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For any business which has a mass production unit, it is very important to look into the logistics system. Logistics can be defined as the movement of the goods produced from the customer's order to the final consumption. It involves factors such as:
Implementation and controlling of the plan
Cost effective flow of materials or services
The logistics are not restricted to the shipping of goods only. The whole process includes, getting the order right, with the right materials to produce it, producing the right product, packaging and labeling, and finally transporting the end product to the right place from where the customer could buy it (Voortman, 2004).
The Supply Chain
Supply chain can be defined as the subsector of logistic in which logistics is extended over several continents and includes suppliers as well customers in those areas (Rushton and Walker, 2007). Supply chain management is an important factor contributing towards smooth processing of operations in an organization. Supply chain is a combined effort of all those companies which help transportation of a product from the producer to the ultimate consumer. Activities involved in supply chain are manufacturing, production, outsourcing, MIS and logistics. Thus, it is important that supply chain tasks are managed properly and in a way that ensure reduction in cost and lead time. It is also a consideration for every company that their supply chain management is cost effective and resourceful (Trappey, 2007).
Supply chain management is a management of delivering goods to the customer by providing value along with sustaining the competitive edge in the market (Mentzer, et al 2001). Processes involved in supply chain play their role in reducing inventory cost and time involved in transporting inventory from one place to another and the value added to the product. Activities involved in supply chain management are related to product, finances and information. Process flow of supply chain involves product, finance and information flow of the products or services of a company completing its supply chain (Cavinato, Flynn and Kauffman, 2006).
Supply chain management practices are employed by all the businesses at certain level whether operating domestically or internationally. But for companies operating at international level, it is far more important to have a well managed and stable supply chain system in order to ensure that the product is made available to the customer without compromising on its competitive advantage.
Kellogg's Supply Chain Management
In this assignment Kellogg's, a massive production company which has a sound standing in the market will be considered and its logistics system with reforms of the E-business would be analyzed, so it can be identified that what changes has the company acquired since internet business has become a norm in the society.
To analyze any company it is vital to know what are the strengths and weaknesses it possesses. Kellogg's is one of the leading companies in providing food items (especially breakfast items and convenience food) to its customers located worldwide. The company was established in 1906 in USA and since now it's been following the philosophy of improved diet and improved health and has become leading cereal manufacturer in the world. It is serving its customers not only at national level, but has been able to successfully establish a worldwide network globally. Since 1938 Kellogg's has opened manufacturing plants in United Kingdom, Australia, Canada, and Asia. Kellogg's' products are now manufactured in 18 countries and are sold in about 160 countries. It produces about 40 different types of cereals and snacks including Kellogg's Corn Flakes, Rice Krispies, Special K, Fruit n' Fibre, as well as the Nutri-Grain cereal bars (TDG, 2002).
The Supply Chain
To ensure that the products manufactured at Kellogg's are made available to its ultimate consumers, a supply chain management system is being followed. The effort made towards supply chain has created more customers for the business from all around the world (Ferrari, 2011).
The Industrial Sector
Supply chain involves a chain of all the activities from product development to delivering the final product to the customer. Kellogg's has been following a socially responsible stance at all levels of the supply chain. At Kellogg's there are certain processes that are undertaken in its supply chain management system and these activities make sure that product manufactured is made available to its ultimate consumer (TDG, 2002).
The supply chain has been divided into three sectors by the industry:
Primary Sector: This is where the raw material is provided to the company from around the world.
Secondary Sector: This is where the products are made using the raw material supplied and shipped to wholesalers or stored in warehouses.
Tertiary Sector: This is a service sector that companies in the secondary sectors use to optimize or benefit business processes.
Different departments and functions are coordinating throughout the supply chain system e.g. purchasing, research, quality check, sales, transportation and distribution etc.
It is part of the business strategy of any business to consider that how they would get raw material form the best available source and how that raw material would be used to manufacture a product. As Kellogg's is involved in food items business, it falls under the category of secondary sector. It is important for the company to get best available material and make sure that the product is of standard quality. Much more care is required in maintaining supply chain for food items business and it is necessary that products are stored and transported effectively without causing any loss to the quality of the product (Barry, 2002).
