Describe about the Flexible Procurement Systems of Supply Chain Sustainability.
Introduction
F&N Pte Limited has established itself in manufacturing, marketing, and distribution of products in Singapore and other parts of the world. The company deals in fruit juices, canned/ pasteurized milk and ice-creams (“Fraser and Neave, Limited”, 2016). Earlier the company was known as the Asia Dairies Pte Limited. It got its name as F&N Pte Limited in the year 1999 (“Fraser and Neave, Limited”, 2016). The company is headquartered in Singapore and was founded in 1883. The company is listed on the stock exchange of Singapore. The company encourages creative thinking and readily accepts changes. In order to maintain market leadership, the company comes up with innovative ideas and products. The company values its customers and strives for customer loyalty (“Fraser and Neave, Limited”, 2016).
Purpose Of The Report
The purpose of this report is to analyze the effectiveness of four key flows in the supply chain for F&N Pte Limited and recommend improvements in supply chain management. The report also analyzes how production planning is done at F&N Pte Limited. An organization relies on supply chain management for cost optimization. Forecasting future demands is a challenge, thus companies add extra inventory to safeguard their interest against inaccurate forecasts (Van Belle, 2015). SCM (Supply Chain Management) takes the material, finances, and information into consideration as they move from the supplier to the end customer and vise-a-versa through various touch-points (Bag, 2016).
Key Flows In Supply Chain
The flows involved in Supply Chain Management are discussed below:
The flow of products
Inventory includes raw materials, products whose work is in progress and finished goods that are ready to be sold. Companies try to optimize the production of goods and deployment of inventory on the basis of demand forecasting. It takes into consideration the movement of goods from the supplier of raw materials to the end customer and return of goods from customer to supplier. The supplier provides the raw materials to the manufacturer. The finished goods move from the manufacturer to the distributor. The products move from the distributor to the retailer and then to the end customer. This also includes service needs of the customers (Kashmanian, 2015).
The flow of information
It takes into consideration the purchase order for goods, schedules for manufacturing and dispatch, complaints regarding quality, inventory reports, reports regarding performance, invoices for goods, etc. (Kużdowicz et al., 2013). For large companies, distributors, retailers, dealers, wholesalers are also involved in the flow of information.
Flow of information plays a vital role in maintaining relationships with suppliers and external customers and improve the overall efficiency of the production. Effective flow of information can help in anticipating the future needs based on ‘what if’ modelling techniques, tracking the progress of various operations, planning replenishment of materials, fostering collaboration etc. The organization makes use of applications that are integrated with warehouse management system and demand forecasting system. Portals have been designed to exchange information with business partners on real time basis. The company uses internet to share information with the shareholders and stockholders. The company also makes use of EDI (Electronic Data Interchange) documents where the documents like purchase orders, shipping status documents, payment documents and invoices flow directly to the appropriate application and the processing begins without human intervention. The company has developed its website where information is shared with the public regarding the product portfolio, geographical presence of the company, terms & conditions, policies regarding return of goods, updates on Research and Developments etc. Emails are used for internal communications within the company and for communicating with clients/ suppliers.
The flow of finances
Since goods flow from the supplier to the customer, money flows from the customer to the supplier of raw materials. After the products are delivered to the customer, invoice is given to the customer and payment is received. It is the responsibility of the company to handle the invoice related disputes. There are certain challenges related to financial flow that the company encounters: unpredictable cash flows due to delay in information, high Days Sales Outstanding (DSO) due to delay in reconciliation of invoices, slow processing of finances due to manual operations etc. The company captures the financial transactions and invoice related data electronically. Thus it is important to establish reliable methods of payment and have an estimate regarding inflow and outflow of finances. Timely payments should be made to suppliers and employees of the company.
Return product flow
It takes into consideration the flow of goods from customer to supplier for the purpose of repair due to damage, replacement due to major defects/ problems in packing, disposal, recycling etc. There are certain problems related to reverse flow of goods. The transportation cost involved with reverse flow of goods is very high. Following are the reasons associated with reverse flow:
All leading manufacturers have designed closed loop supply chains designed while keeping both- forward and reverse flows in mind. Following are some of the ways to manage reverse flow of products:
A company should track the following metrics in order to analyze the reverse logistics- cycle time for return/ replacement, number of returned products sold/ reclaimed, percentage of products recycled that were received in reverse logistics etc.
