Challenging Logistics And Supply Chain Management Commerce Essay

Challenging Logistics And Supply Chain forethought Commerce EssayThe add together image terminate be defined as being a group of partners who collectively convert a basic commodity into a finished ingathering that is of measure out to the residuum user. In the lend mountain kitchen stove each partner must perform a task which adds outrank to the final product/ serve (Harrison, Van Hoek, 2008).The tag on chain is viewed as a single entity rather than a series of fragmented elements much(prenominal) as procurement, manufacturing and distrisolelyion.Logistics heed could be seen to al slump in the long-term decisions and plans needed for reform, w hereas the supply chain includes the more operating(a) elements.In a supply chain, each partner ought to add place to the finished product good through some deal or procedure (Harrison and Van Hoek, 2008).Elements of Logistics ManagementStorage, w arho apply, material handling.Packaging and utilization.Inventory.Transport. c ultivation and control. bug Lecture Slide 1, Logistics dodging M32 SOR.AimResearch the strategic attitude of Diageo Plc from a logistics context in order to develop a suitable logistics strategy.ObjectivesResearch analyse a UK based brewerys current strategic position from a logistics perspective.Evaluate the key strategic approaches to logistics focusing that could be used by a UK based brewery.Identify the anxiety issues pull ind by actioning a new logistics strategy with consideration for available capital, technical and piece resourcesOutline the strategic signifi spatece of new engine room developments and teleph cardinal line trends on future logistic strategies for a retailer.Prepargon and submit the reportDiageo Plc- settingDiageo Plc is the starring(p) beer, spirits, and wine ac corporation in the world. The company has a wholesome diversified portfolio of lush crapulences and stock grasss much(prenominal) as Jos Cuervo, Smirnoff, Captain Morgan, Johnnie W alker, Baileys, JB, Tanqueray, Bushmills Irish, Beaulieu Vineyard, sterling(prenominal) Vineyards wines and Guinness (www.diageo.com).Diageo is listed both on the London Stock Exchange (DGE) as head as the New York stock Exchange (DEO). Diageo has a wide injury portfolio. The company strives to maintain its principal sumership position and provide rank to the customer. Diageo has manufacturing plants unfold across countries and continents including United Kingdom, Spain, Italy, India, Africa, Caribbean, United States of America and Australia.The company had worldwide gross revenue worth 8.09 billion in the family 2008. It operates in 180 trade places in five continents across the globe (www.diageo.com).Diageo Plc was created when devil of the most complete breweries- Guiness Plc and grand Metropolitan Plc- merged to form the present company in 1997. The company was then reorganised in 2004 into three distinct strategic occupancy divisions, namely, Diageo Europe, Diage o North America and Diageo International. In 2005, Diageo acquired the oldest distillery in Ireland called Bushmills Distillery. In 2006, the company expanded into Russia and got a majority stake in Smirnov vodka p arentage (www.diageo.com).Logistics strategyA logistics strategic framework is aimed at aligning the dissimilar partners of a supply chain in a manner so as to meet and match the customers evolving leads. The objectives of such(prenominal) a logistics strategic framework arCapital lessening It implies increasing the returns on investments made in logistics assets. follow reduction It is to minimiseoptimise the hails associated with storage and movement of goods and supplies.Improvement in surgery it involves processes so as to achieve customer satisfaction.Competitive Structure and CompetitorsThe transnational drinks and beverages market has players, such as Pernod Ricard, Bacardi, Brown Forman Co-operation, Moet-Hennessey (LVMH), and Fortune Brands (Beam Globa l). Pernod Ricard is a Paris-based transnational company which in 2008, acquired a Swedish company, V S Group, the key outrs of Absolut vodka. Brown-Forman Co-operation is one of the salientst ground forces-based manufacturers of alcoholic beverages. In 2007, it acquired a Mexi batch company, Tequila Herradura, to add tequila drinks to its portfolio (Business Insights, 2009)Bacardi, headquartered in Hamilton, Bermuda is comfortably known for its check of rums. It is a family-owned multinational company operating in oer 100 countries. Moet-Hennessey is manufacturer of spirits under the Paris-based p arnt company, LVMH (the too largest retailer of luxury goods in the world). Fortune Brands are America-based manufacturers of wines and spirits and acquired many brands from UK-based consort Domecq in 2005 (Business Insights, 2009).Diageo Strategic PositioningAn actualiseing of Diageos boilers suit strategic localisation rotter stand by us in designing a logistics worry str ategy. Evaluation of the overall strategy is a precursor to develop a synchronal logistics strategy aligned with the companys long term vision.Generic Strategies for Diageo using Ansoff AnalysisCUsersuserDesktoprohit gulatibreweryansoff.jpgAs is evident from the Ansoff matrix, Diageo has the following strategiesConsolidation of its position and market penetration in mature markets such as USA and Europe where it is healthy established. It is doing so both by organic as wholesome