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An Operations Management Paper

Submitted to:

Prof RICHARD V. CAGARA

Submitted by:

NAIZA REINA C. BRAZIL


KATHLEEN MAE B. CORNISTA
MARY GWYNDELE O. PONFERRADA

BM 240
TABLE OF CONTENTS

Chapter 1. The Philippine Retail Merchandising Industry 2

Chapter 2. The Fast Logistics Group 6

Chapter 3. Organizational Structure 7

Chapter 4. Operations 8

Chapter 5. Recommendations 29

Bibliography 30

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Chapter I

THE PHILIPPINE RETAIL MERCHANDISING INDUSTRY

History of the Wholesale Merchandising Industry/ Distribution Industry

Trade and investment reforms were the pillars of an export-led


industrialization program in the Philippines. The Republic Act (RA) No. 7042,
otherwise known as the Foreign Investment Act, became an important piece of
legislation as it allowed the entry of foreign investments in key sectors of the
economy. It was later on amended through RA No. 8179 which allowed foreign
corporations that are 100% foreign-owned, to engage in business as a Filipino
national. Various service sectors benefited from the said reforms. In banking, RA
7653 reorganized the Central Bank of the Philippines into the Bangko Sentral ng
Pilipinas. This was accompanied by the enactment of RA 7721, which liberalized the
entry of foreign banks in the country. The public utilities sector, which includes
telecommunications, airline, water, energy, shipping and port services, also
underwent various policy reforms. A latecomer in the liberalization trend was the
wholesale and retail sector, also referred to as the distribution sector.

The distribution sector is divided between wholesale and retail trading where
the latter is presently bigger in size. Historically, the wholesale trade sector was
bigger in size during the 1970s comprising approximately 40-50 per cent of the
distribution output. However, its share drastically declined during the 1980s, and
retail trade activity picked up significantly. For the 1990-99 period, the share of the
retailing sector averaged 74 per cent. The change in the structural composition of the
distribution sector reflects the changing business opportunities and practices in the
distribution market, heightened by the supermall mentality that invaded the
consumer market

Main Distribution Sectors: Definition and Product

The National Statistics Office (NSO) officially defines wholesale trade as the
resale of new and used goods to retailers, while retail trade is defined as the resale
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of new and used goods for personal and household consumption. In terms of the
type of product sold, the distribution sector can be broken down as follows;

Wholesale Trade
Farm, forest and marine products
Processed food, beverages and tobacco products
Dry goods, textiles and wearing apparel
Construction materials and supplies
Office and household furniture, furnishings and appliances and ware
Machinery equipment, including transport equipment
Mineral, metals and industrial chemicals
Petroleum and petroleum products
Wholesale trade not elsewhere classified, i.e., flowers, handicrafts

Retail Trade
Books, office, school supplies including newspapers and magazines
Food, beverages and tobacco
Dry goods, textiles and wearing apparel
Construction materials and supplies
Office and household furniture, furnishings and appliances and wares
Transportation, machinery and equipment, accessories and supplies
Medical supplies and equipment
Retail establishments exclude restaurants, cafes, hotels, motels and other
lodging places.
Petroleum and other fuel products
Retail trade not elsewhere classified, i.e., toys, jewelry, beauty parlor supplies

The sector classification of wholesale and retail trading is almost the same.
The main difference lies in the market it considers its end-user. Similarly, the NSO
categorizes establishments as large and small. An establishment is considered
large if it employs more than 10 people while a small establishment is one that
employs less than 10 people. The industry code classification of the distribution
sector is in Annex A.

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Retailers and centralized distribution

Large retail operators have enabled the use of a more efficient method of
distribution. Particularly evident in grocery operation, the role of wholesalers has
diminished over time as these large retailers provided the service of bulk selling. This
concretized the relationship between large retailers and manufacturers. As a
consequence of this relationship, the method of delivery became more efficient.
Before, manufacturers or wholesalers made deliveries to multiple retailers with an
assortment of products to individual retail outlets. With centralized distribution,
manufacturers tend to deliver large amounts of a particular product to the retailers
own centralized warehouse. The set- up has effectively made the retailer internalize
the wholesaling and transportation function into its own activities. Thus, it is not
surprising if there is a significant increase in the retailers value added while net
margins have not dramatically increased.
The advantages of centralized warehousing include:
Lower shrinkage
Reduced stock levels
Reduced delivery visits per store
Fewer incidents of stocks running low

International players continued to take significant interest in the retail market


in the Philippines, because of the countrys strong economic fundamentals and
favorable demographics. Foreign brands either partnered with domestic operators to
leverage their networks and experience, or set up their own presence to maximise
control, citing rising disposable incomes and the growing middle-class as drivers. On
the other hand, local players capitalized on their existing footprints and lower price
points to level with the competition.

