Optimisation Of Supply Chain Strategies Business Essay

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Électricité de France (EDF) is one of the world's largest utility companies with revenues of €66.34 (FY2009) and operates a diverse portfolio of 120,000+ megawatts of generation capacity in Europe, Latin America, Asia, the Middle-East and Africa. EDF is involved in the generation, transmission and distribution of electricity primarily from nuclear power. It is also involved in the generation of electricity from other sources like hydro-electric, thermal and renewable energy. It operates 58 active nuclear reactors which are spread out over 20 sites (nuclear power plants).

With regards to its SC structure, AREVA is the main supplier of EDF covering the entire nuclear fuel cycle (Front end and back end operations). AREVA actively owns lot of subsidiaries which are actively involved in the SC of EDF. Besides, EDF itself owns two subsidiaries for the transmission and distribution of electricity along the SC. The main focus would be on the critical nodes of the supply chain (say, back end operations) and improvising them with optimal SC strategies.

2.0 Project Rationale:

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As Project Rationale describes about the basic reason for the accomplishment of the project, the main issues concerning the EDF is that of the variation in the supply and demand (as electricity generated by the reactors are more than the requirement/ demand) and constant piling up of spent nuclear fuel at the back end operations of the nuclear fuel cycle. In order to achieve sustainable competitive advantage over other major energy players around the globe, there is a need for EDF to come up with the optimised Supply Chain strategies and reduce the SC costs.

2.1 Scope:

To regulate the variation of demand and supply of electricity with the optimisation of Supply Chain strategies and to bring in coordination and integration among the trading partners within the Supply Chain.

2.2 Objectives:

To identify the issues (with regards to strategies and tools/ techniques) in the existing SC structure of EDF.

To implement new strategies for the affected nodes in the SC and formulate a modified SC structure and reduce the SC costs.

To ensure proper coordination and integration of all the inter-organisational activities within the Supply Chain.

3.0 Research methodology:

Basically the research on this coursework has been undertaken by looking into the information from authenticated websites, e-books, journal articles and white papers. As this research has gathered lot of information on the long term strategic goals of the customer (EDF) and the supplier's (AREVA) Organisations, lot of information for this research has been taken from their websites and the authenticated company reports than looking into the mere books and journal articles. As nuclear projects are highly complex and have long term goals, most of their research information would be made available on their genuine websites and reports.

Hence some of the SC strategies and tools/ techniques have been proposed based on the research information/ strategic goals of EDF and AREVA.

4.0 "As-Is" SC structure of EDF:

Please find attached "As-Is" SC structure of EDF along with this coursework.

Table 4.1 Node by node analysis of "As-Is" SC structure:

Node (s)

Existing SC strategy

Existing SC tools/ techniques

Current issues

SC response

1-2-3-4-5-6-7 (External SC)

Partnership strategy

Technology strategy

VMI

CPFR

E-Procurement

EDI

ERP

More nuclear fuel to be transported and supplied to the reactor.

Less integration of business processes and the trading partners.

Increase in the transportation cost. Increase in processing costs (Exploration to fuel fabrication)

Increase in the inventory and facility cost at some of the transit points of the SC.

Minimal benefits of ERP are realised in the SC.

8.1, 8.2, 8.3, 8.3.a, 8.3.b and 8.4 (Internal/ External SC)

Transportation strategy

Partnership strategy

Technology strategy

Green strategy

Reverse logistics

VMI

CPFR

EDI

ERP

Spent nuclear fuel arriving faster than processing or disposal and in large quantities.

Less integration of business processes and the trading partners.

Could be a threat to EHSS (a major SC issue) due to piling up of highly radioactive spent fuel.

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This has led to an increase in the transportation cost, inventory and inventory handling cost

Increase in the supply of nuclear fuel over the demand for the electricity in the market.

Affecting the performance of the SC with stringent environmental regulations and requires improvement in the Green strategy.

8-9-10 (Internal SC)

Technology strategy

E-Partnership strategy

ERP

POS

Less integration of business processes.

Minimal benefits of ERP are realised in the SC.

