Procurement VS Logistics

 

In the year 2010; the construction of a new thermal (coal based) power plant started in a small town named Jaithari on the border of MP & CG. There are more than billions of pieces that are required to erect a power plant, and getting all of them to the spot was a challenge for the logistics team. The location was chosen based on the availability of the raw materials and the prices of other resources and some political influence. All the major equipment required for the erection of the boiler were being procured from China. The steam drum which is a the most integral part of any boiler, also had to be sourced from China.

The major challenge for the team was, the road connectivity issue for the location, its not that the roads aren’t good, but the problem was the route consists of many mountain ranges and getting the 90ft long boiler steam drum through those turns would have been difficult.

A special vehicle named Nicholas is used for the process, the maximum speed of which is only 20kmph.

It was a difficult process, and engineers worked along with the most experienced drivers in the region and got the steam drum to the location, but what was fascinating was they did it before the scheduled delivery time. They found an alternative route which was a bit longer but had straighter roads and hence the vehicle could move at a constant speed and without much difficulty the job was completed. However, the fuel consumption was a bit more as they had to travel around 100-120kms extra, but when they reached the site before time, it amazed the top management.

             

In Transit                                                                  Installed in the boiler

 

The two most important functions of supply chain for a manufacturing concern are Procurement and logistics. These are often used interchangeably by laymen, but the field experts are very specific about the usage of these terms. To start with let us define the two terms:

Procurement: Procurement is the buying or purchasing of goods or services. Procurement is a strategically based methodology and process by which a company evaluates and sources items that are integral to their business model, standardizes purchasing processes and monitors and manages all elements of that process. Procurement is an important financial function for a company and can account for upto 70% of a company’s cost of doing business.

Logistics: is the movement, storage and operations around the utilization of purchased goods and services for whatever business the company is in. it is the process by which those purchases are physically transported and delivered to the right place at the time and in right quantity. Logistics is a coordinating and complementary role that involves operations, marketing, finance and management. It deals with the various routes through which the raw material can reach the consumption site.

Now in the example stated above, we can rest assured that there was an argument between the procurement team and the logistics team, saying that why did you choose that supplier, and why didn’t you tell them to transport it as well, these kinds of discussions happen all around the globe and hence it is very necessary that all the managers and agents work in the best interest of the firm that they are working for and at the same time find the most optimal solutions to the problem at hand.

We can see that it was the job of the procuring involved vendor selection and deciding the scope of vendor and the location of vendor, in this case since the product is procured from overseas, import duty will have to be looked into, all these are the functions of the procurement team, to ensure the smooth transition happens whereas it is the duty of the logistics team to ensure that the product reaches the location within the stipulated time and in perfect condition. 

Both the teams worked day in and day out to get the steam drum to the boiler.

Not every bottle of water is Bisleri

 Hello everyone.This is Madhumitha studying second year MBA in Amrita School of business.Welcome to my blog on topic "Not every bottle of water is Bisleri".Bisleri is an Indian company well known for bottled water in India.This blog helps you to know more about the supply chain structure of the company and its success.

Introduction

Bisleri, an Italian mineral water firm, was founded in Mumbai in 1965 when, in 1969, the "Parle party" bought Bisleri from the Italian businessman "Signor Felice Bisleri." Parle had Thums Up, Gold Spot and Limca (cola, citrus drink and lemonade) as a soft drinks company and used the brand Bisleri to market water in glass bottles, which they later transferred to PET cans and released carbonated and non-carbonated mineral water soda with two versions. In 1993, Parle sold their soft drinks brands for Rs . 400 crores to Coca-Cola. Parle agreed to put clean drinking water under the Bisleri brand name after this.

Market structure 

There are 1200 bottling plants and 200 brands of bottled drinking water in India (nearly 80 per cent of which are local), according to the Bureau of Indian Standards (BIS). Significant players such as Parle, Coco-Cola,Tata-Mount Everest and Pepsico dominate the bottled water market. While we have a large number of players, Parle was the leader among the major players in this sector when it was launched in India in 1965.

Procurement function

For enhancing profitability, a functional and coherent procurement function is essential. Although it is necessary to have consistent standard operating procedures, it needs more to build efficiencies. To provide productivity, the procurement structure is just as critical. Adopting one that aligns with long-term market priorities and day-to-day practises will help the business work properly.

