TERM REPORT SPRING 2012

SCM PRACTICES AT PREMIER DISTRIBUTOR

SUPPLY CHAIN MANAGEMENT

Submitted To: RAFAY ALI KHAN Submitted By: Prince Kumar Ghulam Mustafa (10107)
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LETTER OF TRANSMITTAL

Date: 12th April 2012

Mr. Rafay Ali Khan

Institute of Business Management Karachi

Dear Mr. Rafay Ali Khan

Following is the Term Report that you had given us as our final project. The project is based on SUPPLY CHAIN MANAGEMENT PRACTICES AT PREMIER DISTRIBUTORS (Part of Premier Group)

All the data used is authentic and based on indepth discussion and studies. All issues that were relevant to the topic have been covered in this report in great detail. For further details and queries about the compilation of this report you may feel free to contact us.

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Yours Sincerely,

Prince Kumar Ghulam Mustafa

LETTER OF ACKNOWLEDGEMENT

Date: 12th APRIL 2012

This report is a comprehensive report covering all the topics given in the report outline. This report has been prepared as a part of the course requirement for SUPPLY CHAIN MANAGEMET. The material compiled and presented in this report is a result of comprehensive efforts.

This report has proved to be a great learning experience.

We

would like to thank our course facilitator MR. RAFAY ALI KHAN who shared his in-depth knowledge in the light of his vast experience.

Sincerely,
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Prince Kumar Ghulam Mustafa

ABSTRACT
This report signifies the key supply chain management practices at the premier distributor (part of Premier Group). In-depth studies have been carried out to analyze the general practices of Premier distributor and its logistics operations. Information has been collected through the questionnaire and discussed in a great detail with top management. This report includes the challenges faced within a distribution industry; how distributor companies manage their order processing and what are the key issues involved in the various processes of supply chain partners. Distribution companies mainly focus on the logistic activities because of their expertise and core competency. Premier Group (one of the leading distributors in Pakistan) plays a vital role in the supply chain of principal companies and making sure that the product is available at the right place on the right time and ensuring the timely delivery of product to the right customer.

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INTRODUCTION
CORPORATE PROFILE

Premier Group of Companies is one of the leading distributors in Pakistan. Group includes Premier Agency, Premier Distributor, Shield Corporation. Zaman Textile and Pharmaevo. Distribution services are set in the following manner: Premier Distributors deals mainly in Branded Food products and household items where as Premier agencies deals in pharmaceutical products, toiletries etc. Premier Group is engaged in providing the best possible, high quality service to our customers and assisting their business partners in reaching all potential customers and serving as a link between them and the market place. Premier understands market requirements and continuously strives towards being a customer-creating and customer-satisfying organization. (COMPANY WEBSITE) Premier is one of those few Groups possessing clarity of vision and resolve to act boldly and decisively. Until 1970, the supply chain of consumer goods, including drugs and medicine, comprised of manufactured / imported wholesaler / stockiest and the retailer. Premier Group is the pioneer of retail concept and providing extensive coverage and assisting their business partners reaching all potential customers. (OWN WORDS) With rapid growth in population and emergence of suburbs and satellite town, supply chain became inadequate. As far is consumer was concerned his needs were not fulfilled as per requirement and as to the manufacturer or importer he had to deal with literally hundreds of wholesale customer which was extemely difficluty and costly. Premier realized that adding distributor to the supply chain would relieve pressure from the manufacturer / importer and ensure market penetration. Indeed Premier realized and implemented marketing support to their principals which earlier had been the sale

