Master of Business (Logistic Management)
Final Take Home Examination (50%)
Course: Logistic System – OMGT 2087
School of Business IT and Logistics, College of Business, Semester 1, 2012
Course Coordinator/Lecturer in charge: Dr Ferry Jie
Due Date: 23rd May 2012
Instructions:
- Maximum words are 3800 words in total for all your answers. List of references are not included in the word count.
- Please upload your file onto turnitin to get the originality report at least two days before you submit (this allows the turnitin system to produce the originality report) and print out your originality report from turnitin then attach to your final take home examination.
Then please upload your all final take home examination included originality report from turnitin through myRMIT by 19 May 2012, 5pm (by simply go to “Submission Links” section, then select “Final Take Home Examination”). Please do not send us email your softcopy of the final take home examination. You are required to submit hardcopy on 19 May 2012 through Student Central Level 3 Bld 3 108.
- Ensure you have a cover sheet and write all your details on the cover sheet.
- You need to have a reference list. It is important to have a reference list. There are no such limitations of the reference list.
- Executive Summary and Appendixes are not required for this take home examination.
- Any assumptions made in relation to your answers should be indicated on separate page (headed “Assumption”). This should be located at the first page of your answer.
On the basis of the above, no further inquiries related to final take home examination can be accepted after 12 May 2012.
There are two parts of this final home examination:
A. Students need to do a compulsory question (30%)
There are several logistics and supply chain practices to improve the businesses’ competitive advantages. They are (strategic alliance, customer relationship, information sharing, information quality, lean thinking, demand forecasting, transportation and others) minimum 1 logistic practice and maximum of 3 logistic practices. Please provide critical analysis on the recent literature review in logistics and supply chain management. To support your answer, you may use at least two examples from industry in different sectors such as Food Retailers/Wholesalers, Mining, Manufacturing, and Retailers etc.
Answer should be as follow:
- Format – Introduction (Few sentence), Literature Review (Critical Analysis and Examples)
- Logistic Practice that I choose: Strategic Alliance and Lean Thinking
- Maximum words 2500 words
B. Students need to do five (5) questions from the selected case studies (70%)
- Case study on chapter 2 (from Operations and SCM for the 21st Century Textbook) From page 63 to page 66: Q1 and Q2.
- Case study on chapter 13 (from Operations and SCM for the 21st Century Textbook) Page 507: Q1, Q2 and Q3.
Note Points:
– Maximum Words 1200 words
Important Notes:
Please separate the reference list for Part A and Part B, to make it easy for the marker to check the reference for the particular part.
Textbook used: Boyer, Kenneth K, and Verma, Rohit, Operations and Supply Chain Management for the 21st Century, South Western Cengage Learning, 2010, ISBN978-0-618-749331
SOLUTION
Introduction:
Companies around the world have successfully used supply chain management and logistics management for creating a sustainable competitive advantage (Boyer, Kenneth K, Rohit Verma, 2010). Wal-Mart, the world’s biggest retailer, is the most prominent example of this. As companies expand their scale of operations the importance of supply chain management increases further. The success of many multi-national organizations is pivoted on the effectiveness of their supply chain management.
Literature Review & Critical Analysis
Strategic Alliance as a supply chain management technique:
Strategic Alliance as a supply chain management technique has been one of the most effective ways of creating competitive advantage. Strategic or long term alliance is built with the suppliers who are treated as stakeholders of the business (Boyer, Kenneth K, Rohit Verma, 2010).
Strategic alliances are long term commitments which can be in the form of contracting over a long period of time, owning a stake in the suppliers or through other forms of integration like mergers with channel partners.
Strategic alliances are formed with underlying strategic goals in mind. These strategic goals may pertain to cost leadership, product quality, innovation, customer satisfaction or any other strategic goal.
Boyer et al. (2010) define strategic alliances as any covenant between or among firms to cooperate in an effort to achieve some strategic goal or objective.
For instance foreign retailers are entering into strategic alliance with food suppliers. The strategic goal of these alliances is to ensure that customers get the highest quality of food products. Getting quality food suppliers is quite a challenge in China and retailers like Carrefour and Wal-Mart are using the strategic alliance route for nurturing channel partners who can deliver on the quality parameter. These retailers work closely with their suppliers.