Supply chain structure

Bisleri has workers employed in numerous divisions located across both its bottling plants and factories. Although the supply chain stretches out to the entire department, the central focus is on the bottling plant where it is necessary to source, produce, produce and warehouse management that creates value for the entire supply chain.

The supply chain's organisational structure is structured in such a way that each department has the same amount of control and can voice an opinion on any supply chain problem. This helps the system to operate seamlessly and creates the direction it can work according to the priorities of the business.

Implementing performance management system

1. Determining the categories of performance to measure
2. Establish metrics of success
3. Establishing targets for results
4. Checking the Method of Output Assessment
5. Tracking and Analysis

Benefits of performance management system

• Ensuring that each employee knows what is anticipated from them in terms of buying, sourcing ad productivity considerations and deciding equally if the workers have the expertise and support needed to achieve these standards.
• By measuring staff's willingness to take on higher roles and thus supplying staff with input on their existing competencies and the need for change.
• It highlights the ways in which the organisation over-achieves and credits them, while offering solutions and input at the levels where progress is required.
• Appropriate and reliable data collection will prevent any problems related to procurement and efficiency that can impede the company's overall performance, such as Bisleri.
• Establishing a direct connexion between success and compensation while just and reasonably distributing benefits and rewards.
• Improving decision-making within the organisation's different organisations and being clear about the structure.

Thus Bisleri increased its corporate efficiency, engagement and commitment of staff, increased its competitiveness, overcoming communication obstacles and cost savings that can propel the central value and values of the business to its ultimate target and reward it with success and benefit.

 

Thank you readers for your valuable time.☺️

Main Challenges in Procurement and Inbound Supply Process

 

Optimizing the procurement and inbound supply processes would mean streamlining all those direct processes involved in purchasing and accounting. We have to implement a real time business network which enables a collaborative relationship between all the stakeholders involved in the process such as the manufacturers, suppliers, logistic providers  etc. This will help in improving the decision-making process, increase resilience and take the business value to another level for all the parties involved.

Direct materials are those which directly goes into making the finished goods. Many manufacturers have to find the trade off between increasing costs (from high inventory levels) and out of stock situations (leading to lost production time, high logistics costs etc.). The high inventory cost is due to excess inventory and not carrying the right materials which eventually leads to high transportation costs.

Another challenge would be long lead times with respect to the suppliers which will influence the responsiveness of the firm. A communication lag will be present as we go down the supply chain that results in a phenomenon known as bullwhip effect.  Companies should aim for zero-time lags  that will ensure all needs are being met at the desired levels.

With this current market, the company should ensure a resilient supply process that does break the continuity and minimized disruptions. This part would require onboarding efficient suppliers across the world, ramping your supply network with respect to the demand and supply changes and other external interferences.

Quality of your order forecast is to be looked at keenly looked at for evaluating both parties, thereby make the suppliers accountable for their supply performance.

Another major barrier for this inbound supply process is the state of the current the current system which may be comprising of the many separate, siloed systems in place. This would be one of initials tasks to be looked at before revamping the whole process, without which all the improvements would have no value.

 

 

Nestle's Supply Chain

 

        Welcome back Readers, This is Muhammad Jassim from Amrita school of Business. This week's blog is all about Supply chain strategies of Nestle.

Nestle :

        Nestle was established by Mr. Henry Nestle in the year 1866. At the earlier years they were into Production and Distribution of Milk product. It established as a World's largest food processing company in 2015, with total sales increased to 88785 Millions says the report from Statista report. There are 435 production factories operating in 35 Countries across the World. Nestle sells 15000 products across 189 countries. They focus on creating shared value across all channels. 

       

     Nestle product line includes,

            1. Powdered and Liquid Beverages

            2. Packaged Drinking Water

            3. Milk Products and Ice cream

            4. Nutrition and Health Science

            5. Prepared dishes and Cooking Aids.

            6. Confectionery

            7. Pet Care

Nestle's Supply Chain Model :

        Nestle has been following simple supply chain model since its beginning where the chain starts on from Collecting Raw material from the farmers as Nestle strongly believes farm grown fresh products are very much important for them to maintain their Global standard. The farm grown products collected from farmers then delivered to the Local suppliers. Then these suppliers are responsible for sending those products to the Production plants where these Raw materials are classified into specific product lines and they are into production of various products. The Products produced where taken to the Nestle Warehouses where they are stored in before getting delivered to the Distributors from where they are delivered to the customers through Retailers. 