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responsibility of the manufacturer / importer as the stockiest / wholesaler was neither interested nor competent to assist. After the establishment of the first step of the Group PREMIER AGENCIES in 1971; PREMIER has come a long way and has become the market leader in the distribution services industry. They have refined their business operations and strategic relationships and have increased their network to 25 sales / distribution centers nation-wide which are fully motorized with the deployment of more than 300 delivery and service vehicles. They have deployed latest computer networking systems to ensure better inventory control accelerated order execution system and more unspiritual providing regular sales statistics to their respective principals. With a diversified business portfolio and an ever increasing growth rate, the company today boasts employee strength of over 2400 people. A highly specialized distribution network for both Pharmaceuticals, Consumer, Cosmetic and Allied products enables them to help their clients having diversity in products portfolios. (OWN WORDS + COMPANY WEBSITE)

LITERATURE REVIEW
The movement of a product or a service from supplier to customer takes place with the help of organizations, people, technology and resources. According to Terry Harrison a supply chain is a network of facilities and distribution options that perform the functions of procurement of materials, transformation of materials into intermediate and finished products and the distribution of the finished products to customers. Supply chain finds its place in both services as well and manufacturing industry. Supply chain can also be explained as the association of the retailers, distributors, transporters and suppliers who come together and share the process of sale, delivery and production of a particular product or service. (Internet sources) Supply chain management is an efficient way of managing the above mentioned activities. According to Jessie Chinami Supply chain management can be defined as an oversight of materials, information and finances as they move in a process from supplier to manufacturer to wholesaler to retailer and finally to the consumer. The basic aim of supply chain management is coordinating and integrating the flow which takes place within and among companies. The basic three types of supply chain management flows are: The product flow The information flow The finances flow

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The product flow deals with the goods and services that are subjected to movement from a supplier to a customer and viceversa. The information flow manages the upgrading as well as management relating to the status of the delivery process while the financial flow manages all the finances related to the delivery process. A schematic diagram of the Supply chain management process is as shown. The various processes in SCM are: Supply chain strategy Logistics Product lifecycle management Procurement Asset management Enterprise applications Supply chain planning

The decisions associated with supply chain management cover both the longterm and short-term. Strategic decisions deal with corporate policies, and look at overall design and supply chain structure. Operational decisions are those dealing with every day activities and problems of an organization. These decisions must take into account the strategic decisions already in place. Therefore, an organization must structure the supply chain through long-term analysis and at the same time focus on the day-to-day activities. Furthermore, market demands, customer service, transport considerations, and pricing constraints all must be understood in order to structure the supply chain effectively. These are all factors, which change constantly and sometimes unexpectedly, and an organization must realize this fact and be prepared to structure the supply chain accordingly. Structuring the supply chain requires an understanding of the demand patterns, service level requirements, distance considerations, cost elements and other related factors. It is easy to see that these factors are highly variable in nature and this variability needs to be considered during the supply

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chain analysis process. Moreover, the interplay of these complex considerations could have a significant bearing on the outcome of the supply chain analysis process. Major Reasons to Establish a Supply Chain Management Philosophy Reduce Inventory Investment in the Chain In the past, holding large amounts of inventory was a typical business practice. This was due to the uncertainty involved in dealing with many suppliers. The current business trend is to reduce or eliminate inventory wherever possible, but it is important to understand the balance between customer service and inventory. Ballou (1992) states that increased customer service is a reason to hold inventory. Inventories provide a level of product or service availability, which, when located in the proximity of the customer, can meet a high customer service requirement (Ballou, 1992). Inventory close to the customer can also reduce cost of lost sales and result in repeat customers.Holding any amount of inventory results in some form of expense, particularly carrying costs. On the other hand, the reasons for holding inventory can indirectly reduce operating costs realized in other company activities (Ballou, 1992). These cost reductions can be price-quantity discounts, lower transportation rates, or holding safety stock to insure against stockouts (Coyle, Bardi, and Langley, 1996). Safety stock is held to buffer uncertainty or variability involving external factors, including supplier relations, economic conditions, and raw material supply. Many firms hold safety stock due to the time variance during product delivery and unknown demand requirements. Uncertainty has traditionally been buffered with inventory (Ellram and Cooper, 1990). SCM strives to minimize the uncertainty involved in business transactions among firms in the supply chain which leads to building safety stock inventory (Coyle, Bardi, and Langley, 1996). Reducing uncertainty can lower inventory levels held within the chain by reducing the number of suppliers a firm deals with and enhancing the relationships with the remaining firms. Sharing information about anticipated demand, orders, and production schedules reduces uncertainty and can lead to lower safety stock inventory (Coyle, Bardi, and Langley, 1996). Inventory is not necessarily eliminated completely from the channel, but rather only the redundant inventory levels (Cooper and Ellram, 1993). For example, Xerox took over $700 million of inventory out of its operation within two years by applying SCM techniques (Stenger, 1994). Information sharing helps to reduce uncertainty and leads to lower inventory levels. It is not necessary that all channel members have access to the same information, but only the information which is needed for them to better manage their supply chain linkages (Cooper and Ellram, 1993). During the 1980s, the idea of reducing uncertainty by exchanging information for inventory, received widespread recognition as a means of reducing costs and increasing effectiveness among trading partners (Ellram and Cooper, 1990). Information sharing is an essential characteristic of

