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In the dynamic market of smart phone competition, companies need to establish a responsive supply chain to adapt with the changing environment and Motorola is not an exception. As they introduce their innovative Droid 2 to Vietnamese market, Motorola looks for suitable solutions to strengthen their competitive supply chain, especially in this country. Through the overview of Motorola's internal and external aspects in dynamic Vietnam logistics environment, this paper exams the difficulties the enterprise's supply chain is facing and proposed three possible solutions in logistics and supply chain perspectives.
The strength of Motorola lies in their experience, technology, and competency in managing electronics supply chain in different countries. Although outsourcing non-core business such as transportation may cause the enterprise to lose control on the activity, yet it also enables them to focus more in their core operations. Thus, the supply chain is more adaptive to the dynamic Vietnamese logistics environment, where the transportation and information infrastructures are under-developed. They lead to five major issues for Motorola supply chain mentioned in this paper: holding high level of inventory, low lead time, inaccurate demand forecast, timeliness, and inventory condition.
To solve the suggested issues, the paper proposes three logistics strategy for Motorola: transportation-based third party logistics (3PL), collaborative planning, forecasting and replenishment (CPFR), and using radio frequency identification (RFID). Transportation-based 3PL is expected to solve the transportation difficulties for Motorola, as well as ensuring in-transit stock quality and timeliness. CPFR enhances the collaboration between trading partners to improve forecasting, reducing lead time and decreasing the risks of overstock and stock-out. Lastly, RFID supports inventory visibility, leading to accurate inventory management and replenishment. Among the three strategies, CPFR is the most suitable for Motorola to adapt due to the advantages of collaborating, planning, and forecasting. Thus, lead time will be reduced and inventory is better managed, the burden will be shared by many firms in the supply chain, and customers will be served better.
Adapting CPFR, in the first quarter of 2010, Motorola is expected to reduce forecast error to 2%, lead time to 5 days and stock-out rate to 2.5%. Although CPFR is expensive and raises risks of sharing information, the benefits of accurate forecast, shorter lead time, better managing inventory, and above all better customer services will be critical for the successful launch of Droid 2 into Vietnam.
CHANNEL OF DISTRIBUTION FOR THE SUPPLY CHAIN FOR MOTOROLA
Apparition Game Tech (software and USB pads)
Indonesia supplier (components)
China supplier (components)
Mobile phone stores
Mobile phone single stores
Mobile phone store chain warehouses
Mobile phone stores
Mobile phone single stores
Mobile phone store chain warehouses
Motorola Malaysia (manufacturing and assembling)
Motorola Hanoi distribution centers
Motorola HCMC distribution center
Packaging, labeling, and manual printing provider
Research and Analysis:
From China and Indonesia suppliers, 60% of components will be shipped to Motorola factory in Malaysia by air. Apparition Game Tech (AGT) will ship the USB game pads to the Malaysia plant to install with the phones. AGT will also supply the software to Motorola Malaysia plant to install into the phones.
In Motorola Malaysia factory, they will produce 40% of critical components of Droid 2. The mobile phones will be assembled in this factory with software installed. Then the phones will be temporarily packed.
Droid 2 will be shipped to Hanoi and Ho Chi Minh City distribution centers. The packaging, labelling, and printing provider will deliver the packages and Vietnamese language user manuals to the distribution centres, where the final packaging will be processed.
From the distribution centers, Droid 2 will be delivered to retailers, including mobile phone store chains' warehouses, single mobile stores, electronics stores, department stores, and camera stores carrying cell phone. The mobile phone store chains then will deliver Droid 2 to their shops. From retailers, Droid 2 is sold to end users.
Vinaphone provides SIM card for customers in the retail shops so they can use the phones. For users already having a Vinaphone account, Vinaphone will guide them to activate their 3G functions. All the transportation in the supply chain will be outsourced to third party logistics.
1.2 SWOT analysis
Motorola has the technology, experience and skill in managing electronics supply chain internationally.
Outsourcing the transportation for third party providers, they can focus on its core competency. With their specialization, the third parties can reduce transporting time and contribute to the responsive supply chain Motorola aims to build.
