Business

Business Logistic System

Introduction

Logistics refers to the planning framework for managing the flow of business information, supplies, services and capital flows through the production process, recycling to disposal. Basic definition by Jones and Chung, (2008) implies that logistics involves the procurement, distribution, maintenance and even the replenishment of material and personnel services. A business logistics system is part of the supply chain that helps a business to achieve time, form and place utility. The core functions of the business logistic system are planning, forecasting and replenishment. Planning entails organizing the relevant details on predetermined activities and series of events in a way that will ensure the business achieves its objective of profit maximization and customer satisfaction. A logistic plan may consider demand management, optimal production quantities, inventory control and sales promotion. Planning basically helps the firm to maximize its available resources, to satisfy the needs of its clients and maximize its profits.

Immediate Issues

Queensland popularly known as Que Corporation is a major manufacturer of industrial products used for mineral resource exploitation. Over the last few years, the company has been experiencing progressive growth in its sales with an increase of 40% in the past six years. However, in the recent past, the prospects and anticipations of our company were subverted as strategies and efforts to expand sales to the global reach markets were unsuccessful. This company cannot meet its clients’ expectations of regarding product delivery. There is difficulty in meeting the ever growing demand because there is no spare capacity for increasing production and efficiency.

This impact has trickled to some of the company’s suppliers. Despite the efforts put by the sales and marketing team to delight customers with faster deliveries, they were unsuccessful due to the failure of the procurement department to not meet the customer’s expectation regarding product delivery. It also failed to identify alterative suppliers who can keep up to the requirements of the higher production demands and consistency in the supply of the materials. The new suppliers also were consistent in the quality of the materials they supplied, the right quantity and the delivering time.

Basic Issues

The basic issues that faced the Que Corporation were; poor planning of the logistics activities leading to the absence of a framework that will guide the company towards achieving its objective of meeting its customers’ expectations. The corporation also needed a good research and development team that would be responsible in forecasting the future prospects and trends of the company. Forecasting is important for complementing objective planning. Que Corporation does not own storage and distribution facilities yet it deals with a wide variety of products and customers. Besides, Que collaborates with wrong alternative suppliers and this has been detrimental to the company’s reputation, reliability and efficiency in achieving its objectives.

Inventory control system of the company is also questionable as it fails to determine the order quantities, lead time and quality assurance measures of the supplies. The production capacity of the machine is also low and thus it limits the expansion to meet the increased demand production requirements and rising consumer’s expectations. Que Corporation also needs to identify a reliable third party logistics to assist in the management of its logistics activities. Non-existence of collaboration in supply chain has contributed to Que’s redundancy in inventory, inefficient production and consequently inflated cost of production.   

Strategic Perspective

            Economists such as Daganzo, (1991) suggest that Que can effectively solve this problem first by re-organizing its logistics system into a well-run logistics system. This system will enable Que Corporation to enhance its overall management strategy through the economies of scale. This is made possible through operating in large volumes hence reducing cost and product prices and using strategically located distribution centers and warehouses. Well-run logistics systems use complex communication systems and tie considerably fewer assets to the strategically placed inventory store than their competitors. With this system, Que will spend much less in transportation hence acquiring a competitive edge over its competitors.

            The other strategy for Que Corporation would be integrating third party companies. This will allow Que to sub-contract the entire or part of the logistics services and management to an external expert. Contracting external logisticians enables the company to concentrate all its resources and management’s attention to its core business. Assimilating the technology of Electronic Data Interchange will make it even easier for Que Corporation to spin off crucial logistics operation to third party logistics and thus be able to control and regulate the logistics system. Que can establish a long-term relationships of strategic association with a third party logistics such that it entrusts its crucial logistic operations to the contract logistics and the third party in turn, commits its assets and resources to perform these logistics activities to the best interest of Que Corporation.

Mossman, et al (1977), elaborates how the advancement in information communication technology can be useful in enhancing the logistics system of Que Corporation. The company enhanced tracking and monitoring of transportation equipment through Global Positioning System (GPS). This technology uses transponders that transmit signals to the satellite, which locates the equipment. With the help of GPS tracking Que Corporation can trace its equipment together with its content. The GPS will update the procurement manager on the movement of the equipment and also provide advice on the shipment requirements.

