The supply chain in beverage manufacturing


2.0 Introduction

In this chapter, the study will discuss about the previous chapter which is focus on the supply chain in beverage manufacturing. At first, this chapter will reviewing and discusses about the previous literature and overview definition of supply chain and supply chain management. Besides that, this chapter will also discuss the problem of supply chain, the flexibility of supply chain, effective ways to improve supply chain, and size and each stage of supply chain.

2.1 Overview and Definition of Supply Chain and Supply Chain Management

Supply chain management is a critical weapon for every organization to implement their business effectively. Firm are needed all related entities in supply chain to help in implementing firm's supply chain. According to Lummus and Vokurka (1999), firm are unable to longer compete in isolation of their supplier and entities in supply chain. Since from 1980s till now, the interest and the importance of the concept of collaboration relationship in supply chain already increasing stable among the firms. There are some different between supply chain and supply chain management it will be discuss on later.

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Besides that, supply chain defined by Christopher (1994) as a network which is involve upstream and downstream is produce value-added product and service to ultimate customer. An example of supply chain seems like below:






Flow of good

Flow of information and fund

Figure 1: The Basic Supply Chain

Source: Chopra and Meindl (2001)

According to Lummus and Vokurka (1999), there has various definition of supply chain has been defined by the APICS Dictionary as:

"The processes from the initial raw material to the finished product linking across supplier-user companies and the function inside and outside a company that enables the value chain to produce products and provide services to the customers".

The supply chain involve four basic stages, there are plan, source, make, and deliver. From these four stages, it clearly defined those efforts which are planning and managing of supply and demand, the use of raw material, produce and assembly part of products, warehousing and logistic for delivery (Quinn, 1997).

However, supply chain management has different meaning with supply chain. Supply chain is a process involves all the activities of entities. Nonetheless, supply chain management is a management part in coordinate and integrates activities in supply chain.

According to Sheikh (2003), supply chain management is defined as the planning, design and controlling of the flow of information, materials or resources and financial flow among the supply chain in order to meet customer requirements in efficient manner.

Another definition of supply chain management defined by Chopra and Meindl (2001) is supply chain is a management of flow between or among each stage of the supply chain to achieve the profitability of firm.

From the definition on above, supply chain is totally different meaning with the supply o chain management. Supply chain is a process or network of organization which is involve plan, source, make, delivery to produce a product or service to ultimate consumption customer. However, supply chain management is using a management philosophy which involves planning, design, and control of the activities in supply chain.

Furthermore, there are some misunderstandings about the supply chain management. According to Lummus and Vokurka (1999), supply chain management is not the concept management such like below:

Inventory Management

Logistic Management

Supplier Partnerships

Driven from the Supply Side

A Shipping Strategy

Distribution Management

The Logistic Pipeline

Procurement Management

A Computer System

Meanwhile, the misunderstanding affecting the operation of supply chain, until the growth of entirety supply chain has been slow. There are several reasons why the supply chain growing slowly (Lummus and Vokurka, 1999):

Lack of guideline for creating league or union with supply chain partner, such as supplier and dealer.

Failed in develop measure to monitor leagues or unions.

Inability to expand the supply chain vision beyond procurement or product distribution to accomplish large business process.

Lack of trust among internal and external of company

Organizational obstacles or disturbance to the concept.

Lack of buy in to top manager.

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Lack of completed information system and electronic commerce linking firms.

2.2 The Problem of Supply Chain

Logistic problem in supply chain already become a common phenomenon to the firm, especially from the time to time in inbound logistic flow. It makes the manufacturers difficult to manage the supply chain adequately. This is because the manufacturers are dependence upon on the inter-relationship entities in supply chain. Inbound logistics have an inter-relationship with outbound logistic. If occurs the delays of time in inbound logistics, then it will occurs the time disturbance in outbound logistic flow. For example, manufacturers who suffer from obstacle in inbound logistic, it will lead suffer from obstacle in outbound logistic to customers. (Svensson, 2001)

