SUPPLY CHAIN OPERATIONS MANAGEMENT SUPPLY CHAIN AVAILABILITY

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For many years companies worldwide have been developing resources, technology and people in order to improve different links within the supply chain. Although retailers, customers, manufactures and distributors are working together and sharing information about demand and products, supply chain has become more complex because of the products, locations and types of transport.

On the other hand, according to companies and organisations, supply chain is a key factor in their success (Giunipero, Handfield, Monczka, Patterson, 2009): supply chain builds and delivers cheaper, better and faster products. However,it can be said that new technology has become the best strategy within the supply chain to get the products efficiently. Set of resources and processes are one of the most important factors in sourcing of raw materials.

The report shows real data about products that are running out in supermarkets, whilst at the same time showing the reasons for the product running out. It also provides information about how the problem can be solved while customers are waiting.

The analysis in this report is not complex; it explains five products at the supermarket and compares each product with another seller. Prices, number of deliveries and lead times are important comparisons in this analysis. At the same time, it shows how the supply chain works for every product, and how it affects customers.

Finally, it offers some conclusions in terms of how supply chain and owners can work together to achieve the best behaviour of the materials and products during the process within the supply chain.

BACKGROUND

Supermarkets use several techniques to reduce the rate of stocks running out, and techniques represents results as a part of development of methodologies to improve the supply chain. They have at about 717 cases of running out stocks, in other terms 9.1% of the total cases1.

The figures for stock running out stocks reach their highest levels seasonally and for promotional products, because prices are comfortable for customers (Liaisons et Convergence SA, 2000). Demand increases rapidly in these cases, and supply chains cannot respond as fast as the fast moving markets change. ALthough supermarkets have access to resources, information and technology, most of the cases are not enough to keep high customer satisfaction.

In addition to reducing the rates of running out stocks, supermarkets and retailers make a deal in order to decrease lead times and increase the number of deliveries. However, finding a balance between cost of transportation and minimum number of deliveries is one of the biggest challenges for the supply chain.

The report presents information about five products and two different supermarkets; it also explains the main differences between them. I have chosen products that were not available at this moment, in order to compare the same products at the second supermarket.

The supermarkets are of a similar size, keeping a balance in terms of demand and the number of consumers. Products have the same characteristics and sizes in order to achieve the best comparison regarding cost, demand and number of products available.

___________________________________________________________________

1http://www.faqs.org/abstracts/Business-international/FRANCE-STUDY-ON-RUNNING-OUT-OF-STOCK-FRANCE-DISCOUNT-STORES-INTERIM-RESULTS.html

In addition to explaining it in a right way, the data collected was taken at the same time and day, and some information was taken from supermarket employees.

One of the keys for supermarkets is technolgy, using scans in order to keep a high inventory management. Although it is one of the most important tools in companies and supply chain, in some cases it is not enough to control the variation of the demand. However, it reduces stockout rates and shortages as much as people use technology in the correct way.

Suppliers deliver every day with the intention of keeping stock and control demand to a minimum, because demand becomes one of the most difficult variables to control in the supply chain. However, using tecniques and methodologies such as forescast could be one of the most helpful solutions (if not not the most important).

Locations are very important for costumers, who have the objetive of getting hold of the product as soon as possible. Although there are some variations in prices and presentations of the products, nowadays costumers are ready to pay that difference in order to get the right product at the nearest place.

As supply chain becomes complex, supermarkets have developed an important chain with the intention of controlling over 10.000 products, because all of them are important and essential for costumers. However, it depends on the product and the quantity; supply chain has to be synchronised and coordinated at all times, with all operations between suppliers, retailers, manufactures, distributors, supermarkets and costumers.

The first supermarket in this study is TESCO. I found some products that were running out, some of which are essential to customers. Usually TESCO has deliveries every day, but when they order the product it takes between 3 and 4 days to arrive, which is a long time for the end consumer. Products are filling Tesco's shelves at all times, although sometimes the lead time is variable.

The supply chain risk has become with a normal behaviour, and it contributes to make decisions in the process in different areas. Interchange of information, communication and relationship is one of the effective strategies in the supply chain. (George A. Zsidisin and Bob Ritchie, 2009). Operational and Strategic levels are important points of view in the supply chain, in order to improve the effective and efficient operations of inventory mangement, manage good finished, inofrmation, demand variability and distribution. (George A. Zsidisin and Bob Ritchie, 2009).