The Process Flows
Kellogg's possesses an organized and well equipped transportation and storage system to ensure the products do not spoil and reach customer in fine quality. They follow the Lean Production system to streamline processes and eliminate waste. Kellogg Planning System (KPS), a large-scale linear program, is used for operations, production, inventory and distribution system (YouSigma, 2008). It helps the company in optimizing production and inventory costs and budgeting.
The processes the company considers important in its supply chain are:
Size and Scale
Cost Control at Kellogg's
The company has made efforts in terms of creating production plants near to either the suppliers of raw materials or distributors of finished goods. In terms of cost control, Kellogg's has organized its transportation by collaborating with a logistic company to reduce distribution costs. The creation of production base near the suppliers and distributor has enabled the company of sufficient cost control over the supply chain.
The company is also having well established storage places to maintain quality of raw material. An organized transportation and storage system has lead to reduction in costs borne by Kellogg. However, cost control efforts can continue for the company if some target spots are made where the company has chance to reduce more (Wang, 2008). The raw material Kellogg's acquire is from around the world. If it focuses on the nearby areas where the ingredients can be bought at lower costs this will in turn effect on the supply side of the company. The nearby countries of the production base of Kellogg's can also be considered in this regard (Jung and Hwan-Yann, 2009).
Secondly Kellogg's requires adequate space for production, storage of incoming material and outgoing goods and also for the equipment of production process. It has already shared the distribution services with other companies to reduce costs, the excess storage and labor waste can also help optimize costs for the company. The company has established warehouses near the production base to reduce the miles covered in terms of supplying and delivering. By considering the mobile storage warehouses the delivery costs can further be reduced since the storage will be near the production facility (Barry, 2010).
Kellogg's also has a lean inventory system of Just-in-Time which allows the right amount of stock to be available for delivery. Just-in-time inventory management reduces the stock waste and provides an efficient inventory management system. This directly affects the cost of the company in terms of cost reductions by limited stock keeping.
Supply chain also contributes towards reduction of lead time involved in keeping an inventory. Lead time is the time gap between placement of an order by the customer and the time when it is received. A reduction in lead time leads to decrease in the inventory level required to be kept for meeting customer's needs (Arrand, 2007).
Reduced lead time plays an important role in reducing inventory level and improving customer services (Jung and Hwan-Yann, 2009). Moreover, lead time also helps to increase productivity and improve efficiency. Businesses keep inventory level high to meet uncertain and quick demands of its customers but keeping high inventory is always costly for them. Lead time is aimed to be reduced by Kellogg's in order to meet the uncertain demands of its customers along with controlling the excessive costs.
The process involved in Kellogg's supply chain has a positive impact on decreasing the time wasted in the activities of supply chain. It is done through managing the cycle time by minimizing the time involved in manufacturing the product and making it available to the customer (Barry, 2010).
Cycle time is the time taken for completion of any operation and it can be reduced by implementing Just-in-time technique or any other quality control measures. As Kellogg's is catering to the needs of its customers located around the world, it is necessary to implement such systems that ensure rapid availability of the product without wastage of time (Barry 2010). Processes involved in supply chain prevent wastage of time hence leaving a significant impact on quality of goods, customers' feedback, and cost of assets and low inventory costs.
Limited time leads to reduction in administrative and processing costs and increases productivity by keeping the quality of product high. Reduction in time wasted also leads to more flexible supply chain processes and reduces costs involved. It is also important to ensure that a delivery is not made only to serve a few customers resulting in high distribution costs (Wang, 2008). However, there is an opportunity to reduce the lead times of the supply chain by focusing on the mobile storage services.
Value Addition in the Supply Chain
The usage of KPS systems at Kellogg's has ensured time reduction in terms of planning, budgeting and communication. With the speed of information, the company is able to predict demand and supply according to the needs and is thus adding value to its overall supply chain (Barry, 2010). The collaboration with firms like TDG and Kimberly Clark for logistics and FDF for environmental performance has helped the company build relationships to value the end consumer.
Wastage can be identified in supply chain by implementing lean production method of inventory control as this system enables smooth processing and eliminates waste (Trappey, 2007). At Kellogg's, production methods are regularly monitored to ensure whether desired outcomes are attained and whether wastage is reduced or not. This further adds value as these factors are helping Kellogg's to sustain its competitive advantage in the domestic and international market.
