Problem Analysis
Supply chain involves some activities right from the process of production of products and transport to distributors and finally to final consumer. (Stadtler, 2015). This starts from the acquisition of raw materials and manufacturing which is entrusted to procurement department. In any business supply chain stands to be the most important role of the firm because of the benefits associated with proper management of the chain. Properly managed supply chains help the business to heighten the efficiency and facilitate a faster production process.
Another advantage of proper chain management is that deliveries of good is fast and attract fewer resources (Christopher & Lee 2004). Quality is not forgone even after the speedy process and fewer resources are applied. In short, the procurement department is the most important after production unit since it determines the survival of business in the competitive world. (Mentzer &DeWitt 2012).
The report is an intense analysis of ABC Fertilizer Company that is a competitive fertilizer production in Australia. Its popularity is high particularly on the western sides of Australia as farmers depend on fertilizer for their agricultural activities since it satisfies their needs. Since the company was started back in 1920, it has progressively grown in its operation by the production of different types of fertilizer. Lately in they have been able to manufacture liquid fertilizers as a way of expanding their operations.
Despite its rapid growth and loyalty of its customers, it has faced challenges in management, production, procurement and commercial departments. These problems need to be rectified to maintain its popularity and loyalty of its customers. The biggest problem from the management is relying on information from the information system to plan on company’s objectives.
The information system is outmoded and cannot give precise or reliable statistics for future projection. The management relies much on production sector and neglects their roles for looking for solutions to solve problems in other departments. There is a problem of accumulating the raw materials due to the procedure and time taken to acquire them. There is also an accumulation of finished for up to 9 months before it is sold. Both masses of raw materials and finished goods to stay in the warehouse need money to keep monitoring. The more they remain in the store, the more the resources required.
In this report, the problems faced by ABC Company have a way to solve the problems through strategies outlined. Implementation of the policies will make a significant impact on the overall performance. Through teamwork profits of the business will substantially increase.
Introduction
ABC Fertilizer Company has operated in Australia for more than 80 years. The structure of the company management structure it has a central authority the CEO. The other four departments include, production, commercial, marketing and procurement managers are under Chief Executive Officer. Therefore, through the analysis of the company the report, shows several problems are arising from all sectors of this firm. There are also strategies suggested to solve the problems facing the company. The departmental managers should implement the strategies to increase the productivity and increase company’s profits. Other benefits that the firms will gain include efficient delivery of goods and competitive advantage.
Raw Material Procurement and Accumulation
Problem Analysis
In most cases, problems arising from the supply chain affect the profitability of the company. Subsequently, the key determinant is proper planning of the supply chain and ensuring that enough resources are given to the department of procurement to implement their objectives. ABC Company should make sure that the chain of acquiring raw materials and distribution of raw materials to other plan is efficient and required resources given for manufacturing process. Below are discussed problems facing ABC Fertilizer Company.
The primary raw material in this company is Ammonium Nitrate that is transported by sea to other plants and the main plant in Australia. The transport is done by ships which can carry at around 25000 tonnes of raw material to smaller plant. The plant uses 350,000 tonnes of the Ammonium Nitrate for manufacturing; therefore, it has to take some trips to make it to 350,000 tonnes (Tayur, Ganeshan & Magazine 2012).
This results in the level of raw material to be held high. The company holds a high level of raw materials due to infrequent delivery to other plants of ABC Fertilizer Company. Another reason that leads to accumulation of raw materials is the time taken to procure and get the raw materials. The procurement manager to ensure that there are enough materials for production they purchase in large numbers. The statistics show that the plan to procure takes a period of 6 months and for suppliers to respond and deliver the order is three months. In total that is nine months to get the raw materials, therefore, there is need to purchase in large numbers. Holding these tonnes in the warehouse attract more resources to maintain them as it also helps a continuous manufacturing process.