Uncertainty environment is such of the problem in supply chain. According to Stevenson and Spring (2007), an uncertainty in supply chain is regarding the dependability and trustfully of supplier, quality of products, and actions of competitors. The key source of uncertainty is related to quantities, timing, and specification of customer demand. In the key source, uncertainty in quantities is referring to the shortage of products or stock quantities. Manufacturers will need to make sure the stocks are not in a situation of out of stock. Besides that, timing is regarding to the time of manufacturing, assembly, and delivery. The uncertainty of timing is late delivery, delay in setup time. The uncertainty of specification of customer demand is regarding to the poor shape, pattern, color or other requirement on the product. We agree with Van der Vorst and Beulens (2002), uncertainty will lead an inefficient processing and non-value added activities in supply chain network. Due to this, there are several source of supply chain uncertainty can be identified by Van der and Beulens (2002) as below:

Inherent Characteristics

Characteristic Features of Chain

Exogenous Phenomena

Lastly, another problem in supply chain is disturbance of material and components. The disturbance of material and problem can kindly categorize into qualitative and quantitative. The qualitative of disturbance are the cause lead deficiencies of component and material in supply chain. For example such like poor quality product, defect in product, measurement error in component. Besides that, quantitative disturbance are the lack of materials and components at downstream activities in supply chain. (Svensson, 2001).

All of this problem in supply chain will lead inefficiency in supply chain. To solve the problems, we identify some effective ways to improve the supply chain. Next section of this study will discuss the effective ways to improve supply chain. Previously on the discussion of effective ways to improve supply chain, we will need to identify the flexibility of supply chain.

2.3 The Flexibility in Supply Chain

Flexibility can be defined by Stevenson and Spring (2007) as in term of range, mobility, and uniformity. There are several flexibility dimension are use in measure the flexibility in supply chain.

2.3.1 Flexibility Dimension

The flexibility dimensions are such as robustness, re-configuration, relationship, logistic, organizational, and inter-organizational can be use in measurement of supply chain of manufacturing industries (Stevenson and Spring, 2007).


The existing of supply chain structure is able to compete in the market while the range of market changes. The range of market change involves demand of customer and supply to customer, new competitors and other. The firm should have a strong and stable supply chain in compete with other competitor.


Firms potential to restructure, reengineering, re-align the structure of supply chain while the market change. They will do some alteration to match with the market change. Re-configuration strategies need to taken by all entities in supply chain, such as supplier, dealer, customer, manager, and all the workers. It involves the entire worker in supply chain upstream and downstream.


Firm is ability to build up collaborative relationship in development of new product, process, and logistic flow. The collaborative relationship involves both entities of upstream and downstream. Many firms overcome the increase complexity and limitation of technology in producing products dependence upon on the partnership relationship with the supplier (Aghazadeh, 2004)


In the logistic flow, firm ability and potential in the delivery of products cost effectively as the market change. The firm avoids the disturbance of logistic flow to achieve satisfaction of customer in market. According to Aghazadeh (2004), firm commitment on build up and developing the internal structure of supply chain bases to support the logistic manufacturing.

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Firm ability to re-align and re-distribute skill, tool, and equipment to meet the currently need and demand of supply chain.


The rapidly changing of market will make the change in information system. Firm is ability to distribute information system with existing entities supply chain to meet the changing information.

2.4 Effective Ways to Improve Supply Chain

Previously review on the problem, it cause the inefficient of supply chain in beverage manufacturing. The ways to solve the problem is firm need to identify the most effective ways to improve the supply chain in beverage manufacturing industry. There are various effective ways to help in improve the supply chain in manufacturing industry. At first, identify the most familiar problem in supply chain and suit the remedy to the case.

As we know, the most familiar problem in supply chain is logistic flow problem. A poor logistic flow will influence the operation of supply chain in beverage manufacturing. Based on this problem, the effective way to solve the problem and improve supply chain is improve logistic operation in supply chain. Manufacturers or firms can choose some new distribution way or system to improve their poor supply chain. According to Aghazadeh (2004), as logistic planning, "it is impossible to establish a new logistic system that can be used successfully without modification".