The two distribution centers located in Ho Chi Minh City and Hanoi, which have the most cohesive transportation systems in Vietnam and concentrate complex retail systems, will enable the product flow from manufacturing to distribution and retailing move smoothly.
Transportation of the supply chain will be outsourced to transportation based third party logistic service providers. Thus, Motorola may loss some control over its transportation activities and in-transit inventory.
Moreover, as two partners in the supply chain, such as Motorola and its retailers, will not deal directly with each other when inventory delivered, it can weaken the collaboration and communications between them, and challenges the demand forecast ability in the supply chain.
Motorola does not deal directly with Vietnamese end-users but through retailers. This creates difficulties for Motorola to adapt to the trend in smart phone market, reducing the responsiveness of the supply chain.
Improving telecommunication infrastructure a priority of Vietnamese government, so improving the flow of information in supply chain.
After WTO accession, Vietnamese logistics is more welcome to foreign investors. Third party logistics providers in Vietnam is also improving their services to more sophisticated level (Nguyen 2009), so Motorola can access to more competent third party services to fasten and improve the supply chain performance.
The lack of mix transport agency (Venard 1996) forces Motorola to use more than one third party in transportation activities. The wide information sharing between the firms can raise the information security risk
There is no advanced technology and information system such as EDI (Nguyen 2009.p15) to support logistics, affecting the ability for Motorola to communicate with their partners.
Vietnam transportation systems is under developed with intensive roads, the lack of cargo planes and facilities (Goh & Ang 2000,p.897); congested ports even in Ho Chi Minh city, only handling ships up to 25,000 DWT, causing dramatic bottleneck in supply system (Goh & Ang 2000,p.901). The problems result in longer lead time and adding up logistics costs and risks, so the timeliness in Motorola distribution will also be affected.
The rise in air cargo fee regarding higher demand near New Year may increase the cost of delivering USB pads to Malaysia and shipping Droid 2 in 2010.
The shortage of automatic warehouse results in most material handlings are done manually (Goh & Ang 2000,p.905), possibly damaging SKUs as well as lengthen lead time.
Vietnamese companies are reluctant to share information (Tuang & Stringer 2008.p398). This creates barriers to improve relationship and information sharing within Motorola channel partnership, decreasing demand forecasting.
-Focus on improving demand management by investing in information sharing technology and improve coordination between firms in the supply chain
-Continue outsource non-core activities such as transportation
-Need a detailed benchmark to controlling the outsourcing activities to identify problems in those activities on time.
-Maintaining and improving the relationship with third party service providers to plan the transportation as well as other activities better, which can reduce transit cost and time.
Choosing a local third party transportation provider since they have more understanding the roads system and transportation process.
Construct an automatic distribution centers to reduce manual work in material handlings.
Improve the visibility over the product flow to control the condition and timeliness of inventory and delivering.
Improving partnership with firms in supply chain, especially with retailers to catch up with the trends and improve the demand forecasting.
Need a strict evaluation process to choose a highly competent and responsive third party service providers
1/ Holding high level of inventory: mostly in-transit stock due to the poor transportation infrastructure and the complicated customs procedures; safety stock due to the uncertainty in demand forecasting and transportation problems affecting supply.
2/ Long lead time: possibly regarding to the low transportation structure and vehicles, the shortage of automatic warehouse and technology facilitating ordering.
3/ Imprecise demand forecast: due to the weak relationship and communication between channel partners.
4/ Timeliness: possibly due to the unforeseen factors in transportation and material handling. Moreover, Vietnamese companies still do not pay adequate attention on on-time delivery (Nguyen 2009,p.17), which reducing the customer service quality.
5/ Inventory condition and real time information: mostly the lack of information technology to control the product flow causes this issue.
Considering the issues of Motorola supply chain in Vietnam, three logistics strategies are proposed to help solving the problems: transportation - based third party logistics, collaborative planning, forecasting and replenishment, and RFID technology.