Nestle's Sourcing and Procurement :

        Nestle is keen on procuring 10 percent of the total coffee grown across all the countries, ten percent of cocoa plantation and two percent of the overall production of milk and sugar for their various products. Nestle follows supply chain mapping program for traceability of sourcing products from various parts of the world. This create value among suppliers, farmers are provided with technical trainings and the standard of the products produced where improve gradually.

Nestle's Quality Management System :

        Nestle ensures its quality is maintained the same in all the places of their operations, as they maintain the same standard globally. Their practice starts with addressing key global environments and social issues. Research and Development network theme is quality by theme. 

Nestle's Distribution :

        Nestle transports more than fourteen lakh tonnes products from sixteen thousand warehouses. Most of the Nestle's transportation logistics are outsourced through third party operators. Nestle monitors its inventory level using Electronic Data Interchange which is responsible for inventory, pricing and product movement. Then Distributors further connects with the retailers to ensure delivery of products to its end consumers. 

        These are the various strategies followed by Nestle hope you find it interesting and insightful.

 

         

How did Alexander conquer the largest Empire in the Ancient World - Part 2

Welcome Readers !

I am Sheerapthi Ramiya, 2nd Year MBA from Amrita School of Business, coming back with this week's read ! Hope my readers are doing well and I hope you enjoy :)

This blog is the continuation of how did Alexander conquer the largest Empire in the Ancient World. If you haven't checked out Part 1 of this magnificent tale, I request you to do so by clicking on the link: https://logisticsmatters.blogspot.com/2020/09/how-did-alexander-great-conquer-largest.html

We continue at the point where Alexander could not maintain this highly mobile baggage train during entirety of his camping during his march to Asia. At times, we hear of carts temporarily being reintroduced into Alexander's army, most in Iran. Nonetheless, just like the Xenophon way, he soon had to burn most of them to avoid them being difficult for his army in to travel across the harsh terrain. Only a few carts remained and were tasked with transporting essential items that are heavy, most importantly weapons, machinery and the injured. Alexander kept making critical changes to the Macedonian baggage train to suit the situation and his mission. It became clear to Alexander's soldiers that it would be many years before they could see their family again in Macedonia as he and his army marched further and further away from the Mediterranean. Alexander consequently allowed women to travel with the baggage train again. Alexander even allowed his soldiers to marry captive women. Children soon followed, and the baggage train expanded in size. 

Alexander's Empire and Route Taken through his Conquest

It is a total change from his father's logistics system and one that undoubtedly slowed down

Alexander's army but it was necessary. Philip's ban actually worked only because his men had been able to return home after each campaigning season to see their loved ones. Alexander's men could not as they kept progressing eastwards. Nevertheless, even with this change Alexander always prioritized having his army as light as possible throughout his campaigns. For him, speed and mobility were key. 

Another equally important task of the skoidos was distributing rations to the troops, most importantly food and water. Grain products were the top staples of a Macedonian soldier's diet. Wheat, barley and millet were available throughout Asia and India. Not only were they easily portable, but once these products were dried, they could be stored for a long period of time. It is also possible the Macedonians consumed grains in the form of biscuits, porridge and also made bread using flour. Yet the Macedonian soldiery did not live only depending on grain products. Whenever possible, they would also eat dried meat, salted fish and shellfish to feed their diet. However, meat was rare and soldiers relied on different  kinds of dried fruit such as figs and dates which readily available throughout much of Asia. Each Macedonian soldier would carry his food rations. While he was on campaign, these rations would usually be sufficient for ten days. If  Alexander wanted his troops to conduct a swift march, then the food each soldier would take with him usually precooked food items like biscuits, fruits and possibly salted meat. This helped lighten the soldier's pack as cooking utensils were not required in the journey.

