MANAGEMENT DEVELOPMENT INSTITUTE OF SINGAPORE IN TASHKENT (MDIST)

ASSIGNMENT SUBMISSION COVER SHEET

Course : Year 3

Module : Logistics and Supply Chain Management

Lecturer : Mr. Yeow Ghin Cheong

Assignment Type : Individual

Due Date : 20.03.2013

Submitted on Due Date (Yes/No) : 20.03.13

Word Count : 2800

S/N Student Name ID Number Student Signature

1 Ikboljon Kasimov B1000430

STRATEGIC MANAGEMENT ASSIGNMENT 2

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 3

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 4

1.0. Supply Chain Management

Intense competition in today’s 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 today’s 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 5

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 6

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 7

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 doesn’t 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 it’s 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 8

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 VMI

3 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 POS – point of sale

2 EDI – electronic data interchange

3 VMI – vendor managed inventories

STRATEGIC MANAGEMENT ASSIGNMENT 9

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

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

Retrieving

Receiving

Picking

Put-Away

Shipping

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 5°C 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: in-

house 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 well-

trained 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