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

S/N Student Name ID Number Student Signature

1 Ikboljon Kasimov B1000430

Submitted on Due Date (Yes/No) : 20.03.13

Word Count : 2800

 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
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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)

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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
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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.
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 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:
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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 VMI3 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
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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

Receiving Put-Away

Retrieving

Shipping Picking

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
 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.
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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
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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)
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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