UNIVERSITY OF TRANSPORT HOCHIMINH CITY

CHAPTER 3:
SUPPLY CHAIN ​OPERATIONS: PRODUCTION AND
DISTRIBUTION

Lecturer: ThS. Lê Quốc Lợi

Phone number: 0867 299 334

Mail: [email protected]

1
CHAPTER 3

3.1. SUPPLY CHAIN ​OPERATIONS: PRODUCTION AND

DISTRIBUTION
3.2. PRODUCTION
3.3. DISTRIBUTION

2
CHAPTER 3 OBJECTIVES

After completing this chapter, students should achieve the following objectives:
✓ Present an overview of manufacturing operations

✓ Analyze product design principles and requirements

✓ Select manufacturing processes based on cost factors

✓ Analyze steps for continuous process improvement

3
3.1 INTRODUCTION

PLANNING

• Demand
Forecasting
• Product Pricing
• Inventory
Management
DISTRIBUTION SOURCING

• Order • Purchasing
Management • Payment
• Schedule
Delivery
• Return
PRODUCTION
Process
• Product
Design
• Production
Process
• Facilities
Management 4
3.3 DISTRIBUTION

3.3.1. Introduction

3.3.2. Schedule delivery

3.3.3. Order Management

3.3.4. Returns Management

5
3.3.1 INTRODUCTION
The activities associated with the movement of material, usually finished goods or service parts,
from the manufacturer to the customer. These activities encompass the functions of transportation,
warehousing, inventory control, material handling, order administration, site and location analysis,
industrial packaging, data processing, and the communications network necessary for effective
Distribution management. It includes all activities related to physical distribution, as well as the return of
goods to the manufacturer. In many cases, this movement is made through one or more levels of
field warehouses.
(Source: APICS Dictionary)

Example: Beer supply chain

Product distribution activities

6
❖ Distribution System Classification

Distribution forms Management level

Centralized Distributed
Direct distribution Indirect
distribution system distribution system
distribution
- Centralized decision - Each distribution level
NSX Trung
KH making makes decisions
NSX KH gian - Fewer warehouses - Shorter order
- Less safety stock processing time
- Longer order processing - Lower outbound
❑ Advantage ❑ Advantage delivery costs
times
- Lower operating costs

❑ Disadvantages
❑ Disadvantages

7
A business and industry that acts as a third party local representative and
distribution point for a manufacturing firm. These firms may perform some light
assembly or kitting of goods, but generally provides a buffer for finished goods.
Distributor Distributors typically purchase the goods in quantity from the manufacturer and
ship to customers in smaller quantities.
(Source: APICS Dictionary)

Manufacturer Distributor End Customer

8
3.3.2. Schedule delivery
❖ Case 1: Direct delivery
- Direct delivery from 1 origin to 1 destination
- Method: Choose the shortest distance between 2 points
- Simple order operation and coordination
- Higher efficiency when the economic order quantity is equivalent to the load capacity of the transport
vehicle

9
❖ Case 2: Milk-run
- Delivery from one origin to multiple pick-up points or from multiple
origins to the same pick-up point
- Advantages: small batches of different products can be combined →
cost savings.
- Disadvantages: complexity in operations and direct order coordination
- Includes: Cost-saving matrix method and general assignment method

10
3.3.3 ORDER Management

▪ This is the process of transferring order

information from customers to the supply
chain from retailers to distributors to serve
suppliers and manufacturers.
▪ It includes transmitting information about
order delivery dates, product substitutions, and
through the supply chain, responding to
customer orders.
▪ It is largely based on the use of telephones and
paper documents such as purchase orders,
sales orders, change orders, product
classification labels, packing slips, and invoices.

