VUNJABEI LTD Supply Chain Management Case

Introduction

The objective of any profit oriented business entities are to maximize income values from activities performed in industry, for those objectives to be achieved different function are integrated together with aim to improve company utilization of resources and meet its business goals (Walley, 2017). The key function of business activities are business operation function that concerned with several function such business planning, organizing of business process within company, product design, and management of resources, the core function of business operation are to manage the balance of business supply and market demand of the company (Kumar & Suresh, 2008). Since the operation management concerned with utilization of resources from input used to distribution of output to industry, the significant function within operation management and organization overall are supply chain that responsible for moving of material and services within business process and operation.

Overview of Supply Chain

Supply chain are considered as effectively procedure of moving production resources and material from sourcing points into production process points and from production sourcing to market demand, the supply chain include all players from manufacturer, transporters, suppliers to distribution channel and customers with inclusion of all function and components involved in production and distribution (Sarkar, 2017). Due to technological advancement and increase of globalization era that have impacted business operation, as in current business mode for organization to have successful business goal it should not rely only to individual performance through performing all activities and function from recruitment of raw material to distribution. In modern competition era companies are competing through their supply chain that integrate different task, function and players in mutual business goals (Data, Das, & Bagchi, 2021).

The supply background can be traced back to early 19^th century in 1900’s where local companies such as newspaper producers where supplying newspapers in local market restricted to local areas and region coverage, also witnessed during Rome eras as they travel across the global and created different infrastructure that supported business transportation and management of military affair that need organization structure that will allow movement of material from one units to another in different function performed (Monczka, Trent , & Handfield , 2002). One of notable revolution on concept of supply chain were during 1920’s after industrial revolution that lead to mass production, the increase in production volume resulted to increase in need of raw material as well need for different distribution channel of produced end products (Bohnsasack, Kolk, & Pinkse, 2014). The raise of globalization and technologies in 1970’s lead to another evolution within business operation as organization employed automation machinery in production process which facilitate an increase in market competition among manufacturer companies and enforced them to adopt different business operation model that aimed to integrate internal strength of the company with external influence of the market that means company objective changes and incorporated capacity of the company in production and supply with market demand with production process requirement of raw material and other necessary resources (Bohnsasack, Kolk, & Pinkse, 2014).

Supply chain network structure

Since the business process involve integration of different activities performed in business course that involve transformation of raw material to final products through series of activities such as recruitment of raw material from sourcing to production sites and distributing those end products to final consumers that performed in supply chain, supply chain management (SCM) involve controlling and managing of supply chain function that performed with the aim to maximize profits and customers satisfaction and lead to gaining market competitive advantages (Handfield, 2021). The supply chain management have three common component which are first to develop supply chain network structure, second to develop and manage supply chain business process, and third to manage supply chain activities performed within the supply chain network (Lambert & Cooper, 2000).

As one of component of SCM, supply chain network structure is defined as the alignment of different organization that have separate operation procedures and process through supply chain system where they interconnected with the mutual objectives of adding values to the customers (Van Donk, 2018). The supply chain structure is synchronization of complex network structure of different function from several organization that interrelated to the production process from acquisition of raw material and logistic activities suppliers to production units and distribution channels of the company (Wei, Wang, & Chen, 2015).

The supply chain network structure integrate the roles played by different companies within supply chain from suppliers, transporters manufacturer and distributors that have added values to the customers satisfaction, those companies that integrated are grouped in primary function group and supportive companies (Li, Ji, Sun, & Lee, 2009).  There three supply chain structure scopes which are first horizontal structure, second vertical structure, and third is horizontal position structure as described below.

Horizontal structure supply chain network

This are supply structure whereby focal company where several primary companies and supportive companies integrated into supply chain system of the focal company, the structure can have complex long tier that expanded from business operation to raw material sources or the company can have narrow supply system, within horizontal supply chain each tier had own business model that can compete directly or in direct with focus company in supply chain (Marker, 2017). For the case of VUNJABEI LTD there is two tier lines as it distribute products to tier 1 customers included three wholesalers and independent manufacturing firm.

Vertical Structure supply chain

This are supply chain integration structure that involve numbers of suppliers and customers that integrated within the supply chain system of the company, the number of primary and supportive companies integrated within each tier of the company. The company can incorporate wider structure that integrate many customers and suppliers or narrow structure as it incorporate fewer suppliers in each tier (Alor-Hernandez, Aguilar-Laserre, Robles, & Sanchez-Ramirez, 2011). The VUNJABEI LTD have this supply chain structure as it had wider number of suppliers in tier 1  and tier 2 as it have more than 100 suppliers and sub supplier, also in wider structure of customers in tier two with more than 500 retailers

Horizontal position supply chain structure

The structure that describe the position focal company to the accessibilities of raw material as well as the relation existed between Manufacturer Company to the final consumers and customer of products (Marker, 2017). The VUNJABEI LTD do not have horizontal position structure since all resources are from supplier and all products are distributed through channels.

