Principles of Logistics and Supply-Chain Management - Case Study Example

Principles of Logistics and Supply Chain Management and Principles of Logistics and Supply-Chain Management Executive summary The fundamental objective of this research paper is to identify the principles of logistics and supply-chain management. The paper mainly focuses on how to apply these principles in finding long lasting solutions to issues identified in the case study. Modern organizations need to work in unity if they want to ensure maintenance of their competitive advantage within the supply chain. Supply-chain management deals with regulating the relationships of the business with the stakeholders in order to enhance the quality of services at affordable prices throughout the supply chain. Effective logistics is the core requirement in the enhance customer satisfaction in the supply-chain process. The business should have a detailed coordination of complex operations that involve facilities, suppliers, and organizational publics. Understanding the background of the business environment is necessary as an initial process of principles of logistics and supply chain. The findings from the case study analysis help the concerned stakeholders to create proper recommendations and conclusions for future running of the business. This paper will focus on Kellogg’s, a national distribution center in the Pacific Asia region to analyze the business situation. Analysis of the business and key findings from the case study will help in answering the case study questions. Introduction According to Murphy and Wood (2011, p.20), logistics is one of the primary requirements of a country’s economic growth. Logistics creates utility to goods and services, and in the process, it helps to satisfy human wants. Utility is the ability of a commodity to satisfy a given need or want. Murphy and Wood (2011) further identified four types of utility, which are possession utility, form utility, place utility, and time utility. These four types of utility must be organized to interact in the supply-chain process in order to create usefulness of commodities. Logistics activities add value goods and services, especially through time and place utilities. This makes warehousing an essential part of the logistics system, although warehousing is rapidly being replaced distribution centers. Supply chain comprises of people, resources, activities, and organizations involved in moving a product or service from the supplier to the customer. The management of a business strategically places the supply-chain elements in such a way that they can effectively transform raw materials, natural resources, and components into ready-to-consume products (Bowersox, Mentzer & Speh, 2008, p. 88). Supply-chain management is defined as the process of regulating, directing, and coordinating the stakeholders along the distribution channel to ensure effectiveness and efficiency in the transactions. Principles of supply-chain management include product differentiation, customization of logistics, proper market planning, product differentiation, strategic sourcing, adoption of a supply chain based on wide technology strategy and development of channel-spanning performance measures. The modern business arena is characterized by cutthroat competition where only organized and effective supply chain managers will survive. Proper management of supply chains requires businesses to adopt strategic processes such as agility, adaptability, and alignment in their distribution channels. Background and Business Environment The business environment has undergone massive transformations in the 21st century. The current market is not the same as the blacksmiths’ or artisans that thrived in the early 2oth century (Woolven, 2001, p.44). Barter trade existed during the commodity economy because there was any other way traders could have exchanged value for goods. There were not strict supply chains since traders knew where to meet and make transactions. The markets have grown and have become more diversified than ever before. Movement of goods is necessary across all parts of the world over time and distance. Many businesses have been established to take advantage of supernormal profits in the market. This has created intensive competition due to duplication of businesses efforts (Bowersox, Mentzer & Speh, 2008, p. 96). The businesses have identified the necessity of the law of survival for the fittest. This has made several firms to undergo transformations, including streamlining their supply chains and automating their transaction systems. Kellogg’s operates in the Pacific region of Asia Pacific. The company has dealt with the production of breakfast cereals since the year 1894. Kellogg’s produced and distributed its cereals in Australia in November 1924 before expanding to Botany four years later. Asia pacific is recognized as one of the areas with people from diverse backgrounds and rapid growth of businesses. The company supplies packaged products to the local consumers or ship to Perth and other markets of Asia Pacific. Kellogg’s is committed to excellence, efficiency, and effectiveness in cereal production, processing, and distribution. Linfox promises to enable Kellogg’s to achieve a significant labor cost savings through the implementation of an automated system. The availability of companies such as Linfox in a region act as a revelation to the competitive nature of the business arena and how business settings are devoted to work hard in order to gain competitive edges. Analysis of the situation Kellogg’s could not succeed in serving the entire market, which included local consumers, Perth and