Logistic and Supply Chain Management Essay
With the various brands from many countries such as Loreal, Vichy, Shishido and Lancome, preparing a new supply chain to help Avon compete with other famous brands and to attract more customers in Vietnam. Firstly, starting with the research and analysis, there will be 3 main sections included Channel map, SWOT analysis and 5 logistic issues for Avon Vietnam. Secondly, in the strategy proposal, it will cover all 3 strategies involved JIT (Just in time), Transportation based 3PLs and MRP (Material requirement planning).
Furthermore, though using the MCDM (Multi criteria decision matrix) and explanation to evaluate these 3 strategies and choose the best strategy for Avon Vietnam. Moreover, Loreal is the most suitable brand names that successfully applied this strategy and be considered as the best practice example. Finally, 2KPIs (Key performance indicators) will be discussed to measure the achievement of the strategy and also the list of resources, which are used in this assessment, will be shown in the end. RESEARCH AND ANALYSIS I. CHANEL MAP
Description of players Based on this channel map, with the 4 main levels in supply chain for Avon. First of all, the raw materials from many countries such as Philippine, America and also Vietnam will be transported by shipments to Ho Chi Minh city, Vietnam. After that, manufacturer in Binh Duong province will collect the raw materials such as plastic, alcohols, flowers, glasses and other materials to transform them though the process of measuring, analyzing, testing, packaging and checking strictly before moving them to the distributors.
Moreover, from the distributors, the products are allotted to the network of nearly 30 representative offices across the country such as Hai Phong, Thai Nguyen, Da Nang, Da Lat, Nha Trang, Can Tho, Dong Nai, Binh Duong, Kien Giang and Tien Giang. Thus, though the distributors, the products are provided to the retailers and wholesalers like super markets, department stores, boutique shops, hair salon chains, malls and shopping plazas. In addiction, customers often go to the super markets or malls and before buying a cosmetic product such as perfumes, body lotions or make up, they want to try it first after deciding to buy.
That’s why Avon chose super market, malls and shopping plazas to contribute their brand. The inbound start from the suppliers to manufacture and the out bound begin from warehouses to end users. LevelM? MAMain PlayersRole in the supply chain 1•Flowers •Plastic •Wax, oil, and antioxidants •Minerals, Vitamins •Supplying flavors to manufacturer •Supplying box containing for cosmetic products •Lipsticks •Powder makeup 2•Manufacturer in Binh Duong province, Ho Chi Minh City •Collecting all raw materials to the manufacturer. •With a process of measuring, checking and testing seriously to make a perfect final product. All finished products are transported and kept in the warehouse •Warehouse in Ho Chi Minh City •Warehouse in Hanoi•Maintaining and keeping the products in a best condition before delivering them to the distributors. 3•Distributors •The middle channel which expands the products to other cities in Vietnam •Though distributors, the products are allotted to customers by retailers and wholesalers 4•Super Markets •Department stores •Boutique shops •Hair Salon Chains •Malls and Shopping plazas•A system of wholesalers and retailers, which provide the products directly to the end users-customers.
SWOT Analysis Strength •With a transportation based 3PLs Reduce the cost of investment on transportation and the order cycle time •Raw materials are in high quality Raw materials are imported from other countries (USA, Philippine) •Local supplies Reducing the order cycle time and cost of materials. •Marketing engine Bring the products to almost women in Vietnam by many seller systems like super markets, malls and boutique shops. •Two Warehouses in Ho Chi Minh City and Hanoi All products are stored safety and in good conditions Weakness Risk of Transportation Some of raw materials are transported from other countries by shipping and during transporting process; there will be some damage with the raw materials. •Higher cost for importing raw materials Paying tax for import and shipment •Higher cost for storing the products in 2 warehouses such as air condition system and renting places •Risk of late delivery time If there were some problems with the shipment, the manufacturer couldn’t receive the raw materials on time and it would lead to late order and also delivery to customers
Opportunities •Increasing Demand Standard living in Vietnam changed in recent years because of the increasing income and women these days care a lot about their beauty. •Further global expansion Avon expanded their brand name worldwide to more than 30 •Development of new products Product Innovation’s Avon such as Anew series. Moreover, in Vietnam there will be clothes and fashion products handbag and accessories in the future. Threats •Competition with other famous brands There is a huge competition among cosmetic companies in Vietnam.
With many kind of trusted brands like Loreal, Lancome, shishido and OHui. •External changes Increasing tax, changing policies from Vietnamese government •Complicated transportation system in Vietnam Longer lead time and damage’s products Issues Though the weaknesses of Avon from SWOT analysis, five current issues in the supply chain will be shown: Transportation: Vietnam’s transportation systems are very disorder and complicated because of the significant increasing number of vehicle, it is really difficult for delivering the products in right time.