Diagram 1: Different flows involved in supply chain management
Diagram 2: Reverse flow of products in SCM
F & N Pte Limited should choose its suppliers of raw materials very carefully. There should be proper quality check measures taken by F & N Pte Limited before the goods are transported to their destinations. This will help to keep a check on return flow of goods due to defect in product, sub-standard quality of product or faulty packaging (Van Belle, 2015). This will help to save a lot time and money that is spent on managing reverse flow of goods. There should be a proper mechanism for returning the defective goods. There should be no overlapping of communication related to information exchange.
The Make Process
Two types of SCM software are used by companies- applications for planning and applications for execution. Applications for planning make use of algorithms that determine the best possible way to complete an order. Applications for execution are used to track the status of materials and manage them.
Following are the five basic steps involved in Supply Chain Management:
MRP (Manufacturing Resource Planning) is a part of SCM. It helps to determine the product needs and set timelines for the manufacturing and delivery of goods in response to a change in product price/ features/ composition, market conditions, and promotional techniques. With the help of MRP, companies try to maintain minimum levels of inventory.
F & N Pte Limited uses Make to Stock (MTS) manufacturing technique. The products are manufactured on the basis of forecasting. This it is very important to have techniques for accurate forecasting. It helps in spreading the production schedules in an evenly manner which further helps in maximizing the effectiveness and efficiency.
Following are the elements of production planning and control:
Diagram 3: Different elements involved in production planning and control
F & N Pte Limited makes use of Aggregate Production Planning (APP). It helps to determine the inventory, manpower and production level to meet the fluctuating market demands over a period of 6 months to 18 months. It gives a fair idea of the resources needed and the cost of production. This technique helps to reduce the variable cost of production and the wait time for the customers.
Recommended improvements
Thus, in order to improve efficiency, proper schedules for manufacturing, packaging and delivery should be made. The company should follow the strategy of Just In Time (JIT), which will help in reducing inventory cost and increasing efficiency. Choice of supplier should be made on the basis of reputation of the supplier, quality of raw materials supplied to the company and flexibility in supply scheduled in case of emergencies. Upper management should take decisions regarding long-term targets, promotional activities keeping the competitive environment in mind.
Supply Chain Forecasting
Forecasting can be defined as the process of predicting the future on the basis making an analysis of past data and establishing trends.
Diagram 4: Different methods used for demand forecasting
F & N Pte Limited uses the following forecasting techniques to prevent out of stock or over stock:
Qualitative forecasting-
It is based on judgment and intuition. For example, when a new product is launched, sales for the first quarter are forecasted using qualitative techniques.
Expert opinion- The experts from different departments are made to sit together and are asked to share their opinions. On the basis of current trends, their knowledge, and past experience, they give their opinion on future demands.
Delphi method- This method solves the problem of face to face confrontation (which leads to several internal conflicts). A questionnaire is sent to respondents. The respondents are asked to write their responses on a piece of paper and the responses are kept anonymous (Priem & Swink, 2012).
Salesforce method- It is a method of predicting sales on the basis of the opinion given by the sales force of an organization. This method is used because the sales people have the maximum interaction with the customers and on the basis of this interaction, they can make an estimate of future sales. They have a good knowledge of customer needs/ preferences and market conditions. The management of a company can improve the prediction of the sales force by giving them a proper training to make a judgment on the basis of their customer interactions and giving them incentives for accurate forecasting of future sales. They should be given updates on changes in government policies, changes in competitor strategies, the presence of dealers in the market etc. for making better forecasts (Mishra, Deshmukh, & Vrat, 2002).
Quantitative forecasting-
It is based on the past data trends are used to predict future demands. These techniques are useful only when numerical data for past months/years is available and data patterns are expected to remain the same in future.
