CO-ORDINATION IN SUPPLY CHAIN

BY: MUHAMMAD QASIM JAMAL

supply chain management

Outline

Objective of research Methodology of research Significance of research Profile of Bestway cement factory Hattar, Haripur. Analysis, discussion and results of suply chain management of Bestway Cement factory. Recommendations.

Outline

LITERATURE REVIEW

What is supply chain

Managing supply chain

Vendor selection Logistic management benchmarking

Strategic importance of supply chain Supply chain economics Outsourcing Ethics in the supply chain Strategies

Objective

Understand the concept of the supply chain, its importance, and management. How Co-ordination of activities and management of supply chain can be a source of achieving the competitive advantage through product customization, high quality, cost reduction, and quick response. Discussion and Analysis of supply chain management of Bestway.

objective

Recommend methods to revive performance of Supply chain of Bestway Cement Factory.

Methodology of research

The research carried out in this thesis can be characterized as deductive deductive research is a study in which a conceptual and theoretical structure is developed and then tested by empirical observation i.e moving from the general to the particular One case study was performed within this research project.

Research methodology

The empirical data in the case study have mainly been collected by semi-structured interviews. Analysis has been performed after the case study. The base for the case study was literature reviews, which have been made continuously during the whole research project and also some findings during writing the reports.

Methods of data collection

Two types of data Primary data

Interviews

Mr. Arshad Hameed (director coordination and procurement) Mr. Muhammad Irfan A.Sheikh (director finance and
CFO)

Secondary data

literature (books, journals, articles, magazines, thesis, and power points), Internet, and databases. lectures

Significance of research

Help the organization to revive the performance of supply chain. Research work is applicable as a generic solution to all the medium and small organizations/ companies for reducing their supply chain costs by improving coordination. It will also help organization in risk reduction, cost improvement, increasing efficiency.

Supply chain

Supply Chain refers to the flow of materials, information, payments, and services from raw materials suppliers, through factories and warehouses, to the end customers. When a supply chain is managed electronically, usually with Web based software, it is referred to as an e-supply chain.

Flows in supply chain

The supply chain includes three flows: materials, information, and financial. Materials flows. This encompasses physical products, new materials, supplies, and so forth that flow along the chain, including returned products, recycled products, and disposal of material or product. Information flows. All data related to demand, shipments, orders, returns, schedules, and changes in the aforementioned are information flows. Financial flows. Financial flows include all transfers of money, payments, credit card information and authorization, payment schedules, and e-payments.

Cyclic View of SC
Customer Order Cycle

Manufacturing Cycle

Customer arrival Customer order entry Customer order fulfillment

Customer order receiving

Order arrival Production scheduling Manufacturing and shipping

Receiving at the distributor Raw material procurement Arrival at factory warehouse Inventory management/ storage

Replenishment Cycle Retail order trigger Retail order entry Retail order fulfillment Retail order receiving
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Procurement Cycle

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Supply chain management

The function of supply chain management (SCM) is to plan, organize, and coordinate all of the supply chains activities. SCM software refers to software that supports specific segments of the supply chain, especially in manufacturing, inventory control, scheduling, and transportation.

SUPPLY CHAIN COMPONENTS

Strategic importance
Competition is no longer between companies; it is between supply chains
The main goal of modern SCM is to reduce uncertainty and risks in the supply chain, thereby positively affecting inventory levels, cycle time, business processes, and customer service. These benefits contribute to increased profitability and competitiveness.

New Business Challenges

From
Local or national focus Batch shipments Low bid purchasing Lengthy product development Standard products Job specialization
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To
Global focus
Just-in-time Supply chain partnering Rapid product development, alliances

Mass customization
Empowered employees, teams
Supply Chain Management 17

Coordination

A supply chain is composed of trading partners that are interconnected with financial, information and product/service flows. Coordination in a supply chain means identification and classification of existing interdependencies. Interdependency can be defined as when actions taken by one referent system affect the actions or outcomes of another referent system. (McCann and Ferry) Three types of interdependencies exists:: Task/task Task/resource Resource/resource

Coordination

Coordination is primarily to manage various dependencies between activities and resources.