Those three supply chain structure can be explained in the following structure that and framework bellow.

Sources: (Alor-Hernandez, Aguilar-Laserre, Robles, & Sanchez-Ramirez, 2011).

From the above structure that adopted from (Alor-Hernandez, Et al , 2011), the VUNJABEI LTD have two distribution channels that are used for reaching customers which are Wholesalers for electronic products and manufacturing firm which considered as tier 1 customers of VUNJABEI LTD and tier 2 are retails that receive products from Wholesalers and also manufacturing firm also falls in tier 1 customer of VUNJABEI LTD. The VUNJABEI LTD received raw material and other raw material necessary for production purpose from more than 100 suppliers and sub suppliers which grouped in tier 1 for those suppliers and tier 2 for sub suppliers who independently can compete in supply chain through distributing products directly to customer’s tier 1.

Supply chain management processes

As discussed above in introduction, suply chain managenet concerned with management of activities performed in supply chain which invlove recruitment of raw materials from sources to manufacturing process and provide distributun channel th ensure those products are reaching customers. The supply chain management fucntion are supply planning, products planning, planning of market demand, planning of business operaiton and sales (S&OP), and management of all fucntion performed. Supply chain management process is the integration of those fucntion within the supply chain of the company with the aim of maximixing custoemers satisfaction (Pradabwong, Braziotis, Tannock, & Pawar, 2017). Initial supply chain process started business process that tranform raw materials into final products and end with production of those products to cosnumers. For the supply chain structure of VUNJABEI LTD  where there producers and customer, the following are basic supply chain management in structure.

Supply management process

This are process that involve recruitment of raw materials from different suppliers for production purpose (Pradabwong, Braziotis, Tannock, & Pawar, 2017). In the above supply chain structure of VUNJABEI the first process of planning were already made as the company have started production, the process that adopted in structure were based on supply management of production resources. VUNJABEI were planned on the suppliers and sub suppliers as indicated in the case study that VUNJABEI have more than 100 suppliers and indicated major six suppliers for required raw material and production resources.

Manufacturing and production process

The supply chain management process that involve planning for production and executive those plan into action for transforming raw material to the intended products (Anaplan, 2021). In the supply chain structure of VUNJABEI this process were performed to ensure products are reaching customer Tier 1 and Tier 2 with intended orders placed as for wholesaler only standardized products were distributed and for independent form were customized components sold.

Sales and operation planning process

This process concerned with market demand as it aimed to the determine key players demand and influence factors that will drive sales volume of the company, the process are significant in planning for business decision on focus areas (Anaplan, 2021). VUNJABEI were distribution products to Wholesalers that have large retailer which ensue sales volume of the company, thus more resources were located in procurement of standardized part for increasing standardized electronic products.

Analyses, discussion and proposition of Suppy chain strategy and purchase relationahip

In the present business environment that faced with competitive environment and raise of customer demand while product market life span are falling which forced companies to change business operation models to control those changes and reduce production cost through cutting down some function supply chain by outsourcing business activities. The suppler relationship management are focused on integration of supplier’s activities and manufacturer process in ensuring maximum utilization of resources (Gerhad & Ghoshal, 2004). Supply chain management strategy are considered as framework for production process that ensure customers satisfaction are meet, in case of VUNJABEI LTD that have more than 100 suppliers and sub supplier.

From study of (Apeji & F.T, 2020) that conducted an assessment of operational Visibility in sustainability supply chain as results of complexity and pressure of controlling production effect and its impact results from supply chain system to environment. The study analyzed each suppliers within the supply chain to measure their contribution to the supply chain system. This study adopted in analyses VUNJABEI LTD supplier strategy through Entropy Model theory.

Entropy Model theory

Since the supply chain are involve complexity integration of several suppliers that have contributed in the provision of raw material necessary for production, this complexity can results into challenges in production process when company depend heavily in individual suppliers and then short fallen occurred. The entropy model theory provide company measure of uncertainty occurrence and optimize adaptation of measurement strategy that can be used for controlling any downfall of suppliers (Kriheli & Levner, 2018)

Since more than 70% of revenue were directed to purchase made to suppliers and sub supplier where there great variation between the contribution of those suppliers and sub suppliers. The VUNJABEI LTD depend sole to Vendor 6 as 70% of chemical products come from single vendor 6 also for spare parties of factor machinery and customized IT products that come from Vendor 4 and Vendor 6 respectively were each own 70% and 60% of VUNJABEI LTD market share purchases while also VUNJA BEI made purchase to sub suppliers.