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Chapter II

THE FAST LOGISTICS GROUP

HISTORY OF FAST DISTRIBUTION CORPORATION

The Fast Logistics Profile

Fast Logistics provides a high level of service integration (sea freight, air
freight, inland freight, trucking, warehouse leasing and management, distribution and
trading, money remittance, and to some extent, shipping) to its multinational
clientele, giving it a definite edge over its competitors. It caters to all the logistics
needs of customers from the point of origin to the point of destination, sparing them
the burden of choosing different local service providers to do logistics services for
them on a national scale.

It is a major player in the logistics industry. Currently, it is among its clientele,


leading food and consumer product companies in the country. Contract-based
partnerships with these prestige accounts and multinational firms have been firmly
established.

Its wide network coverage of the archipelago gives it a plus factor. Its
branches are located in the most strategic places in the country, in more than thirty
cities and ports. It practically covers the entire Philippines. Moreover, it has linkage
with shipping companies and airlines for guaranteed slot allocations in its vessels
and flights to all destinations. It has invested in the state-of-the-art warehouse
infrastructure, facilities, and equipment. It has also invested in information
technology enterprise resource systems for its front line operations and backroom
support functions to insure that service is provided efficiently and effectively to its
customers.

Fast Logistics is owned by the Chiongbian Family and has been in existence
for thirty-nine years. It has already carved its name on its own and established its
unique niche in the market.
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Member Companies / Affiliates

The Fast Logistics is the group that caters to the end to end logistics needs of
customers from the point of origin to the point of destination. It provides a high level
of service integration (air freight, sea freight, inland freight, courier express,
warehouse leasing, warehouse management, trucking, toll packing and selling
distribution) to its multinational clientele, giving it a definite edge over its competitors.
Under the umbrella of Fast Logistics are Fastcargo Logistics, Fast Services and Fast
Distribution.

FAST SERVICES CORPORATION, founded in 1990, is a warehouse


management specialty outfit for key accounts in Luzon. It has exclusive ownership
and operation of the distribution centers of multinational companies.

FAST TRANSIT CORPORATION, the newest, founded in 1990, provides


rent-a-car services to people who loves travelling and do business in the Queen City
of the South Province of Cebu; Eco-Adventure Capital of the Philippines Davao
City, and the Emerald City of the Philippines Alabang, Muntinlupa City.

FAST DISTRIBUTION CORPORATION, founded in 2001, provides exclusive


and multi-line distribution of products of multi-national companies to secondary and
tertiary accounts in major cities nationwide. It started selling distribution in the island
provinces of Leyte and Samar for Nestle - 3rd quarter of 2001.

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Chapter III

ORGANIZATIONAL STRUCTURE

Topline Management

The topline managers are responsible for the 5-year strategic directions,
being formulated from CEO down to Vice President Levels. Basically this a long
range planning, organizational strategies, policy formulation, and survival, stability
and growth of the organization.

Middle Management

The middle managers are responsible for tactical actions and solutions. This
also involves management of personnel, inventory planning and control, scheduling,
project management, and work quality assurance.

Frontline Managers

The frontline managers are responsible for policy execution, involved in the
day-to-day routines, and giving feedbacks and reports to Middle Management.

Figure 1. The Organizational Structure of Fast Distribution Corp. Visayas Operations

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Chapter IV

OPERATIONS

Significant change is occurring in the world of wholesale distribution. In


todays competitive business environment, wholesale distributors are under constant
pressure to increase efficiency, customer satisfaction and profit margins while
adapting to changing business models. Threats of disintermediation, the impact of
eBusiness, industry trends toward smaller, more frequent orders, increasing
customer service demands and the sheer velocity of business today are all
dramatically impacting how distributors run and manage their business. Wholesaler-
distributors must navigate these uncharted waters and position their organizations to
prosper in this disruptive agea time when distributors are being bombarded by
forces threatening to disrupt the way they conduct daily operations, serve customers,
and interact with suppliers.