4.1 Terminologies:

Tools/ techniques:

1) e-Procurement:

This term refers to the automation and integration of the purchasing process by the application of e-procurement software and the growth of B2B trading exchanges (Ross 2002).

Business-to-Business exchanges are enabled by Enterprise Resource Planning (ERP) platforms. Basically e-Procurement implements new methods of ordering and helps in considerable reduction of inventory and the facility costs.

2) Electronic Data Interchange (EDI):

Electronic Data Interchange (EDI), a form of e-commerce, is the application-to-application exchange of business transactions like orders, confirmations and invoices between enterprises via electronic communications using a public standard format.

Basically, EDI involves business transactions between two applications (say VMI, ERP, Materials Management and so on).

3) Enterprise Resource Planning (ERP):

ERP is a multi-module integrated software system used for identifying and planning the internal and external resources including tangible assets, financial resources, materials and human resources of an enterprise.

ERP provides one single user interface for the entire organisation which facilitates the flow of information between all business functions within the organisation and with the trading partners (Stakeholders).

4) Vendor Managed Inventory (VMI):

It is an inventory replenishment arrangement whereby the supplier manages the customer's inventory with its own employees or receives stock information from the customer. The supplier replenishes the stock automatically and there is no need for the customer to initiate the purchase order.

5) Collaborative Planning, Forecasting and Replenishment (CPFR):

CPFR is basically a Vendor Managed Inventory (VMI) arrangement whereby the customer and the supplier share the internal information to integrate their plans, forecasts and delivery schedules and ensures a hassle-free flow of goods and information as per the requirement.

6) Reverse Logistics:

According to Council of Logistics Management, Reverse Logistics is defined as "The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal".

7) Point of Sale (POS):

POS system is a computerised network operated by a main computer and linked to several checkout terminals (Warehouse/ Retail outlets).

With the help of POS software, Organisations do get the information on the sales data up-to-date from the downstream and maintain an accurate sales history in order to do any make or buy decisions.

4.2 Critical evaluation:

The "As-Is" SC structure of EDF emphasises on the existing Supply Chain structure, relationship among the trading partners, existing processes at different nodes of the SC, existing SC strategies and tools & techniques used by the trading partners in the SC, current issues at different nodes of the SC and the consequences of those issues affecting the output/ performance of the SC.

The SC strategies, tools/ techniques, issues and SC responses are shown in table 1.1 above. The first portion of the nodes (1-2-3-4-5-6-7) indicates the external SC which constitutes the FRONT END operations group of the SC which covers from exploration to fuel fabrication, storage and its transportation to the nuclear power plant. Some of these nodes are handled by AREVA NC (The main supplier and the subsidiary of AREVA group France) and the remaining nodes being handled by its subsidiaries.

There are no issues with the use of Vendor Managed Inventory (VMI), E-Procurement and Electronic Data Interchange (EDI) which are up-to-date and established to enhance the flexibility of the Supply Chain. But the Enterprise Resource Planning (ERP) tool used by EDF needs to be highly advanced in order to fully integrate the business processes and the trading partners (As this is a nuclear SC, it includes processes, projects and programmes).

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The main issue concerned with the Front End Operations is that of increase in the inventory and inventory handling cost and also the transportation cost at each node of the SC due to the fact that more nuclear fuel is being supplied and transported to the nuclear reactor and increasing the processing costs involved at each node. This would undoubtedly increase the overall SC costs and performance of the SC.

The next portion of the nodes (8.1-8.2-8.3-8.3.a-8.3.b-8.4) constitutes the BACK END Operations group of the SC involved in storage & transportation of spent nuclear fuel, reprocessing and transportation of recovered fuel to the FRONT END group. Since this portion of the SC is based upon the Reverse Logistics, issues due to sustainability would undoubtedly be present at these critical nodes. Firstly, as discussed in the Front End portion of the SC, there has to be advancement in the implementation of ERP to fully integrate the processes and businesses of trading partners.

Secondly, there is an issue connected to inventory (storage) of spent fuel and its handling cost (Interconnected with the Front End Operations) as the spent nuclear fuel needs to be stored for a longer period to reduce the decay period (this is highly radioactive and requires lessening of emission of radiation).

