Introduction
Supply chain management is the control of the movement of goods and services (Jaswal, 2018). It involves the action and the storage of raw materials. Supply chain management also deals with the flow of inventory under work in progress and finished goods from their original point to the point of consumption. Supply chain management has also been defined as the designing, planning, control, and execution of the supply chain activities with the intention of net value creation (Jedlinski, 2015). Supply chain management help in securing a competitive structure, logistics leverage, and measurement of the performance. Supply chain management can also be said to be people network working together in moving products from raw materials into finished goods. Supply chain management is usually responsible for the direct or direct fulfillment of the consumers’ needs.
Supply chain management usually involves active coordination as well as the integration of all the supply chain activities to provide the consumers with the best value (Korneer, 2018). Most companies are able to make a provision of best value through coordination of all the activities involved in the supply chain both internally and externally among the supply chain members. Channels used in marketing plays a massive role in supply chain management (Kryvoruchko, 2016). Supply chain management mostly utilizes a business-based approach. Management of risks and sustainability are usually the main areas that need consideration in supply chain management.
The Supply chain process involves a constant supply of money, information, and products. Control of the supply chain enables companies to be able to source the necessary materials for the creation of products and services and delivering those products and services to the consumers (Mansi &Pandey, 2016). The flow of information should be constant, accurate, and timely so as to allow the manufacturers to make and transport the only products that need to be sold. Timely information increases the effectiveness of the supply chain. Effective supply chain systems help both the retailers and the manufacturers to reduce the inventory that are in excess (Puzio, 2018). Effectiveness of supply chain management also saves on the cost of storage, insurance cost, and the production cost.
The major components of the supply chain include sourcing, planning, making, enabling, and returning. Planning entails the management of all the resources that will be necessary for meeting the demands of the customer (Reiman &Ketchen, 2017). It involves designing the supply chain and determinations of the methods to use so to ensure that the supply chain is valid and can meet enterprise goals.
The sourcing component of the supply chain deals with the choice of the suppliers that are required to make a provision of goods and services necessary for product creation (Brandy & Hauzenberger, 2016). The managers of the supply chain usually use a number of procedures to manage as well as control the relationship of the supplier.
The making component of the supply chain entails coordination of various activities necessary for the acceptance of the raw materials, manufacturing of the product, quality test, shipping package, and creation of the schedule for the delivery (Fattahi, 2017).
The delivery component of the supply chain involves the coordination of the customers’ orders, production of the delivery schedule, loads’ dispatching, sending invoices to the customers, and the receipt of payments (Puzio, 2018) delivering components deals with transportation.
The returning component of the supply chain management entails the creation of a flexible network that will allow the company to take back the excess defective and unwanted orders (Kryvoruchko, 2016). Defective order will require reworking, while the excess and unwanted orders should be returned to the suppliers for reselling.
The diagram below explains the returning component of the supply chain management
The enabling component of the supply chain encompasses the support system that will help in monitoring the information throughout the supply chain. It ensures that the supply chain process complies with all the regulations. The enabling component comprises human resources, information and technology, management of the portfolio, design of the product, sales, and quality assurance (Mansi & Pandey, 2016).
Background information
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BHP industry |
Deals with metals and mining |
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Year Founded |
The Broken Hill Proprietary company limited was formed in the year 1885 Billiton plc. On the other hand, was established in the year 1860. The merger between the Broken Hill proprietary company and the Billiton plc. It happened in the year 2001. |
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Headquarters |
BHP company is based in Melbourne Australia |
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Area served |
BHP company serves the entire world |
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Key people in BHP industry |
Ken Mackenzie is the chairperson while Mike Henry is the Chief Executive Officer. |
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Revenue |
Revenue as the year 2019 was the US $ 44 .280 billion |
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Operating income |
The operating income as at the year was the US $ 16.112 billion as at the year 2019 |
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Net income |
As the year 2019, the revenue of BHP was US $ 9. 186 billion |
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Total assets |
The total assets of BHP as at the year 2019 was the US $ 100.851 billion |
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Total equity |
AS the year 2019, the total investment of BHP was approximated to be the US $238 billion |
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Number of employees |
The number of empl0yees was 72,000 as at the year 2020 |
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Website |
www.bhp.com |
Copper
BHP is one of the leading world producers of copper. The location of the BHP copper business is in Santiago. The BHP copper business markets the copper concentrate, copper cathodes, lead, Zinc concentrates, and Uranium oxide.
Iron ore
BHP is the third-largest iron ore producer. The company sells two types of iron ore: Lump and fines. The lump has a higher iron content as compared to fines. BHP sources its materials from Australia
Petroleum
BHP petroleum business explores, develops, and markets its activities in more than 12 countries.
Coal
BHP is the leading supplier of metallurgical coke. The main markets for these products are in China, Europe, Japan, and India. The majority of BHP coal business contracts are based on longer-term and annual contracts. The prices of these contracts are negotiated on a monthly or spot basis.
Aluminum
BHP is the primary producer of aluminum. The main customers of these products are Asia and Western Europe.