Issues Analyses       

The major issues facing the Que Corporation regarding business logistics system are planning, forecasting and replenishment. Que Corporation should improve its logistics plan by promoting the sharing of information among the relevant business agents such as customers and the suppliers. The plan integrates the relevant information and outlines the strategy that will guide the company towards achieving its goal. By so doing, the sales and marketing team of Que will successfully meet the rising demand for faster deliveries and thus, customer satisfaction. Therefore, the Que Corporation ought to develop a comprehensive plan logistic plan that addresses demand management, optimal production quantities, inventory control and sales promotion. Good planning will basically help the company to maximize its available resources, to satisfy the needs of its clients and maximize its profits.

The second issue facing Que Corporation was forecasting. This relates to the speculation of the changes of business variables to determine the level of production that will satisfy the market without wastages and ensure profit maximization. Que’s research and development team should gather information that can be useful for predicting the trend of demand and the total market demand. Forecasting will provide the necessary information on expected market demand to enable planner of Que Corporation to strategize on how to meet this future trend.

 In addition, forecasting contributes important information needed for replenishment of a company’s machinery. In Que Corporation for instance, forecasting report predicting an increase in overall market demand should compel the logistics department to replace low machines with higher capacity machines in order to increase production capacity to meet the increasing market demand and provide more room for growth. Forecasting is an element of planning as it provides important information that determines the optimal level of production and the economic order quantities hence insulating the business from damages of surplus production.

Concerted forecasting harmonizes inventory flows assuring significant cost diminutions, and distinguished upsurge in customer contentment. When Que Corporation practices joint forecasting, it will automatically reduce the risk of venturing into unpopular products that can only be disposed through unrealistic discounts. If this was the case, the involuntary discounts would be detrimental to the company’s profit and ultimate survival in the market because it would inflict extra unnecessary cost on the firm sales and marketing. Besides, collaborative forecasting will help Que company trim down on its stock-out cost by reducing the frequency of occurrences below 3% for common products in the market.

Replenishment is done in the inventory control and it aims at minimizing the cost of handling materials and stock in the process of production. Que Corporation should develop a replenishment model that will ensure continuity in the manufacturing process. Jones and Chung, (2008) suggested that an economic quantity of stock, raw materials, unfinished materials and finished goods that should always be maintained for the company to minimize its inventory cost. Therefore, it is mandatory for Que Corporation to establish the right reorders quantities for its entire inventory. It can achieve this end by estimating the orders for every participating firm and develops an efficient ordering plan that ensures materials are available in the right place and at the right time.

According to the views of Ballou (1973), an increase in sales creates a need for more raw materials from the suppliers so that production level can be increased to satisfy the rising demand or replenish stock. Que’s logistics system should develop a synergistic arrangement for planning, forecasting and replenishment activities to attain the business ultimate objective of customer satisfaction, profit maximization and social responsibilities within the constraints of its economic resources.

Alternatives/options

a) Status Quo

            Que Corporation has developed a new relationship with De Oro Pty Ltd, which is also an international exploration and exploitation company. With more business interactions, De Oro also learnt of Que’s ability to custom work. De Oro Pty Ltd was also interested in Que’s research development of Q­10SD, which they discuss quite often. Albeit Que Corporation developed some products exclusively for the De Oro Company; Que was optimistic that the products could also fetch good revenue from the Asian market. Que conducted a research on the feasibility of the products’ sale in the Asian market and confirmed that it was viable.

            Although Que faced a number of challenges, it was successful in increasing the sales for the new products in the Asian region through its resilient marketing efforts that featured regular visits by the Regional Marketing Manager for Asia. Bill Haris, the regional manager, overcame the cultural hurdles and established a favourable working rapport with several clients in Asia. Besides, Bill also attended various social functions organized by De Oro to reinforce the bond between the two companies for long-term business interests and new prospects. Que has an advantage in the Asian market over its international counterparts due to its medium size, flexibility and excellent customer service.

