student Signature

Submitted on Due Date (Yes/No) : Word Count :

20.03.13 2800

STRATEGIC MANAGEMENT ASSIGNMENT

Management Development Institute of Singapore in Tashkent

FACULTY OF INDUSTRIAL MANAGEMENT

LOGISTICS AND SUPPLY CHAIN MANAGEMENT

IKBOLJON KASIMOV
Group No. 407 ID: B1000430

March 15, 2013 Tashkent

STRATEGIC MANAGEMENT ASSIGNMENT

Table of Contents
1.0. Supply Chain Management .................................................................................................................... 4 1.2. Difficulties of Supply Chain Management ........................................................................................ 5 2.0. Bullwhip Effect ...................................................................................................................................... 6 2.1. Bullwhip effect management ............................................................................................................. 7 3.0. Warehouse Management ........................................................................................................................ 9 3.1. Typical activity flow in warehousing................................................................................................. 9 3.2. Warehouse Features and Characteristics............................................................................................ 9 3.3. Type of services provided ................................................................................................................ 11 3.4. Stock rotation ................................................................................................................................... 12 4.0. References ............................................................................................................................................ 13

STRATEGIC MANAGEMENT ASSIGNMENT

1.0. Supply Chain Management

Intense competition in todays global marketplaces, products with shorter life cycles, and superior expectations of customers have compelled business entities to invest in, and focus ample attention on, their supply chains. Supply chain management has already become core competencies of various business enterprises such as: Apple, Intel, Samsung, P&G, Wal-Mart, Nike, Toyota and Audi which gives them the competitive advantage over their rivals. (Gartner, 2012) The concept of supply chain management has become ever popular in todays business world as it exists in both service and manufacturing organizations. It can be defined as: A set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements. (Edmund P. & Kim W., 2013) Supply chain is basically an integration of independent organizations associated together as a group through products and services where group associates jointly or separately add value on in order to deliver them to end customers and meet their the needs. It consists of numerous elements that are connected together through the movement of products along it. Customer, planning, purchasing, inventory, production and transportation are the components of a simple supply chain where it starts and ends with the customer. An effective SCM aims to achieve: reduced inventory level, increased speed of transactions and bolstered revenue by increasing customer satisfaction.

(Dr. Dawei Lu a., 2011)

STRATEGIC MANAGEMENT ASSIGNMENT

1.2. Difficulties of Supply Chain Management

Even though, an effective supply chain has the potentials for being a great organizational asset and competitive edge, management of it has always been a critical yet perplexing activity for almost all business organizations. The complexity of supply chain may vary depending on the size of the business and intricacy and number of products produced. (Dr. Dawei Lu b., 2011) This complexity commonly forms basis for several supply chain management challenges such as: Response Time

Long and complex supply chains involve a number of partners, suppliers, and buyers which leads to sophisticated set of transactions and different set of communications. This diversity increases the number of manual processes and customized connections and may impede the growth, organization, maintenance, and improvement of the supply chain. Identification and assessment of customer demand also becomes challenging and it can be difficult for a company to respond quickly to changes in customer demand. Demand can quickly increase or decrease and thus requires rapid response. (Msdn, 2010) (Edmund P. & Kim W., 2013) Cost control

Today, from rising freight prices, increased number of global customers, technological advances, swelling labor rates, healthcare costs, and rising commodity prices supply chain operating costs are under pressure. Maintaining such factors and costs evolves as a highly critical issue because of the size of a supply chain and especially, when chain participants are from different parts of the world. Nevertheless, some of these issues can be effectively addressed, but some of them still remain under question for some of the organizations. (Supply Chain Council, 2010) Planning and Risk Management

Uncertainty and risk are natural for every supply chain and they create loopholes in management. For example, customer demand can never be precisely forecasted, travel and shipment times will never be definite and vehicles and technologies will break down. Likewise, marketplace changes such as new product introductions, outsourcing, offshoring, intellectual property protection needs, and capability to retain asset and shipment security significantly bolster the level of risk in

STRATEGIC MANAGEMENT ASSIGNMENT

supply chains. Therefore, risks must be identified and quantified and supply chains must intermittently be evaluated and redesigned accordingly. (Edmund P. & Kim W., 2013) Supplier/partner relationship management

