IEG 330: Supply Chain & Logistics Engineering
Section: F2
Summer 2016
Abstract 3
Introduction 4
Objectives of the Project4
Literature Review4-5
Description of the Collecting Data Process5-6
Description of the Collected Data6-7
Mapping the Supply Chain Network of the Company8
Performance Measurement8-11
Tools, Techniques and Approach to follow11-12
Challenges Expected12
Conclusion12
Gantt Chart13
Reference14
Abstract
This report presents an analysis of Kuwait indo Trading Company’s (KITCO) supply chain. Supply chain analysis and management is an imperative aspect for the business. This is mainly the results obtained help improve the bottom line of all members of the supply chain (manufacturers, suppliers, wholesalers, and retailers). The improvement results from a reduction in transport, logistical, holding, and other costs associated with the transport and handing of goods and raw materials within the supply chain. It also increases the bottom line by streamlining all processes involved in a supply chain. This includes periodic product and raw material flow through the supply chain network. In turn, a streamline supply chain leads to increased profits and revenue since the flow of raw materials upstream into products downstream is enhanced leading to increased cash flow. Lastly, it helps improve customer satisfaction since goods and services reach the end of the supply chain network (the consumer) efficiently.
Introduction:
For this project, the company selected for the study of the supply chain and logistical operations is Kuwait indo Trading Company (KITCO). An in-depth analysis of the company’s supply chain will be carried out in the project in order to determine all aspects and members of the supply chain. Based on the information gathered a supply chain network for the company will be drawn and elaborated. This is essential in analyzing the company’s supply chain and provides excellent insight into the key performance parameters for the supply chain network. Information collected indicates that KITCO’s supply chain mainly consists of suppliers, the Manufacturer, warehouses, and retailers. Below is a discussion of the objective of the project, a literature review, data analysis, and a discussion of the supply chain.
Objective of the project
The main objective of the project is to minimize cost and increase value within the company. In order to achieve this objective, the project’s focus is on only one product flow from the company. The selected product is the KITCO potato chips. The manufacturer supplies the product in boxes and delivers to the government co-operatives and supermarkets in Kuwait. In the project, the problem is that the company suffers from high transportation cost. Therefore, data will be collected in order to define key performance for the chain. Using Microsoft Excel, the data will be analyzed in order to ensure costs to the company are minimized and value is increased.
Literature Review:
According to Lau, Ho, Chan, &Tsui (2014), in any supply chain network with suppliers, wholesalers, warehouses, and customers transportation and transportation costs are a major concern. This directly relates to the fact that raw materials and finished goods require transport from one part of this supply chain to another. Furthermore, different decisions within the supply chain have a direct effect on the cost of transportation, as well as, holding of goods within the supply chain network. The article cites three critical decisions to consider. The first is whether one or more suppliers should be used to replenish stock out occurring downstream. Based on this decision it is critical to select suppliers that minimize the total ordering cost of goods.
The second decision affecting transport and holding costs within the supply chain is determining the usefulness of lateral transshipments in the supply chain. These are the number of shipments happen at the same level within the supply chain, for example, between wholesalers or warehouses. According to the article, it is important to determine the number of transshipped units of a product from one warehouse to another in order to maximize cost savings. The last decision is the best transport sequence for transporting goods from one part of the supply chain to another. For example, it is important to determine the best routes to transport goods from the Manufacturer to the warehouses. By considering this decision, the cost of transport is reduced by minimizing the distance travelled by transport vehicles, as well as, the time take to make a delivery.
Description of data collection process:
Data for this project was collected online, stores, and conducting interviews with different individuals within KITCO’s supply chain. Online searches were made with regard to the potato chips produced by the company. A few websites were found discussing the product, as well as, its manufacturing process. Additionally, stores in Kuwait city where the product can be found were visited. This provided crucial information with regard to the product, its packaging, price, and demand. Telephone interviews conducted with the Kuwait indo Trading Company’s representatives also provided additional information about the product, its demand, and supply within the market.
Description of data:
The data collected for this project included data about the product, product sites, product demand, sourcing policies, transportation policies, and inventory policies.
Data about the product:
Price: 1.210 Dinar Kuwaiti = 4.01 Dollars
Weight: 60 g
Type: Continuous
Status: Still in production and is sold in government co-operatives and supermarkets in Kuwait city and in other countries where it is exported
Sites:
Country: Kuwait
Type for retailers: Governmental co-operations or supermarkets such as Mishref Co-op Supermarket and Farwaniya Co-op Supermarket
Type of suppliers: KITCO Company, Potato Farmers, Markets
Demand:
Quantity: 2,500 boxes per month
Order time: 2 days (the time between placing an order and receiving the goods)
Time between orders: 1 month (the time between one order and the next)
Sourcing policy for both retailers and supplier
The retailers in the supply chain use a single sourcing strategy. This is mainly because they all source the finished product (potato chips) from the Kuwait indo Trading Company warehouses. On the other hand, the Kuwait indo Trading Company uses a multi sourcing strategy. The main reason for this observation is that the company sources its potatoes from different suppliers (farmers or markets). Additionally, all suppliers and retailers must uphold ethics and conduct lawful business. Moreover, the company seeks to uphold fairness for all suppliers and retailers at all times during official business negotiations and transactions.