Thirdly, less advancement in the Green Strategy which would pose a threat to EHSS due to the large inventory of highly radioactive spent nuclear fuel.

Finally, the next portion of the nodes (8-9-10) constitutes generation of nuclear power (by EDF), transmission and distribution of electricity through its subsidiaries. There is no issue with the E-Partnership strategy used by EDF along with the Point Of Sale (POS) tool/ technique. However, as discussed in the other portions, the ERP tool being used needs to be highly advanced with its thorough implementation.

5.0 "To-Be" (improved) SC structure of EDF:

Please find attached "To-Be" SC structure of EDF along with this coursework.

Table 5.1 Node by node analysis of "To-Be" SC structure:

Node (s)

New SC strategy

New SC tools/ techniques

Improvement

SC response

1-2-3-4-5-6-7 (External SC)

Partnership strategy

Technology strategy

Technology strategy

Collaborative strategy

Design strategy

VMI

CPFR

E-procurement

EDI

Web-integrated ERP/ Collaborative (c) Commerce

Good integration of business processes and the trading partners.

Established internal team collaboration, engagement of partners and tracking of projects and programmes.

Consumption of nuclear fuel is reduced with the aid of design strategy

Optimised performance of the SC partners and realisation of benefits.

Reduction in inventory and inventory handling cost.

8.1-8.2-8.3-8.3.a-8.3.b-8.4 (Internal/ External SC)

Transportation strategy

Partnership strategy

Technology strategy

Technology strategy

Collaborative strategy

Design strategy

Improved Green strategy

Reverse logistics

VMI

CPFR

EDI

Web-integrated ERP/ Collaborative (c) Commerce

Established internal team collaboration, engagement of partners and tracking of projects and programmes.

Good integration of business processes and the trading partners.

Decrease in the accumulation of spent fuel.

Increasing the reprocessing capacity of the spent fuel has reduced the threat to EHSS from radioactive materials.

Reduced variation in the supply and demand for electricity.

Reduction in the transportation cost, inventory and inventory handling cost.

Improved SC performance and adherence to environmental regulations.

8-9-10 (Internal SC)

Technology strategy

Collaborative strategy

E-Partnership

Web-integrated ERP/ Collaborative (c) Commerce

POS

Good integration of business processes and the trading partners.

Established internal team collaboration, engagement of partners and tracking of projects and programmes.

Improved SC performance, communication among different nodes and reduction in the SC cost due to the implementation of advanced level of ERP.

Improved performance of the SC partners and realisation of benefits.

5.1 Terminologies:

Tools/ techniques:

1) Web-integrated ERP (c-Commerce):

This approach of ERP facilitates web-based communication between supplier and the customer having different ERP systems. In nutshell, web-integrated ERP provides collaboration of different ERP systems of different trading partners leading to effective communication.

Fig 5.1 shows the positive impact of information systems on the Supply Chain network. Thus the true benefits of ERP are fully realised when web-integrated ERP is widely implemented.

Basically Collaborative Commerce facilitates a tight integration between the supplier and the customer among all the core areas of their businesses, integration between their databases and computer applications.

Fig 5.2 shows the intensity of collaboration with four different levels and the value been attained at each level.

5.2 Critical evaluation:

The "To-Be" SC structure of EDF emphasises on the improvements been to the existing SC structure, improved SC strategies, new tools/ techniques, improved relationship of trading partners and improvements in the response at each node of the Supply Chain.

The reformed SC strategies, tools/ techniques, improvements and the SC responses at different nodes of the SC are shown in the table 1.2 above. As discussed in the "As-Is" SC structure of EDF, some of the strategies and tools/ techniques are having no issues and have been used in the "To-Be" SC structure as well.

There are basically three main improved strategies in place for the "To-Be" SC structure of EDF.