as inorganic growth strategies.It is get winding at newer territories and emergent markets such as Africa and Asia for market development of its live products.It is developing products in mature markets so as to augment the share of wallet of the consumer. An type is RTD or ready-to-drink beverages, such as Smirnoff Ready-to-Drink beverage.Porters Five Forces ModelMichael Porter certain his Five Forces model in 1979 to help businesses understand competition in a more comprehensive manner. Diagrammat ically, it chamberpot be represented as followsSource Johnson Scholes 6th ed, exhibit 3.4The model, when applied to Diageo Plc, helps understand the company environs and competition as followsBargaining force of Suppliers this is low as Diageo is an established company with a large market share and strong brand name. To gain advantage over its suppliers, it enters into long term contracts.Bargaining Power of Buyers this is low as Diageo now positions itself as a manufacturer of reward and super-premium spirits and former(a) alcoholic beverages. The market share of premium and super-premium brands of Diageo increase by 4.5% and 11% respectively. menace of Competitors it is high as it has a hardly a(prenominal) international competitors in the form of Pernod Ricard, Brown-Forman and Bacardi. Major mergers and acquisitions have occurred in the alcoholic beverage industry leading to fewer players with played brand portfolios and cross-border capabilities. curse of Substitutes Thi s is low as alcoholic beverages are a socially satisfactory form of intoxication that is not acceptable with any another(prenominal) substance.Threat of New Entrants it is low as entry barriers are high in the form of increased regulation, increasing need of marketing by beverage companies to inform customers and increasing competitive nature of the industry.Please refer to vermiform process A for further reading on competitiveness.Development of Existing Logistics CapabilitiesThe purlieu under which Diageo functions is dynamic and changing rapidly. The characteristics that define its environment that one inevitably to understand to develop the logistics strategy are as followsExpectations of service levels are increasingConsumers are fair more cultivate.Government regulations are becoming more stringentCommodity monetary value pressures and intense competition scram opposite effects on price, affecting margins.Logistics lavatory be of wide value to a company if approached in a correct and authorised manner. Its importance for various businesses has now increased from merely a speak to incurring but necessary function toAn activity to generate pregnant cost savings.An activity with the potential to increase sales and customer satisfaction.A marketing tool to gain sustainable competitive advantage.The cost incurred by Diageo put up be broadly understood as followsCUsersuserDesktoprohit gulatibrewerycogs.jpgSource Gosnell, Investor Relations Conference, 2005The global supply and logistics strategy similarly includes people and processes which Diageo classifies as Partners for growth (Gosnell, Investro Relations Conference, 2005). These can be classified as follows nominate Enablers These are associated with people, processes and attitudes such as collaboration, teamwork, responsiveness and capability development.Qualifiers These include protect brand as well as Diageo reputation through maintaining brand quality, brand integrity, corporeal citizen ship and other such means. It may similarly include the resolve of the company to deliver competitive service to the customer at the right value.Winners these include processes to reduce end-to-end supply chain costs, overall costs, driving technology and research and ability to execute the strategy as expected.The various features of this strategy tooled by Diageo in inbound as well as outbound logistics and value asylum are as followsReducing the overall cost of goods sold Diageo has set a site of 2% real cost reduction each year. The philosophy here is that savings can come from all components of the supply chain such as procurement, logistics, manufacturing and brand value, each of which will be subsequently looked into. The large scale operations of Diageo provide it with an advantage in all these areas. procurance Glass and postcode are two largest components of Diageos cost of goods. To control energy costs, it uses forward purchasing spot purchasing as well as short ter m tactical purchasing. For glass supply assurance and price control, it entered a strategic relationship with Owens-Illinois and gave it the preferred supplier status. At the very(prenominal) time, it developed alternate supplier relations as well such as with Altajir, based in Europe, with which it entered a 3 to 5 year deal.Also, Diageo as well leveraged newer supply sources from Asia and Eastern Europe as these emerging economies are reliable on quality, pricing, service and innovation. As an compositors case, this has led to 40%-50% cost saving on cartons, 20% on crowns and 15%-20% on casings.Manufacturing Diageo tries to maximize the benefits of economies of scale. It has larger but fewer manufacturing facilities, thence having high fixed costs but low variable costs. It has sold or closed 11 facilities in Europe, 5 in North America and 3 in Asia/Africa. In the rest of the manufacturing plants, it has tried to fully optimise the advantages of the Diageo scale