Supply chain received serious attention from members in different areas, the increasing profile in academic institutions, global competition and optimisation of internal production are one of the mos important techniques in operations management. (Paul D Cousins, 2006).

The importance to provide a high forecasting information with the intention of develop manufacturing technology, costumer service and costumer demand in order to reduce critical operations and processes in the supply chain management. (Suresh P. Sethi, Houmin Yan, Hanquin Zhang, 2005)

Forecasting can be used within the supply chain with important technique about information and technology in order to predict the future demand and sharing information with all members would be useful in internal operations between downstream and upstream organisations.( Rodriguez Rodriguez Raul, Poler Escoto Raul, Mula Bru Josefa, Ortiz Bas Angel, 2008).

Supply chain management has been recognise within science and independent business discipline, providing appropiate tools and techniques for supply chain managers, in order to get an optimun result for costumer, supermarkets and suppliers. (Wolf Julia, 2008).

Its important to understand that retailers and suppliers negotiate rates for shipments, these negotiations are contracts specifying the number of products that will be used, type of products and number of deliveries. (Agrawal Narendra, Smith Stephen A, 2009). In this case supply chain will be improved for supermarkets and costumers with the intention of develop relationships and reduce costs in the supply chain.

Location analysis is one of the most important factors in the operations, in order to reduces time within the supply chain. Although sotfware and tools are improving different designs, this is not one of the most important requirements with the intention of develop supply chain and reduce cost/time. (Hubner Reinhard, 2007).

Supermarkets have a high challenge with the aim of design routes and gates trying to improve the supply chain in transport, cost and time.

PRODUCTS

PRODUCTS

CHARACTERISTICS

STOCK

Ariel Excel Gel Bio

1036ml; £8.00; £7.73 per litre

0

Carlsberg 15 x 440 ml

£10.00; £1.52 per litre

0

Baked Beans

420 grams ; 54 p; £1.20 per Kg.

0

Country Life Butter

250 grams ; 90 p; £3.60 per Kg.

0

Pure Vegetable Oil

98 p 1 litre; 9.80 p per 100 litre

0

The second supermarket is ASDA; the same products have been evaluated with the same conditions as TESCO. Like TESCO, ASDA has deliveries every day, with lead time at between 3 and 4 days. However, ASDA has fewer employees shelf stacking than TESCO.

PRODUCTS

PRODUCTS

CHARACTERISTICS

STOCK

Ariel Excel Gel Bio

1036ml; £6.75; 6.52 per litre

40

Carlsberg 15 x 440 ml

£10.00; £1.52 per litre

59

Baked Beans

420 gr ; 65 p; £1.55 per Kg.

144

Country Life Butter

250 gr ; 95 p; £3.80 per Kg.

65

Pure Vegetable Oil

95 p 1 litre; 9.5 p per 100 litre

55

ACTIONS TO ENSURE THAT SHORTAGES ARE KEPT TO A MINIMUN

Supermarkets have a challenge to keep a good inventory level; they need to look after the stock for each product at all times; however this is difficult when demand increases rapidly in a short space of time. Using technology to reduce stock out and lead time in process of supply chain is not enough to control demand when it is constantly variable.

Firstly, suppliers and supermarkets share information about every single product and demand, in addition to developing the performance of suppliers that are ready to supply with a minimum lead time when they know demand behaviour.

Secondly, forecasts are very useful for keeping a normal inventory level; information about demand in different seasons and products is extremely important when want managing stock for essential consumers.

Thirdly, technology is one of the biggest strategies within the supply chain; information can be used in a real time for suppliers and supermarkets in order to help supply chain activities send customer product orders on time at the right location and in a full delivery.

Finally, the development of relationships between suppliers and customers is a relevant factor in improving process within the supply chain. However, development and training of people is an aggressive strategy in terms of satisfaction of the supply chain.

PROBLEMS IN THE SUPPLY CHAIN THAT COULD EXPLAIN SHORTAGES

One of the biggest problems of the supply chain is the bullwhip effect, in other words the oscillation in the supply chain caused by demand variation. Inventory management is another critical problem because it requires a high quality and manages to control inventory in order to develop supply chain performance (Internet Center for Managament and Business Administration, 1999 - 2007).

