Integrated Supply Chain Management in Yantai - Case Study Example

Integrated Supply Chain Management Name: Tutor: Subject: Date: INTRODUCTION Internationalization describes the geographic extension of economic activities across national borders. The logistics of this faces two problems; long distance and a high level of cross boarder integration. The concept of internationalization; the act of expanding participation of business, companies and organization in international markets is not a new phenomenon that has just come up in our modern society. It is a concept that can be traced as far back to the growing trade routes of early civilization. Many people do not appreciate the fast, safe accessibility world-wide travel on container shipping’s and aircrafts. It is, however, in this perspective that a precise connection exists between economic development and logistics. In order for internationalization to become a success, must exist a connectivity of all parts of the world, and that is the reason that many regional projects focus on developing infrastructure that is needed to assist the in-cooperation in the world economy. Logistics provides a basis for the development of these infrastructures that will assist global trade. (Harrison et al 2008) The bottling plant that will be set in Yantai, Shandong, China, invokes a vision of wine flowing from the suppliers at Barossa to consumers that are located in China. This will mean an increase of sales which will bring more profit, competitive advantage and lower supply chain costs for the company. However, this will also mean the company having to face several obstacles to realizing this vision, for example, local standards, local autonomy and local operating procedures that might make the integration of flow of information and material a hard task. The difference in cultural backgrounds and the local brands that currently exist to increase the complexity. The supply chain of the wine to Yantai, Shandong could also be made difficult by uncertainty and difficulty that can arise from long lead time and lack of information on the risks involved at the local market in Yantai. This paper aims to discuss the challenges/issues of internationalization that could impact the logistics and supply chain of the wine company. It also provides recommendations and possible solutions to control these challenges. CHALLENGES OF INTERNATIONALIZATION THAT COULD IMPACT THE LOGISTICS AND SUPPLY CHAIN OF THE WINE COMPANY The key internationalization challenges that could impact the logistics and supply chain of the wine company include: an extended lead time of supply, extended and unreliable transit time, multiple consolidations and break points, high inventory and lost sales, multiple freight modes and cost options and location analysis. Being that the product will be produced in Barossa and sold in Yantai, Shandong China, among the many other domestic and international markets already established, the business is, therefore, considered as an internationally organized business. Owing to this factor, there will be a long lead time; time from the instance the consumer places an order for the product to the time it reaches him. Long lead time will be quoted in order to manage the interface between the production and sales team in Barossa and Yantai. This is intended to shield the company permitting it to act in response to the local variation required in Yantai (Harrison et al, 2008). The presence of lead time will lower the sum channel profits and the manufacturer profits when compared to a system that does not have a lead time. The retailer will also get less profit under certain conditions, and the consumer surplus could be lower in the system with the longest lead time. This will be a challenge to the logistics and supply chain of the company. The expansion of the business to China will also lead to extended and unreliable transit time. Unreliable transit times could occur when the mode of transportation for the product is slow. The product will be in transit for longer time, and this could be due to the increased uncertainty of the logistic pipelines or the variation in the time taken for international transport; that leads to the increased holding of the inventory. An unreliable transit time will make it harder to forecast inventory needs, to schedule production and to determine safe stock levels. (Coyle et al, 2008). There will, therefore, be heavy investment of time, resources and money that will be required to implement a supply chain. Difficulties will arise in the supply chain which involves multiple freight modes. The multiple freights might be expensive because each part of the journey of transporting the product, from the manufacturer to the market in Yantai will have a different freight mode option. These mode options include air, sea, rail and road. These modes are advanced freight and could incur higher costs to the company. The company could face high inventory costs and lose its sales. Inventory management for the company will become more difficult and more important. Distance, delays in freight modes, custom delays and transit times require more inventories. This will, therefore, increase the cost of inventories. When political decisions like closing the border to trade or instituting and increasing tariffs and duties are made, there will be an increase in the inventory problems (Bloomberg et al, 2008). Product safety is critical in the achievement of cost control, customer service and supply chain effectiveness. The product, in this case being wine, will be in transit for longer periods of time, it will be handled more, and it will be susceptible to extreme weather (Bloomberg et al, 2002). This could mean that products might not arrive at its destination in the same condition it were in when tendered for shipment at the origin. The supply chain will, therefore, spend more on the packing to ensure that the product reaches its consumer in the right condition. Packaging requirements will, therefore, mean more cost. Packing will add more material and labor costs to the supply chain (Bloomberg et al, 2002). Maintaining the supply chain velocity is another challenge that the company could face. This will mainly arise due to border delays, extended transit times and the exposure in transit increases product risk for damages and reduces the velocity in the system. Finally, another challenge that could arise is the communication barrier. Due to the difference in culture-language barrier and a longer supply chain, communication problems in the supply chain between the primary manufacturers and the end consumers could arise. The consumers may be unable to effectively communicate their needs to the producers and this will lead to non-selling of products, which will in turn incur losses in the supply chain and the company. The available information may also be inadequate or in some instances inaccurate. RECOMMENDATIONS TO AVOID THE CHALLENGES Lead time would be elongated because of the time difference of the manufacturer and the consumer. In order to solve the problem of long lead time, management dynamics can come up with a supplier portal that will integrate with its logistic applications and logistics. The portal can establish standard operating procedures and formal routines