the whole of Asia Pacific using the supply-chain network. Kellogg’s did not have a distribution center despite the rapid growth of its market share. The company relied heavily on paperwork, which was not as effective as the automated storage and retrieval system. Kellogg’s hired Linfox in the year 2002 to design, build and commission the new national distribution center. The distribution center was meant to diversify the extent of customer reach and make the company’s goods readily available at the right time and place as one way of meeting place and time utilities (Woolven, 2001, p.54). According to the Linfox group, locating the distribution center next to Kellogg’s manufacturing site constituted a key strategic initiative. Key findings Kellogg’s chose to contract Linfox because it is reliable, secure, visible and promises speedy in its operations. Linfox ensures product visibility and tracking along the supply chain since they are critical elements in supply-chain management. Globalization is rapidly increasing, implying that employing effective technologies are essential in controlling inventory and cargo shipments (Bowersox, Mentzer & Speh, 2008, p. 92). Among the best technologies, which Kellogg’s could adopt include radiofrequency identification and track and trace in its supply-chain management. Kellogg’s required the installation of a Warehouse Management System (WMS) that would operate in a paperless environment. The WMS would automatically monitor the movement of products in out and out of the warehouse. The WMS would comprise of a system that performs stock taking automatically and send a request whenever the stocks go below the re-order level. The distribution centers are critical in the supply-chain management since they promise easy access of goods by the customers (Ralston, Grawe & Daugherty, 2013, p.136). Distribution centers are specialized types of warehouses that are dedicated to serve a specific market niche; warehouses are more generic forms of distribution centers. Kellogg’s decided to adopt a new distribution center to enable it to achieve their service proposition at the lowest possible prices. Linfox proposed to develop a website portal into its business systems to ensure visibility of orders as they move along the supply chain. This could be possible through using advanced systems such as Vendor Management Inventory (VMI) and radiofrequency identification (RFID) (Ralston, Grawe & Daugherty, 2013, p.142). Another solution that Linfox offered was the construction of a conveyor air-ridge between the new distribution center and the manufacturing facility. This is the reason that made Linfox to establish that the space near the factory was strategic for constructing the new distribution center. The conveyor air-ridge would help in transporting finished goods from the factory in the new distribution center. Answers to the given case study questions Question 1 Logistics value proportion constitutes a promise of value that the business will deliver quality goods to the customer accompanied by the belief from the customers that they will experience the promised value. Logistics value proportion primarily applies to goods and services that can be touched, seen and felt. Creating logistics value proportion is a business strategy that is based on differentiated customer value and the belief that the customer is the source of sustainable value creation (Defee, Williams, Randall & Thomas, 2010, p.405). The development of a value proportion is contingent upon review and analysis of the benefits, costs, and value that a business firm can deliver to its present and prospective customers. Logistics value proportion enhances efficiency and effectiveness by ensuring that each customer access the desired goods and services. An example of a company that has adhered to logistics value proportion is Samsung. Samsung focuses on creating customer value and inspiring trust by availing a variety of digital products within customer reach. Question 2 A warehouse refers to a commercial building or room where manufacturers, customs, transport businesses, importers, and wholesalers store goods before sale (Esper, Defee & Mentzer, 2010, p.162). Warehouses are usually large buildings located within the towns, villages, and industrial areas. The primary role of warehouses is to store goods awaiting shipment. Warehouses create both time and place utility. Time utility is the value created when goods change of ownership over time; this occurs when goods a local trader or importer purchases goods and stores them in the warehouse for resale (Blanchard, 2010, p.24). Place utility increases the attractiveness of a product by changing the physical location, which takes place when products are moved from the manufacturing unit to the warehouse and then to the customer. A distribution center is a specialized form of a warehouse that stores goods before redistributing them to retail outlets or stores (Thatte, Rao & Ragu-Nathan, 2013, p.501). A distribution center is usually fitted with refrigeration and air conditioning facilities to store specific goods that could be delicate or perishable if stored in a normal warehouse. Distribution centers are believed to be demand driven and are the foundation of a supply network since they allow a single location a range of products. Wal-Mart is an example of retail outlets that have large distribution centers that serve between fifty and one hundred stores. Distribution centers create form and time utility as they avail goods at the points of demand at the right time. Question 3 Warehousing involves the storage of goods as they await shipment to other parts of the region or for export (Esper, Defee & Mentzer, 2010, p.164). The goods are received in the warehouse, recorded and set for storage on the warehouse racks. Perishable and delicate goods such as flowers, meat and glass are stored on specialized racks to protect them from damage. The warehouse can accommodate all types of goods except firearms, ammunitions, acids fireworks, perishable goods, and combustible products. Warehousing may be done by private investors or financed by the government of a given country (Pettit, Fiksel & Croxton, 2010, p.7). Distribution center operations involve receiving goods in large quantities from a manufacturer or ship and distributing them in comparatively smaller quantities to the outlets and stores (Woolven, 2001, p.45). Distribution centers operations enable retailers to store large quantities of stock since they prioritize stock availability. Large-scale retailers such as Wal-Mart and MacDonald’s mostly own distribution centers, who operate them to conserve space, maximize the variety they offer and minimize inventory costs. Goods arrive at the stores in varying types of storage containers and locations that are suitable to the product characteristics and the quantity of the product to be stored (Thatte, Rao & Ragu-Nathan, 2013, p.505). The distribution center operators use specialized equipment to handle various types of containers such as intermodal containers, Gaylords, pallets, cases, and cartons. The goods are stored in appropriate places to serve during high seasons such as Christmas. Question 4 The roles and functions of a distribution center include storage of intermediate or finished goods, consolidation of orders and transportation. Distribution centers stores finished goods or products of work in progress to be processed in the future. The operators of distribution centers include accountants and auditors, who maintain the accounts of the incoming and outgoing goods to eliminate chances of pilferage and ensure accountability (Chatterjee & Ravichandran, 2013, p.494). The operators of the distribution centers combine various goods to form consumable products through consolidation. The distribution centers offer transport facilities within the premises of the centers and also for outgoing goods. These processes creates value through ensuring form, time and place utilities. Distribution centers are crucial in improving the quality of goods that are offered to customers. The primary function of the distribution centers is to store goods before they are supplied to the retail shops to be served to the customers. The dimensions of product quality include performance, conformance, durability, reliability, and serviceability (Gentry, 2005, p.125). Distribution centers ensure that goods are properly stored in refrigerators and safety racks to protect them from spoilage and spillage, thus maintaining their performance capability. This ensures product conformance since the product design and operating characteristics are maintained to match the established standards (Gue, 2007, p.126). Reliability of products is ensured through availing goods at the time and place as demanded by the customers. Well-kept products are usually durable and serviceable because distribution centers protect them from damages. Question 5 Cross docking Cross docking is a strategy in logistics that involves unloading materials from an incoming railroad car and loading the goods directly into outgoing trucks, rail cars and trailers. There is usually little or no storage between loading and offloading (Gue, 2007, p.126). The objective of cross docking is to change the type of conveyance, sort materials intended for different destinations and combine goods from diverse destinations into trucks with similar destination. Cross docking creates value through ensuring place utility and streamlining the supply chain from a point of origin to point of sale. Cross docking, however, requires a computerized logistics systems, which may be lacking in some distribution centers. Wal-Mart has successfully used cross docking as a core strategy of eliminating warehousing costs and increasing available retail sales since 1980s (Gentry, 2005, p.135). Consolidation and break-bulk Consolidation and breaking bulk are the responsibilities of the distribution centers. Goods are combined in the distribution centers to provide the ready-to-consume products. Similarly, distribution centers help in breaking bulk of goods in order to reduce the size into manageable quantities (Lambert, 2000, p.4). An example of sorting involves a distribution center receiving goods in tones from the foreign country and reducing them into kilograms for easy resale. This creates value because customers can be able to acquire goods at the desired quantities and prices that they can afford. Sorting Sorting is the process of arranging goods in distribution centers in some sequence or according to different sets. Sorting ensures that goods that have similar characteristics are stored together for easy retrieval. Distribution centers have organized the rooms in such a way that goods belonging to one class are located in one floor or area (Levy, 2013, p. 74). For example, food materials are stored in one area, while clothes, electronics, and childrens dolls are kept in a separate location. Sorting enhances efficiency and reduces chances of misplacing goods that may fall in other materials that are not similar. Locating and retrieving well-sorted goods becomes easy and protecting damages to delicate and perishable products become a priority. Reverse logistics Reverse logistics involves recycling of products and materials. The focus of reverse logistics is to plan, implement, and