            The red tape bureaucracy had reduced significantly in virtually all countries and regions. The sales and marketing manager had discovered easier ways of filling the import regulation documents and during low sales, Bill preferred Que products to be cleared by local customs agents.  These agents were inefficient and slow due to incompetence and occasionally, delayed the shipment and delivery of the products. The management of De Oro came in to give Que a hand over the matter. Initially, they had raised concern over shortage of local support that would lead to longer logistics plans between Asia and Australia. Inventory level declined and they could not rely on Asian suppliers.

            De Oro Company wanted to partner with Que and represent Que’s products in the Asian market. This did not go down well with Bill who felt that Que’s standards are going to be compromised. Later, business favours De Oro and Bill make-up with the company. An opportunity emerges for both De Oro and Que Corporations to invest in a foreign Vietnamese mining project with an exploitation right of 25 years. As negotiations for increasing sales went on, Que was unable to meet deadlines and expectations of the new clients. This exerted pressure to senior management of Que and later the problem intensified by the grievances of the marketing staff about Que’s inability to deliver crucial orders by new customers.

b) Accept De Oro’s proposal to manufacture and distribute in Asia

            If De Oro collaborates with its subsidiary to provide and supply on behalf of the Que Corporation, all orders will be delivered on time and preferable client satisfaction would be achieved. Collaborative sourcing and procurement will guarantee efficient assortment where products are customized to delight the client and better supply chain performance. In addition, it will ensure prices are stable and also efficient replenishment of both information and products.

The disadvantage is that Que Corporation will share its profit with its one client. The general sales for Que Company are also affected as the values of products supplied by De Oro are subtracted from the order placed by the company. The quality and standards of Que was at stake should the subsidiary plant fail to meet the international standards. A lot more sensitive information about Que’s business and trade secrets may be at risk of being exposed to the potential competitor, De Oro Company.  

c) Accept De Oro’s proposal with change

            This could be possible only when the Que Corporation allow De Oro to supply to Que irrespective of its own constrains. The supplies by De Oro will complement the sales of Que Corporation because it supplies the capacity, which Que is an able to meet due to the high transportation and inventory costs. Que is able to supply at least 50% of the products and the rest is manufactured locally in Asia by De Oro. Since De Oro manufactured only in small-scale, Que Company would still regulate to ensure the quality is satisfactory. This will be profitable to Que Corporation especially in taking advantage of the low labour cost in Asia, which will reduce the overall cost in the project. Que’s personnel will also be available to provide advice and directives on enhancing product quality. Combining Que’s production capacity and De Oro in-house capacity will enable Que meet the increasing demand for faster deliveries and customer satisfaction.

However, the following disadvantages are also notable, since, De Oro is just a small-scale manufacturer, it might be faced with problems of diseconomies of scale and therefore reduce on its profitability. De Oro Company will also be faced with problem of specialisation and lack of expertise in the manufacturing. The Asians are not well conversant with the manufacture of components used in mining and as a result may be taking relatively more time than their Australian counterparts. 

d) Investigate additional suppliers in Asia in line with current practice

            The awarding of the Vietnamese mining project will definitely promote the sales of exploitation components and this will translate to increased sales to the suppliers of this products. This sales increase though, will not be to a large extent as the Que and De Oro corporations will take a larger share of this market due to the fact that they are large and international. However, if these supplies amalgamate into strategic association, they will rip both the benefit from the current new project and even stand a chance of being awarded another project. 

e) Restructuring Que to align it with the chosen Corporative Strategy of Geographic Diversification

            Re-organizing Que Corporative to be in line with its geographical diversification would require the specialization of manufacturing processes to be done in the countries where least cost is incurred. In the case where Que is expected to increase its sales in the Asian project, it would be appropriate that final processing, which is more labor intensive be done from Asia where the cost of labour is relatively cheaper. This will also reduce the transportation and inventory cost as the required products will be manufactured in Asia. The benefit attributed to this re-structuring will be a timely delivery on the components at the sight. Que Corporation can also set-up its distribution centres in strategic locations in the country where they have more clients to ensure customer expectations a re fully met.

