Posted: April 2nd, 2015

Business Logistics Management

Business Logistics Management

Introduction

            Zed, a medium sized company operating in Australia, is faced with a number of logistical problems. These challenges come at a time when the company has numerous opportunities of expanding its market in Asia and beyond. These problems range from supplier inadequacies, lack of sufficient inventories to meet ever increasing consumer demand to distribution issues.

Immediate issue

The most important immediate issue confronting Zed Company is the establishing and maintaining sufficient inventory levels to ensure client product supplies. The company is exploring various options to meet inventory levels that are sufficient enough to meet the requirements of varied number of clients in the emerging Asian and South-East Asian Countries. The company has landed an excellent opportunity to improve it sales in the Asian market through De Oro Pty Ltd which is a leading exploration and exploitation company in Asia. These two companies have established strong trading relationship with De Oro opting to purchase Zed’s products. This relationship has greatly helped Zed company establish itself in the Asian market.

However, the deliveries of Zed products to De Oro are limited due to low inventories levels maintained by Zed. De Oro is about to be approved to conduct exploration and exploitation projects in southern Vietnam and is concerned whether Zed company will be able to meet timely deliveries of product during the project.

Basic issues

Some of the basic issues facing Zed company are as follows:-

• Lack of investigation of the current suppliers and new supply opportunities for the company by the purchasing department
• Small suppliers who have no capacity to meet the surge in levels of product supplies in the local and international market.
• Establishing and maintaining sufficient inventory levels
• Inadequacy of IM/IT tools relied on by the purchasing department
• Increasing customers’ complaints as result of delayed deliveries of orders
• Supplier slip on the delivery of important components in the manufacture of products and their spare parts
• Inharmonious relationship between the marketing department and the purchasing department
• Custom regulation role in delay of deliveries of products in the Asian market
• Lack of local support to customers in the Asian market
• Establishment distribution centres in the foreign and domestic market

Strategic perspective

Despite the above mentioned problems facing Zed, the company has a strategic potential to solve and overcome the problems. The company has a potential of help the purchasing department to explore alternative options of ensuring steady and timely supply of product components for timely assembling of the final products and spare parts. Additionally, the company has the capacity to increase its inventory levels after ensuring that the supplies from its small suppliers are reinforced by more supplies from alternative sources. Moreover, the company has the potential of establishing distribution centres to ensure timely delivery of finished products in the foreign Asian market that is promising to critically increase its sales volumes in the near future. On top of the above strategic options, Zed has strategic potential to establish customer support services in foreign markets to coordinate and facilitate logistical issues arising from the trade between Zed Company and the Asian market.

Issue analysis

One of the major issues affecting the company is the complacence of the purchases department in review of suppliers’ potential and identification of new supply opportunities for the company. Efficient procurement of goods and services are vital to organizations to access reliable suppliers that ensure sustained production of finished products (‘Business Management’, 2004). Suppliers, according to the ‘Business Management’, need to reliably supply the required raw material to be used in production of finished goods to meet consumer demand. Zed’s purchasing department fails to review supplier capabilities of meeting the requirements of the company in situations whereby an increased supply of finished products is required. Additionally, carrying out of investigation on suppliers is important for a company to identify new opportunities that in the supply chain that can be utilized in the logistical strategies of a business.

For a long period time Zed Company has been contracting small-scale suppliers for the supply of components used in production of Q-10SD, spare parts, and other products. Though the purchasing department has over the years efficiently executed its role in identification suppliers who fit its corporate strategy, the smaller suppliers so identified fail to the flexibility needed in particular areas. The small suppliers are unable to meet the large volumes of supplies to meet Zed requirements during surge periods. Given the manufacturing limitations of these small-scale suppliers, Zed fails to receive additional supplies in time to beat the deadlines for supply of products to its customers. This problem is made created due to the inability of small suppliers to expedite the manufacturing process of components to be utilized by Zed in the manufacture of its finished products. This scenario presents the company with a tight situation with regard to product delivery to its customers in the Asian market.