Opportunities for Kellogg's
Supply chain plays its role in reducing this gap and makes the product available to the customer within minimum time (Wang, 2008). Supply chain activities employ such techniques and methods that ensure rapid transportation of goods to the customers and making it easy for customers to get the desired product. Implementation of MPs system in supply chain has made it more effective to reduce the lead time by anticipating the demands of the customers and keeping track of the changing trends in customers purchasing patterns (Jung and Hwan-Yann, 2009).
By keeping in view all the points discussed above, it can be inferred that Kellogg's has gained substantial growth and market share both domestically and internationally only by employing a sound supply chain management system. Without having supply chain, it was impossible to make clientele worldwide and become a market leader. However, there are opportunities for the company through which it can further add value to its supply chain resulting in reduced costs and lead times (Wang, 2008).
Starting from the supplier end, as the company has collaborated with other companies for its raw materials, which can be in the same vicinity or in another country. The company can look for raw materials in the nearby vicinity of the production base to reduce the material cost which will affect the lead time of supplying of raw materials.
Secondly using mobile storage warehouses can help them base the inventory closer to the production facility and ready to be delivered, saving time and cost in the overall delivery process.
Focusing on the transportation time, faster LTL (less-than-truckload) transits will carry less safety stock, improving the just-in-time system while cutting warehousing costs. The inventory stored will be suitable for rush replenishment orders (Steele, 2010).
Labor-intensive situations all delay the supply and effect the overall lead time. Off-loading the follow up to the carrier process will help quick carrying of activities in the logistics department (Steele, 2010).
There is an increasing shift from the conventional ways in which businesses operated towards the 'e-business' models due to the efficiency and flexibility they have to offer in today's volatile and dynamic markets. E-business models encompass all the processes of the value chain; purchasing, supply chain, order processing and customer service (Trappey, 2007). The e-business particularly allows the businesses to build close ties with suppliers and partners for proactive supply chain management, as this affects the company performance.
E-business is a phenomenon which was not in practice just a decade but now every organization seeks to develop internet based operating tools in order to conform to its business strategies (Whang, 2001). Now organizations develop online systems to perform their business operations including better customer relationship management, supply chain management and main operations of the business. E-business not only enables an organization to perform better with business but also enables its customers to get services and interact with the company from their homes. E-business also helps an organization to sustain its position in the market and cope up with the threat of new entrants in the market (Johnson and Whang, 2002). As technology is evolving rapidly nowadays, there is no way other than establishing e-business facilities to increase market share and strengthen customer base (Eddington 2008).
E- Business model facilitates an organization to maximize its value in the market by using modern technology. To implement an E-business plan effectively, it is far much important to develop a strategic plan as to how e-business activities would be conducted and how business would work on internet (Johnson and Whang, 2002). As sophisticated technology and professional expertise is required for developing an e-business model, it is important to have a viable framework for the whole procedure and it is put into real practice (Eddington 2008). Virtual establishment of business enables an organization to optimize demand forecast, process orders properly and manage distribution channels and make decisions accordingly.
E-business model for Kellogg's' supply chain:
Supply chain management is one of the most important areas the e-business model aims to integrate and put in to practice via internet technology. But at the same time, supply chain is one of the challenging aspects an organization faces while planning to move for e-business. Supply Chain Management (SCM) functions include prediction of demand, procurement, warehousing, inventory management, and distribution management and better customer services (Leon-Pena 2008).
Integrating the Supply Chain
Kellogg's uses the KPS system to plan and budget production, inventory and distribution of its products. For any company to integrate its supply chain management system, enterprise resource planning (ERP) solutions are required. These are logical systems that integrate the entire process of the supply chain in order to systemize the processes for efficient results. The KPS system at Kellogg's serves the purpose of streamlined integration of the processes through an ERP solution (YouSigma, 2008).
Inter-firm communication through advanced technology speeds up the process of information transfer and adds value to the supply chain and the stakeholders of the company (Johnson, 2002). The integration level can be taken to a further level by integrating the suppliers, distributors and consumers as well. For Kellogg's with its KPS system it can accelerate to a level of E-business by integrating its suppliers and distributors (Lee and Han, 2009).