Strategic alliance enables companies to monitor their supply chain more effectively. Without effective and efficient monitoring, supply chain cannot be turned into a source of competitive advantage (Harland, C.M.,1996). Wal-Mart learnt this lesson the hard way when thirteen of its stores were shut down in China in 2011, when it was found that ordinary pork sold in these stores was mislabeled as organic pork. Such kind of mistakes occurs because of failure on the part of companies to monitor their supply chain effectively.
Supply chain Strategic alliances are usually of the following three types:
i) Non-equity alliance.
ii) Equity Alliance.
iii) Joint ventures.
In non-equity alliances the company doesn’t own any stake in the supplier and vice-versa. Suppliers are stakeholders but are not shareholders. In equity alliances, on the other hand, the supply chain partners may buy equity stakes in one another or one partner holding stake in another. Equity alliances are mainly entered into when the supplier is a very important one and therefore the customer company or organization buys a stake in it (Harland, C.M,1996).
Joint venture strategic alliances are those which are entered into for a particular project. For instance Tesco may enter into a joint venture with a flower supplier in Kenya for supplying flowers for its UK stores. As part of this joint venture, Tesco may make financial investments in the supplier’s venture for growing flowers for Tesco. Joint ventures may be a separate legal entity having a separate existence from the companies forming the joint venture (Harland, C.M,1996)..
The advantage of strategic alliances is that the supply chain partners can collaborate more closely. In many instances companies have transferred technical know-how to suppliers using strategic alliances. Strategic alliances have become more common as companies in developed countries outsource their manufacturing and business processes to developing and least developed nations. Such an outsourcing enables these companies to operate at lower costs because of cheaper cost of labor in developing and least developed countries.
Strategic alliance has been effectively used by many large and small corporations for gaining competitive advantage. A case in point is that of Wal-Mart. Wal-Mart’s competitive advantage largely comes from its ability to sell products at lower costs than its competitors. Also the wide array of products that are available in Wal-Mart stores makes it a one-stop shopping solution for customers. Both these sources of competitive advantage accrue from the strategic alliance that the retailer has built and nurtured over the years with its suppliers. It collaborates with its suppliers at every step to ensure that its cost leadership is maintained. Efficiency is maximized at every stage of the supply chain. Similarly through electronic data interchange Wal-Mart communicates with its suppliers in real time about the status of stock of various items of merchandize. Which items are more in demand and so on? The suppliers using this information make arrangement for shipping those items whose stocks are falling because of higher demand. Any quality issues are regularly shared with suppliers and feedbacks are given to them so that they can work on areas which require improvement.
Competitive advantage is the advantage that a firm has over its competitors which enable it to retain its market share or charge higher prices for its products and services. Competitive advantage can accrue to a firm because of its cost structure, products, marketing, service etc. Supply chain strategic alliances directly impact cost structure, product quality and customer service. Therefore they can be effectively leveraged for creating sustainable long-term competitive advantages(Harland, C.M,1996)..
Lean Thinking:
Lean thinking emphasizes minimization and ultimately elimination of waste at every stage of operations and supply chain management. The minimization and elimination of waste will make the organization more efficient, lower its cost of operations and will hence increase its profitability. This enhanced profitability can then generate more value for the shareholders and stakeholders of the organization.
The strategy of lean thinking was first implemented in lean manufacturing at Japanese automobile giant Toyota’s manufacturing operations. Actually, besides research & development, lean thinking is one of the most significant sources of competitive advantage for the company. It is on the back of this competitive advantage that Toyota overtook American behemoth GM as the world’s biggest automobile seller in 2010.
The emphasis of lean thinking as a supply chain management strategy is to use less of every resource by reducing waste as much as possible. Thus lean thinking strives to use less of human resources, less of raw materials and less of efforts at every stage of the supply chain. What originated as a manufacturing strategy has now been extended to include every step of supply chain. And lean thinking is no longer limited to manufacturing organizations only. The most successful service organizations are using lean thinking in their supply chain management extensively (Harland, C.M,1996)..
The competitive advantage from lean thinking in supply chain management comes in the form of the organization acquiring cost leadership. A company achieves cost leadership when it is able to churn out products or services at lower costs than its competitors. It can then choose to transfer these lower costs to customers in the form of lower prices or to operate at higher margins than competitors. This kind of cost leadership cannot be attained without lean thinking at every stage of supply chain management and operations.
Companies have effectively implemented lean thinking in their supply chain and logistics management by accurate value stream mapping. Value stream mapping refers to identification of all activities and processes involved in the supply chain and operations of the company (Harland, C.M,1996)..