There are several techniques for achieving a better inventory management; however, supermarkets prefer to combine techniques and technology to improve stocks.

Another problem in the supply chain is inaccurate information2, with the purpose of finding the best order quantity that maximises profit and reduces stock and shortages. It becomes one of the highest challenges with the aim of helping relationships between supply and demand.

2. Internet Center for Managament and Business Administration, (1999 - 2007) QuickMBA.com, Supply Chain Management, Accessed 12th November 2009, (online), available: http://www.quickmba.com/ops/scm/

Supply chain becomes one of the main areas in organisations because of the impact it has on profit, average product fill rate, capacity and leadtimes. Structure is a significant and important consideration in how suppliers, distributors, retailers and manufactures work in terms of benefiting all operations within the chain. Considerations regarding structure follow:

Sharing information at all times between downstream and upstream

Coordination of activities and operations in the supply chain

Understanding demand behaviour and response regarding variability

Reducing leadtimes between slabons in the supply chain

Reducing stocks with a high level of inventory management

Using technology and equipment to minimise transport cost

Demand behaviour is one of the keys, with the intention of reduces shortages. If supermarkets know how demand increase or decrease in different periods of time, they will have an advantage and can forecast variations in different products, a way of reducing inventory and keeping a minimun stock.

ANALYSIS AND DIFERENCES:

Product Number 1:

Ariel Excel Gel Bio

 

Cost per Litre (£)

Cost per 1036 ml (£)

STOCK

TESCO

7.73

8.00

0

ASDA

6.52

6.75

40

Table 1

Graph 1

Graph 1 represents the differences between cost per litre and cost per 1036 ml. It shows that TESCO is more expensive that Asda, however, TESCO has stock out. Location is a key factor in understanding why the most expensive product is running out more quickly than the chepeast product: TESCO is in the city centre and ASDA is 4 miles from the centre, so TESCO receives more costumers in a certain time.

On the other hand, it is an essential product for customers and it is very easy shopping in a central location; this can explain the price difference of £1.21. In addition to saving money, ASDA would because costumers have to pay for transport.

Product Number 2:

Carlsberg 15 x 440 ml

 

Cost (£)

Cost per litre (£)

STOCK

TESCO

10

1.52

0

ASDA

10

1.52

59

Table 2

Graph 2

Graph 2 compares two different supermarkets with a special product; it show that prices are constant at £1.52 per litre; we can see that there is no significant variability in terms of attracting costumers. However, in this case brand is important: it does not make any difference where the product is bought. This shows a high level of makething and product recognising.

Beer is one of the most important products at the weekends: demand increases rapidly and supermarkets need enough stock in order to satisfy costumers. In other words, deliveries must arrive in the middle of the week with the aim of keep stock for a short period of time.

Product Number 3:

Baked Beans

 

Cost per 420 gr (pence)

Cost per Kg (£)

STOCK

TESCO

54.00

1.20

0

ASDA

65.00

1.55

65

Table 3

Graph 3

Graph 3 explains the differences between supermarkets with a traditional product. ASDA is more expensive than TESCO at £0.35 per kg. Although supermarkets sell the same quantity (presentation), the diference is 22.58% in terms of price.

Price could be a reason why TESCO has sold all the products; however, making deliveries every day is one solution in maintaining a minimun level of shortage.

Product Number 4:

Country Life Butter

 

Cost per 250 gr (pence)

Cost per Kg (£)

STOCK

TESCO

90.00

3.60

0

ASDA

95.00

3.80

65

Table 4

Graph 4

Graph 4 compares an important produc., We can see a small difference in prices at £0.05 per 250 gr, and 5.26% difference in cost per kg. TESCO is cheaper than ASDA which could be because of the stock.

In order to keep costumer satisfaction, supermarkets have deliveries every day, trying to control demand variability and reducing stockout rates; therefore making deals with suppliers and sharing information are two of the best strategies in terms of inventory management.