The second problem is an accumulation of final product which is fertilizer in the warehouse. Considering a speedy delivery of fertilizers to the customer will help the firm to solve accumulation of fertilizer in the store that attracts resources for inventory management. ABC Company keeps up to 100,000 tonnes in the stores. This happens after the peak seasons where after the potential customer buys fertilizer the rest is left in the stores and with time it can lose its effectiveness to the farmers.
Thirdly, communication between the marketing department and production is another problem that needs to be addressed. The markets do not present realistic data to the production managers to ensure that production is directly proportional to the demand of goods (Van Weele, 2009). The production managers rely on the information in the information system which in the recent time is out-dated due to change of customer preference. The marketing department is entrusted with carrying out market analysis to present current data on demand and responses from customers.
Another problem originating from the management that has shown a negative impact to the company is Corporation in the four levels of management. Marketing, procurement, and finance are highly dependent on the end product from Production department. The thought that the success of the business revolves around production unit leave another department to be reluctant consequently affecting the overall performance of the company. The overall company managers aim at the market share but do not consider the aspect of competitive advantage by producing quality products. ABC Fertilizer Company can gain the competitive advantage by producing suitable products of high quality and ultimately will increase the market share.
Accumulation of Finished Goods
The disjointed production process is another obvious problem in this company. According to the statistical trend of ABC Company, the time of machinery breakdown is high. The machinery breaks down two hours in a day and before it is fully repaired and retain its operational status takes about eight weeks. Through this breakdown, it leads to disruption of the manufacturing procedure. These ultimately need high investment for maintenance and repairing of the plant.
Consistent unresolved conflict. There is a conflict between customers, production manager, and sales staffs. The production sector is not able to meet demand according to marketing director. The marketing department blames it on production for failure to manufacture enough fertilizer for customers. On the other side, production sector places their blame on marketing department for unrealistic data and inability to conduct market analysis.
The mismatch of production and commercialization brings complaints from customers for the failure of the company to meet their orders (Rong 2000). Rescheduling of customers order attracts discount to compensate the time they will wait for the products. If the data is correct and production is based on accurate data, then it will help the firm to save on the cost of offering discounts (Stadtler, 2015).
The distribution network is the major drawback of the company. The introduction of using private contractors to arrange their trucks for loading does not work smoothly in dispatching of fertilizers. For ABC Company it uses outsourced transportation services to supply to their distributors (Cao & Zhang 2011). The changes in the point of dispatching address the convenience of the company but do not discourse the varying local needs.
Information from the ABC Fertilizer Company Information system does not match the real ones. The IS of the company is out-dated where in most cases the managers rely on the information to make plans. The main work of the management is to plan, control and monitor operations using correct and accurate data. The spreadsheets obtained from the Information system will automatically lead to poor planning or set unachievable goals. The most reliable data to use is from the marketing department.
The main problem arising from the report on the problems that the company is facing, mostly originate from the Information system. This has been witnessed by unachievable plans by the company and complaints of clients. The clients do not get fertilizers in the time of need after their orders are rescheduled.
Strategies
The company has shown internal competencies in their area of on. They have also limited their service because of improper chain management. (Seuring & Müller 2009). Through the realization on room for improvement to meet the arising needs of the customer and also the company, it can opt to hire a consultancy firm. The adviser will help to streamline the operation of the supply chain. Guidance on how to maintain little stock will help the company to improve their services across the country. (Canavari, Centonze, Hingley & Spadoni 2010). The consulted company will carry out an intense analysis of the ABC’s supply chain outline the problems and give ways of rectifying the problem.