11
Issues of concern in order management

(Source: Peerless Research Group survey, 2013)

12
❖ Characteristics of Order Management

Order cycle time

Convenience

Order
Availability of goods
Management

Reliability

Operating efficiency

13
❖ Order management process

Step 1
Check database

Step 2
Order processing

Step 3
Track order status

Step 4
Control performance

14
Stage 1: Before the transaction Stage 3: After the transaction

• Customer Service Policy • Installation, warranty,

• Customer Service Policy replacement, repair, etc.
Communication • Track goods
• Business Organization • Feedback, complaints,
• Flexibility returns
• Management Services • Product replacement
Stage 2: In transaction Stage 4: Payment
• Availability of Goods • Print Invoice
• Ordering Information • Access Payment Information
• Order Cycle Time
• Delivery
• Goods Movement
• Information Systems
• Ordering Convenience
• Product Replacement

15
❖ Case study: DHL

16
❖ Case study: Diageo
The codification step involved considering the main Move pillars: 3PL
An Innovative Global Solution to Quickly Return Global Warehouse and Partnering, Operate Warehouse, and Operate Transport. These were broken
Transportation Cost Savings down into their sub-process, a level below, for example stock + goods receipt,
Diageo is one of the world’s leading drinks companies, operating in most put away + handle stock and pick stock, as some of Operate Warehouse sub-
countries, with a very large portfolio of spirits, beer and other drinks brands. In processes.
the Diageo company the activities of warehouse and transport management For each sub-process a document was written with process description, flow
are called Move. This case study will consider how Diageo innovatively and and more importantly best practice guidance. Here a market can identify if it is
quickly delivered Move costs savings throughout the world without impacting in a stable, progressive or leading level of maturity and see very clearly the gaps
negatively on internal and external service relationships. it needs to improve.
What was the situation? The implementation activity was highly innovative and challenged some of the
A Move gap analysis identified that compared to best practice in industry there current thinking organisations take in Move capability build. The first step of
were significant opportunities to improve warehouse and transport costs, implementation was to run internal learning programmes in the hubs of each
potentially £10’s of millions. The challenges were considerable as Diageo Move region. The attendees were the Diageo Move logistics teams but also their 3PLs.
operates in most of the major country markets in the world. These markets are This was a unique opportunity to get customer and 3PL to learn together, build
at very different levels of maturity, with some using automation in modern relationships and ultimately get a clear vision of the shared goal and new best
warehouses and some employing purely manual labour in very basic storage practice including new, global standard KPIs. The learning programmes were
facilities. In addition, Diageo Move uses mostly third party logistics providers designed to be highly interactive, including role plays so customer and 3PL
(3PLs), with many 3PLs often operating in different countries. The analysis also could expose and plan to close the gaps in the process documents. To ensure
exposed the opportunities within the Move activities. For example, road freight implementation, one of the central programme team members worked on a
was approximately 50% of all Move spend and hence a key target area for plan with each market to help them close gaps with their 3PLs.
improvement. The gap analysis also exposed the geographic areas in the world What were the positive outcomes?
that should be made priority for Move cost savings. The board therefore set a There were very positive intangible benefits, for example improved relationship
target for Diageo Move to achieve global cost savings. with 3PLs: people who had spoken for years only on the telephone finally got to
What were the improvement activities? meet face to face in order to work better in future. There were no negative
The Excellence in Supply Chain Move Capability Programme was initiated. Move impacts on service internal or external. Although not captured, as the markets
leadership communicated that capability build was not only critical for closed their Move process gaps, stock availability, on time delivery, will have
sustainability but creates the platform for further improvement. The improved. There was also good momentum created for an interest in learning
programme included two activities: and improving transport and warehouse operations. Tangibly, as markets closed
•Move Operations codification their gaps, Move process performance improved and more importantly the
•Implementation to ensure standardisation, rigor and performance discipline Move cost target delivered in full for the board.