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the SCM philosophy. A broken supply chain could occur if firms do not communicate. A broken supply chain has substantial stock at one point to enable another node in the supply chain to skate by with minimal stock (Davis, 1993). This is an inefficient supply chain because there is more inventory being held than is required. The SCM concept focuses on holding inventory where it is optimal for the entire chain (Ellram and Cooper, 1990). Each player in the supply chain optimizes its own position by holding all of the inventory it needs or requiring other supply chain members to hold additional inventory (Ellram and Cooper, 1990). There will always be some level of inventory within the supply chain, but the real difficulty is knowing how much to hold and where to hold it (Davis, 1993). Coordination is the reason that SCM exists and has become increasingly popular within firms. Increase Customer Service Companies have recognized that customer service can increase revenue and customer satisfaction. The driving force behind the emergence of SCM is pressure from the customer for improved service (Giunipero and Brand, 1996). Coyle, Bardi, and Langley (1996) define customer service as a process for providing competitive advantage and adding benefits to the supply chain to maximize the total value to the ultimate customer. Customer satisfaction is referred to as the cumulative level of satisfaction based on the total purchase and consumption experience with a good or service over time (Sharma, Grewal, and Levy, 1995). SCM is instrumental in delivering high customer satisfaction with reduced lead times and costs. Customer service affects company performance in two ways: 1) customer satisfaction and 2) cost expenditures (Dresner and Xu, 1995). An increase in customer service levels will increase costs, but also will increase customer satisfaction that in turn increases revenues. In other words, a satisfied customer will return and be willing to pay a premium for high customer service levels, resulting in higher profits. When implementing a customer service program, each level of service is associated with some transportation and inventory costs. For example, inventory levels (and carrying costs) can be lowered if air transportation is used, but transportation costs will be higher (Coyle, Bardi, and Langley, 1996). These costs can be justified if higher customer service levels result in a higher profit. A company needs to find a customer service level that balances total benefits and total costs. Langley and Holcomb (1992) identified several trends in customer service including: 1) the ability to effectively manage information, 2) longer-term relationships, and 3) sustainable competitive advantage Understanding and implementing these trends are important because customer service becomes the link between logistics and marketing activities (Langley and Holcomb, 1992). A company with a logistics and marketing advantage will be an industry leader. Companies that can effectively manage and share information within the supply chain have a significant customer service tool. Information is key to a companys ability to provide excellent service. An open communication channel between buyers and suppliers is necessary to receive feedback on customer service. Information must be