Supplier Strategy and Purchasing Relationship

As indicated that more than 70% of revenue were spend in purchase of raw material and other production process, VUNJABEI can control complexity of Supplier chain through adopting  Kraljic Matrix model that aim to maximize supply chain system by effectively control of cost incurred while maximizing output (Manutan, 2021). The matrix grouped purchase of raw material into four groups which are Non- critical purchase, Leverage purchase, bottleneck purchase, and strategic purchase

Sources: (Hawkins, Gravier, & Powley, 2011).

The Non-critical purchase

These are products that had less impact business activities as they have purchase in low amount and have high competitors offered this kind of resources. In the VUNJABEI LTD purchase resources products from vendor 1 and Vendor 2 which are Standardized spare parties that had 5%, customized products components with 10%, and raw material with 7% purchase are considered as non-critical purchase.

From above analysis the suppler strategy that can be used by VUNJABEI LTD for this kind of products are products volume control since they contributed low income and have low supply risk, standardized products monitoring in which VUJABEI LTD can minimize any negative contribution of these products and ensure it only have positive influence from supply chain.

Leverage production resources item

These are production item that significant contribution to the company profits with low supply risk that allow company to have purchase options within the supply chain (Manutan, 2021). For VUNJABEI LTD the item that fallen in this categories are Customized IT products with 60% of market share from three supplier in which VUNJABEI purchased volume amounted 150 million and also customized products components are fallen within leverage purchase as t have 10% market share with option of 5 vendors which have low risk of supplier. Those have great profits margin as they are distributed to manufacturing companies directly.

Thus, VUNJABEI LTD can adopt full purchase control strategies through using substitute products and suppliers within the supply chain.

Bottleneck production items

These are those raw material and production resources that have low substitute suppliers within supply chain, this products have contributed low profits margin to the company but have high supplier risk due to limited market share within the supply (Manutan, 2021).

Spare parts for factory machinery and Chemicals with only two suppliers in supply chain taking 70% of purchase made by VUNJABEI LTD respectively, thus this products should be purchased in high volume to reduce risk of uncertainty due to its limited substitute.

The proposed strategy for this kind of products purchase are creating good relationship with suppliers, to purchase in high volumes that guarantee availability of resources, and also to create control mechanism for those limited vendors.

Strategic purchase of production resources

This are core raw material and production item that purchased by the manufacturer, those items with high supplier risk and limited number of substitute within the supply chain of the company which have high profits contribution as well as high risk of supply (Hawkins, Gravier, & Powley, 2011).

In case of VUNJABEI LTD, the Chemical products, Spare parts for factory machinery, and Customized IT products are considered within strategic purchase as they rare and less number of distribution channel from supplier. Thus the purchase strategy relation that can be adopted were to form partnership with those vendors.

Form the above discussion, the VUNJABEI can adopt three supplier relationship strategy and purchase relationship within supply chain as described below.

Exploitation strategy. This for those product that have limited Vendor within the supply chain VUNJABEI can use long range contacts from those two vendors to ensure stable supply of Chemical products and Spare parts for factory machinery. Diversity strategy. For those items with low supplier risk the company can diversifies purchase to substitute supplier that offer good prices and distribution channels with low running cost. Also balance strategy, this are integration of exploitation strategy and diversity strategy to increase efficiency in supply chain system.

Analysis of distribution channels

After the production process performed by the company and produced final products for customer uses, the company will have to choose methods that can be used to move those products to the market. Distribution channel are considered the company strategy used for making products produced available to the market for consumers utilization (Freedman, 2022), the manufacturing companies have four distribution channels option on disposal that are direct sales wholesales, intermediaries channels, and dual distribution channel.

Direct sales to customer. These are strategies that adopted by the company whereby they distribute manufacturing products directly to ultimate customers, the company can uses these distribution channel for products that sustain long shelf-life with diversity products units.

Intermediate distribution channel. The distribution channel that involve uses other firm as sales points whereby the manufacturer use agency as medium for moving products from industry to market, the intermediaries channel provide distribution ground and connection between manufacturer and consumers.

Wholesales channels. Thus are distribution channel whereby manufacturer distribute in bulk quantity products to resellers, this channel are more significant to manufacturer since they sell direct to customers but its risk to wholesalers as it might cost them if those products fall short of market demand.

Dual distribution channel. This are distribution channel adopted by the manufacturing company through selecting diversity distribution channels that integrated to ensure products are reaching intended customers.

