Optimizing Supply Chain Operations of A Bottled Water Supplier

Muhammad Faizan Khan1, Farasat Khan2, Dilawar Hussain3, Asad Ashraf4

Supervisor Suffian Farrukh, University of Wollongong, Australia

1 An entrepreneur with a background of Pharmaceutical and Supply Chain Management.

2 A Supply Chain graduate associated with Digital Marketing as a profession.
3 A Supply Chain professional associated with a logistics and transportation company. Also, a gaming blogger and streamer by passion.
4 A supply chain professional currently working for a leading petroleum corporation.

ABSTRACT
This case investigates the inventory decisions and delivery optimization of a bottled water
supplier. It dissects the key performance indicators of a distributor. The selected KPIs for
delivery optimization, inventory management and labor management are optimized using various
tools and techniques. The overall finding stretched the possibilities of saving on delivery time
and cost followed by huge savings on inventory and warehousing. Slight note to labor utilization
has also been touched by key findings from a questionnaire filled by the CEO of Pravy.

Keywords: Optimization, Labor Management, Inventory Management

Bottled Water Industry

The mineral water bottle industry was introduced by big companies like Nestle, Pepsi and Coca-
Cola to diversify their product range. Water being one of the most valuable resources is referred
as ‘Liquid Gold”. Bottled water Companies have taken much advantage from this ‘Liquid Gold’
to increase their profits and market share – example Nestle. Although this was not very easy to
sell bottles water at first. In order to succeed in this market Bottled manufacturing companies
convinced the general public that tap water was not clean and tasty in comparison to bottled
water which is more desirable. The manufacturers of bottled water were very successful in
creating the demand for bottled water with their advertising. Advertising cost for water was way
lower $30 million compared to soft drinks $447 million, Beer $1 billion and milk $152 million in
2009. Due to low advertising expense it can said that the Bottled water Industry is very consumer
driven. Globally, bottled water industry is worth $400 Billion which is growing at the rate of 7%
per year.

Bottled Water costs 1500 times more than tap water, still consumers in the United States buys
almost half a billion water bottles every week.

Although all bottled waters look the same however they don’t hold the same product in it.
Bottled water is divided into three main categories:-

● Mineral water
● Spring water

Electroniccopy
Electronic copyavailable
available at:
at: https://ssrn.com/abstract=3025807
https://ssrn.com/abstract=3025807
 ● Purified water
As the tap water depletes persistently in Pakistan, market for bottled water is increasing by at
least 15% each year.

Literature Review
Sixty-eight percent of Pakistani land area receives less than 250 mm of rainfall per year and is
described as arid (Alam, 2000). Per capita water availability in Pakistan is a mere 1200 m3
which places it among the water stressed country (Siegmann & Shezad, 2006). Nowhere is this
scarcity more evident than in the drinking water availability. Women folks have to walk miles to
collect water in small jars from ponds that are shared by cattle for drinking and bathing. The
diseases caused by unhygienic drinking water claim thousands of life in our rural areas every
year (Huttly, Morris, & Pisani, 1997).

Aini M, Fakhru’l-Razi A, Suan K., (2001) in their study on, “Water Crisis Management:
Satisfaction Level, Effect And Coping of the Consumers”, explain that a high level of
dissatisfaction could be expected in a region experiencing significant water quality problems and
frequent supply interruptions, and is similar to results from elsewhere. Miller, M. (2006) in the
study on, “Bottled Water: Why Is It so Big? Causes for the Rapid Growth of Bottled Water
Industries”, in 2005, Nestle Waters of North America reported that the average person in the
United States consumes twenty times more bottled water than they did 20 years ago. The reasons
for this vary from person to person, but the outcome is the same: bottled water has become the
most popular beverage in the U.S. Nestle suggested that consumers feel a sense of safety in
consuming bottled water rather than tap water.

Anette Veidung, (2007) made a study entitled, “An Analysis of a Bottled Water’s Design, Source
and Brand and its Influence on Perceived Quality and Purchase Intention”, outlines with the
largest bottled water market, Europe, maturing and competition intensifying it becomes
increasingly important for the actors to stand out to the consumer. In order to stand out and
capture the consumers’ attention the bottle design becomes an important mean of differentiation.