e.g. Shieldhal l, Scotland is the largest ledger spirits packaging plant but still has only 7 lines.Logistics Diageo uses the pilot principles involving a central hub warehouse that can supply to the surround markets. These warehouses are strategically located and use cross-border shipments to meet demand. This model alike minimises costs by maximising throughput. This has led to 20% reduction in manpower requirements, 25% reduction in stock and enhanced service performance. An example of the pilot principles model in Europe for Diageo is as followsCUsersuserDesktoprohit gulatidIAGEO_brewery_3250warehouse.jpgSource Gosnell, Investor Relations Conference, 2005Brand Value and Value Engineering An example of value engineering would be the Guinness can size that was reduced by 7%, weight reduced by 1% without freeing of loudness held. JW bottles glass weight was reduced by 22% as another(prenominal) example. This has led to reduction in packaging, hauling and shipping costs.Also, Diageo intends to create value for its customers while preserving its brand image. It intends to do so throughImproving existing quality standardsImplementing environmental management remainssCrisis management pretendings for business resilience hone supply tractablenessStrategic Approaches to Logistics ManagementThere are two motivations suggested for designing a logistics strategy (Whittington 1993). These included the goals of setting the logistics strategy and how contend the processes were of setting the logistics strategy. A matrix was hence developed and helped firms evaluate the logistics strategy.BenchmarkingDiageo can utilise benchmarking to evaluate its logistics performance in comparison to its competitors or companies from different industries altogether. Benchmarking can be defined as a process of endlessly measuring and comparing ones business performance against comparable processes in leading organizations to obtain info that will help the organization list and implement impro vements (Benson 1998). Benchmarking can also be understood as a process for identification of best practices by comparing key performance indicators for a specific activity across organisations and using these performance levels as inputs for bodily goal setting (Gourdin, 2001) Diageo can utilise this to compare its practices with respect to other companies, industries or markets. Benchmarking can be used in a categorization of logistic processes such as warehouse operations, mode and carrier selection, order processing, forecasting and packaging. However, certain steps need to be ensured before embarking on benchmarking (Gourdin, 2001). These are as followsDefining the present performance level of the benchmarked activity. find the level of performance desired in this activity to be benchmarked. ascertain what improvements can be made and to be madeDetermining how to make the desired improvements to achieve desired performance levels.Estimate and set a time frame for the completi on of the process.Collaboration/Co-operationCollaboration is the most sophisticated form of electronic integration. If electronic integration occurs at all levels, namely strategic, tactical and operational, it is called as collaboration. It helps the supply chain members to come together so as to better forecast future demand and to design plans and implement them to meet these demands. The members can collaborate on new product planning, demand forecasting and replenishment planning. Collaboration allows information to be rapidly change and hence, all participants of the collaboration have access to updated and latest information. It can also help to reduce costs and the entropy fed into the system can be used for monitoring and provenderback activities. The co-operative approach simply refers to the degree of foreign and internal collaboration among the supply chain members.Partnerships/AlliancesCompanies now realise the ideal of strategic long term relationship with supplie rs. The underlying reason for this fruition is the need to improve customer service or add value to the finished product. An alliance is said to be strategic when it is strategic in focus and also directly supports one of the partners distinctive core competencies (Grant et al, 2006). Partnerships not only help the members in sharing information, knowledge and experience but also aid in lowering the risks for any one player.Diageo, as motioned previously, has a long term partnership with Owen-Illinois, a USA-based glass manufacturing company. It has been accorded redundant supplier status and given a contract for 3 years. It has also increased the scale of Owen-Illinois. Diageo can forge similar partnerships with various other members of its supply chain.Just in time (JIT)A JIT-based program aims at ensuring that the right quantities are produced at the right time and reach the consumer at the right moment of need so that there is no waste. take in has been defined in JIT programs as anything that does not add value to the end product. One unit more or less than needed is considered as waste. Total Quality Management is a concept whose principle is concurrent with those of JIT and both may need to be implemented simultaneously so as to add value to companys operations. A successful and functional JIT program, however, needfully the following to be achieved by the companySteady production negotiable resourcesNo machine breakdownsReliable suppliersHigh