Lean thinking as a supply chain management strategy has the advantage that it makes the organization closely monitor each stage of its supply chain. New areas of cutting down wastage are identified on a continuous basis and this keeps the costs under control. For effective implementation of lean thinking in supply chain, suppliers need to be educated in this supply chain management philosophy. Collaboration of suppliers is indispensable for the effectiveness of this supply chain management strategy. Toyota, where lean thinking was invented originally, continuously collaborates with its myriad of suppliers for achieving a lean supply chain. For reasons of more effective collaborations, Toyota prefers that suppliers of a particular production plant are located in the vicinity of it.
Lean thinking in supply chain is not only being applied by manufacturing organizations but also by service organizations like restaurant chains and retailers. Wal-Mart achieves its enviable cost leadership by ensuring that waste is eliminated at every stage of its supply chain which is spread across the globe. Wal-Mart outsources a large majority of its private label products from manufacturers in emerging countries like China, Vietnam and Bangladesh. It collaborates with these manufacturers on a regular basis to ensure that they operate at the lowest possible costs by using the minimum resources.
Lean supply chain consists of lean suppliers, lean procurement, lean manufacturing, lean distribution and lean customer service also. Lean customer service here does not mean reduced levels of service but identifying those areas of customer service where wastage can be eliminated without any attendant adverse impact on customer satisfaction levels.
The significance of lean thinking in supply chain management is higher in those sectors where product differentiation is little or negligible and cost is the biggest factor of differentiation. The cost leader in these sectors emerges as the winner.
The waste reduction mindset of lean supply chain management also helps in improving quality of production. Waste is automatically minimized if the number of defective units is minimized. So the emphasis is on cutting down defective process right at their source.
Lean supply chain can be achieved only if the collective mindset of the organization is one which is process oriented. Such process orientation is the hallmark of all successful organizations in the history of mankind. Right processes ensure right products and hence satisfied customers. So the ideology of lean supply chain management has an important impact on customer satisfaction levels. Organizations having lean supply chains end up creating more value for their customers.
Lean supply chain organizations are learning organizations. Such organizations continuously improve their learning for improving the efficiency and effectiveness of their supply chain. The lean mindset ensures that organizational dynamism is maintained and organizations do not turn static. The effectiveness of lean thinking as a supply chain management strategy is reflected in the success of many Japanese companies, like Toyota, who owe a large part of their success to this philosophy (Cooper, M.C., Lambert, D.M., & Pagh, J., 1997).
Case Study 1
1. Mr George Shelton is upset because his clothes have been misplaced by Presto Cleaners and the customer complaint department of Presto Cleaners is not responsive and cooperative in addressing his grievances.
The new computer system installed by Presto cleaners at their Adams & Broadway store added to the inconvenience of Mr Shelton. The employees of the dry cleaner were not properly trained in using the new software and this added to the woes of the customers.
The new system required the counter-person to enter every item, its color or distinguishing mark and what operations need to be performed on it. This increased the waiting time of customers like Mr Shelton and the whole process sometimes took more than ten minutes. The old manual system was much faster than the new automated one.
When Mr Shelton lost one of his orders which consisted of four shirts, two blouses, one suit and one skirt he wrote to the customer complaint department. Mr Paul Hoffner of the customer complaint department didn’t respond immediately to the complaint of Mr Shelton and this frustrated him greatly.
When Mr Hoffner responded to the complaint, his response was far from being cooperative. He delayed in sending the claims form to Mr Shelton. He also asked Mr Shelton to submit some proof of the value of goods sold, like original purchase receipts!
Mr Hoffner, it seems was intentionally delaying the restitution process as he was waiting for clothes to turn up at the store. This shows that the complaint redressal process of Presto Cleaners was far from being transparent.
In order to rightly address Mr Shelton’s complaint, his all four compensation demands should be fulfilled by Presto cleaners. These are:
i) Full refund for the laundry order which was misplaced.
ii) Full payment for the cost of four new shirts which Mr Shelton had to buy because his shirts were lost by Presto Cleaners.
iii) A full apology from Mr Paul Hoffner of the customer complaint department of Presto Cleaners.
Mr George Shelton has been a real victim of inefficiency at Presto Cleaners. He has suffered because of the apathy and unethical response of the customer complaint department. He therefore deserves to be adequately compensated by Presto Cleaners.