Andey, S. and Kelkar, P., (2009) in their study titled, “Influence of Intermittent and Continuous
Modes of Water Supply on Domestic Water Consumption”, explain that the regularity and
duration of supply interruptions influences the total amount of water consumed by consumers
when the intermittent supply is insufficient for allowing consumers to fully meet their water
demands.

Gupta (2004) argue that failure to forecast into the future may negatively impact on
organizational goals as a result of unidentified constraints. This theory is relevant to this study
since it enlightens the management of an organization on the need to prepare for the future
through supply chain planning (Davies, 2003). This is important because an organization can be
able to plan for its future demand. This will help to meet the growing needs of customers and

Electroniccopy
Electronic copyavailable
available at:
at: https://ssrn.com/abstract=3025807
https://ssrn.com/abstract=3025807
thus overcome stock out costs; prolonged lead time, reduced holding costs leading to supply
chain performance (Benton, 2007).

The first reference to a dynamic vehicle routing problem is due to Wilson and Colvin [148].
They studied a single vehicle DARP, in which customer requests are trips from an origin to a
destination that appear dynamically. Their approach uses insertion heuristics able to perform
well with low computational effort. Later, Psaraftis [116] introduced the concept of immediate
request: a customer requesting service always wants to be serviced as early as possible, requiring
immediate replanning of the current vehicle route.

A number of technological advances have led to the multiplication of real-time routing

applications. With the introduction of the Global Positioning System (GPS) in 1996, the
development and widespread use of mobile and smart phones, combined with accurate
Geographic Information Systems (GISs), companies are now able to track and manage their fleet
in real time and cost effectively. While traditionally a two-step process (i.e., plan-execute),
vehicle routing can now be done dynamically, introducing greater opportunities to reduce
operational costs, improve customer service, and reduce environmental impact.

PROBLEM STATEMENT
IMPROPER STORAGE FACILITY:

A big challenge for a distributor to maintain a storage facility because the overall delivery
system is dependent on the inventory if you didn’t have that you will not be able to make your
production run on time.

POOR ROUTE NETWORK:

This is one of the biggest problem facing by the distributor, in the result of that the distributor
bears a high cost by means of transportation and lose the business due to delayed response or
services.

LABOUR UTILIZATION:

It will also had a great impact on distribution business that if someone is not fulfill his/ her duty
si how you can track them. Blame game is the biggest problem with labour so utilize you labour
wisely will lend you towards great profit.

DELIVERY ON TIME:

This is one of the most important problem facing by distribution industry that they can't deliver
on time as they commit, a lot of reasons behind that poor inventory management, poor
transportation network, poor route network and improper utilization of labor.

Electronic copy available at: https://ssrn.com/abstract=3025807

Supply and Transportation of bottled water is one the biggest concerns of such businesses.
Delivery of bottled water from production facility to the customers has a huge cost due to
increasing labor and fuel prices and such costs are consistently on a rise. This issue can be
divided between the retailers and consumers as delivering to retailers is one part and delivering
to the consumers at their door step is another. Typical bottled water for home use weighs 15 –
20kgs and getting it to consumer who lives on the 3rd floor is a big challenge. Companies like
Nestle, Aquafina and other national and international competitors have started to deliver water to
consumers but such service is limited to large consumer on a weekly basis. The transportation of
cost effective and convenient delivery is the biggest challenge faced by bottled water industry
operators.

PRODUCTION AND CONSUMPTION:

For 89 billion liters of water, approximately 1.5 million tons of plastic is used for its bottling
(packaging). To convert PET (polyethylene terephthalate) – plastic into bottles, Filling water into
these bottles, its logistics (transportation) and refrigeration means amount of oil required equals
30% of bottles volume. Moreover in addition to water in the bottles, double the amount of water
is used in the production process – for each liter sold represents 3 liters of water used in the
process.

One more negative externality is the transportation cost. Transportation cost is high in
transporting bottled water to consumers around the world both in terms of money and
environment.