Regardless of size, geography, and specialization, achieving operational


efficiency is still the top priority for distributors. They all still focus on the same issues
such as demand management, warehouse operations, transportation planning, and
logistics.

A. Product and Services

The Fast Distribution Corp. has a wide array of Nestle products in their
inventory.

As an authorized and exclusive distributor for Nestle Products in East


Visayas region, Fast Distribution ensures to be compliant and consistent with
the trade pricing guidelines or policies mandated by the principal so as to
standardize their costing across all trade channels.

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Table 1. Product Lists and SKUs

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B. Work Design

Inventory
The inventory of the Fast Distribution Corp. is determined by their Enterprise
Resource Planning (ERP) software which is SYSPRO. ERP softwares can
drive huge improvements in the effectiveness of any organization, including
but not limited to:

Manufacturing Management
Distribution Management
Financial Management
Reporting & Analysis

SYSPRO automates and integrates their core business processes such as


taking customer orders, scheduling deliveries, and keeping warehouse
inventory record and financial data. It provides ERP solutions for cloud, on-
premise, and mobile deployments, with a focus on manufacturers and
distributors. SYSPRO can alco be accessed by the principal business partner,
Neste. Through this, Nestle can see the trends in sales and inventory and can
suggest orders to be taken by Fast Distribution Corp. Through the data
provided by SYSPRO, the following are achieved by the company:

Coordinated, tracked and controlled inventory which allows for a more


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improved forecast accuracy which is essential to minimizing inventory
holding and obsolescence costs.
Standard analysis of slow-moving, excess, active and static stocks to
enable targeted promotional and product rationalization programs. It
provides the tools to measure the quality of the sales forecasts and
enables to produce automatic or manual forecasts based on sales
history, as well as to easily identify those products that contributes the
most in terms of sales value, gross profit, cost of sales, quantity sold or
hits.
Improved warehouse utilization and systems for the restocking and
distribution of products.

Warehousing and Location Planning

The essentiality of warehousing comes when it is strategically placed in


a location that is suitable to the cargo transport systems. Being that, it will
both ease transportation and reduce costs for the organization.
Fast Distribution Leyte has 3 warehouses strategically located in the
Leyte Area. One is in Tacloban City, the other is in Ormoc City and the last
one is in Sogod, Southern Leyte. These locations were chosen based on
sales volume and center of gravity in the North and South Leyte. Tacloban
City accounts for fifty-five (55) percent of the total sales volume for the whole
Leyte area, so the biggest warehouse is located there. Ormoc accounts for
thirty (30) percent of the total sales while Sogod accounts for the remaining
fifteen (15) percent. These three locations are also strategically located based
on the sales coverage of the sales teams.

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Figure 2. The Office and Warehouse Layout at Tacloban City Distribution Center

Personnel Management

Compensation and Incentive - As stated in Fast Distributions


mission, people are their best resource. So they provide them
employees with the best compensation package patterned after
Nestles Standards. Compared with companies of the same level in the
distribution business, they offer above the minimum wage, and higher
than the industry standard. Monetary incentives and other fringe
benefits are also provided across all employees for outstanding
achievements.

Tool of the Trade - Their Salesforce are provided with complete sales
tools and equipment. They are issued with electronic gadgets, service
vehicles and structured field selling kits and forms, making their job
simplified and easier to accomplish.

Health Care and Statutory Benefits - A regular employee is provided


with an annual medical allowance on reimbursement basis. Likewise,
other benefits determined by law are provided to all members and their

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families upon retirement as
protection from the hazard
sickness, disability, old age, to
promote well-being in the spirit of
social justice.

Performance Management and


Recognition - Semi-annual
performance appraisals are
conducted to assess employees
job performance to ensure that
everyone is aligned with the companys goals and objectives.
Employees are commonly evaluated on behavioral and results
appraisals. It is then followed by Talent Matrix Plotting to craft a
career development plan and scheduling for succession planning,
giving employees opportunity to grow and as a recognition for an
excellent and valuable contribution.