Manganese
BHP is the leading producer of Manganese ore. A large percentage of this product is sold to external markets such as South Korea, China, and India. Manganese products are usually sold on a short-term or on a spot basis. Prices of these products are typically connected to publish indices.
Nickel
BHP is the major Nickel producer in the world. The main customers for these products are the steel industry, mainly located in Northern Asia and Western Europe. Nickel is sold on a contractual basis. The contract may be long term, short term, or spot contract. The prices of nickel are connected with the London Metal Exchange nickel price.
BHP organizational structure is demonstrated in the diagram below.
The supply chain for the BHP organization includes the supply of raw materials, miscellaneous services, and skilled labor, and also indirect and direct materials. The BHP Company engages buyers of goods and services and the suppliers through a commercial framework that aligns with charter values and the ethical practices of BHP (Svenson, 2010).
The management of relationships with the buyers and the suppliers occurs through the management of contractual agreements, which is applied through a regulatory framework. There is also the code of conduct, contractual agreements, and requirements standards that control this relationship. Requirements for the supply provide a framework for ensuring that all the suppliers have complied with the minimum requirements of the business conduct (Tachzawa, 2015).
The assessment of the supply categories is done with regard to how dependent commerce is. The assessment is also done through the supplier risk approach. The level of how a company engages with the suppliers depends on the level of risk. Where possible, the BHP always works with suppliers to construct a plan so as to ensure that the suppliers comply with set minimum requirements (Alkhatib, 2017).
The BHP also provides support to suppliers from the communities around so as to help them meet their standards. The BHP also does this to increase the efforts of the community suppliers and contribute to the generation of employment (Brandi & Hauzenberger, 2016).
In order to increase the efficient supply chain, the BHP is currently designing new means and implementing a management platform. Doing this will also increase the efficiency of supply chain management through the tracking of supplier performance (Fattah, 2017)?
BHP marketing is independent of supply. Marketing connects the global operation of BHP, the customers, and the local and the global suppliers. Marketing helps BHP to understand the needs of the consumers’ by linking them to the right products. Marketing focuses on the sales outcome and the price realization in the market (Hsu & Xue, 2017).
In consideration of logistics, BHP optimizes the freight and the distribution cost by ensuring that the wide view of the company commodity market is known to the company. Insight about the market enables the company to focus on production cost and safety (Gotskowski, 2018).
Sourcing by BHP ensures that there is a balance between the quality of the raw materials and the affordability. BHP buys high-quality raw materials to ensure the quality of the final products (Pereira, Terradas & Bicho 2017).
The diagram below demonstrates the supply chain structure of BHP Company.
Sourcing, in comparison to procurement, is a more comprehensive term. BHP’s sourcing process ensures that the priorities of procurement are in line with the goals and objectives of the supply chain and the entire organization. BHP Company produces several goods. The sourcing process in BHP is more complex as it purchases several raw materials that are required in the manufacturing of its products (Plinere & Borisor, 2015).
BHP utilizes strategic sourcing so as to concentrate on large volumes of purchases into the suppliers with a low level of risks. BHP Company uses strategic sourcing to emphasis on the value rather than the cost of acquisition (Plinere & Borisor, 2015).
Strategic sourcing will also help BHP to create a good relationship with the suppliers. Strategic sourcing will also ensure that the company continuously concentrates on improving its process.
BHP also utilizes strategic sourcing so as to make sure that there is the creation of strong teamwork and professional ethics (Fattahi, 2017). The creation of strong teamwork and professional ethics will include customers and suppliers.
The supply manager of the BHP parent company and its subsidiaries use the quadrant technique to check the relevance of the procurement of each product and service. The quadrant technique utilizes a matrix formula to check if procuring certain products and services is important. This matrix method bases on values and risk (Jedlinski, 2015).
BHP manages its strategic sourcing process beginning with developing a comprehensive plan for the sourcing process. In order to develop its sourcing process, the personnel in charge of the sourcing process, assess the total value. Assessing the total value moves beyond the cost of acquisition and total ownership cost to the value of the relationship with the supplier (Kruger, 2018). The second part of the sourcing process is the development of an individual plan that will be used in sourcing. The personnel in charge of sourcing will then check its internal needs. The next process will be to focus on the economics of the suppliers. It is important to understand the tactics that the suppliers use in purchasing. Examples of such tactics include the mechanism of price adjustment and the leveraging of volume. Afterward, the personnel in charge of the sourcing process will then focus on continuous improvement (Santen, 2017).
Before carrying out its sourcing process, BHP always ensures that they check on reliability. Timely deliveries are among the items to check on when it comes to safety. Checking on reliability help to prevent the closure of the process of the production. It also ensures that the unfinished goods are always available (Reiman & Ketchen, 2017). Reliability check also provides that the company successful fulfill all the company’s order.
BHP also checks on the level of risk in the sourcing of materials and services and the production of goods and services. Some of the dangers that BHP Company encounters in its sourcing process include the uncertainty of supply, the risk of the lead time, and the cost uncertainty. The company also considers the suppliers’ capability in its sourcing process. The company usually believe the management, organizational, technical and the operating capacity of the suppliers so as to gauge if they will be able to provide the required quantity and quality of raw materials in a timely manner (Fattahi, 2017).