OPTIMIZING – MANUFACTURING:

Mineral water bottled industry does not require any challenging transformation process, this
mean such industry involves a relatively easy manufacturing process. Manufacturing phase is
most impacted because of the energy required during the manufacturing phase which includes
production of plastic bottles for water, product bottling (pumping, filling, treatments - if any). It
does not end here, it also involves secondary packaging and storage until the product is out of the
factory for delivery.

Electronic copy available at: https://ssrn.com/abstract=3025807

OPTIMIZING TECHNIQUES - DISTRIBUTION

For bottled water business Transportation has been their main consideration. Businesses have to
build a strong supply chain and must possess significant expertise to face every changing
challenge. To excel here business needs to have flexible, efficient and convenient logistics and
delivery programs. Efficiently delivering these tasks is a major success factor in the consumer
goods sector.

Such businesses should continue to consistently strive to reduce distribution cost, and should
take new initiatives to lower such costs.

Bottled water industry should focus on the following key areas:-

● Minimizing distance to consumers:

Electronic copy available at: https://ssrn.com/abstract=3025807

 Due to large volumes of the product in bottled water industry, transportation cost is the
primary consideration for all. Operation such as bottling should be located close in the
vicinity of the water sources. Factory location should be such that they can efficiently
delivery the products to consumers while reducing distance to customers.

● Using different mediums for transportation

● Invest more in technologies :

Delivering products from the factory to the customers involves large amount of
transportation costs. To provide bottled water to homes large fleet of trucks are used.
Such trucks should be replaced by hybrid trucks which uses both gasoline and electric
engines which would significantly reduce transportation cost. Pilot projects have been
started in America to use this option.

● Payload optimization:
Businesses should find ways to reduce their environmental footprints in this area as local
regulations define the maximum weight allowed to be loaded on a truck. Companies like
Nestle have rigorously worked to optimize the ration the authorized load and their actual
load per truck which has helped them increase their average payload to increase by 4%
from 2009 to 2010. Increasing payload regulations would also allow less number of
trucks on the road, significantly reducing environmental impact.

● Working closely with suppliers (carriers):

Maintaining good relations with suppliers is very crucial for any business to succeed and
to have a competitive edge over its competitors. Nestle lays great stress on environmental
criteria while selecting suppliers. Nestle new fleet of trucks have tremendously reduce
fuel consumption and emissions.

Electronic copy available at: https://ssrn.com/abstract=3025807

Selection of Key Performance Indicators
Logistics KPIs are usually based upon Service Excellence, Product Excellence and Operational
Excellence. These are further narrowed down to small objectives:

Service Excellence

● Call volume and queue

● First contact resolutions
● Item fill rate
● Perfect order
● Delivered full/on time

Product Excellence

● Total cost of goods sold

● Supply chain cost per unit sold
● Labor utilization
● Warehousing & transportation costs
● Enterprise software performance

Operational Excellence

● Asset utilization rate

● Defect & acceptance rate
● Queues & wait time
● Stock levels & safety stock

Final selection of KPIs contributing to the problem statement

“Improper usage of labor, poor route network, delay in delivery time and improper storage
facility leading to inefficient supply chain. “

Electronic copy available at: https://ssrn.com/abstract=3025807

Tools used for Optimization
Routific

Routing Engine rescues from hours of

manual planning. It minimize windshield
time and maximize the capacity of your
fleet with up to 40% shorter routes. It
allows viewing optimized routes on a
clickable, interactive map that’s fun and
easy to use. Include real-life factors like
time windows, stop durations, vehicle
capacities, vehicle types, lunch breaks,
and more.

Delivrd

Delivrd inventory management software

is a free cloud solution designed to cover
sthe inventory management and order
fulfillment of everyone – online retailers,
from small eBay or Amazon sellers, to
large E-commerce site operators, to
anyone who keeps inventory of products,
even for shop owners.

Current Delivery Status

The above chart shows the number of customers with delivery duration and distance travelled to
serve each customer. The distance was calculated using Travel Distance Calculator android app.
It helped in showing the location, measure and calculate the distance travelled.