Sales and Marketing


Sales operation can be divided into two strategies,
the pre selling strategy and the extract strategy.

Pre Selling Strategy

A salesperson is dedicated to getting orders from


identified stores and establishments ahead of delivery.
The job is to get orders in advance and coordinate the
orders to the extract team for the delivery. Pre sellers do
not bring stocks of products with them, they just focus on sales and marketing
of products. They are provided with service vehicles and a tablet where for
faster order taking and input of orders. The tablet they are provided with has
an application where they input their orders. This application is connected to
SYSPRO. Upon entering the orders they will be advised if there are stocks of
the product. This will ensure accurate delivery and client serviceability is very
efficient.
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Extract Strategy

A team of a junior salesperson and a senior salesperson delivers and


sell products at the same time. They are provided with a truck loaded with
products. They have two main objectives, to deliver to the identified stores
and establishments the orders taken by the pre seller and to deliver to other
stores under their area. They do both the job of delivery and selling.

From the warehouse, they fill up their trucks with the products already
pre-ordered to be delivered and the products forecasted by the system. They
can add or deduct products dictated by the system based on the buying trend
of their area. It is important that they know their market well so that what they
bring is enough to cater to their area.

Another form of the extract strategy is the use of a Micro Distributor. It


is a one man sales and delivery strategy employed by the company. A micro
distributor is provided with a motorcycle attached with a cart. They cater to
smaller business and they go to the areas that cannot be accessed by the
trucks. This style is very strategic especially in places where there are truck
bans and smaller streets.

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Chapter V

RECOMMENDATION

Given the current situation, an expansion of the Tacloban City warehouse is


recommended in order to improve the companys services. The Tacloban City
warehouse accounts the highest sales percentage of the sales volume for the whole
Leyte area and as the company is growing, there is a need to expand the warehouse
as the current warehouses capacity is already filled to its maximum.

The company is already planning to transfer to another location which has a


bigger warehouse. The current location of the company is just being rented and
having an office and warehouse that are actually owned by the company will help
them lesser their costs.

The compensation and incentives for their employees also needs to be


improved especially for employees who are handling a lot of workload with no
change in their compensation. An example of this situation is the branch manager
which currently handles two branches, the Tacloban and Ormoc branch. The
workload got doubled since the branch manager is juggling two branches with almost
the same size, but the compensation is still the same.

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BIBLIOGRAPHY

Caparas, Ma. Teresa Duenas. 2005 March. State of Competition in the Wholesale
and Retail Sector. Retrieved from http://dirp3.pids.gov.ph/ris/dps/pidsdps0505.pdf.
Accessed on 2017 May 05

Claridades, Joycelyn G., N.D., Philippines Food Retail - A Growing Opportunity for
US F and B. Retrieved from
https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Philippine%20Food%20
Retail-
A%20Growing%20Opportunity%20for%20U.S.%20F%20and%20B_Manila_Philippin
es_12-10-2014.pdf. Accessed on 2017 May 05

Fast Logistics Corp. 2010. Company Profile. Retrieved from


http://www.fastlogistics.com.ph/aboutus.html. Accessed on 2017 May 05

Fustar, Stife. N.D., Process Automation for Distribution Operations Management.


Retrieved from http://www.cired.net/publications/cired2001/3_37.pdf. Accessed on
2017 May 05

Li, Xiang. 2014 June 10. Operations Management of Logistics and Supply Chain:
Issues and Directions. Retrieved from
https://www.hindawi.com/journals/ddns/2014/701938/. Accessed on 2017 May 05

The International Trade Administration. 2016 August 15. Philippines-Distribution and


Sales. Retrieved from https://www.export.gov/article?id=Philippines-Distribution-and-
Sales-Channel. Accessed on 2017 May 05

The Philippine Statistics Authority. 2016 February 11. 2013 Annual Survey of
Philippine Business and Industry (ASPBI) - Wholesale and Retail Trade; Repair of
Motor Vehicles and Motorcycles : Preliminary Results. Retrieved from
https://psa.gov.ph/content/2013-annual-survey-philippine-business-and-industry-
aspbi-wholesale-and-retail-trade-repair. Accessed on 2017 May 05

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