Supply chain management strategies cannot be determined separately because full participation of all associates is crucial to establish an effective supply chain. However, different organizations, even different departments within the same organization, can have diverse conflicting objectives as they have different communication and performance measurement expectations. Thus, it is crucial to recognize the whole supply chain as one system, build trust between system participants, establish mutually agreed standards and set supply chain strategies aligned with system goals and objectives. (WiseGEEK, 2009)

2.0. Bullwhip Effect

A bullwhip effect is a very common phenomenon and unavoidable part of the order-to-delivery cycle that may have negative impacts on supply chain performances if arises. It emerges from an amplification of demand order deviations in the supply chain as it ascends. Basically, it happens when different supply chain stages have different calculations of demand amount, therefore the longer the chain between the manufacturer and wholesaler the greater the demand deviation. (Dragana M., Biljana P. & Mirko V., 2009) Lack of communication between participants of the chain and disorganization in terms of ordering larger or smaller quantities of product than is necessary are the common influential factors that contribute to the bullwhip effect in supply chains. However, there are other critical factors that form basis for bullwhip effect including: Demand forecast updating

Forecasts of demand are inaccurate by nature and it always creates unrealistic expectations and the greater the loophole between actual and forecasted demands, the higher the risk of surplus inventory or product shortages.

STRATEGIC MANAGEMENT ASSIGNMENT

Order batching

In order to reduce costs of order processing and transportation, companies usually make orders in lots. This spreads up the demand cycles to suppliers and results in poor forecasting every time a batch is run. Price fluctuations

During special promotions and price discounts customers buy in greater quantities and stock up for the future, however, it doesnt reflect their direct needs. Thus, it infers unpredictable future purchase estimates. Rationing and shortage game

Manufacturers often ration their products when demand for product exceeds supply. This creates perception in customers that there is a product shortage and they usually double their orders. However, production of wrong information on real demand affects forecasts and results in further demand related issues as suppliers receive little information on real demand for the product. The bullwhip effect might result in critical obstacles in company operations if its not prevented or managed properly at early stages. The potential impacts of bullwhip effect are: increased level of inventory, prolonged lead time, higher transportation costs due to increased demand, increased labor costs, decreased level of product availability and other issues that might disturb relations within the supply chain. (Dragana M., Biljana P. & Mirko V., 2009)

2.1. Bullwhip effect management

It is crucial to prevent or manage bullwhip effect at an early stage in order to reduce potential implications and other cost related issues. One way to decrease the bullwhip effect is through better information, either in usage of improved communication in supply chain phases or better forecasts. Delay elimination or reduction helps to diminish order-to-delivery time and can cut supply chain fluctuations can be another solution to reduce bullwhip effect. (Joseph H. W., 2010) However, there are certain developed actions to management that helps to minimize it. There are four management activities to reduce bullwhip effect in supply chain:

STRATEGIC MANAGEMENT ASSIGNMENT

1. Reducing uncertainty Uncertainty can be diminished by effectively sharing information along the entire supply chain, bestowing each associate with complete information on actual customer demand, and reducing dependency on forecasting. Focusing on end customer demand through POS1 data collection, EDI2, and VMI3 to decrease inaccuracies in downstream communication is also imperative factor to reduce uncertainty. (Michael B., 2006) 2. Reducing variability Variability is a natural characteristic involved in customer demand process and it can be reduced by significantly decreasing price promotion. Consistent price strategy can be used to offer a price as low as possible each day without intermittent price promotions. Moreover, maintaining stable prices for products helps to prevent price fluctuations where customers over-purchase when prices are low and significantly decrease orders when prices are high. This will extensively prevent large demand fluctuations. (Aprile D., Garavelli C. a., 2008) 3. Reducing lead-time Implementation of lean manufacturing can be valuable for reducing lead-time and reducing order batching costs that otherwise aggravates demand fluctuations. EDI is the tool that can considerably decrease order lead time which is one of the elements of the total lead time between two Supply Chain phases. Besides, enterprises should consider the fact that greater savings could be grasped by executing computer order system that allows a reduction of administrative costs. (Owen E.R., 2010) 4. Strategic partnership As a final point, building strategic alliances, for sharing information and successful inventory management within entire Supply Chain can drastically abate the bullwhip effect. One of the momentous strategic partnerships is; VMI where manufacturer deals with its own inventory goods at the retailer outlet and decides how much inventory to preserve on hand and how much to distribute to the retailer in every period. (Aprile D., Garavelli C. b., 2008)
1 2