Electronic copy available at: https://ssrn.com/abstract=3025807

Optimization using Routific

The delivery has a mean time of 236 minutes per day with 29.7 Km mean distance coverage.
Using Routific we have stretched to the limits to minimize the delivery time and the distance
covered.

This will not only save time but also save fuel cost plus indirect labor cost.

Tool under utilization

Results

By using the tool there was remarkable change in delivery time and the distance covered.
Starting from Monday where it saved 36 minutes and 4 Km in distance. While on Tuesday it
saved 66 minutes and 9 Km along with 59 minutes and 18 Km on Wednesday; by far the
maximum. And finally on Thursday it saved 21 minutes and 2.5 Km.

Electronic copy available at: https://ssrn.com/abstract=3025807

This brought down the mean time from 236 minutes to 190.5 minutes along with the mean
distance from 29.7 Km to 21.4 Km. This optimization would not only help in reducing cost and
time with increase in efficiency and on time delivery.

Reference appendix A, B, C & D

Labor Utilization

The first topic that comes up in a discussion of operations is almost always productivity, and
often the focus becomes how to get the material handling staff to work harder. Occasionally, we
can move the focus to the benefits of work simplification, including how to combine or eliminate
tasks, or working smarter, so that more can be done with less effort. However, the objective is
almost always focused on the worker. And while there is a great deal that can be done in this
area, in every distribution center, there is another powerful approach that is usually overlooked.
In my experience, the easiest and first way to improve labor productivity is to look at the way the
work is supervised or managed. And the place to start with is through planning, both tasks and
processes.

• Inefficient or labor-intensive processes such as manual timekeeping (with spreadsheets or

clipboards) divert managers from more strategic initiatives.

• Limited visibility due to manual processes keeps management from seeing what labor is
doing at any given time Growing need for convenience

• Undefined policies around overtime allocation or absence approvals can lead to

variability in labor cost, employee morale issues, and possible regulatory risk.

• Lack of granular data about how labor is allocated among different tasks prevents
logistics managers from identifying the true costs of orders, customers, or value-added
services

Based upon labor utilization study we formalized a small questionnaire with the following
questions:

• How uniform are your labor management approaches across multiple warehouses?

• How variable are work standards and performance metrics?

• Do you have information on what labor is doing and where the bottlenecks are that you
can use as part of a Lean initiative to identify wasteful practices.

• How do you monitor and manage direct and indirect costs?

• How accurate is your labor costing?

Electronic copy available at: https://ssrn.com/abstract=3025807

Recommendations for Labor Utilization

There are three elements to this approach to improve labor utilization. They can be implemented
in every distribution center, are easy to see and be implemented as quickly as tomorrow. The first
element is to identify the workload cycles in your operation. That is, in every warehouse and
distribution center there are regular, predictable fluctuations in the work load. The fluctuation
may be by hour through the day, or day in the week or certain days in the month; there are
always predictable peaks and valleys in workload. These fluctuations are usually as a result of
production planning or customer order patterns outside of your control.

The second element is to recognize that you, like every other manager, want to maintain a
constant level of staffing, and use a limited amount of overtime to deal with peak requirements.
The consequence of this strategy is that there are times when your workload is less than the
staffing level.

And the third element is to acknowledge that there are many important tasks in your operation
that should be done every day and yet often are handled only when they become so big a
problem that they cannot be ignored any longer, e.g., cycle counting, pick position
replenishment, stocking packing station supplies, returns processing, sweeping the floors,
cleaning up the data in the computer, resorting pick positions, etc. Often these tasks are
postponed because they are thought to be not important because they do not directly contribute to
daily shipping or sales or the benefits would be small for the effort required. And while that this
point of view is partially correct, if these tasks are not done in a timely way, the results can be
disastrous.

Electronic copy available at: https://ssrn.com/abstract=3025807

Optimization using Delivrd

Without using any online or offline software/tool, the inventory management process took a lot
of time for the vendor. By using Delivrd; an online inventory management system, we have
reduced the time it takes to manage the inventory. With just a simple scan of a barcode on the
water bottles, the quantity is automatically reduced from the inventory and assigned to the
customer’s ID.