2.1.1 Transportation - based third party logistics (3PL):
A company can decide to outsource its non-core business. It is the process of shifting a part of business functions within an organization to outside providers (Fawcet, Ellram & Ogden 2007,p.282). Third-party logistics means using an outside provider for some logistics activities such as transportation or warehousing (Fawcet, Ellram & Ogden 2007,p.283). Transportation based third-party logistics is recommended for the case of Motorola supply chain in Vietnam, which will outsource transportation activities to a third-party logistics service provider. Advantages:
Cost saving and improved services, as well as better transportation solution (Bhatnagar, Sohal & Millen 1999,p.573). The specialization of the provider reduces lead time and guarantees good condition for in-transit stocks.
By outsourcing non-core business, the company can focus on its core business (Bhatnagar, Sohal & Millen 1999, p.573).
The loss of control over transportation activities.
Disagreement or confusion about work priorities (Harrington 1999,p.60). Since the goal of manufacturers, using transportation-based 3PL is cost saving while the service provider aims to increase revenue, horizontal conflicts may occur between them.
Although transportation-base 3PL results in several disadvantages, the strategy is still a suitable solution for transportation for Motorola supply chain. Due to the poor infrastructure of Vietnamese transportation system, there is high transporting risks. The transportation-base 3PL provider, with their specialized understanding of the system and customs procedures, has the ability to foresee and prevent risks in transporting. Thus, the stocks can be delivered on time. Moreover, lead time can be reduced due to provider's specialization and highly invested facilities. Using their well-equipped vehicles, 3PL provider can also ensure the condition of in-transit stock, which is very important for electronics products such as Droid 2. Overall, customer service will be improved
2.1.2 Collaborative planning, forecasting and replenishment (CPFR):
CPFR is an approach to coordinate activities such as production and purchasing planning, forecasting demand and stock replenishment between trading partners in supply chain base on Web technology (Fliedner 2003). It improves forecasting and increase product availability using synchronized replenishment, so customers will be served better at lower cost (Fawcet, Ellram & Ogden 2007,p.482). The strategy required an intense collaboration between trading partners and technology system such as EDI to facilitate the information exchange. The strategy includes nine main activities.
Activities in CPFR process (Danese 2007,p182)
After agreeing on working methods, how to solve problems and location of meeting, collaborative partners join business plan together. Each company will do their own sales forecast and share them on an CPFR system. If there is too many differences in the two forecasts, the system will alert them and both partners will get together to solve and produce an accurate forecast. After that, manufacturer will forecast the way they produce and supply for retailer, as retailer will also forecast how to receive the order, and CPFR system will ensure the two order forecasts are matched, otherwise two parties will sit together again to work out the difference. Then, the CPFR forecast will be translated into production and replenishment plan, and order delivery (Coyel et al 2009,p.252).
CPFR business model (Coyel et al 2009.p153).
Increase accurate forecasting, leading to better match between supply and demand (Murphy & Wood 2008).
Reduce inventory holding due to accurate forecasting and replenishment.
The risk of sharing sensitive information to other companies (Fliedner 2003).
The high cost of implementing technology (Fliedner 2003), especially EDI system for information exchange.
Although the system is complex and costly, a technological enterprise such as Motorola is able to adapt and utilize CPFR. CPFR reduces order response times for retailers and cycle times for manufacturers, so the strategy will contributes to shorter lead time of Motorola supply chain overall. Moreover, the accurate CPFR forecast will enhance on-time delivery the products to customer, especially in cases of introducing upgrading AGT software or a new Droid version. Furthermore, accurate forecasting increases the certainty in demand, so preventing overstock and stock-out as well as reducing safety stock holding cost, for both manufacturer and retailers. Thus, obsolescence and deterioration inventories will also be lower (Flidner 2003), which improve the stock condition, which is very important for phones' batteries. Overall, applying CPFR will contribute to the performance and customer service of responsive Motorola supply chain.
2.1.3 Radio frequency identification (RFID) technology:
Radio frequency identification (RFID) is a high level of using barcode, reading the information through radio frequency. RFID tag and reader are two main components of RFID system. A microchip is sticked to RFID tag and data will be written on it. The tag is placed on objects or smart cards, and the data can be read by RFID reader through radio signals (Hansen et al 2008,p.1). Unlike barcode, RFID reader does not need to reach the surface of the tag to read information. The data is transferred to the main server and shared to other information systems.