17
3.3.4. Returns Management

“Returns management (Reverse Logistics) is the process of planning, implementing and

controlling the reverse movement of raw materials, semi-finished products, finished products
and information from the point of consumption to the point of collection or waste disposal
point.”
- European Working Group for Reverse Logistics -

Customers are not satisfied with the product

Installation and usage issues

What is
the Product warranty

reason for
Issues in order processing
return?
Retail surplus

Manufacturer recalls product

18
❖ Driving force behind Reverse Logistics

Legal - National Regulations or Programs on Goods Handling in the Supply Chain

Green Supply Chain Management (GSCM) include:
+ Environmental Certification
+ Pollution Reduction
+ Life Cycle Assessment
+ Design for the Environment

Economy - Direct benefits

- + Reduce costs, increase profits
- + Increase return on capital employed (ROCE)
- + Environmental, waste handle cost
- Indirect benefits
- + Build corporate image
- + Increase customer loyalty
- + Develop relationships with suppliers, customers, etc.

Social Responsibility
- Building a Corporate Citizenship Image
- Demonstrating Responsibility to the Community

19
❖ Participants in Reverse Logistics activities
State agency

Manufacturi
End
ng/Business
customer
Enterprise

3PL
Enterprise

20
❖ Return Supply Chain Model

Manufacturer Distributor End customer

End
Manufacturer Distributor
customer

3PL

End
Manufacturer Distributor
customer

Independent operating company

(Source: Product recovery options. Source: Kumar and Putnam (2008), Elsevier)

21
❖ Returns processing procedure
Unused product

Manufactur End
Supplier Distributor
er customer

Resell

Repair

Used products
Refurbishm
ent

Reproduction Reuse

Recycle

Waste

(Source: Product recovery options. Source: Kumar and Putnam (2008), Elsevier)

22
❖ Principles of Reverse Logistics Management

Attention to the time factor in

processing returns

Recognizing the importance of

partners in the value chain

Receive feedback and suggestions

from customers

23
❖ Case study: Carlsberg and XPO

An Innovative Solution to Improve Return Logistics The challenge occurs after peak periods such as holidays and promotions.
Carlsberg Group is a leading global brewer, with a large portfolio of Customers don’t typically have sufficient space to store a backlog of empty
beer and other beverages. This case study will consider how XPO kegs, and require that they are removed promptly. This means that return
brought transport innovation to Carlsberg’s operations to improve volumes are higher than delivery volumes the week after the peak occurs.
return logistics without impacting on the efficiency of the outbound To retrieve these empty kegs using the standard trailer would require either
delivery. additional journeys to be made specifically for the returns, or to send
What was the challenge? delivery vehicles out underutilised.
Carlsberg’s primary network moves beer kegs from its centrally located How was this solved?
brewery to regional depots, for onward delivery to pubs and clubs. The When the existing fleet of trailers was due to be replaced, Carlsberg asked
full beer kegs by their very nature are heavy, requiring lightweight its logistics partner, XPO, to bring some innovation to help solve the
transport equipment in order to maximise payload, and achieve the challenge. The main objective was to increase the volume capacity of the
greatest transport efficiency. A full load of 456 50-L kegs, stacked three trailers (the number of empty kegs) without impacting upon the weight
high, weighs in at 29 tonnes. To achieve this capacity within vehicle capacity (the number of full kegs).
weight limits, it is necessary to utilise lightweight trailers. In collaboration with Carlsberg and the trailer suppliers, XPO specified a
The challenge came when handling the returned “empty” kegs. The lightweight trailer that was taller than the previous ones. Rather than an
reuse of kegs within a closed loop system has many environmental and internal height that limited kegs to be stacked three high, the new trailers
cost benefits for companies such as Carlsberg. However, empty kegs could accommodate stacks that are four high, without reducing the weight
weigh much less than full ones. With a trailer designed to carry 456 capacity.
kegs, a full return load, whilst still maintaining high cubic utilisation of This increased the trailer’s capacity to 624 empty kegs, an increase of over
the trailer, is running at very low capacity when measured by weight. 30%. This allowed XPO and Carlsberg to reduce empty running, by
In normal periods of operation, the network functions on a one-for-one eliminating unnecessary empty kilometres, thereby improving overall
basis. For every full keg delivered, one empty keg is returned, which vehicle utilisation.
results in an efficient process.

24