VUNJABEI LTD Distribution Channels

As presented in VUNJABEI LTD data presented which show that the company two distribution channels which are wholesalers and manufacturing company, it show that Vunjabei Ltd only use two type of distribution channel that are direct sales in which the company sale direct to ultimate customer which is Independent manufacturing firm and wholesale distribution channel by selling to three wholesalers.

Since the those three wholesalers are distributing to more than 500 retailers that directly distribute to ultimate consumers, VUNJABEI LTD can manage the relationship with those Wholesaler to increase retailers numbers to ensure timeframe are minimized for the products to reach customers and increase production volume of the company. As those retailer are large in number that cannot be controlled by the company, VUNJABEI can let wholesalers control distribution channel and the company can focus on managing direct sales to the independents manufacturing firms in order to increase movement of the products.

 

 

References

Alor-Hernandez, G., Aguilar-Laserre, A. A., Robles, G. C., & Sanchez-Ramirez, C. (2011). Improving E-Procurement in Supply Chain Through Web Technologies: The HYDRA Approach. In Book: Supply Chain Management New Perspective, 712-736.

Anaplan. (2021). What is supply chain management (Guide to SCM). Retrieved from Anaplan: https://www.anaplan.com/blog/what-is-supply-chain-management/#:~:text=Supply%20chain%20management%20is%20the,operations%20planning%2C%20and%20supply%20management.

Apeji, U., & F.T, S. (2020). An Entropy-Based Approach for Assessing Operational Visibility in Sustainable Supply Chain. Procedia Manufacturing, Volume 51, 1600-1605.

Bohnsasack, R., Kolk, A., & Pinkse, J. (2014). Business Models for Sustainable Tecnologies: Exploring Business Model Evolutionin Case of Electric Vehicle. Journey of Business Development, Volume 8 No. 5, 120-132.

Data, S., Das, S., & Bagchi, D. (2021). Becoming a Supply Chain Leaders and Executing the Fundamentals . OxfordShire, UK: Routledge.

Freedman, M. (2022, February 15). Supply chain distribution is used to balance supply and demand. Retrieved from Business.com: https://www.business.com/articles/supply-chain-distribution/

Gerhad, G., & Ghoshal, R. (2004). 6- Enterprise Planning and Supply Chain Interacton. Amsterdam, Switzerland: Elsevier Ltd.

Handfield, R. (2021, August 19). What is Supply Chain Management (SCM)? Retrieved from NC State University : https://scm.ncsu.edu/scm-articles/article/what-is-supply-chain-management-scm

Hawkins, T., Gravier, M., & Powley, E. (2011). Public Versus Private Sector Procurement Ethics and Strategy: What Each Sector can Learn from the Other. Journal of Business Ethics, Volume 103 No. 4, 567-586.

Kriheli, B., & Levner, E. (2018). Entropy-Based Algorithm for Supply Chain Complexity Assessment. Argorithms, Vol.11 No. 35, 1-15.

Kumar, S. A., & Suresh, N. (2008). Production and Operations Management 2nd Edition . New Delhi: New Age International Publishers .

Lambert, D. M., & Cooper, M. C. (2000). Issues in Supply Chain Management . Industrial Marketing Management, Volume 29, Issue 1, 65-83.

Li, G., Ji, P., Sun, L., & Lee, W. (2009). Modeling and simulation of supply network evolution based on complex adaptive system and fitness landscape. Computer and Industrial Engineering, Volume 56, No. 3, 839-853.

Manutan. (2021, December 21). What is the Kraljic Matrix . Retrieved from Manutan: https://www.manutan.com/blog/en/glossary/what-is-the-kraljic-matrix

Marker, A. (2017, June 28). Integrated Supply Chain Management: Horizontal and Vertical Integration. Retrieved from Smartsheet: https://www.smartsheet.com/integrated-supply-chain-management-vertical-and-horizontal

Monczka, R., Trent , R., & Handfield , R. (2002). Purchasing and Supply chain management 2nd Ed. South West: Cicinnati.

Pradabwong, J., Braziotis, C., Tannock, J., & Pawar, K. (2017). Business process management and supply chain collaboration: effects on performance and competitiveness. Supply Chain Management, Volume. 22 No. 2, 107-121.

Sarkar, U. (2017). Supply Chain Revolution: Innovative Sourcing and Logistics for a Fiercely Competitive World. New York: AMACOM.

Van Donk, D. P. (2018). Supply Chain Networks . Encyclopedia of Social Network Analysis and Mining, 3026-3030.

Walley, P. (2017). Introduction to Operations Management . Milton Keynes, UK: The Open University.

Wei, Y., Wang, H., & Chen, F. (2015). Exploring the Impact of Network Structure and Demand Collaboration on the Dynamics of a Supply Chain Network Using a Robust Control Approach. Mathematical Problem in Engineering, Volume. 2015, 13.