quality product/serviceRapid machine set-upsDiscipline to maintain every of the above functions caterpillar track over a continuumImplementation of JITFor JIT to be successful in Diageo, alteration of the JIT concepts in its environmental set up is essential. The main concepts of eliminating waste, quick changeovers, flexibility in resources and partnering with suppliers have to be realised and has been described as a two-stage process (Gourdin, 2001).Establish foundations (this refers to quality, low cost, m inimum lead times, flexibility these can be achieved through Total Quality Management, flexible and trained workforce, reduction in setup time and focus on design).Core Techniques (pull scheduling, multi-functional workforce, JIT purchasing).JIT is a volume and demand advertisen program. It requires a certain level of stable demand for it to be successful. It cannot be implemented in a business that has unique orders or low volumes of operation. Moreover, companies should strive to improve JIT systems as technology advances.Lean ManagementFirst introduced by Toyota Production Systems, dip management is a concept of reducing waste and non-value adding activities from the value chain. The main elements of lean management are small batch size production, pull creation and reduction in variability. It says that a pull is created when a customer demands a product and only that should lead to production, thus reducing stock wastes and large inventories or batch sizes. Two very importan t principles associated with lean management are kaizen (continuous improvement) and kaikaku (radical improvement). This encourages improvement in the processes on incremental as well as radical levels. Lean management helps in reducing lead times and reduce variability in demand, supply and manufacturing by standardization of procedures.Value Chain AnalysisSource Johnson et al, 2008The concept of a value chain was developed by Michael Porter. He suggested that the functions in an organisation can be split into primary activities concerned with creation and delivery of product and service and supporting activities (Johnson et al, 2008).The value chain analysis helps the company separate its various components of the value chain and what are the activities at which value added can be increased. A fundamental value chain for Diageo can look like thisCUsersuserDesktoprohit gulatibreweryvaluechain.jpgIssues relevant to the development of strategiesIntegration of logistics strategy wit h corporate and business level strategies is essential for success of all these strategic outlooks. Diageo has incorporate logistics strategy with the overall corporate strategy to streamline procurement, manufacturing and delivery operations (Gosnell, 2005). It has helped Diageo become the largest player in the international alcohol beverage market. However, chain of mountains for further improvement always exists. A Step Model can be used by Diageo to develop and assess its logistics strategy and identify its strengths and loopholes.What Diageo must realise is that there are certain factors in the supply chain that are beyond the control of the company. Trying to manage such factors by the management can lead to waste creation and loss of value. These can include increased competitive pricing and product pressures, out of the blue(predicate) actions by competitors that can dent Diageos market share or size, effective and regulatory changes and many others.Management Issues Ca used by Implementing Newer StrategiesNew strategy death penalty can directly affect the capital, technical and human resources of a company. unattackable leadership during change as well as effective intercourse can help implement the change in an efficient manner. During death penalty and modification of logistics strategy, due importance should be given to HR management and other organisational issues. Ignorance of HR issues is the most common, yet often ignored cause of failure to implement changes in strategy, even when they denote improvement over previous processes. These issues such as recruitment, training and appraisal, autonomy, flexibility and reward systems are important factors to be taken into consideration to enable smoother transitions. detail to logistics, the management should review the current staffing and skills, allocation and training of staff, as well as current recruitment criteria and procedures. It should also consider the impact of market pull and te chnical push on the strategy design and plan. Likewise, operational issues have to be monitored and requirements in terms of people, capital and equipment resources have to be met. These are necessary for any new tactically significant operations the company plans to undertake.Force field analysis can also be used to help stakeholders accept the change and understand the requirements, implications and resistances to the change in strategy. The model also suggests that there are two forces primarily in the business field, namely, driving force and resistance force. The management should strive to increase the strength of the former and reduce that of the latter while implementing change.Collaboration can play a significant role in the implementation of change. This is so because the companys suppliers and customers are also stakeholders in the company and can resist change. immanent collaboration, intercompany collaboration and electronic collaboration