Benefits of coordination

All members of a decentralized distribution channel can earn, profits when all members coordinate. Supply chain coordination provides risk reduction, access to inventory resources and competitive advantage. Supply chain coordination dictates the cost improvement and value that can be gained. Inter-organizational coordination yields lower total costs and higher profits.

Different coordination mechanisms

Price Coordination Mechanisms: A method for coordinating order quantities between a retailer and a producer.

Quantity discounts: The motivation for giving

quantity discounts could be either price discrimination or coordinating order quantities

Non-Price Coordination Mechanisms: it includes quantity flexibility contracts, allocation rules; promotional allowances, cooperative advertising and exclusive dealings/territories

Mechanism of coordination

Flow Coordination Mechanisms: Flow coordination mechanisms. are designed to manage product and information flows in supply chains.

Vendor Managed Inventory (VMI), Quick Response (QR), Collaborative Planning, Forecasting and Replenishment (CPFR), Efficient Consumer Response (ECR) Postponement

Coordination modes
four coordination modes can be identified based on the two dimensions of coordination: (1) logistics synchronization; (2) information sharing; (3) incentive alignment; and (4) collective learning.

Logistic synchorization

This typical coordination refers to the market mediation function of a supply chain that aims to match the variety of products reaching the marketplace with customer needs and wants (Fisher, 1997). Understanding customer demand and concerting inventory management, facility and transportation between partners help to realise dramatic improvements in the forms of rapid response to customer requirements, lowered inventory costs, improved product availability, minimum obsolescence and minimum variance of any unexpected events such as forecasting errors and delays that disrupt chain performance (Lambert et al., 1998).

Information sharing

The coordination of information sharing attempts to make relevant, accurate and timely information available to the decision-makers (Lee, 2000). For example, the retailer has better projected customer demand compared with the manufacturer (Lee et al., 1997). The manufacturer has better information about products, delivery lead-times and production capacity than the retailer. Traditional communication between the manufacturer and the retailer is made through periodic ordering in large batches. This ordering behavior distorts original demand information.

Incentive alignment

Incentives define how decision-makers are to be rewarded or penalized for the Decisions they make. Existing incentives influence individual member behavior and its interaction with other partners. Conflict of interest is likely to occur when the existing incentives lead to actions that maximize personal gain but often reduce the total profitability. The perverse incentives, such as local inventory cost, transportation cost and lot-size-based quantity discounts, often do not support the value creation process of improving customer services

Collective learning

The coordination of collective learning deals with how to tackle the coherency problem of initiation and diffusion of knowledge across organizational borders (Sawhney and Prandelli, 2000). It involves intensive dialogue, experimentation and discussion of data, information and knowledge to attain collective sense making The objective of the coordination of collective learning is to extend each partners capability that is useful for accomplishing ongoing improvement.

The Effect of Information Technology on Coordination

Have the most effect on flow coordination mechanisms. As web or internet as a tools for better coordination with other members of supply chain The existence of information technology enables companies to respond customers needs more effectively. IT is more importantly viewed to have a role in supporting the collaboration and coordination of supply chains through information sharing Is reducing the friction in transactions between supply chain partners through cost-effective information flow. IT can be used for decision support

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Supply Chain Management

Evolution in supply chain management

Historically, many of the supply chain activities were managed with paper transactions, which can be slow, error prone, and inefficient The first software programs, which appeared in the 1950s and early 1960s, supported short segments along the supply chain, software was called supply chain management (SCM) software. The major objectives were to reduce cost, expedite processing, and reduce errors.

Evolution.

As early as the 1960s, the material requirements planning (MRP) model was devised. This model essentially integrates production, purchasing, and inventory management of interrelated products. manufacturing resource planning (MRP II). which adds labor requirements and financial planning to MRP. (Sheikh, 2002.) This evolution continued, leading to the enterprise resource planning (ERP) concept, which integrates the transaction processing and other routine activities of all functional areas in the entire enterprise

Modern supply chain

Bestway cement limited

Bestway Cement Limited is part of the Bestway Group of the United Kingdom. amongst United Kingdoms top 10 privately owned companies. Vision To Produce High Quality Cement At The Lowest Cost

Bestway cement limited Pakistan

In 1994 work was started on the cement plant in the under developed area of Hattar, Haripur in the North West Frontier Province, Pakistan The contract for the supply of main plant was signed with Mitsubishi Corporation of Japan in June 1995 The suppliers sub contracted some of the equipment to other international manufacturers, namely the crushers to FAM of Germany, Cement mill to Fuller of USA and electrical and instrumentation to ABB of Switzerland and Siemens of Germany

Bestway.