Transportation policy of the supplier and the destination
KITCO transports all its finished goods and stores them in its warehouses. Transportation is handled between KITCO’s warehouses and its retailers in two ways. The first involves KITCO delivering goods from its warehouse directly to the retailer. This is done at an additional handling and transport cost to the retailer. The second method involves the retailer using his or her own private means to collect purchased goods from the warehouse. For this method, KITCO does not charge any additional handling and transport cost. This is mainly because the retailer already handles the cost.
Transportation cost: 0.2 Dinar Kuwaiti per box
Inventory policy:
Reorder point: 6455 boxes
Order point (Safety Stock): 158.5 boxes
Inventory policy: The Company uses a continuous review inventory policy in order to ensure adequate inventory levels of the potato chips product. This is achieved by having a fixed order quantity and reordering new stock when stock falls below the re-order level.
Review period: Continuous review
Scope and first view of the supply chain system:
Mapped out supply chain for Kuwait indo Trading Company (KITCO):
Figure 1 (The mapped out supply chain network for Kuwait Indo Trading Company)
Figure one above shows the mapped out supply chain for KITCO. From the diagram, it is clear that suppliers of potatoes occupy the upstream portion of the supply chain. Transport is used to move the raw material (potatoes) from suppliers (farmers or markets) to the company’s Manufacturer. The Manufacturer then processes the raw material to produce the finished product (potato chips). The company transports the finished product to the warehouses where retailer orders are completed. Finally, retailer orders are transported to the stores where the customer can access the product.
Performance measures:
Transportation cost:
As discussed earlier, these are the number of shipments happen at the same level within the supply chain, for example, between wholesalers or warehouses. Therefore, the company should determine the number of units of a product that should be transshipped from one warehouse to another in order to maximize transport cost savings. The last objective is to determine the best transport sequence for transporting goods from one part of the supply chain to another. In this case, it is important for the company to determine the best routes to transport goods from the Manufacturer to the warehouses. By considering this decision, the cost of transport is reduced by minimizing the distance travelled by transport vehicles, as well as, the time take to make a delivery (Lau, Ho, Chan, &Tsui, 2014).
The solution above is effective and efficient in minimizing the transportation cost, for the company. This is mainly because the transport cost represents more than 60% of the logistics cost, and the effect of minimizing the transportation cost on the whole supply chain.
Lead-time:
The second key performance measure for the supply chain is the lead-time. This refers to the period between the start and end of the manufacturer’s production process (Glock, &Ries, 2013). In this case, the lead-time should be short for the company. This is mainly because the company deals with a highly perishable raw material (potatoes). Therefore, a longer lead-time means that the company will have to incur higher handling costs associated with storing and handing the potatoes before they are processed. Using the just-in-time methodology can be an effective strategy for the company improving lead-time and reducing waste from the production process (Ramnath, Elanchezhian&Kesavan, 2009).
Supply Inconsistency:
The third key performance measure is supply inconsistency. It is critical to examine supply unpredictability in the supply chain under review. This is mainly because the supply of raw materials directly affects lead-time, inventory, production capacity, and capacity utilization. It is important for the supply chain to respond excellently to changes in supply in order to adjust inventory and production factors equally to meet supply.
Demand Inconsistency:
The fourth key performance measure is demand inconsistency. Similarly, it is critical to examine changes in demand in the supply chain under review. These changes may be because of changes in consumer preferences, special occasions, and changes in economic factors just to mention a few. In addition, changes in demand directly affect lead-time, inventory, production capacity, and capacity utilization. It is important for the supply chain to respond excellently to changes in customer demand by increasing or reducing inventory stock, and changing production capacity.
Stock levels:
The fifth key performance measure for the supply chain is stock levels and safety levels. Stock levels are important in the supply chain under review. The main reason for this is that potato chips are fast moving products on retailer shelves when consumer demand is high. Therefore, the company should ensure excellent stock levels by maintaining a safety stock. This is critical in meeting consumer demands for the products.
Tools, techniques, approach to follow:
For this project, Microsoft excel was used in evaluating the company’s supply chain. Based on the data collected, factors such as lead-time, demand, service factor, lead-time factor, safety stock and re-order point were calculated. Microsoft Visio was used in creating the network diagram for the supply chain under study. This was done by including all the members of the supply chain determined.
Description of challenges we expect:
One of the challenges faced was the lack of sufficient information to carry out an in depth analysis of KITCO. The company website does not include information about its operations within the public domain. The second challenge was time constraints of the project.
Conclusion:
Gantt Chart:
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References:
Glock, C. H., &Ries, J. M. (2013). Reducing lead time risk through multiple sourcing: the case of stochastic demand and variable lead time. International Journal Of Production Research, 51(1), 43-56.
Lau, H., Ho, G., Chan, T., &Tsui, W. (2014). An innovation approach for achieving cost optimization in supply chain management. Journal Of Intelligent & Fuzzy Systems, 26(1), 173-192.
Ramnath, B. V., Elanchezhian, C., &Kesavan, R. (2009).Inventory Optimization Using Kanban System: A Case Study.ICFAI Journal Of Business Strategy, 6(2), 56-68.