Reliance on Outdated Information Systems
The flow of products from Geraldton, Bunbury, Albany and Esperance to the depots needs to be streamlined and addressed with urgency (Dangayach & Deshmukh 2001). The company will also look the procedure of acquiring raw material and delivery to the plant for manufacturing. This will reduce bulk holding of raw material and improve the production process. Reorganizing of the supply chain process will help the organization to plan for the future using adequate and updated data. The shipping process will be easier and also contribute to managing the distribution of finished goods to the distributors and direct customers. The strategies are based on customers services, infrastructure, manufacturing, outsourcing and
Manufacturing Strategy
Manufacturing strategies aim at the process of production. ABC can ensure that the production is done by the order from customers. The company has to come up with a strategy make to order where fertilizers will be manufactured according to the demand. They can produce to stock and also upon the orders. The production should use the raw materials in the stores to meet the rising demand of customers. For an outstanding order, they can attend to the order by giving the fertilizers that are left in the warehouse other than starting production from scratch.
Additionally, to ensure that there is timely delivery of fertilizer they can consider implementing a five-day lead-time. (Stadtler, 2015). The department is responsible for taking orders from customers to make sure that order is entered into the company system in the span of five days. Immediately the marketing people have entered the information then production department can take the information on how much the customers want and put it in the manufacturing process (Ragu-Nathan & Rao 2006). In the third day, they can implement the order and pack the goods. On the fifth day, the company should ensure that the products are packed and stored for the customers.
Customer Service Strategy
This approach ensures that the business relation with customers improves and order management. The central notion of the strategy is ensuring utilization of time that the clients take a while for order attendance. Through better customers services ABC will gain a competitive edge over its competitors which will increase the profits of the company. Standardized customer services will give patience to customers even when their orders are rescheduled. To ensure that both manufacturing and customer strategies are made possible then strong internal leads need to be introduced.
Objectives of this strategy are;
- To reduce accumulation of finished goods in the warehouse through the improved customer service delivery.
- To increase the market share over their competitors.
- Reduce cost used to manage the inventory in the warehouses.
The customer strategy therefore defines; the lead time is reduced to the end customers. ABC will ensure that delivery to distributors within the country takes at least two days and two weeks to those far from the country. In the case of any disruption in the supply chain, it should not take more than one month to deliver the fertilizer. (Norrman & Jansson 2004).
All the four departments should agree to reward the loyal customers by giving offers. The offers should be limited to only those clients who show a consistent trend of purchase of fertilizer in ABC Company. It should take a few days to two weeks to even attract more customers (Davis, 2008). This should be agreed upon by the level managers and signed by the CEO as a strategic importance.
Neglect of Other Departments by Management
Outsourcing Strategy
Outsourcing of services from another company can make a visible impact in ABC Company. ABC needs to outsource services of managing supply chain which is costly in the short run but profitable in the long term. The outsourced activities will focus on the needs of the customers and those of the company. The idea of outsourcing operation management, logistics, and procurement department depends on the ability of the company to make or buy. The company can be able to make the services but can outsource if they are not effective. ABC should ensure that outsourced activities are in line with the overall objectives of the company like reduction on cost and increasing the profits.
Growth in Costs and Quality
ABC may find the supply chain management tedious because of the procedures set out to get goods from the supplier to the farmer. A lot of materials regarding resources need to be deployed to meet the objectives of the company. The risks affecting the supply chain include time right from the date of acquisition of raw materials to shipping of the fertilizers to the farmers. Ability to manage time the supply chain save ABC Company costs that arise from delays.
Use of progressive supply chain management scheme will be greater where the collaboration with other sections will be under the operation of suppliers. Other times the system becomes more complicated such that it increases the cost in the logistic department. (Lee & Billington 2009). A sophisticated system ensures that the quality of fertilizer is according to customers raising needs. The company should make sure that the system that reduces cost does not sacrifice the quality of fertilizer (Davenport, 2008).
Purchasing Strategy
Purchasing strategy will optimize supply chain management by ensuring reallocation, control and following up suppliers in times of need. This is the time they need the supply of raw materials for the efficient production process. A purchasing strategy will help ABC to avoid over-dependence of suppliers. They can opt to purchase to other vendors if the given supply fails to meet the requirement or delays to deliver.