Moreover, there are many narrow and small places that the transporter does not know and even can’t get into them. Sometime, the transportation is not available at the time the company needs. All of these will lead to the late delivery to customers and during transporting process; maybe there is some damage with the products. Timeliness: one of the most important factors in the supply chain management is time. According to the article “Time is gold”(2008), “ Time is Gold”,from producing to delivering to customers process needs to have the time consistency.
If there are any problems with one part of the production, it will result in the late in other parts and the late delivery to customers. Thus, all the processes are done according to the exactly time; it will be more efficiency and productivity for whole supply chain. Stock out: the increasing demand rapidly is one of the reasons lead to the stock out situation and it is hard to control and unforeseen. In addiction, if there is a storm in Philippine or America, the raw materials are not enough to produce the requirement and as a consequence, the lack of products is the effect causing stock out.
Order fulfillment cycle time: “is defined as the number of hours, days, weeks or even months that elapse from the time when your customers place an order to when you finally complete delivery and receive payment” (Jawa&Lefebvre, n. d). Therefore, in one week, the manufacture only receive one order, they have to wait for the other orders because it will get more cost such as transportation for many times, cost of production like machine and electricity if they just do one order.
Warehouse: the places that use to keep the products in the good condition and reduce the damage are warehouses and the warehouses need to be invested more modern machines and cold keeping system to make sure the products in the best quality. Moreover, the spaces in the warehouses are limited and if the products are delivered right time and earlier, there will be more empty spaces for the other products and avoid the situation when warehouse can not contain the products because there are no places available. Strategies Proposal ?Strategies 1. Just in time:
According to Chen and Staker, 2010, Just in time is one of the most important factors of lean production. Moreover, there are many definitions for “Just in time” and one of them is Just in time “is a system that produces the required item at the time and in the quantities needed” (Giunipero & Law, 1990). Therefore, not only eliminating the waste, JIT also help the company to improve the flow of material (Fuller, 1995). AdvantagesDisadvantages •Streamline material flows • Reduce manufacturer and supplier costs •Increase quality and service • Create long-term relationships with chosen suppliers •Reduced lead times Improved flexibility (Fuller, n. d) •Stock out risks •The risks of supply disruption •Dependable deliveries •Higher cost for finding other transportation After applying JIT for Avon Vietnam to help them solve some issues above. By using JIT logistic system, it can reduce the manufacture and supplies cost and improve the quality of the products (Ohno, 1988). Furthermore, when Avon Vietnam receives an order of a big company, the manufacture in Vietnam will take limited raw materials and start to produce the required products. Then all the products will be transported and stored before delivering to that company.
It will help Avon to eliminating waste in production by producing just the right amount but sometimes, there is some damage of the products in the transportation process, it will be very hard for the manufacture because they only produce the required products. In addition, just make enough quantities for the requirement of customer; Avon can avoid the stock out situation. 2. Transportation based 3 PL Transportation based the third party logistic are the services extending beyond the transportation activities to offer a comprehensive set of logistics offerings (Coyle & Langley & others, 2008).
As a simplest way, a separate transportation company is hired by one company to transport the products for another company and these transportation companies are the most important point to connect from this company to other companies. These days, there are many transportation companies such as FedEx Logistics, UPS Logistics, and DHL Excel. AdvantagesDisadvantages •Saving cost •Convenience and efficiency •Connectivity among the companies •Reduce lead time (Coyle & Langley & others, 2008)•Damage in the delivering process •Low volume shipments high retail pricing Untrusted transportation 3PL providers •Longer waiting time because of the order fulfillment cycle time Transportation based 3PL is not only helping Avon reduce the cost but also saving money. To illustrate, instead of purchasing new vehicles, a company has to pay salaries for drivers, storing products, machine used, service center, additional insurance for vehicles, parking areas and technologies. Using transportation-based 3PL is the best choice for many companies to save cost and money to use for other important investments.
However, the damage during transporting process cannot avoid because Vietnam infrastructure is still poor and traffic system is uncontrollable. With a catalyst is a middle transportation company; Avon will be connectable with other companies quickly. Thus, the lead-time will be reduces and it make sure that all delivery will be on time. Furthermore, if the items are distributed and transport in the right time, there will be more places in the warehouses for adding others items. 3. MRP (Material Requirement Planning)
Material Requirements Planning or MRP is a system of inventory management that help the managers make the decision though the production schedule based on the demand forecast and customer orders before purchasing raw materials and components parts (Krueger, Galletly& Bicheno, 1992). In addition, as the best explanation, “Material requirements planning ensures the right materials are in the right place at the right time and in the correct volume” (Wilhite, 2010). Therefore, MRP also has many limitations of assumption and uncertainty (Koh, Researcher, Jones, Saad & others, 2000) AdvantagesDisadvantages Maintains reasonable safety stock •Minimizes inventories •Identifies process problems •Production schedules based on actual demand •Coordinates materials ordering •More accurate in forecasting Koh, Researcher, Jones, Saad & others, 2000•Computer intensive •Difficult to make changes once operating •Ordering and transportation costs may rise •Not usually as sensitive to short-term fluctuations in demand •Frequently becomes quite complex •May not work exactly as intended Based on MRP, Avon Vietnam can reduce the inventory levels without reducing customer service and it will be more flexible to adapt with the market changes.