Civil works started in January 1996 and the Kiln was fired in April 1998 Prior to 2001 production at Bestway Cement was being carried out using furnace oil as fuel and then converted to gas The machinery for coal conversion was procured from IPPR Engineering of China while some of the fabrication and erection work was done locally

Bestway cement plants

It has two plants

Hattar. Chakwal-1 Chakwal-2 Mustahkam

Hattar plants initial capacity was 1.0 million tonnes per annum. In 2002, at a cost of US$20 million, plant capacity was enhanced to 1.15 million tonnes per annum Owing to the managements insight on growing market demand and the potential to export, in 2004 the plants capacity was further upgraded to 1.25 million tonnes

EXPORTS

Afghanistan and more recently in India, Africa and Middle East has made Bestway one of the largest exporters of cement in Pakistan.

Supply chain of Bestway Cement Factory

A typical supply chain links a company with its suppliers, its distributors, and its customers. supply chain frequently involves three segments:

upstream, Internal downstream

Flow chart of supply chain of bestway cement

Tier 1 Refractory bricks Manufacturing plant Raw material Tier 1 clinker grinding

fuel cement

customer

wholesaler

Distribution

packaging

retailor

UPSTREAM
INPUTS

RAW MATERIAL

HUMAN RESOURCE

ENERGY/FUEL

INFORMATION FLOW

Limestone, laterite gypsum, refractory Bricks, Clay,

Coal, deisel, electricity

Upstream

Raw material, maintinance equipment, softwares, fuels, laboratory equipments

internal

These activitiesfrom entering orders of materials, to recording sales, to tracking shipments.

downstream

OUTPUTS

PRODUCTS

SERVICES

SOLID/ENERGY WASTES

CEMEN, CLINKERS LIQUID CEMENT

WASTE HEAT

Output

List of Products:

Ordinary Portland Cement Sulphate Resistant Cement Quick Setting Cement Low Alkali Ordinary Portland Cement Clinker Other customized products may be produced
on demand

Supply chain strategy

The goal:

To provide high quality product at low cost

The strategy of bestway cement:

Many suppliers

Suppleirs respond to demands and specifications

of a request for quotation. Then company take a trial order Then tested for specifications in laboratory If it fulfills requirement then procurement is made

Outsourcing

Following entities are outsourced

Limestone quarry (contractors) Literate, bauxite and gypsum(mining

companeis) Transportation (local transport agencies) Information technology

Vendor selection criteria

The selection criteria for vendors are

Quality Cost Delivery capability Capacity

For vendor development no efforts are taken except giving limited information

Distribution system

Trucking:

using traditional monitering, not any automatic system to coordinate all activities Use waterways for export to India and middle east countries. Large lots Low shipping cost

Waterways

Freight and handling cost

1,304 million PKR/anum

Ordering

Both

Manual Automated

Printing and stationary cost annully about2.4 million PKR.

ERPENTERPRISE RESOURCE PLANNING (ERP)

Bestway cement is using ERP for managing their supply chain but it is limited to certain departments. ERP is a software program comprising a set of applications that automate routine backend operations such as financial, inventory management, and scheduling to help enterprises handle jobs such as order fulfillment. (See OLeary, 2000.) They are using it for coordination between different departments only inside the organisation but it needs to be practised also with outsourced entiteis.