2. As a first step to quality improvement the counter persons in the stores should be given adequate training in operating the newly installed software system. The number of entries required for a given order should also be brought down. Only what operation needs to be performed on an operation should be entered in the system instead of unnecessary entries like color of each item and identification mark. This will bring down the total waiting time of the customers.
Every order should have a unique identification tag and every clothing item of that order should also display this identification tag. Customers should be given computer generated receipts at the time they submit their order. Dry cleaned orders should be returned to customers against these receipts. One reason why Mr Shelton’s order was given to another customer was because the new computer system didn’t give receipts to the customers.
Mr Shelton’s experience shows that the real cause of his frustration was the attitude of customer complaints department. While the counter people and store operatives were courteous and cooperative to customers, the customer complaint department was uncooperative and evasive in its response. Quality cannot be improved at Presto Cleaners until and unless the customer complaint department is made more sensitive to the needs and grievances of customers like Mr Shelton.
Currently the communication between different departments of Presto Cleaners should be in written form only. This provision should be done away with as it has the effect of making the customers complaint redressal process bureaucratic and long drawn.
The complaint of every customer should be dealt on a priority basis and the customer complaint department should be trained in it. Instead of adopting an evasive approach the complaint department should adopt a proactive approach in handling a customer’s complaint.
The claims policy should be such which ensures that the customer is more than adequately compensated for the losses that he has suffered because of negligence on the part of Presto cleaners. Currently the compensation policy of Presto Cleaners is one whose main objective is to ensure that claims are minimized instead of ensuring that customers are adequately and fairly compensated for their losses.
Empirical evidence suggests that it is five time more difficult to recruit a new customer than to retain an existing one (Cooper, M.C., Lambert, D.M., & Pagh, J., 1997). The aim of customer relationship management at Presto should be to ensure that existing and loyal customers of Presto, like Mr Shelton, are retained. This cannot be achieved until the above quality improvement measures are implemented. Customers are one of the most important stakeholders of any organization. Without ensuring 100 per cent customer satisfaction a company cannot achieve competitive advantage in an open and competitive business environment (DeGregor, Dennison ,2011).
Case Study 2
1. To get franchisees adopt the online ordering system is a major challenge for a restaurant company like McDonald’s which relies on the franchisee model. One way to encourage adoption of online ordering technology is to educate them in the benefits of having an online ordering system. For instance the franchisees should be told how use of online ordering in ordering pork resulted in savings of $ 5585 per store in Germany and France. This resulted in total annual savings of $ 11.5 million for the 2072 restaurants in France and Germany. Waste was reduced by 30 per cent because of online ordering, store inventory was reduced by 30 per cent, and shipment of bacons between stores because of shortages ( in store transfers ) was reduced from 8 per cent to 4 per cent. Besides this the order times for each store were cut in half, resulted in time savings of 60 minutes per week for each store. All these savings of time and resources were ultimately beneficial for the franchise owners. Educating franchise owners about these benefits of online ordering will go a long way in encouraging adoption of the same.
Another way of encouraging adoption of online ordering is that McDonald’s should bear part of the costs of installation of online ordering software by its franchisees. It should also bear part or all of the costs of training employees in using this software. McDonald’s can gradually recover these costs from the higher profits which will occur because of the cost savings resulting from online ordering.
2. The entire supply chain of McDonald’s is outsourced. Everything from hamburger and French fry production to warehousing and transportation are outsourced. The supply chain of McDonald’s originate right at the farms of food growers: those who grow potatoes, vegetables and livestock which are then used in the food items of McDonald’s. These food growers also work closely with McDonald’s and are guided by the latter in the quality of ingredients that it requires. For instance, for French fries a special kind of potato which has a certain amount of water content is needed. Food growers who are suppliers of potatoes for French fries therefore are required to grow this specific kind of potato only (DeGregor, Dennison ,2011) .
The next stage of the supply chain is manufacturers: manufacturers of burger breads, patties, French fries etc. The demand of McDonald’s alone is so big that most of these manufacturers have only McDonald’s as their only client.
The third link in the supply chain of McDonald’s is its distributors. Manufacturers sent the products to distributors of the company. In United States the distribution contractors of McDonald’s are Martin- Brower and Perseco. The distributors store the items in their warehouses.