Items in a Macedonian Soldier's Backpack 

The journey through Asia was without doubt hard work for a Macedonian soldier. Its hot climate, endless deserts and broad barren lands would have been extremely physically and mentally demanding for any Macedonian, burdened with the weight of carrying arms, armor and a heavy pack. Armor was sometimes even discarded during these marches. Consequently, the requirement for sufficient amount of calories and water was critical for the soldiers and participants for the campaign. Scholars assumed that a minimum of 1.4kg of grain products as well as half gallon of water would be needed to supply the troops in these conditions daily (about 3,600 calories). Meanwhile, horses and mules needed 30 Liters of water and 4.5kg of both grain and straw a day if they were to be kept in acceptable condition. As for a camel, although the animal could survive multiple days with barely any water, the animal was most efficient if given it 37 Liters of water a day. It would also require 4.5kg of grain and 11kg of straw. Yet procuring supplies would prove demonstrate anything besides being simple.

For a large portion of his life towards conquest, Alexander and his army crossed various terrains of inland Asia - lands on many occasions a threat to him and far away from seas and rivers. This forced Alexander to procure supplies via land. Transporting supplies overland was not easy. There were only few carts and pack animals available in many of these regions and there was also the constant dangers of bandits in the region. Furthermore, most agricultural societies in the East did not have surplus of food from which they could help supply Alexander's passing army. But Alexander obviously found a solution. 

An extensive study by Donald Engels concluded how Alexander achieved this. Upon his appearance in Mesopotamia (refer map above) after victory at Gaugamela, Alexander's power and military status in the east become extraordinary and soon many of the remaining Persian officials showed the white flag. Alexander realized he could use this to solve his supply problem. He sent messengers ahead of his army to meet the officials and secured arrangements for the army's supply through their region - sometimes taking hostages to guarantee that officials kept their word. Thus, Alexander secured his supply lines far ahead of time. Alexander took a different approach when official did not surrender to him. He would acquire intelligence about the region - information such as its topography, routes, climate and resources. He would then either launch a lightning campaign against the region with a small elite force, keeping the main army back or split his forces into smaller units so that they would gain supplies by either looting settlements or searching for food resources. 

Alexander regularly took the hard way of destruction in the Persian heartlands. During the winter season, Alexander ensured his forces remained in a heavily settled, fertile area - usually near to navigable rivers or ports from where supplies could be more easily obtained. It was because of his forward planning and charisma that Alexander was able to find solutions to his supply problems throughout his journey. He had a plan for every scenario. There was however, one occasion when this forward planning of provisions failed the Macedonian King. 

The journey that lost Alexander his army

In 325 BC, Alexander marched his army across the Gedrosian desert (refer map above). It proved to be the greatest logistical error of his life, costing thousands of lives. Alexander had expected his army to be supplied by the navy, commanded by Nearchus, as it advanced along the coast. However monsoon winds postponed the fleet from leaving the harbor in India for a long period of time. The outcome demonstrated devastation for Alexander's men. Alexander and his army slowly reduced in number as they crossed the dessert. By the end, 75% of his force, mostly those in the baggage train, had died. This was the one exception in a campaign summarized by many episodes of logistical brilliance. Alexander's campaign in both Asia and India required precise and advanced logistical planning unlike anything else seen back in the ancient times. Its success was crucial to the survival of his campaign - a factor that is so often overlooked. 

Alexander's Statue in Athens, Greece 

This brings an end to the story of Alexander, the man who set march to conquer the largest empire in world, but failed his mission due to one logistical error - FORECAST. Please keep in mind that failure of Alexanders conquest mentioned in this blog is with respect to the logistics carried out. Of course there are other factors that contributed to his failure which is mentioned in John D.Grainger' book "Alexander the Great Failure". We can also notice a lot of logistics and supply chain concepts that Alexander used for his Conquest back in his day - information gathering, logistics planning, establishing supply chain, demand, constraints, procurement, transportation, speed, mobility, and many more. 

This is probably the most interesting stories I have ever come across and interesting how logistics is not something new and is relevant back in ancient times as well. The same is evident in the Kurukshetra war. The link is given below if you want to know more about the Logistics in Kurukshetra War: https://logisticsmatters.blogspot.com/2020/09/the-kurukshetra-war.html

Uncovering the history of logistics does bring about how we these concepts were brought into light and makes me want to explore more. I hope this also brought some thought on logistics and supply chain. For my next read, I will be focusing on the First Globalization in the world ! Do you know what it is ? Stay tuned to find out ;)

What are your thoughts about this ? Give your comments below :)

-Sheerapthi Ramiya

ASB Coimbatore