Docstoc

Supply Chain Management Analysis

Document Sample
Supply Chain Management Analysis Powered By Docstoc
					    IME 417 Supply Chain Management Paper
Analysis of the “Bilang Stone Store” Supply Chain




        Zen Wen Liang    and    Ethan Matthes
              Cal Poly San Luis Obispo
                                The Bilang Stone Store                                                                                  Zen Wen Liang
                                                                                                                                        Ethan Matthes


Table of Contents

1. Executive Summary .................................................................................................................................................................................... 2
2. Company Background................................................................................................................................................................................ 2
3. Supply Chain Metrics ................................................................................................................................................................................. 3
4. Overall Diagram.......................................................................................................................................................................................... 3
5. Product Flow ............................................................................................................................................................................................... 3
     End Customer............................................................................................................................................................................................. 3
     Distribution ................................................................................................................................................................................................ 4
     Company .................................................................................................................................................................................................... 5
     Suppliers .................................................................................................................................................................................................... 5
6. Information flow (use of technology) ........................................................................................................................................................ 8
    Customers ................................................................................................................................................................................................. 8
    Demand Forecast and Supply Planning ............................................................................................................................................... 8
    Suppliers.................................................................................................................................................................................................... 8
7. Analysis ........................................................................................................................................................................................................ 8
8. Recommendations ....................................................................................................................................................................................... 9
Review .............................................................................................................................................................................................................. 9
1. Executive Summary
    The goal of this paper is to directly apply fundamental supply chain concepts, learned in IME 417, to understand and improve a small
real-world supply chain. The four major supply chain drivers: facilities, inventory, transportation and information are all evaluated in the
context of the total supply chain, and recommendations for improvement are proposed.

2. Company Background
    The Bilang Stone Store of Nantao, Taiwan (from hereon referred to as Bilang) is owned and operated by Wen’s father, Liang Bin Zun.
The company provides products used to house and memorialize deceased people. Company products include customized urns, memorial
stones, statues and decorations.
    Bilang’s business is built on responsive service and by maintaining a close and friendly long-term relationship with its customers.
Wen’s father has 40 years experience as a craftsman in this business, and the company has remained small in size and responsive to its
local customers. The following six images display such products.




   Products, such as those pictured above, are first purchased from a supplier (discussed later), and then customized with names and
other information before direct sale to the end customer.




                                                                                                                                          2
3. Supply Chain Metrics
   Bilang informally reviews its outstanding bids and inventory on a daily basis. Money is counted by hand, and sales records are
handwritten on a paper ledger. Once per year, the ledger is reviewed in its entirety to understand the company’s annual performance.

4. Overall Diagram




Each product is highly personal, so customization is triggered by a customer pull. However, common raw materials, such as sand and
certain popular urn models used for customization are ordered in anticipation of a customer order (push).

5. Product Flow
End Customer
    Manufacturing and retail take place in one location (Bilang). In general, Bilang’s customers have a poor educational background. To
them, a low price is the foremost expectation; and these customers also expect a short lead time. Personal factors, such immediate and
attentive service, are also paramount. Bilang’s customers can be classified into three groups based on the quality (and price) of product
ordered: 60% order middle product, 30% low-end and 10% at higher-end.




                                                                                                                                       3
The following table summarizes Bilang’s key customers and what type of product they order.
         Key Customer                      Product Type(s)        Location
          Landscaper               grave stone, Statue, Large Urn  Nantou
        Memorial Planner           grave stone, Statue, Large Urn  Nantou
        Public Cemetery                       Large Urn            Nantou
 Memorial Ceremony Manager         grave stone, Statue, Small Urn  Nantou
   Note: A map is provided later in this report.

    Bilang’s business relies on close personal relationships with its customers. The company utilizes networking techniques such as
treating their key customers to dinner, giving them gifts, making courtesy phone calls and providing price discounts.
    Bilang is small and has little or no market power. Pricing is extremely difficult due this humble market presence as well as their
customer’s proclivity to drive a hard bargain. This auction-like reality seriously challenges effective forecasting and inventory
management. Additionally, several of Bilang’s customers do not honor their contract: either paying less than promised or failing to pay for
service delivered. Contract enforcement is highly difficult.

