Planning and Controlling the Supply Chain at Papyrus Australia - Case Study Example

Planning and Controlling the Supply Chain at Papyrus Australia of 9/21/2009 The success of a business depends on the ability of its managerial staff to plan, control, and manage its supply chain. The supply chain of a company is a network of retailers, distribution, transporters, storage facilities, and suppliers that participate in the production, delivery, and sale of a product to the customer (Wisegeek, 2009). Managers have to utilize different techniques and methods in order optimize the functionality of the supply chain. It takes careful and detailed planning to properly manage the supply chain of a company. An enterprise which I’m familiar with due to fact that I invested in the common shares on the company in the past is Papyrus Australia (PPY). This report is divided into six sections: company profile, use of forecasting techniques, production management tools, comparison of materials requirement planning (MRP) in manufacturing vs. service sector, material requirement planning at PPY, and conclusion. Papyrus Australia Profile Papyrus Australia is a research company founded in 1994 in Australia that developed a paper product whose raw material is the banana trunk tree. The company was incorporated in 2004 and in that same year the company had its initial public offering. The technology that created the banana ply paper is patented. This means that company has a monopoly over the production of banana derived paper for at least 17 years. Papyrus Australia’s innovative product is still in the birth stage of its product life cycle. The world demand for paper is 400 million tonnes per year (Papyrusaustralia, 2009). The traditional paper industry is damaging the environment due to deforestation. Banana ply paper does not impose a threat to the earth’s natural resources because banana trees are a renewable source. The truck of the banana tree was considered waste material prior the invention of banana ply paper. Forecasting techniques In the corporate world forecasting techniques are a valuable tool that is utilized for multiple purposes such as material planning, sales forecasting, determining customer demand, and to speculate on future trends. There are two categories of forecasting techniques: quantitative and qualitative methods. Four forecasting techniques that are utilized in the industry are regression analysis, time series, Delphi technique, and simulations. The utility of each technique depends on its application. At Papyrus Australia forecasting techniques are utilized in different business processes. Regression analysis is a forecasting technique that analyses variables in order to determine the relationship between the dependent variable and one or more independent variables (Mann, 1995). The business model of Papyrus Australia requires the company to develop hundreds of small production facilities across the world. Due to the fact that the continent of Africa holds 53% of the supply of banana trees Africa is a primary target. The managers of the firm utilized multiple regression analysis in order to facilitate their selection process of a suitable location within Africa. The independent variables used by the model included banana supply, labor availability, educational level of workers, and cost of energy among others. After the implementation of the model the executives of the company were able to select the top 25 locations within Africa for future expansion. A forecasting tool that has many practical applications in the business world is time series analysis. Time series is a statistical technique that looks for patterns in data set compiled by collecting data at different time intervals. Papyrus Australia currently produces its banana ply paper in a limited production. The price of the banana ply paper is currently being established by the managerial staff. The initial price of the product was determined using the Delphi method. The Delphi method is a qualitative forecasting technique that utilizes a panel of experts. The panel used by PPY included company managers, board of director members, external consultants, and university professors. The long term goal of the company once the product is being mass produced is to sell banana play paper as a commodity in the open marketplace. The company is currently keeping track of the daily prices of banana ply paper. All the data is going into a time series computer statistical model. The information will be used in the future to forecast the future price movement of the commodity once it reaches the open market. Production management tools Papyrus Australia has a unique product that has the potential to penetrate the paper marketplace and grab a share of a multibillion dollar industry. The product has characteristics that make it superior to regular paper such greater tensile strength, heat resistance, and improved durability. The production layout for a manufacturing operation only requires a space of 500 square feet. The operation needs a plantation of a minimum of one acre. One acre of land is sufficient to grow 1,500 banana trees. The production process energy requirements are low or non-existent. All the water needed for irrigation of the plants and other industrial uses is generated by the banana truck themselves. The banana truck is made up of 90% water. The electricity needs of the operation in comparison with running a paper mill are 99% lower. The production plans of a Papyrus subsidiary must consider the availability of banana trees outside the plantation. Banana trees are a renewable source, but it takes 6-12 months for the trees to grow back again. The production manager of a PPY subsidiary must create a logistics network in order to purchase banana trucks from local farmers. The company has to provide orientation to the farmers because typically the farmer visualizes the banana trucks as trash. A good place to establish PPY operations is in the Caribbean region. There is large supply of banana trees in the region including a banana strain called plantain. The plantain tree has a truck twice the size of typical banana trees which means that you can get twice as much raw material in the same land space. The small size of the Caribbean islands such as Dominican Republic, Cuba, and Puerto Rico simplifies the transportation logistics of acquiring additional supply of banana trunks from local farmers. The production of banana trunk tree paper is not labor intensive. Comparing MRP in manufacturing vs. service sectors Papyrus Australia is a manufacturing company dedicated to the production of banana ply paper. As a manufacturing firm the MRP of the company must consider the availability, quality, and market price of tangible materials. At PPY the most critical raw material is banana trees. The company realized that is cheaper to grow the trees themselves, but the production of the facility is limited to its crop if the firm does not buy banana trucks from external sources. The MRP of the firm must consider the warehousing costs of storing the raw material. A company operating in the service sector has a much different material planning process than a firm such as PPY. The MRP of a service company focuses on the work output of the laborers and the business processes associated with the production of the service provided to the customers. The production managers of service companies have to coordinate the labor requirements needed to complete each individual project. Providing great customer service and achieving a high level of customer retention is very important in the service sector. The MRP of a service company considers variables such as time, quantity of employees, deadline requirement and quality of service. The client specifications are also an important factor to consider. Material Requirement Planning PPY The MRP system at Papyrus Australia is geared towards producing banana ply paper. Paper is the primary application of the technology, but the firm can also produces building products, specialty, and technical applications. The MRP system of the company divides the tree trunks into two separate types of raw materials. The banana tree trunk is divided into inner core and the outer layers. The first stage of the manufacturing process involves the separation of the banana truck into the two categories of raw materials. PPY depends on outside suppliers of banana trucks in order to prevent inventory stockouts. The material planning process involves establishing business relationship with multiple suppliers. The company recommends that a subsidiary must have a minimum of 20 identifiable suppliers of banana trucks. The production manager must tabulate the cultivation stage of the supplier’s banana plantations in order to determine the exact availability of the trucks. The company must use a just in time inventory for the material handling of external banana trucks because the storage space of physical facilities is limited. Conclusion Innovation is a business factor that allows companies to penetrate new marketplaces. Papyrus Australia invented a new technology that allows the firm to create paper out of the banana tree trunk. The company is starting out and its product has not yet reached the global marketplace. This company needs its managers to apply sound supply chain business practices. The material requirement planning system of the firm uses both raw materials produced in-house and acquired from external suppliers. Proper management of the supply chain ensures the reliability and constant flow of a manufacturing operation. References Mann, P. (1995). Statistics for Business and Economics. New York: John Wiley & Sons. Papyrusaustralia.com (2009). The Company – History. Retrieved September 18, 2009 from http://papyrus.deadline.net.au/aspx/company_history.aspx Wisegeek.com (2009). What is a Supply Chain? Retrieved September 18, 2009 from http://www.wisegeek.com/what-is-a-supply-chain.htm Read More