The E-Business Idea
Kellogg's' being a leading company in production of food items and serving its customers worldwide requires an e-business model to integrate its supply chain management functions for optimal value in the market. A new business model, including the E-feature, for Kellogg's would enable the company to be in close coordination with its suppliers, distributors and customers. These functions will be aligned with the business strategy of the company and ensure global growth while sustaining its competitive edge in the market (Blanchard, 2007).
The e-business model applicable at Kellogg's would include emphases on three main areas (Lee and Whang 2002):
The E-business Model
All these three areas would be addressed in an e-business model developed for supply chain management system of Kellogg's.
The e-procurement deals with purchase of goods and supplying through an integrating online system. This will be a portal to search for relevant suppliers and distributors of raw materials for the company. Kellogg may convert its procurement function on internet and get the required goods at best possible price and of desired quality. Special offers can be made to suppliers like volume discounts and transactions can be done online. This will shorten the production cycle of the company as raw material gathering will be quicker (Johnson and Whang, 2002). Online procurement system would help Kellogg to acquire quality material available from suppliers and track such suppliers who provide quality goods. It would facilitate Kellogg's to find suppliers and customers online by using a common channel and perform transaction on internet.
Kellogg may adopt one of the three strategies devised by (Lee, Peleg and Hausman, 2002) for its online procurement function.
Firstly, Strategic partnership would help to create a long term relationships with its suppliers.
Second is Online search strategy following which Kellogg would have to track suppliers online and get the suitable price.
The last one combines first two strategies and Kellogg may enter into a long term contract with a supplier but can buy stock from other suppliers if required.
This can be integrated with the local ERP operating at the company in order to make purchase orders automatically tracked and stored in the system (Chopra and Jan, 2000). The accounting processes will be automatically updated as well and the company can keep track of shipments while communicating with the suppliers online.
As the procurement process is carried out the materials are acquired and transferred into production. The production process will be connected to the E-Logistic module, the capability of which will be to communicate with the distributors (Lee and Han, 2009). As the inventory is ready to be shipped, it is transferred to the warehouse from where it goes to the retail markets or wholesalers. The logistics involved in this process can be integrated with the local system of the company so that lead time in overall delivery of the product reduces.
As the product is in the finishing stage, the distributors will be informed about the time of carrying the inventory to its destination. Payment transactions can be done online according to the policies implemented by both parties which will be updated in the accounting system of the company. This will optimize the overall process of delivery and in turn effect on the reduced cost overheads of the company (Johnson and Whang, 2002). Moreover, this module will also allow the company to interact with new distributors creating partnerships as the company conventionally does.
Third element of e-business model is e-collaboration which implies a relationship between businesses based not only on sale and purchase but on sharing information, processes, resources and decisions. This sharing of knowledge by Kellogg's with its suppliers, distributors and customers might help it to create new ideas for its business and introduce strategic planning for better services. In a research by (Johnson, 2002) it was pointed out that internet based information sharing helps businesses to introduce innovative ideas for their business. Keeping in view this point, this model may help Kellogg to make new designs for its products and introduce new products.
Collaboration can be based on three levels; inter-firm, suppliers and distributors and customers. The inter-firm level requires the coordinating within the company, the KPS system used by Kellogg's already does that. However, coordination with suppliers and distributors can be regulated within the company where required. The end customers i.e. the wholesalers and the retailers will have a chance to cooperate with the company's policies and pertain to their standard of selling products (Blanchard, 2007). This will add substantial value to the overall supply chain system.
One of the functions that e-business supply chain may perform for Kellogg's includes providing information to the customers about products offered by the company (Chopra and Jan, 2000). It also provides information about prices of the products, helps customers in placing orders and company to track these orders and manage payment issues.
E-commerce will help the company to track the demands of its customers located worldwide and make arrangements to meet their changing demand. It will also facilitate online sale and purchase and enable Kellogg's to serve its customers located in different regions and sustain its customer base (Johnson and Whang, 2002). Implication of e-commerce in Kellogg's supply chain would help the company to do its business online and conduct all operations over internet.
All the operations from sale and payment to the end customer would be done on internet. E-commerce would facilitate Kellogg's to get orders online, receive payments via internet and better serve its customers. Moreover research shows that e-commerce can help attract more customers by reducing price level as compared to the products available on physical outlets (Brynjolfsson and Smith 2000). Same can be done by Kellogg's in order to expand its customers and get more share of the market. Supply chain functions being done through internet would help Kellogg's to introduce such programs of low prices and attract more customers.