Distribution
     Distribution involves the actions taken to transport and store product beginning from the supplier all the way to the customer’s hands.
The Bilang store places a phone order with its supplier, and the supplier delivers the order free-of-charge to the store by truck. Lead time
is fairly constant and varies from one to three days only.
         Customers receive product either by direct pickup at the store or Bilang has its own truck offering free delivery service. Most
deliveries are made locally within a half hour to an hour driving distance. A safety stock is maintained in order to insure quick responsive
distribution. Bilang estimates each truck delivery costs it approximately $300 in Taiwan currency (i.e., fixed transportation cost,
S = $300).
A supplier warehouse is pictured below left. Bilang’s truck is pictured below right.




                                                                                                                                          4
Company
    Manufacturing (the product customization) takes place only at the Bilang store. Once a customer has placed an order and provided
necessary information—including the deceased name, birth and death dates, plus any picture requests—Bilang performs the
customization. This actual manufacturing of an individual product typically takes two hours, and involves etching, painting, and plating.
Three essential pieces of manufacturing equipment are pictured below. Theses images were borrowed from a vendor’s web site.




    In the Chinese spiritual culture, citizens honor their dead with burial and memorial customs during the months April through June.
This creates an extra seasonal demand for Bilang’s services. The safety inventory is increased two weeks prior to this special season.
    Though all products are personally customized, they carefully follow Chinese tradition, so new products are not being developed.
Since Bilang is a small market player and doesn’t yet utilize computers, little or no information is shared with its suppliers concerning
manufacturing goals. Customers have a high level of interaction with Bilang due to the very personal nature of the product. The Bilang
workforce consists of two highly skilled, experienced employees; one employee sells and manages product, and the other skillfully crafts
the product. Both are aging, so if one or both were to get sick, then the business would stop.

Suppliers
        Taiwan is a small island nation with very limited natural resources, so Bilang’s local suppliers typically import raw materials from
mainland China. Consequently, this supply chain is sensitive to currency and political fluctuations.
        The following table lists Bilang’s suppliers organized by the item being supplied and location. Note that these supplier names are
the interpreted English sounds. The proper names are given by mandarin characters.
   Supplier                                            Item                   Location
   中興雲石 "Jongsin U-in Shi"; 永信石材 "Yong-Shin";
                                                       grave stone            后里 Taijong, 台北 Taipai , 基隆 Kilung , 台南 Tainan
   福壽 "Foo-so"; 凱憶 "Kai-ee"
   中興雲石 "Jongsin U-in Shi"; 永信石材 "Yong-Shin";
                                                       Statue or Decoration   后里, 台北, 基隆, 台南
   福壽,凱憶 "Foo-so"; 凱憶 "Kaiee"
   永信石材 "Yong-Shin"; 三益 "San-ee";
                                                       Sand                   台北, 豐原, 基隆
   福壽 "Foo-so"
   仁和 "Zun-ha"; 佳和 "Ja-ha"; 佳明 "Ja-min";
                                                       Large Urn              鶯歌, 苗栗
   福利 "Foo-lee"; and 福昌 "Foo-Chung"
   建吉 "Gin-ge"; Mr.高 "Mr. Kao"; Mr.德 "Mr. Durr"        Small Urn              花蓮, 台北, 彰化, 下茄荖
   昌和 "Chan-ha"                                        Concrete Decoration    台中, 大甲

                                                                                                                                          5
A map is provided below to give the reader a basic understanding of Taiwan geography. Cities where suppliers and customers are located
are indicated.




                                                                                                                                     6
Table below: Suppliers are ranked according to how much business Bilang does with them.




                                                        The previous five pie charts show that Bilang has
                                                        some key suppliers with a few additional alternate
                                                        suppliers.




                                                                                                             7
6. Information flow (use of technology)
Customers
        Customers place their order either in person at the Bilang store, or over the phone. The customer can select from a number of
styles of urns, stones, statues or decorations. Bilang records relevant information such the deceased person’s name, as well as their dates
of birth and death. Bilang then decorates/engraves the product with this information and the customer takes possession of the product
within 48 hours. Customers can pick up the product directly at the store, or Bilang will deliver the product by truck. Orders are taken
verbally and handwritten on a ledger. No computers are used. Bilang collects payment at different times: Oftentimes customers are
extended credit and expected to pay at year’s end. In other cases, the customer pays when the product immediately at delivery.
        All products are highly personal and customized to suit individual customer needs. However, Bilang has no plans to development
new product lines.
        Bilang customers frequently strike a hard bargain. Before placing an order, they will talk to Bilang’s direct local competitor, and
then tell Bilang what price they expect. An auction-like bargaining session ensues, placing downward pressure on prices. Unfortunately,
Bilang in many cases has less information than it’s customers.