When low on inventory, a simple replenishment order directly from the Delivrd app starts an
inbound processing, where we order products from our suppliers. We can receive the products
from that order directly, or we could create a shipment, and then receive the products through
that shipment.

Whenever a new customer order is created in Delivrd, a check is performed to ensure that vendor
has enough available stock to fulfill their customer order (or orders).

Electronic copy available at: https://ssrn.com/abstract=3025807

When creating a new product in Delivrd, we have to enter a safety stock quantity. When
inventory levels fall below the safety stock quantity, quantities in the Inventory list page turn red.
We then need to replenish our inventory (usually in the form of a replenishment order from the
supplier).

Usually, vendor would import several orders together, and Delivrd will calculate the quantity
required to fulfill all these orders, and if an inventory shortage was identified, it will mark these
orders accordingly.

Electronic copy available at: https://ssrn.com/abstract=3025807

Using serial number management in Delivrd provides an increased level of inventory control, as
inventory is managed at the piece level (each piece is uniquely identified), as oppose to at the
product level.

Conclusion
The research indicates that the main reason that the demand for mineral water has sky rocketed is
the lack of quality drinking water from municipal water supply. The quality and reliability of
mineral water as safe for drinking has been the main driving force in increasing demand of
mineral water, the alternates such as filtered bottled water or the wide variety of water filter have
proved unreliable. Therefore it is a great opportunity for suppliers to optimize their delivery
systems to meet the key performance indicators of this industry.

By applying couple of tools for route optimization we were able to create optimized route
solution and save on cost and time. Secondly by identifying labor utilization opportunities we
were able to utilize the labor most efficiently.

Limitations of the Current Study

The current study gives an insight of consumers‟ characteristics of those living in the gigantic
metropolis of Pakistan which is Karachi. The study is limited to the small number of respondents
from just one city. The study is based upon single small supplier it would be difficult to lay the
impressions on large suppliers. But this study comprehensively covers possible optimization for
the presented supplier.

Future Research
The first area that shall be covered upon would be to conduct the research on a bigger supplier.
Secondly there is a whole lot more opportunity to identify and optimize the warehousing of the
bottled water as this has not been touched upon.

Electronic copy available at: https://ssrn.com/abstract=3025807

Appendix A

Optimized Solution for Monday

Electronic copy available at: https://ssrn.com/abstract=3025807

Appendix B

Optimized Solution for Tuesday

Electronic copy available at: https://ssrn.com/abstract=3025807

Appendix C

Optimized Solution for Wednesday

Electronic copy available at: https://ssrn.com/abstract=3025807

Appendix D

Optimized Solution for Thursday

Electronic copy available at: https://ssrn.com/abstract=3025807

References
Environmental Report. Ministry of Science Interpretations of Calamity: From the Viewpoint of Human
Ecology. Environment, Malaysia, K Hewitt. 1983.2-9.

Bottled water distribution facts: Nestle (2015)

Market Entry - Bottled Water Industry in Pakistan: Analysis of Growth, Trends and Progress (2017 -
2022) (2016)

The Story of Bottled Water (2010)

Role of consumer charaacterstics in understanding the importance of logistics in Mineral Water Industry
(2015)

PSQCA (Pakistan Standard Quality Control Authority), Bottled water manual, 3rd Review (PS: 4639-
2004(R)).

Siegmann, K, A, &Shezad, K. (2006), Pakistan‟s Water Challenges: A Human Development Perspective,

Working Paper Series # 105, Sustainable Development Policy Institute (SDPI).

Hess, S, (2006), Bottled water and problems that flow, Polaris Institute, Retrieved from Internet on 16
June 13, http://www.polarisinstitute.org/bottled_water_and_problems_that_flow

Bottled Water by Stefanie Kaiser, Dorothee Spuhler (2012)

Mineral water industry expands 15pc, Dawn (2011)

Description of the reverse logistics of a unit of mineral water filling the city of Recife / PE: a case study
(2015)

Electronic copy available at: https://ssrn.com/abstract=3025807