Impact of the Proposed E-Business
In laying out the e-business model for Kellogg's the main focus apart from integrating the whole value chain was also on efficient consumer and partner relationship management (Andrews, 2008). The partners in this case are the suppliers and distributors for Kellogg's. The e-business model will enhance the partnership strategy for the company which will add value to the elements of supply chain.
The e-collaboration module will enable the company to have an orientation towards the need of partners and consumers. Similarly, e-commerce will provide the company with an opportunity to interact with customers directly creating options for innovation (Seifert, 2003). On the supply side, cooperation between the suppliers, distributors and the company will result in optimal supply chain management. On the demand side, the retailers and wholesalers can exchange substantial market information to achieve the desired level of sale results.
Cost savings of the company will also be affecting in terms of optimized logistic efforts (Steele, 2010). As Kellogg's already shares the logistic expenditures with other companies like TDG and Kimberly Clark, the online collaboration will affect the overall relative cost.
Evaluating the business through the CPFR strategy
Collaborative, Planning, Forecasting and Replenishment or CPFR is an evolution to the concepts of efficient consumer relationship strategy (Diederichs, 2009). The essence of this concept is to improve the overall relationships of the producers and the retailers. The opportunities created by the internet and business to business marketing paved way for the CPFR.
The planning and forecasting components of this practice require information exchange not only at the logistic level but extend towards sales, marketing and finance planning (Seifert, 2003). It is a tool for comprehensive value chain management of an organization. Collaborative relationships that the E-business model portrays will recognize operational and financial efficiency in the longer run. The CPFR practice requires the manufacturers, distributors and retailers work together.
As the company will be working in close coordination with the strategic partners, the information sharing will be essential in this regard. The company is already collecting sufficient market information for its planning and budgeting. The collaboration with the partners will add value to the information sharing if the exchange is at both ends (Andrews, 2008).
The distributors and suppliers for Kellogg's can share substantial information regarding raw material information, inventory storage strategies and shortest routes to destinations in real time over the internet. Similarly the retailers can collect market intelligence on the products and share it with the company. This will allow the company to plan inventory and production in a cost efficient way (Seifert, 2003). Sharing market forecast online will enable Kellogg's to generate replenishments quickly.
Both the company and the strategic partners can agree on policies of sharing the sort of information that is beneficial to both. Through online communication they can set measures to calculate service levels and stock outs. Joint business processes can be designed to achieve sales objectives, reduce costs and improve the transaction mechanisms (Andrews, 2008).
Measuring Supply Chain
The supply chain management shall be aligned in four broad categories (Diederichs, 2009):
Competitive strategy: the strategies designed in collaboration with the partners of the company will attain competitive benefits for the company
Costs and benefits of information sharing: Sharing of information across the supply chain will allow the company to reduce costs in many aspects of the chain. This will also affect the lead times across the chain.
Managing product variety: exchange of information with retailers will allow the company to manage the production and inventory levels according to the demands of customers while managing the accountings as well.
The economics and logistics of network location and optimization: through the e-logistic and e-collaboration the company will identify correct timings of distributions matched with the product demands. The online processing will also enable them to have a surveillance of the product from manufacturing, to distribution to delivery (Diederichs, 2009).
The supply chain can also be measured in terms of performance metrics of inventory, time and response. The performance metric of inventory will help the company measure the total value of inventory in the supply chain with respect to demand (Seifert, 2010). Time will measure the time it takes for the supply chain to fill a demand or the time to process and ship order from any end of the supply chain. The third metric can be used to calculate the supply chain cycle time. The time dimension of performance will enable the company to have a picture of the response time the product takes from reaching the facility of production to the end customer. The online business model can enable the company to fill in all these metrics and make efficient supply chain integration (Andrews, 2008).
Newly developed e-business model with e-commerce application for Kellogg's would transfer whole supply chain management function on internet. Keeping in view the elements of e-business model for Kellogg's supply chain management, it can be inferred that this model would help the company to keep track of its customers demand. It is indeed a viable option for Kellogg's to implement this model because its supply chain activities would be on internet making it possible for the company to interact with the associated stakeholders and the end consumers. Moreover, the model completely addresses the problem of changes in customer demands and how the services provided by Kellogg's would get better by adopting this model.