POS point of sale EDI electronic data interchange 3 VMI vendor managed inventories

STRATEGIC MANAGEMENT ASSIGNMENT

3.0. Warehouse Management

Warehousing performs an indispensable function in supply chain and creates time utility for raw materials, work-in-process inventory, supplies, and finished goods. The importance of warehousing is in having the right product in the right place and at the right time. It also helps to minimize costs and maximize customer service by increasing the time utility of products through expanding their time availability to potential customers. (Martin Murray, 2009)

3.1. Typical activity flow in warehousing

Receiving

Put-Away
Retrieving

Shipping

Picking

Operating an information system to maintain the record of each item in stock showing the amount on hand, amount received and issued and the location in the warehouse is also one of the most essential functions of an effective warehouse management. (Supply Chain Management, 2008) (Wiki, 2010)

3.2. Warehouse Features and Characteristics

A public warehouse is a building where goods, wares, and merchandise are stored and maintained as a business. Based on the type, amount and size of the items to be stored, public warehouses are divided into five categories: commodity, bulk storage, cold storage, household goods, and general merchandise warehouses. As a warehouse manager of ABC Logistics Pte Ltd., it would be wise to choose A Refrigerated Warehouse for perishable goods based on the its

STRATEGIC MANAGEMENT ASSIGNMENT

10

location, duration of storage needed, secure compound and the availability of handling equipment. Perishable products must be quickly stored in the freezer or refrigerator and the temperature in the warehouse should be kept under 5C to avoid deterioration over time. In order to prevent drying out and contamination of food products, they must be wrapped or sealed and should not be stacked too compactly so air can circulate. Especially, all food items must be labeled and refrigerators have to be inspected and cleaned frequently. As well, it is crucial to be careful and not to damage when unpacking or storing vacuum-sealed and airtight perishable goods. (Tracey H., Dianne I. & Maria D. a., 2006) There are certain characteristics of a good food storage warehouses that are commonly offered by the most. 1. Sanitary: Storage must have clean shelving free from grime, adequate seals around doors, protection against vermin, and of course a frequent cleaning program 2. Security: It is vital that the storage is not accessible to non-employees and it is rather locked to make sure products are not stolen. 3. Appropriate temperature: Temperature and humidity levels in the warehouse must be monitored and should be suitable for each item. 4. Ventilation: Warehouse should have good air circulation and must be damp free. (Tracey H., Dianne I. & Maria D. b., 2006) Moreover, it is always beneficial to have some specific characteristics and features such as: inhouse transportation services, re-circulated refrigeration system, convertible rooms, EDI system, and customer internet access.

STRATEGIC MANAGEMENT ASSIGNMENT

11

3.3. Type of services provided

Owing to the acquired contract the ABC Logistics Pte Ltd is responsible to provide distribution services of perishable goods to supermarkets within Guangzhou, China. In addition, the company can offer extra services as: cross-dock delivery and real-time online inventory tracking. Cross-dock delivery

It is a technique used in logistics to unload products from an incoming trailers or railroad car and loading them straight into outbound vehicles with little or no storage in between. As a 3PL4 partner, ABC Logistics Pte Ltd can save time and money with large warehouse facility and welltrained staff in place by efficiently utilizing Cross Docking services. It can be a winning strategy for many companies responding to economic pressure because of its flexibility, ability to meet unpredictable customer demand and shorten the shipping cycle and of course its efficiency. (FW Warehousing, 2011) (Sadle Creek, 2011) Real-time online inventory tracking