Before engaging any contracts with the suppliers, the BHP Company always takes into consideration the financial position of the potential suppliers. The suppliers should be financially stable so as to prevent interruption, in the long run, continuous material supply. Another consideration that BHP considers when it comes to suppliers is the desirable qualities. These qualities are the location of the facilities of the suppliers, their packaging capability, and the return goods facilities.
In consideration of the production of its goods and services, BHP mostly concentrates on the quality of its product. The company also ensures that there is a timely deliverance of its products and services to the customers. The most important consideration when it comes to the production of its goods and services is customer satisfaction (Tachizawa, 2015).
The BHP Company should ensure that they collect enough information about its customers and suppliers, and check if there is what they can do for further improvement so as to enhance this relationship (Puzio, 2018).
The primary customers of the BHP Company are Japan, China, Europe, and India. In order to overcome costly distribution operations, BHP has set several retail stores, warehouses, distribution centers, and cross docks along with the locations with significant customers (Plinere & Borisor, 2015). The reason for taking this action is to try to balance supply and demand, create security in case of any risks, allow the quantity purchase discounts, support the requirements of the production, fulfill the need of diversified demand channels, and promotion of the economies of transportation.
Distribution facilities of BHP provide numerous functions such as assembling and sorting of the products. The assembling and sorting are done to allow transport and storage of the goods. Another primary purpose of the BHP distribution system is the matching of the available products with the orders of the customers (Gostkowski, 2018). There is also the assortment that involves the assembling of the order of the customers for the stock-keeping units.
In order to find the trade-off of the supply chain in BHP, personnel responsible for the management of distribution must decide on how they will create a balance between services of the customer and the costs (Brandi & Hauzenberger, 2016). BHP has established warehouses in its major distribution points to cut the cost of transportation. There should be a trade-off the distributions, operations, and customer service. BHP considers several factors, such as the value of the product and how sensitive the product is to temperature to establish its distribution system.
Apart from the use of warehouses, BHP also utilizes direct shipping in delivering its products to the customers. Usage of immediate shipping is particularly cost-saving, where the customers’ demand is excellent. BHP uses its intensive technology so as to ensure there is a proper flow of information within the distribution system (Pereira, Terradas & Bicho, 2017). Information is shared among the personnel regarding the status of the order, the level of inventory, and the situation of the facility.The existence of a sophisticated technology in the company is not only applied in distribution but to the entire supply chain structure.
The diagram below illustrates the utilization of technology in supply chain.
In order to improve its distribution system, the BHP should always keep track of the channels. The company should also keep track of its stock management. Another way of improving the distribution system is by focusing on the local market. BHP should also focus on enhancing its market segmentation (Hsu & Xue, 20170. BHP should focus on expanding markets of its products. Another way that BHP can strengthen its distribution system is by keeping an eye on the changes in the market.
BHP manages its stock through the prioritization of the inventory (Roni & Ekisioglu, 2015). BHP also maintains its inventory through tracking of the available information about its products. The company also performs auditing on its stock. Another way by which BHP maintains its inventory is through analyzing the performance of the supplier. BHP has also adapted the 80/20 rule, whereby 80 percent of the output is created through 20 percent of input. BHP also performs inventory management through tracking of all its sales.
The demand for BHP products appears to be increasing in Asian countries. India, China are expected to provide high demand for BHP products.
BHP can improve its inventory management through precise forecasting, performing regular audits, managing relationships, utilizing the First in first out inventory management method, planning for risk, and classification of its product through the ABC analysis (Roni & Ekisioglu, 2015).
In order for BHP to improve its demand system, it should be able to develop the baseline of its activities (Roni & Ekisioglu, 2015). BHP should use exception-based prediction and apply it to change time frames.
BHP can also improve its inventory management by the use of the economic order quantity model. Economic order quantity reduces the total cost of holding and ordering. Economic order quantity model is applied where there is constant demand.
Optimization of cost using the Economic order quantity is illustrated as follows;
Ordering cost per cycle = c∗Q
Holding cost per cycle = h∗Qavg∗t; Qavg = Q/2; t = Q/a
Total Cost per cycle (TC) = K+c∗Q+ (h∗Q2)/ (2∗a)
Total cost per unit time (T) = TC/ ((Q/a)); For Optimization DT/DQ=0
Optimal Quantity (Q*) = sqrt (2aK/h)
Corresponding cycle time (t*) = Q*/a= sqrt (2K/ah
Conclusion
The report has made an analysis of the supply chain management of the BHP Company, which is based in Melbourne, Australia. From the report, it is clear that supply chain management is the control of the movement of goods and services. Supply chain management includes all the processes that help in transforming the raw materials into final products. The Supply chain process involves a constant supply of money, information, and products (Roni & Ekisioglu, 2015). Management of the supply chain enables companies to be able to source the necessary materials for the creation of products and services and delivering those products and services to the consumers. Understanding and utilizing supply chain management is essential because it increases the competitiveness of the business and enhances customer satisfaction.
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