Que Corporation can set-up its branches in regions where there is comparative advantage of producing specific components and the considering of an assembly terminal in the country with the largest market. However, Jahre (2006) suggested that this kind of restructuring can also be costly as it would involve more import documentations to bring in the unfinished materials into the country of interest. The dynamics of re-organizing and intensive material movements across different regions and countries may be detrimental to company’s competitiveness with the local firm in the market. 

f) Pursuit of African Market Opportunities

            Venturing into African markets is somewhat challenging and unnecessary for Que Corporation because its sales in the domestic market are still low. However, if it considers venturing into African market, the African mining company will be on the receiving end. Putting up distribution centres in the relevant African countries would reduce the inventory cost for the African firms as the exploration components will be readily available for the miners. However, this would be at an extra cost to the Que Corporation because it will have to ship several consignments to Africa and incur extra storage expenses. On the event that other companies dealing with mining exploration products, Que Corporation may not be guaranteed of the market share and thus deems the entire venture as risky.  

g) Combination of some of the above alternatives

            The alternatives can be combined only if they accrue benefit to the Que Corporation in terms of improved customer services, production and distribution efficiency and quality improvement. Partnering with De Oro in manufacturing for instance will complement Que’s inability to satisfy the whole market solely. Therefore the collaboration promotes the interests of both parties. On the other hand, combining options like partnering with De Oro and venturing into African market may still be risky for the two parties.

Recommendation and Implementation

            Que Corporation is supposed to integrate CPFR strategy which means joint planning, forecasting and replenishment in the undertakings of its operations. This approach is going to minimise the adversities of Que’s weaknesses for example by collaborative planning will connect the sales and marketing activities to the processes of supply chain planning and implementations. This will enhance the logistics activities of the Que Corporation even in the long run according to Buijtenen, et al (1976),

            Empirical evidence (Lowson, et al, 1999, pp 9-11) shows that transportation is one of the most important elements that constitute logistic system due to its high cost; therefore, by improving transportation management practices and principles, we improve the moving load, quality of services, the cost of operation, delivery speed, energy saving as well as the utilization of the facilities. Inventory control also safeguards the business from market contingencies. If Que Corporation enhances its inventory system it will be placed in a more stable ground for doing its business activities better through providing competitive advantages in the competition.

            Coyle and Bardi (1976) also insisted that a well-run logistics will enable Que Corporation to enhance its overall management strategy promotion of economies of scale. The Corporation will be using complex communication systems and ties relatively fewer assets to the strategically placed inventory store than their competitors. Besides, Que will spend much less in transportation hence acquiring a competitive edge over their competitors.

Monitor and Control

             The recommendations will ensure desirable solution to the issues facing Que Corporation and enable it to pick up its sales and efficiency in the market. It will be able to meet the increasing demand for timely deliveries and consistency in product quality. This will lead customer delight making them loyal Que’s mining and exploitation products. These views were seconded by Kumar (2007).

 

References:

BALLOU, R. H. (1973). Business logistics management. Prentice-Hall international series in management. Englewood Cliffs, N.J., Prentice-Hall.

BUIJTENEN, P. M. V., CHRISTOPHER, M., & PRESTOUNGRANGE, G. (1976). Business logistics. The Hague, Nijhoff.

COYLE, J. J., & BARDI, E. J. (1976). The management of business logistics. St. Paul, West Pub. Co.

DAGANZO, C., 1991. Logistics systems analysis. Lecture notes in economics and mathematical systems, 361. Berlin, Springer-Verlag.

JAHRE, M., 2006. Resourcing in business logistics: the art of systematic combining. Malmö, Sweden, Liber AB.

 JONES, E. C., & CHUNG, C. A., 2008. RFID in logistics: a practical introduction. Boca Raton, CRC Press.

KUMAR, S., 2007. Connective technologies in the supply chain. Supply chain integration series. Boca Raton, FL, Auerbach.

LOWSON, B., KING, R., & HUNTER, A. 1999. Quick response managing the supply chain to meet consumer demand.(Ebook). Available through Chichester, West Sussex, England, Wiley. http://www.netlibrary.com/urlapi.asp?action=summary&v=1&bookid=17825. (Accessed 4 October 2010).

MOSSMAN, F. H., BANKIT, P., & HELFERICH, O. K. (1977). Logistics systems analysis. Washington, University Press of America.