The Objectives of the Strategy;
- Avoid over-reliance to a single supplier
- Avoid disruption of manufacturing process due to insufficient raw materials in the stores.
Infrastructural Strategy
ABC Company divides its infrastructure into logistics, information system, and manufacturing infrastructure. Logistics infrastructure includes distribution which includes offices and other distributors who help the company to reach its customers. In the logistics department, they collect data on sales from the other stocks across the country and also data of distribution fertilizer to those stores.
The manufacturing infrastructure includes plant and machinery that are the core assets of ABC Fertilizer Company. (Spekman, Kamauff & Myh 2010). The strategy can be implemented by the production management which controls the manufacturing process. They can add more plant to ensure that there are no disruptions in the process. They can acquire the machine that is hard to break down after a short time (Chen & Paulraj 2009).
The information system infrastructure is used by the company to produce spreadsheets on sales and demand for fertilizer. It can give statistical data on the trends of fertilizer over a period of years. The core assets are the various departments that contribute to the overall of the companies’ performance ( Simchi-Levi & Kaminsky 2009). Technological Information should be used to ensure that the data obtained is current and useful to the management. The information used by ABC Company is deemed archaic and no longer gives useful information. The company should upgrade the Information system to facilitate achieving of the current and future goals of the organization.
Strategies for Improvement
An integrated system will help the company to prepare in advance the problems that the organization is facing to reach and deliver to their customers. Through this, a clear and efficient communication will be enhanced other than departmental blames that arising due to the existing system.
The objectives of the strategy;
- The strategies ensure that there are no disruptions in the process of manufacturing.
- Effective communication across the four departments ensures proper planning.
Benefits Expected From the Strategies
- The major advantage that the company will get is improved profits as the strategies try to minimize the cost of production.
- Reduced time to acquire raw materials distribute of fertilizers at the dispatching point to customers and stores.
- ABC Company will gain a competitive advantage and help the firm to get a significant market share (Spekman, Kamauff & Myhr, 2010).
Strategy Implementation
The given strategies are possible to implement for the benefit of ABC Fertilizer Company. Implementation should be done through network streams and in different phases. The network system will bring collaboration from the entire department and application in various stages should ensure that projects, subprojects are set for accomplishment (Stock & Lambert 2010). The subprojects should have the pilot implementation in the supply chain which will alternatively reduce risks and complexities in the implantation.
Integrated Supply Chain Information System
The purpose of the integrated information system is to make sure that the company operates as one item instead of four different departments. The reason behind integrating the system is to reduce the lead time up to five days to record the order and send the information to the production team.
Bringing together the supply and production departments and giving new roles and activities of the merged group. The key changes include reviewing the inventory policies, reduction of order time in the daily replacements and measuring success after a span of short time.
There are a number of hindrances s to the implementation of integrated supply system. Some of the hindrances include improper management skill application, failure of the managers to measure the operations of the progress, involving unqualified staffs, losing the overall understanding of the company mission and vision.
Outsource Labour in Supply Chain Department
In the first step, the company s required to bring the units together. The company can outsource the services of the supply department to ensure they streamline the problems discussed. The new firm will manage all issues of logistics and plan on the demand and how to meet demand.
The outsourced services should be brought to integrate with the overall vision of the ABC Company.
Hindrance to implementation;
- Resistance to change by other departments and company staffs.
Harmonization in Supply Chain
The coordination of the supply chain ensures that plans that were previously made are incorporated in the recent plans regarding cost and time (Cox, 2009).
Extra cost need to be paid in changing the whole information system, the cost of frequently getting stock from the suppliers, transportation costs and acquiring new plants and machinery. In the long run, the cost incurred in the expenses will reduce with a high proportion.
In term of time spent in production and maintenance of plants will be reduced. This ensures timely delivery to customers as par their order request.
In a nutshell, the strategies do not have an adverse impact on the market and the global market. It will help ABC to maintain their market share and gain competitive advantage.
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