Establishing and maintaining sufficient inventory level is another chronic problem with Zed Company. Zed’s inventory majorly consists of custom-made equipment, generic equipment, and a number of spare parts. Zed management place more emphasize on good working ordering parts used in the manufacture of the products that are identified by the customers. The management disregard any urgency of holding any inventory by the company. The purchasing department only order what is required to meet the production requirements as ordered by the customers. The purchasing team is not of the idea of holding inventory so as to reduce the risk of obsolescence of that may occur due to problems associated with inventory control. Zed seems to lag behind on inventory management. According to Byeong-Yun, and Byungjoo (2012), procurement departments need to have a periodic review of production inventory to determine the inventory levels that should be maintained in order to meet client demand. The two are also of the opinion that inventory levels should be demand dependent and that organization should maintain inventories to meet demand at any point in time. However, Zed’s purchasing department opt not to maintain sufficient inventories in view of raising units manufactured to meet the ever increasing demand in the Asian market.

Some logistical operations made by the company are incapacitated due to the inadequacy of the IM/IT systems used. The purchasing department lacks a specialized system application that can efficiently be used in the procurement and inventory control. The purchasing department still rely on email in placement of purchase orders and inquiries to suppliers. On the other hand, Excel spread sheet is used in performing inventory control hence difficulties in inventory level follow-ups. Lots of time is wasted in tracking status of orders placed by customers hence slow delivery of goods to clients. The expansion of Zed market in Asia has stretched the current system thus necessitating a change in the current system purchasing and inventory control system.

According to Kuan-Yu and Tian-Sheng (2010), flexible and timely warehousing activities are vital in the smooth running of logistic systems. This will enable quick response to customer requirements, and effective inventory and supply chain management (Kuan-Yu & Tian-Sheng, 2010). On contrast to this, Zed does not seriously focus on the development of an efficient warehousing system and this has resulted in the delayed response to customer requirements. Furthermore, the company does not factor the development of warehousing system in the budgetary allocations of the company operations.

Over the years Zed Company has placed more emphasis on customer satisfaction. The quality of customer service in the past has earned the company a good reputation among its clientele. Quality customer services in supply of products, problem resolution, and customer follow-ups have been primary concern of the organization for long period of time. However, the number of customer complaints has risen in the last six months. Majority of Asian market clients are complaining about delays ranging from belated confirmation of orders by the marketing department as well as slow and late deliveries of orders. This is an issue of concern for the company that attributes these delays in supplies from its small-scale suppliers, insufficient inventories, lack of spare parts, and customs and transportation logistics to the Asian market. The company acknowledges this problem and therefore is exploring various options to prevent this situation from adversely tainting its good reputation in the international market.

Suppliers are equally contributing to the current situation facing Zed. Zed has contracted small suppliers for the supply of manufacturing components of its final products and spare parts. These suppliers have from time to time slipped in the supply product components. Suppliers’ failure to respond to additional quotes for work leads to late deliveries of finished products to Asian market. Zed has to wait for the supplies before assembling the finished products. Majority of the suppliers are incapacitated and cannot manufacture additional components to meet the increasing the demand of Zed products in the Asian market.

Internal issues also seem to cripple distribution logistics at Zed organization. Some of the challenges that the company is facing right now are due to incoherent relationship between the purchasing and marketing department. Purchasing department is not pleased with the pressure that it is getting from the marketing department. Purchasing department complains about the issue of the marketing department to conduct suppliers as a follow-up of status of specific orders. The purchasing department feels that the marketing department is going out by interfering with its obligation. Conversely, the marketing department thinks that the delays in delivery of orders to clients are majorly caused by the purchasing department delay and slowness to procure necessary material and components in the manufacture of finished products. Marketing department points fingers at the manufacturing department for its failure to meet order deadlines.

Transportation and custom regulations are thought to be adversely affecting the supply of logistic of Zed company products into the Asian markets. Zed Company is not sufficiently used to numerous international logistic and owing this inexperience, the company has had a problem in ensuring that products reach customers in good time. Custom requirements and regulations differ differently from one country to another thus contributing to delays in delivery of orders. Additionally, languages and differences in customs requirements create bureaucratic issues hence interfering of expedition of distribution of finished products. Furthermore, the failure of to have timely deliveries of finished products to the Asian market is aggravated by lack of foreign distribution centres. The management argues that they it can sufficiently meet customer needs from it Brisbane location therefore no need for foreign distribution centres. Additionally, the lack of support services in Asian market seems to compound the other issues facing Zed in the international market. The company is faced with a dilemma of whether to have customer support services in Asian market to coordinate and facilitate logistical issues between Zed and its clients in the Asian market.