Online inventory management system is a safe and secure connection and a priceless service that has ever been provided by least of the warehouses because of its cost. However, this particular service provides the opportunity to have a real-time online look at the inventory and inbound/outbound freights as inventories are often the greatest assets of companies. Client users can straightforwardly generate their own modified reports which will be useful to manage their inventory levels, make proper planning decisions, and as well as increase efficiencies. Moreover, it also enables the users to share business information with their associates, vendors, suppliers or clients. (First Wish Solutions LLP. a., 2011), (Interstate Cold Storage, 2012) These two services that are being provided by the company will have an enormous positive influence in inventory management and distribution operations of the contactor. As they both deliver just-in time services and could simply be utilized with a minimal up-front investment, but will give the benefit to satisfy mercurial customer demand. Moreover, particularly cross-docking suits the best for perishable goods that require immediate shipment. (First Wish Solutions LLP. b., 2011)
4

3PL Third Party Logistics

STRATEGIC MANAGEMENT ASSIGNMENT

12

3.4. Stock rotation

Unpredictable customer demand and economic downturn pressures have bolstered the importance of effective warehouse management to save time and reduce costs. Thus, deciding on how to store goods in warehouses and how to retrieve them properly have become the essentials of inventory management. Stock rotation is a common strategy that has been being implemented to retrieve goods in any warehouse. First in-First out has become the most common stock rotation practice that is used in warehouse management. Because it has proven to be so effective in managing inventory and cutting costs, it has been embraced by almost all major international corporations. In FIFO, the newly received stock is placed at the back of the storage area and the older stock is brought to the front to avoid deterioration. (Tracey H., Dianne I. & Maria D. c., 2006) In particular case of perishable products, FIFO can preferably be the most suitable stock rotation type that can be recommended. It is because, when dealing with perishable goods it is always imperative to understand that supplies must be rotated in order to ensure the freshness of food products. First in-first out strategy enables ABC Logistics Pte Ltd to manage inventory levels of perishable goods with less risk, decrease the danger of deterioration and finally, results in higher gross profit amounts. If this technique is not used, the elder stock will eventually become useless and will need to be thrown away, which is wasteful and expensive. (WiseGEEK, 2010)

STRATEGIC MANAGEMENT ASSIGNMENT

13

4.0. References
Aprile D., Garavelli C., (2008) Bullwhip effect reduction 19th Product Research Conference, Bari, Italy Dragana M., Biljana P. & Mirko V., (2009) Bullwhip Effect and Supply Chain Forming Dr. Seung Hyun Lee (2008) Warehousing Lecture notes in Distribution and Customer Support at the Boise State University, the U.S.A. FW Warehousing (2011) Cross-docking services Accessed on 12/03/13, Available at: http://www.fwwarehousing.com/services/1/50/cross-docking-services-%7C-st-louis-mo-il;indianapolis-in.html Gartner, (2012) Gartner Supply Chain top 25 Accessed on: 10/03/13, Available at: http://www.gartner.com/technology/supply-chain/top25.jsp Hau L., V P., & Seungjin W. (2007) The bullwhip effect in Supply Chains Sloan Management Review, Volume 38, Issue 3, pp. 93-102 Joseph H. W. (2010) Managing the Bullwhip effect 20th Product Research Conference, Boston, the USA Michael B., (2006) Why Supply chain Management is so difficult Available at: www.forio.com/resources/article/bullwhips-and-beer/ Accessed: on 09/03/13 Martin P. (2010) Improving process of Supply Chain processes by reducing variability Martin Murray (2009) Public Warehousing in the Supply Chain Available at: www.logistics.about.com/od/tacticalsupplychain/a/public_warehousing.htm Accessed on 18/03/13 Owen E.R., (2010) How to reduce the bullwhip effect Available at: http://smallbusiness.chron.com/reduce-bullwhip-effect-3908.html Accessed on 09/03/13 Supply Chain Management (2008) Warehouse Activities Accessed on 09/03/13, Available at: http://www.supplychainmanagement.in/scm/warehousing/warehouse_activities.htm Tracey H., Dianne I. & Maria D. (2006) Cambridge Hospitality 1st Edition, Cambridge University Press, the UK Wiki (2010) Warehouse Management Accessed on 09/03/13, Available at: http://wiki.openbravo.com/wiki/ERP_2.50:Functional_Documentation/Warehouse_Management WiseGeek (2010) Effective inventory management Accessed on 13/03/13, Available at: http://www.wisegeek.com/what-are-the-advantages-of-fifo.htm#did-you-know