RFID system (Reproduced from The Major Learn)
RFID improves inventory visibility and real time information. It enhances the control over inventory.
RFID shortens lead time by reducing manual works in logistics processes.
Security: using RFID readers, competitors, or criminal can track the sensitive data from the tag to use against the company. Moreover, consumers' privacy can be violated by too much information about them are shared through RFID.
The cost of RFID implementation is expensive as a tag may cost between $0.15 to $0.75 (Michael & McCathie 2005,p.6).
RFID is highly recommended to be used from the manufacturing plant in Malaysia, not only Motorola Vietnam. RFID gives real time information, which assists other methods of cooperation such as CPFR (Hansen et al 2008,p.13). The inventory and product flow will become visible for the supply chain. Therefore, the manufacturer and distributors will produce and replenish for their retailers the right quantity, on time, minimizing inventory holding. Furthermore, smart phone and its accessories are highly vulnerable, and RFID will help ensure the condition of Droid 2 storage and movement as well as minimize human errors in handling the stocks. Moreover, with automatic tracking on the inventory, RFID reduces picking time, resulting in shorter lead time. And the same as CPFR, Motorola has the technological experience and budget to adapt RFID.
Explanation of the Multi-criteria Decision Matrix
Among the three proposed strategies, CPFR is the most suitable strategy applying for Motorola supply chain. The responsive supply chain system concerns on time, so the short lead time and accurate forecast are critical. By strengthening the connection and collaboration between manufacturer and retailer in the supply chain, CPFR significantly improves the forecast to match real demand, ensuring product availability, which strengthens Motorola's competitiveness better than the others. With the planned operation and transportation, risks and lead time will be reduced. It maintains on-time delivery. Moreover, accurate production and replenishment also prevent stock out and overstock, so the cost of holding inventory is lower and the obsolete inventory can be minimized. Overall, CPFR help the Motorola's supply chain solve the broad set of issues over the two other strategies. It helps the supply chain to be more adaptive and responsive to the changing environment of smart phone market as well as overcome Vietnamese logistics issues.
An illustration of this is JK Computers Ltd, a 3C products retailer, collaborates with its supplier, Synnex Logistics using CPFR (Chang et al 2007). After together formulating the working mechanism, JP transmits sales and inventory data to supplier in regular basic to confirm on replenishment. If there is a difference, supplier will respond to JP, so JP then identifies another supplier using its database. However, the replenishment will be approved, and supplier will inform JP about the replenishing amounts to each store on agreed time, then processing the order. After delivery, the stores put the date to information system and transmit to the head office. The replenishment is done and payment is collected monthly. Adapting CPFR with Synnex Logistics, JP's stockout rate decreased 4.95% to 2.49%, ROI increased from 1 to 1.5, capital turnover raised from 1.33 to 1.75 and service level improved from 95.05% to 97.51% (Chang et al 2007).
2.3 Key Performance Indicators (KPIs):
For Motorola manufacturer and retailers in the first quarter of 2010:
Reducing forecast error from 5% to 2% from January 2010.
Shortening lead time from 7 days to 5 days in three months.
Reducing stock-out rate from 5% to 2.5% in three months.
A benchmark to control the above KPIs will be formed. A weekly report will be sent to manufacturer, distributors, and retailers about the overall performance to take appropriate correction together if goals are not achieved, ensuring final KPIs reached.
2.4 Costs and Benefits of CPFR implementation:
Significantly improving demand forecast and planning.
Better planning and simpler procedures passed between manufacturer and retailers. Thus, lead time will be reduced
Stock-out, overstock can be minimized
Holding less inventory so reducing cost
Ensuring items will be delivered on time and in good conditions
High risks: Sensitive information shared maybe caught by competitors.
High cost of implementation CPFR system and facilities, and training staff
Time consumed in meeting to overcome the lack of trust and set up front-end agreement.
Aggregate concerns with number of forecasting and generation (Fliedner 2003).
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