Design Strategy:

This strategy involves changing the design aspects of the current nuclear reactor. The current design involves the principle of Pressurised Water Reactor (PWR) which constitutes most of the reactors operated by EDF. But this involves slightly more consumption of nuclear power leading to more inventory buffer, facility handling costs, spent fuel accumulation and complex waste management activities and affecting the Green strategy posing sustainable issues to the SC. Hence the proposed design involves the principle of European Pressurised Reactor (EPR) which is a Generation III PWR and is provided by AREVA NP (a wholly owned subsidiary of AREVA group). Although the design strategy involves a lot of initial investment, this would be undoubtedly compensated by the reduced consumption of nuclear fuel by the EPR reactor, reduction of inventory buffer of nuclear fuel, reduction of spent fuel inventory and subsequent wastes, lessening of SC costs, improved sustainability and improved SC performance.

Improved Green strategy:

As explained in the design strategy, there is a considerable decrease in the accumulation of spent fuel and wastes. As Reprocessed Uranium (REPU) poses a lot of problems like high radioactive content which poses proliferation risk to the personnel. As a consequence of this, REPU should be highly enriched at the enrichment plant in order to bring down the radioactive content of REPU and involves a lot of investment leading to increased complexity and SC costs. Also the reprocessing of spent fuel gives rise to Mixed Oxide fuel/ MOX (Combination of Plutonium and Uranium) which can be used directly for the power generation without being enriched and is also compatible with the EPR reactor.

Secondly, EDF has come up with an agreement with AREVA to increase the quantity of spent fuel reprocessing at the AREVA NC's site in order to reduce the complexity of waste management and improve the handling of inventory of spent fuel. Hence this is advanced Green strategy and improves the Reverse Logistics and the overall SC of EDF.

Web-integrated ERP:

As Web-integrated ERP is a web-based communication of customer (EDF) and the supplier (AREVA) having different ERP systems, this advanced technology strategy improves the collaboration and integration of different business processes of all the nodes (trading partners) of the SC. Hence this improves the visibility among all the SC nodes and improves the performance of the SC.

6.0 Conclusion:

As EDF is an electric utility company, a world leader in the generation, transmission and distribution of electricity, there are quite a lot of issues concerned with sustainability (inventory of spent nuclear fuel and transportation), Supply Chain Planning and Control of the overall business processes across the entire Supply Chain which in total needs to be dealt with in a systematic manner. At EDF, volume of power generation is high, production is continuous and the transmission and distribution networks should be very specific and accurate as customers expect instant and hassle-free distribution of electricity as it is very important for EDF to build and maintain everlasting healthy customer relationship.

The SC planning horizon for EDF (in general, any electric company) is very long and the major decisions regarding the capacity of the power stations, procurement of nuclear fuel, inventory management (logistics), back end operations (storage, transportation, reprocessing of spent fuel, waste management & disposal and decommissioning of nuclear sites & reactors). Forecasting of demand fluctuations can be done in advance and the SC planning decisions are concerned with the volume of output and not with timing of output. Also robustness of the nuclear supply Chain should be given ample importance as it involves a lot of complicated and risk prone technical operations and involves more SC costs. Hence there is a need to closely collaborate and integrate all the business activities and processes of all the SC nodes (trading partners).

Hence it is very important for EDF to opt for optimal SC strategies and tools/ techniques in order to improve the technicalities of the nuclear operations (power generation) and reduce the buffer inventory (raw nuclear fuel in the forward SC and the spent fuel in the backward SC), improve the sustainability, reduce the SC cost and improve the performance of the SC as a whole.

7.0 Recommendation:

Based on the critical evaluation provided for the "To-Be" SC structure of EDF, this research basically recommends some new strategies & tools/ techniques and also an improvement to the current strategy like Design strategy involved with the core technical changes to the operations, improved Green strategy and the implementation of web-integrated ERP to the functions and processes of EDF which reduces the SC costs and improves the performance of EDF & its subsidiaries and AREVA group & its subsidiaries.

8.0 Glossary:

EDF- Electricite De France

SC- Supply Chain

VMI- Vendor Managed Inventory

CPFR- Collaborative Planning, Forecasting and Replenishment

EDI- Electronic Data Interchange

ERP- Enterprise Resource Planning

c-Commerce- Collaborative Commerce

POS- Point of Sale

MRP- Material Requirements Planning

MRP II- Manufacturing Resource Planning

MOX- Mixed Oxide

REPU- Reprocessed Uranium

EPR- European Pressurised Reactor