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C04324 Strategic Supply Chain Management

Published : 25-Aug,2021  |  Views : 10

Questions:

1. Map and draw the existing supply network, as well as calculate the annual cost associated with running the existing system?
 
2. Map and draw the new supply network as a result of the changes made in the case and calculate the annual cost associated with running the upgraded system?
3. Analyse the US supply network, identify and explain other SSCM strategies that can be applied to optimise network costs? Using Linear/Integer or other Programming mathematical problem solving techniques research other distribution cost and network design methods and determine answers to some of the following questions Eg. What would the optimum location for the warehouses and distribution centres be? Should the new Los Angeles distribution centre be added as a new node in the network? Is this strategically something that ABC should do? What factors have ABC not considered that might be important in moving strategically to the new SC configuration, base your arguments on academic evidences of concepts or practices that can be applied in coming up with an optimal network design and then mapping out the new solutions?

Answers:

Answer – 01

The Existing Arrangements

At present ABC is managing supplies of the 900,000 products which are imported by it from China and Taiwan through its 250 suppliers, ABC distributes these products from its Central Distribution Centre (CDC) located in Kansas City to 1.8 million customers located all across the country. The imported consignments are unloaded in USA by ABC at Seattle and Los Angeles, the two ports of entry chosen by it. ABC imports 40% of the 190,000 CBM through Seattle and the remaining 60% is imported through Los Angeles. ABC incurs a cost of $5 per CBM is the Processing Cost which is incurred by ABC on all its inward materials both at Seattle and Los Angeles. After going through the Customs and completing the processing procedure, the imported materials are transported to Kansas City CDC of ABC by rail. The costs of this is $0.0018 per CBM to ABC. After the transportation, processing and handling charges are evaluated by ABC till the materials reach Kansas City CDC, the results are shown in Table – 02.

Next, ABC transports all this material by road to the 9 distribution centres, located in different cities of the USA. The demand of these distribution centres, which are detailed in Table - 01, are given to Kansas City CDC, which despatches the required materials by road to their destinations. The costs incurred on transportation by road are detailed in Table – 03.

From the details given in the above noted tables, conclusion can be drawn that total expenses incurred by ABC are $5,682,558 on procurement, handling and distribution of its imported materials from China and Taiwan, as detailed by Chopra & Meindl, (2015).

Answer – 02  

The Proposed Arrangements

The management is proposing to change storage and distribution of its products by shifting unloading of the incoming materials from Seattle to Los Angeles, so that all materials are handled at one place, as per Coyle, Langley, Novack & Gibson, (2013). The proposal is to expand the existing warehouse facility at Los Angeles so that it can function as ABC’s single port of entry, although for this the company may have to incur a one-time expense of $1,500,000. The new CDC at Los Angeles will cost $350,000 annually on maintenance, say Emílio Jr, Ensslin & Ensslin, (2014). The processing and inspection costs at the Los Angeles CDC will be $5 per CBM. After processing and inspection of the 190,000 CBM imported material, ABC will retain 18% for Los Angeles distribution and shall transport by road the remaining 82% to CDC at Kansas City. From the Kansas City CDC, the 82% of the imported material shall be distributed to the 8 distribution warehouses as was being done earlier.

Table – 04 shows the costing evaluation of processing, handling and transportation costs incurred by the company till it despatches the imported materials to reach the Kansas City CDC. The results obtained have been shown in Table – 05.

The next costing details, covered in Table – 06, pertain to those costs which the company has to incur for transportation by truck, the material to those 8 distribution centres located in different cities of the USA. The demand from the eight distribution centres is given to the Kansas City CDC, from where the materials to be despatched are packed in pallets and sent by road in closed container trucks to the noted destinations, explain Jacobs & Chase, (2012).

From the calculated results, inference can be drawn about the distribution expenses which ABC will be incurring after implementing the changes in its distributions strategy. There will be a total of $4,329,742 as the expenses on procurement, handling and distribution from the changed strategy of maintaining the single port of entry at Los Angeles and the Central Distribution Centre at Kansas City. If the annual maintenance cost of  $350,000 of the expanded Los Angeles CDC is added to the above noted total cost of material distribution, the company will incur an annual cost of come to $4,679,742.

Answer– 03

Introduction: The Supply Chain Process

The strategy adopted for a successful supply chain process can be defined as an integrated process whereby a number of business centres of a company maintain a consistent flow of materials along with a backward flow of information. Based on the two scenarios which have been discussed in this case study, it can be concluded that ABC shall benefit by implementing the second alternative, as detailed by Prajogo, Oke & Olhager, (2016).

Discussing the Process

The second alternative makes it possible for the company in cost savings because of two factors –

  1. The company makes a saving on distance covered in transportation.
  2. The company also saves by avoiding the double transportation if materials are distributed from Los Angeles CDC.

By following the first point, distance travelled is saved as Los Angeles to Kansas City is 1,620 miles whereas from Seattle, this distance is 1,870 miles. If the cost of transporting 76,000 CBM of material for 250 miles is calculated at the rate of $0.0018 per CBM per mile, the amount saved is $34,200. If the cost of transporting 34,200 CBM of material for a distance of 3,240 miles (1,620 x 2) is calculated at the rate of $0.0018 per CBM per mile for 1,620 miles from Los Angeles to Kansas City and for 1,620 miles from Kansas City back to Los Angeles at the rate of $0.0220 per CBM per mile, the amount is –

(34,200 x $0.0018 x 1,620) + (34,200 x $0.0220 x 1,620) = $99,727 + $1,218,888

= $1,318,615

Conclusion

ABC stands to make an overall gain of $1,002,816 if it changes the distribution system of its material using the second alternative, as explained by Prajogo, Oke & Olhager, (2016).

Recommendation

From the above, it is evident that ABC’s existing policy of maintaining two ports of entry at Seattle and Los Angeles does not prove to be financially advantageous. Hence, it is better to implement the new policy by maintaining one port of entry (Los Angeles) as it will not only maximise profits but will also streamline the supply chain operations.

List of References

Chopra, S. and Meindl, P. 2015, Supply Chain Management: Strategy, Planning and Operation, 6th ed. Pearson, New York.

Coyle, J.J., Langley, C.J., Novack, R.A. and Gibson, B.J. 2013, Supply Chain Management: A Logistics Perspective, 9th ed. South-Western Cengage Learning, Milton, QLD.

Emílio Jr, D. B., Ensslin, L. and Ensslin, S. R 2014, ‘An MCDA-C application to evaluate supply chain performance’ International Journal of Physical Distribution & Logistics Management, Volume 44 Issue 7, pp. 597 – 616.

Goebel, P., Moeller, S. and Pibernik, R 2012, ‘Paying for convenience: Attractiveness and revenue potential of time?based delivery services’ International Journal of Physical Distribution & Logistics Management, Volume 42 Issue 6, pp. 584 – 606.

Jacobs, F.R. and Chase, R. 2012, Operations and Supply Chain Management: The Core, 3rd ed. McGraw Hill, London.

Prajogo, D., Oke, A. and Olhager, J 2016, ‘Supply chain processes: Linking supply logistics integration, supply performance, lean processes and competitive performance’ International Journal of Operations & Production Management, 36(2), pp. 220-238.

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