Production and Sales

HATTAR 2009Tonnes 2008Tonnes

Clinker production Cement production Cement sales Clinker sales

1,074,607 1,068,705 1,061,763 1,221

1,120,027 1,166,737 1,164, 540 22,048

Supply Chain Economics

Dollars of additional sales needed to equal $1 saved through the supply chain
Percent of Sales Spent in the Supply Chain Percent Net Profit of Firm 30% 2 $2.78 4 $2.70 6 8 10 $2.63 $2.56 $2.50 40% $3.23 $3.13 $3.03 $2.94 $2.86 50% 60% $3.85 $4.76 $3.70 $4.55 70% $6.25 $5.88 80% 90% $9.09 $16.67 $8.33 $14.29 $7.69 $12.50 $7.14 $11.11 $6.67 $10.00

$3.57 $4.35 $5.56 $3.45 $4.17 $5.26 $3.33 $4.00 $5.00

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Measuring Supply Chain Performance of bestway

Typical Firms
Lead time (weeks) Time spent placing an order 15 42 minutes

Benchma rk Firms
8 15 minutes

Percentage of late deliveries

Percentage of rejected material

33%
1.5%

2%
.0001% 4
55

Number of shortages per 400 year Dec 16, 2009 SCM - Supply Chain Management

Supply chain performance of Bestway Cement Factory

Lead time (weeks) Time spent placing an order Percentage of late deliveries Percentage of rejected material Differ urgent/usual 30 MINUTES 5%-10% .1% or low No data

Number of shortages per year

Good coordination makes the difference

Lead time (weeks) Time spent placing an order Percentage of late deliveries Percentage of rejected material Can be optimize 30 MINUTES <5% Can be further reduced No data

Number of shortages per year

Measuring Supply Chain Performance

Assets committed to inventory
Percent invested in = inventory Total inventory investment
Total assets x 100

Investment in inventory = $4.81billion Total assets = $8.22 billion Percent invested in inventory = (4.81/8.22) x 100 = 58.5%
Dec 16, 2009 SCM - Supply Chain Management 58

Measuring Supply Chain Performance

Inventory turnover
Inventory turnover = Cost of goods sold Inventory investment

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Measuring Supply Chain Performance

Inventory turnover
Cost of goods sold inventory investment $10.4Total $4.81

Inventory turnover=cost of goods sold/ inventory investment Inventory turnover=10.4/4.81=2.16

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Measuring supply chain performance

Average weekly cost of goods=10.4/52 =0.2 Weeks of supply=4.81/.2= 24.05

Good coordination makes the difference

Good coordination in supply chain can increase the sales by 15-20% (F. Haghighat, 2008). If sales can be increased upto 15% then

sales=10.4 11.96 Inventory turnover=2.16 Weekly cost of goods=0.2 Weeks of supply=24.05

2.48

.23 20

CONCLUSIONS

supply chains of the future will likely focus their efforts on achieving success through process improvement and collaboration on strategic, tactical, and operational levels. Coordination between activities brings about more profitability and value added and also optimization of processes in a supply chain Effective coordination can lead to a reduction in lead times and costs, alignment of interdependent. decision-making processes, improvement in the overall performance.

conclusions

E-technologies facilitate information accessibility in order to optimized accurate programming and decision making As a result, accurate management of information by using of new technologies, result in optimized decisions , better extrinsic and intrinsic coordination.

Recommendations

Replace all paper documents that move physically with electronic documents. This change improves speed and accuracy, and the cost of document transmission is much cheaper. Provide an integrated messaging system. A single business transaction could involve many messages, totaling thousands of messages per week or even per day for a company. E-commerce can replace related faxes, telephone calls, and telegrams with an electronic messaging system at a minimal cost.

Recommendations

Enhance collaboration and information sharing among the partners in the supply chain. This can improve cooperation, coordination, and demand forecasts. Shorten the supply chain and minimize inventories. Production changes from mass production to build to order There is a strong need for logistic synchronization to minimize delays, security risks and to add value to supply chain.

vision

Facilitate customer service. Of special interest is the reduction of contact between employees and customers due to innovations such as the introduction of a Web site for frequently asked questions (FAQs) and selfservices such as the self-tracking of shipments. Introduce efficiencies. These efficiencies relate to buying and selling through the creation of e-marketplaces and e-procurement

Research direction

Feedback analysis of this research Due to shortage of time this research is not so much detailed study There is need to do research work in detail on each component of supply chain Logistic management should be revised in accordance with the modern techniques.on each of the mode of