should be implemented while h olding in mind the ECR (efficient consumer response).New Technology Implementation and Future Trends in Logistics StrategyDiageo, due to its international and cross border supply chain should now focus on localised supply chains and dissemination systems. This can help reduce haulage and shipping costs. Employment of low cost communications and cost computing technologies can aid in this endeavour and also help in increasing capability to extend product variety. Diageo has to be agile and flexible to incorporate these and any such positive technological advances. This can lead to increased pressure on cost-efficient, strategically beneficial logistics management due to increasing competition. As a result, increased pressures may be felt on supply chain net plant life viz. replenishment ordering, continuous ordering and supply flows, cross docking facility and stockless warehousing with product introduce (Harrison, Van Hoek, 2008).Scenario planning is a simulation attempt to gener ate realistic and plausible situations of the industry. Diageo can use it to dissemble various market conditions, future situations and competitor capabilities. Such an uncertainty-based scenario matrix is highle effective in evaluation-based planning over the medium and long term.RFIDRadio frequence Identification is used by Diageo wherever plausible. However, Diageo should try and implement the technology in all markets for more efficient product tracking, demand tracking and supply chain flexibility. It also helps in rapidly collecting info about demand levels and consumption patterns in various markets.RFID is a radio technology that uses radio signalling for electronic identification and object labelling (Harrison, Von Hoek, 2008). This system works in alignment to the organisations information systems. This helps in improving business processes such as supply chain management while relaying significant market entropy.RFID systems primarily consist of three componentsTrans ponders These are also called as contactless data carriers or Tags. They can carry information data feeded into them and identify objects to which they are attached.Readers These devices communicate with the RFID tags and read the information stored in them.Software Applications These are the applications that feed and retrieve the data from a tag via the readers.RFID vs. BarcodesRFID are a technological advancement over barcode. The RFID tags can store as much information as a barcode can and sometimes more. Information carried by barcodes cannot be edited. In case of RFID tags information can be edited or updated. Moreover, this function can be repeatedly performed without any loss of data or damage to tags memory. The security systems inbuilt in the RFID systems are also better as it uses tags uses authentication and encrypted data transfer methods.ERPBaheshti, 2006 defined an ERP system as a collection of business applications, which links various business units of an organisati on such as financial, accounting, manufacturing, sales and marketing and human resources into a tightly integrated single system with a common platform for streamlined flow of information across the entire business.Reengineering of companies is facilitated through ERP systems so that they are in a better position to empower employees, sate needs and demands of the customers and create better business value (Willis and Willis-Brown, 2002)ERP systems helps create reenergized companies that are in a position to better serve customers, empower employees, and drive greater business value (Willis and Willis-Brown, 2002).Since Diageo has three separate business units ply to different geographical regions, the task of collecting and analysing data is a dash one at Diageo. ERP system can integrate these data flows across all the business units and their various divisions so as to better understand the industry events and design and/or modify strategy accordingly. It can thus act as a com petitive advantage to the company in the long run by better understanding of the international market place and varied needs and requirements of the consumers across borders. This can thus help in driving Diageos overall operational efficiency and functional effectiveness.References launching by David Gosnell, Managing Director, Diageo Global Supply, Investor Relations Conference, November 2005Business Insights, The Top 10 animate Companies Industry Trends and Growth Strategies of Leading Players, April 2009Presentation by Stuart Fletcher, President, Diageo International, April 2009Baheshti, H. M. (2006) What Managers Should Know slightly ERP/ERPII Management Research News. Vol. 29(4) online available fromFenn, D. (2005) 10 edn. Key distinguish. Hampton Key Note LtdGourdin, k. (2001) Global Logistics Management. Oxford BlackwellGrant, D., Lambert, D., Stock, J., Ellram, L. (2006) Fundamentals of logistics Management. Berkshire McGraw Hill EducationHarrison, A., Van Hoek, A. (2008 ) 3 edn. Logistics Management and Strategy. Essex Pearson EducationJohnson, G., Scholes, K. and Whittington, R. (2008) 8th edn. Exploring Corporate Strategy. England Pearson EducationRushton, A., Croucher, P., Baker, P. (2006) 3 edn. The Handbook of Logistics and distribution Management. London KoganWillis, H. Willis-Brown, H. A. (2002) Extending the value of ERP Journal of Industrial Management Data Systems, online uncommitted fromwww.diageo.com.