Alternatives or options

In the view to arrest the above issues, Zed can as well as maintains the status quo and continue with its supply logistics. This means that the Zed will have to sticks its original suppliers for the provision of product components, low levels of inventories and manufacture of finished products depending on the orders placed by the clients. This implies that it should not alter any of its logistic strategies for the sake of securing Asian market.

Zed can also consider De Oro’s proposal and manufacture and distribute in Asia. This move comes with only one advantage, that is, the company will be able to make deliveries of customer without any delays and will have greatly reduced transportation costs and customs fees. However, the company risks loosing their proprietary information to De Oro and De Oro may turn out to be Zed main competitor due to sharing of product manufacturing information. Zed Company can as well accept the De Oro proposal with some amendments. These amendments could be having exclusive rights in the manufacture of the products and De Oro to only provide facilities for manufacture without direct involvement in the manufacturing information. The merit of this option is that Zed will be able to shorten the logistical chain considerably both from supply of manufacturing components from foreign suppliers from Asia and the distribution of finished products. The demerit of pursuing this option is that there is a possibility of high manufacturing costs because of the De Oro facility that Zed will be using.

Zed can also engage in the investigation of additional suppliers in Asia in line with the current practices. The pro of this option is that the company will be able to get new suppliers in addition to the present suppliers. This will in turn enable to purchases department to order enough supplies to meet the additional orders placed by clients and thus make deliveries within deadline. The preference of small-scale suppliers by Zed may have the same limitation as present if there is going to be more additional demand of finished products.

Zed has also an alternative to reorganize its corporate structure with chosen corporate strategy of geographical diversification. This option can be explored since the company has already strategically diversified its marketing activities internationally especially in the Asia. The crucial benefit that will accrue to Zed Company if align its corporate strategy to fit the corporate strategy of geographical diversification is that the company will be able to improve and create more competitive advantage over its competitors in the Asian market. Additionally, this will serve as an improvement of the core competence of the entire business. This option may greatly disadvantage the company if it fails to give safety nets as hoped thereby affecting business portfolio.

The sixth alternative at the disposal of Zed Company for the resolution of current logistical issues is for the company to pursue African market opportunities. This option is grounded on the fact that Africa presents exploration and exploitation of minerals has been undeveloped and there are positive signal of more explorations and exploitation on the continent. Another advantage of this option is that it will further create more market for Zed products. The demerit of this option is that the strategy is going to create same logistical issues as presently witnessed hence status quo may still prevail.

The last option is for the company to consider combining and integrating the above options. The combination of the above alternative may have a permanent solution to the logistical problems compounding the company. However, the adoption of such an alternative may not be sufficiently met by Zed given its medium sized and may lack the capability of adequately implementing the option to the later. This may also result in portfolio failure.

Recommendation and implementation

Logistic chain which incorporates both production and distribution must be as efficient as possible to meet the challenging modern complexities of the ever growing markets in the world today (Beukema, & Coenen, 2004). The adoption of logistic strategies must be informed by the distributive structure suppliers or materials and services. Basing on the above argument by Beukema and Coenen, it is recommended that the management of Zed should consider restructurings the whole logistic system and develop a more efficient one. The managements should consider a total review of its suppliers in order to identify their strength. Outsourcing should become more common practice by the company in the manufacture and distribution of Q-10SD since it forms a significant percentage of the total sales of the company.

The management should also focus on level analysis of logistic chains with a view of analysing and gaining more into the dynamics of inventory issues that seem to be lagging behind in the provision of orders on a timely basis. The company should then incorporate various mechanisms to ensure manufacturing process release sufficient orders to meet customer orders. This shall only be made possible through outsourcing of material to produce Q-10SD to meet increased inventory levels. The company may try and engage a more established strategic alliance with one large supplier of products components to guarantee supply of components during additional demand period only.

It vital that the management to acknowledge that the logistic supply chain is going to elongate with more geographical diversification in Asia and probable entry into Africa therefore should make more budgetary allocation to cater for increased transportation costs and inventory management. The company should also consider scaling of manufacturing process and re-engineering of the core processes of the organization to remain competitive in the Asian market.

Conclusion

Zed has a wonderful opportunity to increase its sales volume owing to the large Asian market and the promising African market. To efficiently realize its geographical diversification strategy, the company need to review its current logistic system. By doing so, the company will be able to attain its objective in production and distribution of finished products.