Product Number 5:

Pure Vegetable Oil

 

Cost per Litre (pence)

Cost per 100 ml (pence)

STOCK

TESCO

98.00

9.80

0

ASDA

95.00

9.50

55

Table 5

Graph 5

Graph 5 explains product behaviour in two different supermarkets: although TESCO is £0.03 per litre more expensive that ASDA, it has stockout. However, the difference is 3.06%, which is oo insignificant a diference to affect the customers.

Costumers are not always affected by small difference in prices; they prefer to pay more if it means they are able to get the products when needed. However, it depends on the product and the market, because small differences in percentage may actually be a large difference in amount of money.

Number of Deliveries per Week

PRODUCTS

Ariel Excel Gel Bio

Carlsberg 15 x 440 ml

Baked Beans

Country Life Butter

Pure Vegetable Oil

TESCO

4

3

5

5

4

ASDA

3

3

5

5

5

Table 6

Graph 6

The information in table 6 and graph 6 were taken from employees at the supermarkets, when I got information about the products. They show the number of deliveries every week for each product. We can see that products of high necessity have deliveries five times a week in order to reduce stockout rates.

Some products need to be delivered three or four times a week, in this case using a small stock between one and two days, with the intention of reducing trasportation cost and keeping a minimun inventory. However, increasing inventory cost for a one or two days would be cheaper than making four or five deliveries.

Deliveries are similiar between supermarkets in some of the products; however there are some differences. TESCO was the supermarket that had more products running out; although it has the same number of deliveries as ASDA, there were differences in stock.

One of the reasons why TESCO was running out of products could be the location; it situated in the middle of the city centre surrounded by costumers, workers and offices. TESCO will therefore have a higher rate of visitors than ASDA, which is located outside the city centre. Although sizes are similar, population around each place would be different. However, the probability of being able to find products at TESCO is higher than at ASDA; it could be on of the most important reasons why TESCO has shortages of some of the products.

Another reason for the differences between the supermarkets is that deliveries for suppliers can be easy outsite the city centre due to access and traffic. Althounh both supermarkets are important for costumers and suppliers, operations within the supply chain could be different for both of them. However, supermarkets have to find a balance between number of deliveries and the transportation cost, in order to maximise profit within the supply chain.

Number of Days of Lead time

PRODUCTS

Ariel Excel Gel Bio

Carlsberg 15 x 440 ml

Baked Beans

Country Life Butter

Pure Vegetable Oil

TESCO

3

2

2

2

2

ASDA

3

2

1

1

2

Table 7

In order to compare the number of days of lead times, table 7 and graph 7 show the number of days between supermarkets and products. This information was taken from employees at each supermarket.

Graph 7

Graph 7 explains that three of five products have the same lead time, but in two of them we can see that there is a small difference. Althoungh the diference is not important for customers, it could be a significant problem for supermarkets within the supply chain.

In this case, the difference is one day, but supermarkets can be lose a significant number of costumers and money in 24 hours without stock. However, trying to supply it in a short timecan be a challenge in the supply chain due to the need to develop all operations and activities related with information flow.

CONCLUSIONS

The analysis of this report must consider different points of view in order to compare and conclude information between supermarkets.

Supermarkets have to develop a complex supply chain because of the number of products and number of deliveries.

It is important to consider demand variability, one of the keys in order to reduces stockout rates and shortages.

The supermarkets are similiar about sizes and deliveries but have differences between number of products in stock and number of products that are running out; this could be because of location of the supermarkets.

Using technology is one of the common strategies in the supply chain for these stores, but is not the most important solution if they want to develop the supply chain.

Coordination and synchronisation are the succesful key to improving and developing all the operations within the supply chain.

Delivering to a city centre store tends to be more difficult than delivering outsite the city centre; however, supermarkets in the city centre tend to attract more costumers because ofother nearby businesses and retailers. .

Making deals between suppliers and supermarkets with the intention of sharing information about products and demand tends to be one of the most significant solutions in order to reduce lead times and stocksouts

As well as executing correct operations, the supply chain tends to be more efficient with the aim of reducing prices and making a high level of profit.

It is more expensive to supply when products are running out and in that way it costs more for supermarkets and suppliers. Prices therefore increase, because of the extra operations within the supply chain.

Lead times are essential in order to keep a good and minimum inventory level, but at the same time could be inefficient because of demand increasing rapidly - time response cannot be short.

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