The new system for logistic can categorized into two ways. The first is the value-added distribution. The value-added distribution system is a strategy used to increase the flexibility and virtue management, improve the delivery time to market, reduce any complexity in logistics management. Value-added system helps in material planning, purchasing, warehousing and logistics activities. VAD program provides the improvement in supply chain performance. The VAD program involves the concept of pull manufacturing, with distributor-staffed, on-site service and delivery of component. (Aghazadeh, 2004)

According to Aghazadeh (2004), the continuous replenishment system has been used by food retail industry- Wal-Mart to improve their logistic operation. Now, the system is trying to introduce to the food industry. In this system, the electronic data interchange (EDI) is using into their continuous replenishment system. The purposely is to help manufacturers easily deal with their suppliers through computer. This system involves the concept of Just-In-time. It can help manufacturers to save the cost, time.

Furthermore, another effective ways to solve the problem and improve supply chain operation is outsourcing. Nowadays, many manufacturing industries have been increase the outsourcing of internal and external activities in their firms. Many internal activities of firm are dependence upon on external provider. This is because the firm may participate in various development of product and depend upon on different type of technologies help in build up the complexity of product (Svensson, 2001). Outsourcing is help to make sure the product can delivery as the time promise to customer or buyers.

In addition, the problem of uncertainty and disturbance on materials and components in supply chain need the effective ways to improve it. The effective ways to improve is redesign strategies. There have three dimension and characteristics of redesigned supply chain processes. There are work redesign characteristics, information characteristics, and authority redesign characteristics. In the work redesign characteristics; there are several important characteristics such as (Hewitt, 1994):

Widened team based on activity-set-overall.

Flexibility and responsiveness requirement drive work practice design.

Feedback loops drive variable activity in mass customizes approach.

Besides that, the characteristics involve into information redesign characteristics are (Hewitt, 1994):

New combination of data support new work ways.

Concurrent rather than sequential decision support is the basic norm.

Information is a corporate asset.

Furthermore, the authority redesign characteristics are involving the characteristics seem like below (Hewitt, 1994):

Customer focused decision making prevail.

Corporate objectives drive reward system.

Front line is locus of empowerment.

2.5 Size and Each Stage of Supply Chain

The size of company will get a big influence to supply chain. It will influence the firm's strategies behavior. According to Garcia Perez, Angeles Sanfiel Fumero, and Rodriguez (2006), large companies will account for effective part to market share. Meanwhile, the small and medium size company whose products are mainly sold in local markets. The small and medium-sized companies have a best deficiencies in resource if compare with the large organizational. However, small and medium-sized companies poor and weak into the positioning of their products in the market. In addition, large companies aim to achieve a strong and robustness structure by mainly involve the merger or participation in or with other companies (Garcia Perez, Angeles Sanfiel Fumero, & Rodriguez, 2006)

Besides that, each stage of supply chain also playing an important role in supply chain. The supply chain basically have four stages, there are planning, source, production, and delivery. At the first stage of supply chain- planning, manufacturers will used the forecast method such as moving average and simple exponential smoothing to measure the demand of customer and source (Chae, 2009). Besides that, manufacturers also panning the cycle time in weekly, and monthly.

At the stage of source, manufacturers are starting to choose and order the raw material. The elements need to consider by manufacturers are vendor lead time, vendor fill rate, auto purchasing order rate, and material quality. For the material and source planning, manufacturers need to receive an accuracy information of purchasing, such as quantity of material need in production, due date of receive the source. Nowadays, many manufacturers are using the material requirement planning system (MRP) into make sure the bill of material needed by next stage- production (Chae, 2009).

In the stage of production, manufacturers must achieve the on time production for the better performance in supply chain. Besides that, there are two methods used by manufacturers in their production stage. The on time departure from manufacturing and order fill rates are use in the production stage in supply chain (Chae, 2009).

The last stage of supply chain is delivery. It is important to fast delivery to buyers. According to Chae (2009), the fast and reliable product delivery is important for customer satisfaction. Companies must figure out the actual time of arrival and estimate time of arrival. This is because they need to figure out the time while using different transportation and make sure it can on time deliver to buyers or customers.