Firstly, the company will collect the information and based on the orders to forecast how many inventories they need to purchase, after that they build a MRP program though bill of materials file, inventory status file and the master production schedule. With helping from the MRP program, the manager will be easier to make decision when purchasing a huge a mount of inventories. Especially, Avon has various products such as make up products, skin care products and perfume, how can Avon separate their products. For example, which products Avon needs to purchase more inventories than others.
That’s the reason why MRP is suitable for Avon because applying this strategy, Avon will reduce the inventory cost like Avon only purchase an enough amount of inventories, not too much and not too little, when the demand is increasing or there are some damage with the products, Avon can adapt and avoid stock out situation. Moreover, all products are divided with sections and by using MRP; Avon does not need to worry about the lack of spaces in the warehouses. ?MCDM (Multi- Criteria Decision Matrix) Transportation (0. 3)Time (0. 3)Stock out (0. 1)OCT (0. 2)Warehouse (0. 1)Total JIT 5 (1. 5) 9 (2. 7) (0. 2) 7 (1. 4) 1 (0. 1) 5. 9 Transportation based 3PL 9 (2. 7) 8 (2. 4) 1 (0. 1) 7 (1. 4) 3 (0. 3) 6. 9 MRP 7 (2. 1) 8 (2. 4) 7 (0. 7) 3 (0. 6) 6 (0. 6) 6. 4 Advantages and disadvantages of Transportation based 3 PL AdvantagesDisadvantages •Faster transporting and delivering More spaces In the warehouse •Reduce time Using this transportation system, all the parts are connected consistency •Reduce cost Effective order fulfillment cycle time •Available transportation company Available when needed •Damage in the transporting process •Higher level of trusted transporting partners •Longer waiting time
Explanation Although there are 3 strategies: Just in time, transportation based 3PL and material requirement planning, they are all useful and necessary for Avon. However, based on the multi-criteria decision matrix, the best choice is transportation-based 3PL strategy, using this strategy to help Avon solve some of the issues above. First of all, Transportation based PL is the most important link in the supply chain from receiving raw materials and shipping to the manufacture. Then, all products are divided to warehouses, distributors, retailers and wholesaler before coming to customers. Secondly, here are some situations when the companies hire transportation companies to transport their products but the transportation is not available at that time, that’s why your company has to find a trusted transportation company. Furthermore, if the raw material shipments were transported in the right time, it would be ensured that all the products would be made in the expected schedule. In addiction, all the cosmetic products are delivered earlier result in more spaces in the warehouses for other cosmetic products. Finally, Avon can also reduce the cost of transportation because of the order fulfillment cycle time.
For example, after receiving number of transportation orders from a company, the transportation company will check for their transportation and all the products will be transported in one shipment. Industry Example Loreal is one of the most famous brands in the cosmetic industry around the world with more than 3000 outlets in many countries. Moreover, Loreal are very successful in applying transportation-based 3PL. In 2009, Loreal cooperated with Folio the logistic company to transport Loreal products (Trendset information system, 2010) and not only Folio, Loreal also contact with many transportation companies.
Because Loreal is a global brand name, in every country, Loreal has different transportation companies to help them distribute and allot the products to the customers. With the helping from these transportation companies, Loreal cosmetic products are easier to reach to the customers all around the world. ?Key Performance Indicators (KPIs) Measuring and achieving the performance of transportation based 3 PL strategy by 2 main key performance indicators (KPIs) and transporation based 3PL is considered to be applied for the supply chain of Avon Vietnam. •Faster delivering and transporting products 85% •Lower cost and cost saving 90%
Conclusion This assessment has discussed SWOT analysis with strengths, weaknesses, opportunities and threats. There were 3 strategies, which were Just in time, Transportation based 3PL and material requirement planning has just been applied to help some issues for Avon Vietnam in the supply chain management. Then, with the MCDM, transportation based 3PL were choose to be the best appropriate strategy for Avon. Finally, though 2 key performance indicators faster delivering and transporting products 85%, lower cost and cost saving 90% are illustrated to measure the performance of transportation based 3PL strategy.