Demand Forecast and Supply Planning
       Demand is seasonal, peaking from April to June. A few weeks prior to this period, Bilang increases its safety inventory. Company
forecasts are based solely on personal experience and intuition. That is, statistical analysis and formal metrics are not used, mostly due to
Bilang’s information deficit. Fortunately, Bilang’s suppliers are geographically close, and supply corrections can be made quickly.
       Again, Bilang produces products of a highly personal nature, requiring late customization. Although raw materials such as the
undecorated urns, stones, decorations, and statues are purchased in anticipation of demand, the actual engraving, plating process is
performed in a just-in-time fashion. Bilang is a very small company and does not outsource any work.

Suppliers
        Suppliers send Bilang a catalog of products from which to order. Orders are placed over the phone. No additional information is
shared, probably since Bilang does not place large orders, and there is no incentive for its suppliers to collaborate.

7. Analysis
         Presently Bilang uses past experience and a developed intuition to evaluate its short-term performance. Annual performance is
analyzed by reviewing the handwritten ledgers and performing simple arithmetic. So on any given day, Bilang probably does not know if
it is profitable. Additionally, inventory is not cataloged; and product sits on shelves for an undocumented amount of time. This further
complicates forecasting. Bilang needs to study its level of product availability. Bilang’s experience and intuition is a tremendous asset, but
neglect of standard business practices hinders its progress. Our following recommendations mainly address this issue.




                                                                                                                                            8
8. Recommendations
   1. Document every piece of present and future inventory with a unique simple numbered code.
   2. Start the documentation process by assigning part numbers to the most popular (fastest moving) and critical products. Continue as
       needed.
   3. Capture most essential information and metrics without losing customer focus (don’t get bogged down in data too much). For
       example, look at annual demand and inventory turnover for individual products.
   4. Document supplier location, reliability, pricing, responsiveness, and financial stability. Use this info to structure supply chain.
   5. Carefully document all customer contracts. Extend credit only to lower risk customers. Use electronic methods of credit such as
       credit cards or pay-pal. Rank customers based on location, financial stability, and needs.
   6. Transfer handwritten data to a computer spreadsheet or database.
   7. Create a formal balance sheet.
   8. Perform statistical analysis on data to gain performance insight, and future predictability.
   9. Adjust forecasts based on new information to balance inventory costs versus customer service level.
   10. Use eBay to sell excess inventory. Bilang is already acquainted with the auction-like business. This could possibly extend its
       customer base internationally.
   11. Produce a user-friendly web site to market Bilang products to new customer segments.

Concluding Remarks
        Bilang’s core competencies include 40 years experience producing a high quality product in a responsive manner, and its close and
personal customer relationships. It’s close proximity to a balanced portfolio of suppliers is also an asset.
        Supply chain liabilities include a severe information deficiency, contract enforcement, and a rapidly aging staff. The Bilang staff
has gained much experience/wisdom over the years. However, for the sake of Bilang’s long-term prosperity, this wisdom must be
captured and incorporated into defined processes for future employees to carry on. Bilang management resists change and the adoption of
new business practices. This is the single biggest hurdle to overcome.
        Ethan and Wen (the authors of this paper) experienced some challenges inherent to international business in the process of
profiling Bilang: Ethan is a native U.S. Citizen who only speaks English, and Wen (from Taiwan) is a native Cantonese speaker with
limited English experience. Additionally, Wen was detained in Taiwan on a temporary Visa issue during the final week of preparation and
presentation. Exchanging information through email given the language differences proved very difficult. Nevertheless, the final product
was delivered. It is the author’s hope this profile of the Bilang Stone Store will lead to measures increasing its prosperity.




                                                                                                                                         9

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:15
posted:8/18/2011
language:English
pages:10
Description: Supply Chain Management Analysis document sample