control efficiency. Reverse logistics traces the flow of raw materials, work-in-progress, finished goods and information from the point of sale to the point of manufacturing (Rutner, 2000, p.72). The purpose of this is to recapture value and proper proposal. Reverse logistics is performed for defective products that travel in reverse in the supply chain to retain use from defective product through repairing, disposing and recycling. The advantage of reverse logistics is that it ensures total quality management through seeking customer satisfaction. Reverse logistics ensures customer value through creating form utility. Question 6 Information and Communication Technology (ICT) has a critical role to play in adding value to logistics activities of a distribution center. The automated systems rapidly retrieve records of goods stored and reconcile them with outgoing goods (Stackhouse, 2004, p. 33). Advanced technology tools such as RFID can monitor the movement of goods along the distribution channel. Vendor Management Inventory systems monitor stock movements and requests orders automatically whenever the stock count is lower than the standards. Conclusion Modern managers have discovered that they can balance the company’s growth and quality service by adopting the supply-chain management as a strategic variable. Adherence to the principles of logistics and supply-chain management promises the transformation of the tug war between customer service and profitability into a balancing act. Most business organizations have extensively invested in establishing and implementing supply-chain management strategies in order to maintain the equilibrium between customer satisfaction and revenue growths. Ability to determine the needs of customers and coordinate efforts to meet these needs at low costs enables businesses to achieve customer satisfaction and the desired financial performance simultaneously. Customized and multi-level logistics systems are critical in the supply chain to serve all business segments and achieve profitable growth. The principles of logistics and supply-chain management should be applied together with the adoption of appropriate technology to enhance efficiency and effectiveness in business operations. Recommendations Companies that are dedicated to excellent performance should employ typically broad efforts, and combine both strategic and tactical efforts to enhance performance. Managers should reflect a holistic approach by viewing the supply chain from end to end and orchestrating efforts in order to achieve total quality management (Woolven, 2001, p.41). All companies, small-scale, medium-scale and large-scale must adhere to the principles of logistics and supply-chain management to achieve and sustain the balance between customer service and financial performance. Kellogg’s need to consider adopting Linfox’s proposed solutions because they promise to improve the company’s proposed performance. Kellogg’s should finance the project that is proposing the design and construction of distribution center covering an area of 43, 000m2. The distribution center will enable the company to plan production and distribution of cereals in time. The company should also be committed to development of a web portal and installation of the Warehouse Management System; these will help the company to regulate the movement of orders along the supply chain and provide a rapid countermeasures for any issue arising. References Blanchard, D. 2010. Supply chain management best practices. Hoboken, N.J: John Wiley & Sons. Bowersox, D.J., Mentzer, J.T. & Speh, T.W. 2008, "Logistics Leverage", Journal of Business Strategies, vol. 25, no. 2, pp. 85-99. Chatterjee, D. & Ravichandran, T. 2013, "Governance of Interorganizational Information Systems: A Resource Dependence Perspective", Information Systems Research, vol. 24, no. 2, pp. 261-278,492-494. Defee, C.C., Williams, B., Randall, W.S. & Thomas, R. 2010, "An inventory of theory in logistics and SCM research", International Journal of Logistics Management, vol. 21, no. 3, pp. 404-489. Esper, T.L., Defee, C.C. & Mentzer, J.T. 2010, "A framework of supply chain orientation", International Journal of Logistics Management, vol. 21, no. 2, pp. 161-179. Gentry, C.R.. 2005 Logistics, Location, Leverage, Chain Store Age, Vol.81, Iss.5, pp124-128 Gue, K.R. 2007, “Warehouses Without Inventory,” International Commerce Review, Vol.7, No.2, pp.125-132 Lambert, D.M. 2000, “Measuring and Selling the Value of Logistics,” The International Journal of Logistics Management, Vol.11, No.1, pp.1-18 Levy, L. 2013. “The logistics of liquid bulk, Food Logistics, no. 146, pp. 38. Murphy, P. R., & Wood, D. F. 2011. Contemporary logistics. Upper Saddle River, N.J., Prentice Hall. Pettit, T. J., Fiksel, J., & Croxton, K. L. 2010. “Ensuring supply chain resilience: development of a conceptual framework,” Journal of Business Logistics, Vol. 31, No. 1, pp. 1-21. Ralston, P.M., Grawe, S.J. & Daugherty, P.J. 2013, "Logistics salience impact on logistics capabilities and performance", International Journal of Logistics Management, vol. 24, no. 2, pp. 136-152. Rutner, S.M. 2000 “Logistics Value: Definition, Process & Measurement,” The International Journal of Logistics Management, Vol.11, No.2, pp.73-82 Stackhouse, S. 2004 “The Logistics Game,” Area Development Sites & facility Planning, Vol.39, No.4, pp.32-41 Thatte, A.A., Rao, S.S. & Ragu-Nathan, T. 2013, "Impact Of SCM Practices Of A Firm On Supply Chain Responsiveness And Competitive Advantage Of A Firm", Journal of Applied Business Research, vol. 29, no. 2, pp. 499-530. Woolven, J. 2001 Logistics Analysis, Grocer, Vol.224, No.7487, pp45-46 Read More