Graphical method- All the data for previous months/ years is plotted in the form of a graph. Trends and patterns are observed on the basis of the graph. Those trends and patterns are used to predict the demands for future.
Moving average method- In this method, future value is equal to the mean of the previous data values.
|
MONTH |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
|
DEMAND |
23K |
29K |
33K |
40K |
41K |
43K |
49K |
If moving average is calculated for 2 months, then
MA for 7th month (m7) = (43+49)/2= 46
Thus forecast for the 8th month= Moving Average for 7th month= 46K
Life cycle method- Demand for a product is influenced by its stage in its life cycle (Pagell & Wu, 2006). Stages of product life cycle need to be kept in mind while making demand forecasts. A product is said to go through four stages: Introduction, Growth, Maturity and Decline.
Keeping in mind the product line for F & N Pte Limited, qualitative forecasting should be preferred as they are introducing many new products in the market. Sales force method will be the most effective method for forecasting demand for its products. They have a good knowledge of customer needs/ preferences and market conditions. The management of a company can improve the prediction of sales force by giving them incentives for accurate forecasting of future sales.
Conclusion
Since there are changes in product design, composition, marketing etc., the forecasting tools should take these factors into consideration and also take into account the geographical variations and different product categories (Pagell & Wu, 2006). On the basis of demand forecasts, F & N Pte Limited should streamline the four flows involved in supply chain management and design their make process. Benchmarking needs to be done in terms of techniques used for the production of goods and the quality of goods. Quality of products and value for money plays a significant role in the success of a company. Decisions should be taken at various levels of management regarding levels of production, target customers, requirement/ transportation of materials and distribution network. The ultimate aim of the company should be to have the right products in the right quantity at the right place. Improved production planning and control will result in the following benefits:
Better inventory management- It will result in optimization of inventory requirement and deployment. This will lead to less wastage due to spoilage of inventory.
Improved manufacturing efficiency and customer service- It will reduce last-minute modifications, chaos, and better manufacturing schedules. This will result in better availability of products and lesser chances of stock-outs.
References
Bag, S. (2016). Flexible procurement systems is key to supply chain sustainability. Journal Of Transport And Supply Chain Management, 10(1).
Carmignani, G. (2009). Supply chain and quality management. Business Process Mgmt Journal, 15(3), 395-407.
Fraser and Neave, Limited. (2016). Fraserandneave.com. Retrieved 22 July 2016, from https://www.fraserandneave.com/
Kashmanian, R. (2015). Building a Sustainable Supply Chain: Key Elements. Environmental Quality Management, 24(3), 17-41.
Kużdowicz, P., Witkowski, K., & Vidová, H. (2013). Modelling value stream flows in the enterprise supply chain. Management, 17(2).
Lockamy, A. & McCormack, K. (2004). The development of a supply chain management process maturity model using the concepts of business process orientation. Supply Chain Management: An International Journal, 9(4), 272-278.
Mishra, S., Deshmukh, S., & Vrat, P. (2002). Matching of technological forecasting technique to a technology. Technological Forecasting And Social Change, 69(1), 1-27.
Moschuris, S. (2007). Triggering Mechanisms in Make-or-Buy Decisions: An Empirical Analysis. The Journal Of Supply Chain Management, 43(1), 40-49.
Munoz, A., Coltman, T., & Spedding, T. (2014). Performance Metric Utility in a Make-to-Forecast Process Industry Supply Chain (WITHDRAWN). Academy Of Management Proceedings, 2014(1), 13067-13067.
Pagell, M. & Wu, Z. (2006). Enhancing integration of supply chain functions within a firm: exploring the critical factors through eleven cases. International Journal Of Integrated Supply Management,2(4), 295.
Priem, R. & Swink, M. (2012). A Demand-side Perspective on Supply Chain Management. J Supply Chain Manag, 48(2), 7-13.
Sui, Z., Gosavi, A., & Lin, L. (2010). A Reinforcement Learning Approach for Inventory Replenishment in Vendor-Managed Inventory Systems With Consignment Inventory. Engineering Management Journal, 22(4), 44-53.
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