From the warehouses the food items are sent to the restaurants of the company. All along, the corporate headquarters ensures that the supply chain of the company is functioning without disruptions. Every country has its local headquarters which report to the corporate headquarters. It is the onus of local headquarters to ensure that the supply chain of McDonald’s in each country is functioning smoothly. For instance take the case of Indian operations of McDonald’s. The frozen French fries reach India every week from McDonald’s distributor located in New Zealand. These fries are stored in warehouses and from there they are delivered to McDonald’s restaurants – most of them franchisee owned – spread around the country. The local Indian headquarters of the company ensures that this whole process continues efficiently and effectively (John F. Love, 2000).
For non-food items like wrappers and napkins information sharing and planning can be done on a periodic basis. For instance each store may require supply of wrappers and napkins once during the month only. Against this, supply of everyday food items are is done one to three times every week.
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Fig.1 Supply chain map of McDonald’s
Between manufacturers and food growers, information regarding quality and quantity of food items to be grown is shared. Manufacturers convey the demand forecast of different items while food growers convey supply forecast to the manufacturers.
Between Manufacturers and distributors information regarding the timing of shipments of delivery is shared. The distributors and corporate headquarters are required to share information on a real time and deferred time basis on the level of inventory of items in the warehouses. Information about any possible spurts in demand should be conveyed by corporate headquarters to the distributors. The corporate headquarters should also convey the demand forecasts for the medium and long run to the distributors. In case of any disruptions in deliveries to restaurants in a given area the distributors need to communicate that to corporate headquarters.
The corporate headquarter needs to constantly share information with the restaurants on the latter’s quality of product and service, sales and cost of operations. Corporate headquarter also needs to inform individual restaurants about new marketing strategies and innovation in operating processes.
Every organization in the supply system wants such an information system which can increase both its efficiency and effectiveness: efficiency in the form of lowest possible cost of operations and effectiveness in delivering the required quality and quantity of deliverables at the right time.
One of the competitive advantages of McDonald’s has been its success in ensuring standard quality of product and services at its restaurants spread as far as the corners of the world. The information system plays a very important role in achieving this standardization.
3. For regular food items McDonald’s needs to share information with its distributors, suppliers and restaurants on a regular basis. It should use demand chain planning more effectively and extensively for regular food items which have a very high rate of turnover.
McDonald’s currently uses software and technology from Manugistics, Oracle and Sun for exchanging information in real time with its suppliers and distributors. This has helped in handling information and planning for regular food items more efficiently and effectively. McDonald’s has more than 31000 restaurants around the world, which serve more than 46 million customers daily. The information system is in many ways the backbone of this gargantuan scale of operations.
For promotional items like Happy meal toys demand forecasting should be done at least a year before the promotional period so that manufacturers can deliver the items on schedule. For instance, for Happy Meal toys promotion, the toys should be manufactured 12 months in advance. Forecasting should be accurate in such cases because the whole promotional process will be frustrated if shortages occur after promotion starts.
Having different information and planning techniques for each of the three kinds of items viz. regular food items, non-food items and promotional items would ensure that wastage is minimized, shortage is eliminated and operations are done at optimal efficiency.
The success of operations in a large organization like McDonald’s is dependent on effective sharing of information. The experience of McDonald’s in the bacon strip case shows the problems which can occur when the different franchisees use manual ordering system and don’t give accurate informational feedback to the corporate headquarters.
Reference List (Part A)
Boyer, Kenneth K, Rohit Verma, 2010, Operations and Supply Chain Management for the 21st century, South Western Cengage Learning, ISBN978-0-618-749331
Harland, C.M. ,1996, Supply Chain Management, Purchasing and Supply Management, Logistics, Vertical Integration, Materials Management and Supply Chain Dynamics. In: Slack, N (ed.) Blackwell Encyclopedic Dictionary of Operations Management. UK: Blackwell.
Cooper, M.C., Lambert, D.M., & Pagh, J., 1997, Supply Chain Management: More Than a New Name for Logistics, The International Journal of Logistics Management Vol 8, Iss 1, pp 1–14
Reference List (Part B)
DeGregor, Dennison (2011). Customer-Transparent Enterprise: Beyond 20th Century CRM. Motivational Press.
Halldorsson, A., Kotzab, H., Mikkola, J. H., Skjoett-Larsen, T. (2007), Complementary theories to supply chain management, Supply Chain Management: An International Journal, Volume 12 Issue 4, 284-296.
John F. Love, 2000, Behind the Golden Arches, Bantam
LC12
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