that will allow the company and the bottling plant at Yantai to solve problems faster. Users will be able to solve problems immediately and at any time because the portal can be accessed at any time and offers a formal process of responding. The system can be in such a way that users establish the policies, for example, establish the time that is permissible to send a shipment, the partners at Yantai can keep the orders moving and not wait for any special instructions. The use of technology will enable the wine products to move by improving the management of security compliance, custom clearance or any other government regulation, and this will shorten the lead time (Bloomberg et al, 2002). To curb the challenge of using multiple freight modes, the wine company can consider using an intermodal form of transportation for its products to Yantai (Bloomberg et al., 2002). Intermodalism is a two or more mode of transportation combining to transport a shipment. A company can opt to use common intermodal combinations that involve rail, motor and ocean freight transportation. Consolidation can also be used to lower the cost in a pipeline. The goods produced are batched together for transportation to the market that in this case would be common. Consolidation leads to lower inventory levels, reduces the risk of capital investment, and it also lowers the shipping cost for the product (Seuringet al, 2002). Locations that allow freight efficiencies and optimize cost are used as national distribution hubs. Consolidation can also be used to solve the problem of packaging, in that, with the use of consolidation, the safe delivery of products to the consumers is guaranteed. To solve the problem of unreliable transit modes, the company can consider using air transportation instead of using the multiple freight modes. The company can also consider using motor carriages as they are relatively fast and provide more direct movement from origin to destination far more often than any other mode (Coyle et al., 2008). Motor carriers and air carriers are the most reliable (relevant to transit time) and the use of this will enable reliable transit times in the supply chain. Air transportation and motor carriage have the best reputations for product security. Their equipment provides protection and excellent ride quality from elements like extreme weather (Coyle et al., 2008). Faster transit time with the use of these modes will also ensure that the products arrive to the consumers not only in time, but it will also reduce the opportunity of theft and any mishaps to the product. Using e-commerce is a solution that could be considered to speed up the velocity in the supply chain. The company can consider selling a product through the internet. This will allow the consumer to order the right product, by phone or online at one store location. Packaging of the product can be done according to the consumer desire, ship it and gain the consumer approval on arrival. This will mean on time deliveries, fewer fulfillment errors, and convenience to the consumer. To avoid the challenges associated with internationalization in the logistic and supply chain, the company can also consider organizing for international logistics. Three elements should be considered for international logistics. These three elements are layering and tiering, the evolving role of plants and the reconfiguration process (Harisson and van Hoek, 2008). A maxim that is commonly used is global coordination and local operation. They associate to setting out the movement of information and synchronization differently from the map of the physical processes. An example in this element can be found in the automotive industry. In this industry, major original equipment manufacturers structure their plant network internationally while making suppliers put together their plants in their direct vicinity of the original equipment manufacturers plant. The broadcasting horizon between the two plants if defined by the time between the electronic ordering of a specifically finalized single module on the online system and the expected time of delivery in sequence along the assembly line. Time horizons tend to be an hour and a half or less. This will cause the localization of the supplier while the original equipment manufacturing plant services an even green market. Achievement of required changes in the international logistics pipeline is a central issue. A research done by (Harrison and Van Hoek, 2008) showed that, across companies, huge differences can be found in reconfiguration paths. This was similar in cases where the supply chain structure was targeted. The differences that were found were: supply chain scope, focus, tendency, pace and authority. These differences could, however, be explained by the variations in the supply chain characteristics of companies that included: the starting point and the tradition. The third element to be considered is the evolving role of individual plant. Van Hoek adjusted the model for distribution centers using the approach as Ferdows in who projects the theories by Bartlett and Ghoshal onto the role of individual factories in achieving the international capabilities of global efficacy, worldwide learning, local responsiveness or a combination of all three. Van Hoek showed that the location is related to the response of the governments to globalization that is adjusting incentives, local taxes and infrastructure to favor the selection of their territory (Harrison and van Hoek, 2008). CONCLUSIONS The main force to internationalization of the wine company could be a labor shortage and cost in establishing markets, the presence of low-cost production in Yantai need to follow its consumers and need to create new opportunities. Internationalization of the company can, however, contain logistical complexities and operational costs. One should not, however, ignore these complexities and costs. The complexities range from an extended lead time of supply, extended and unreliable transit time, multiple consolidations and break points, high inventory and lost sales, multiple freight modes and cost options for location analysis. All these have been discussed above. Solutions to avoid these complexities as layering and tiering, the evolving role of plants and the reconfiguration process are being tried out, and the wine company should consider them. According to Harrison and van Hoek (2008), the key to success of internationalization strategy is the rationalization of sourcing, production and distribution. He also states that the organization needs to be sensitive to the local market and preference. The company should ensure risk preparedness in international supply chains, for example, by having alternative suppliers and the company should also factor in co-operating social responsibility policy proactively. Reference Bloomberg, JD, LeMay, S, Hannah, JB, 2002, Logistics, Asoke K Gosh, New Delhi. Coyle, J, Langley, C, Gibson, B, Novac, R, Bardi, E, 2008, Supply Chain Management: A Logistic Perspective, Cengage Learning, Natrop Boulevard. Harrison, A, van Hoek, R, 2008, Logistic Management and Strategy: Competing through the Supply Chain, Prentice Hall Financial Times. Seuring, S, Goldbach, M, 2002, Cost Management in Supply Chains, Springer, New York. Read More