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accessible and usable by the entire supply chain to ensure proper customer service levels. In the traditional system, companies control all inbound and outbound information flows so they feel much more comfortable. The information exchanged is limited to the needs of the current transaction (Cooper and Ellram, 1993). According to Luis Fsolis, vice president of business development, GE Capital Logistics, information has to capture the needs of customers better and most companies have been capturing and managing information that only pertains to themselves (Meachum, 1996). A shift from transactual to contractual relationships has resulted in longer-term relationships (or partnerships) with buyers and suppliers. Partnerships evolve from a relationship between suppliers and satisfied customers who have become repeat purchasers and loyal to a particular firm (Sharma, Grewal, and Levy, 1995). Close buyer-supplier relationships have come to the forefront of todays business world as a result of companies working to improve their levels of customer satisfaction. Customers experience service improvements through reduced inventory levels, shorter cycle times, and more timely and accurate information (Lambert, Emmelhainz, and Gardner, 1996). Enhanced customer service levels give companies a competitive advantage over competitors by ensuring customers that service is a priority Build Competitive Advantage As the market environment becomes more competitive, firms must develop a strategic long-term (versus a traditional adversarial approach) competitive advantage to remain in business. Strategic capabilities needed for a firms success and competitive advantage include being responsive to target markets, having low total distribution cost, and speedy, reliable delivery (Morash, Droge, and Vickery, 1996). Companies use strategic alliances to achieve these capabilities. An alliance is defined as a contractual relationship between two independent entities in the logistics channel to achieve specific objectives and benefits (LaLonde and Cooper, 1989). Partnerships are the most informal and most common type of strategic alliance (Rogers and Daugherty, 1995).

COMPANY INFORMATION PREMIER DISTRIBUTOR Premier Disributor is engaged in the distribution services of branded food products and household items.

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KEY PERFORMANCE INDICATORS Coverage Execution Market credit Timely supply Logistics HR performance Order Booking PHILOSOPHY AT WORK

Highest Standards, in essence, include integrity, efficiency, accountability, innovation, and fully becoming an extension of the principal

Work with the sole objective of achieving results. Provide services of the highest standard to the principals & to the Market. Total satisfaction of the principals we deal with. A perfect grasp of the market. STRENGTHS
Retail segment is the back bone of their distribution system.

Coverage and service complaints to be attended at priority. Bring out the best with dedicated continuous efforts. To Provide high quality After Sales Service. Achieve growth exploring the potentials to the maximum.
Extensive retail outlets coverage

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 Technological Sophistication: Premiers highly sophisticated & developed

management information system provides real time information as and when required Adequate Infrastructure & Resources

Optimum level of infrastructure & resources enable us to perform the required task with greater efficiency Professional Human Resource: People are their most valuable resource. A dedicated team of professionals right from top to the bottom is always happy to increase their service level and decrease lead time to response

Excellent reputation in the trade Resources and Structure Premier Coverage to following Outlets

Resources for the group: 440+ Delivery Vans Consumer Outlets 64,593 829 Sales Order bookers 497 Delivery salesmen Pharmacies 33,431 Total Employees 2400+ Total Outlets covered 98,024 PROCESS DEVELOPMENT

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Due to process change the operations are better managed by deploying the managers for branch administration officers They are responsible for managing different issues of particluar branch. Operations manager look at he overall issues.

FUNCTIONS OF SALES OPERATIONS AND BRANCH ADMINISTRATION

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SUPPLY CHAIN MANAGEMENT PRACTICES AT PREMIER DISTRIBUTORS

ORDER PROCESSING OUTWARD
Premier distributor is engaged in providing best service to its principal; it provides distribution services to its clients and distributes its products to all retailers and wholesalers and makes sure that all the products are timely available on the shelves of the shops. Our order processing includes the process of booking different orders from different shops by all DSFs (Daily sales force). All the routes and plan is defined in the SAF/PJP (permanent journey plan). Supervisors and managers make sure that all the shops are visited. These orders are then processed by IT department and data entry is made in the software. Summary sheet is generated by the system and given to the store keeper. Store keeper is responsible for the timely loading of vans so that vans can reach its designated area and all the shops are covered. Sales force makes sure that all goods are delivered and no returns are made. Orders are delivered to the right customer at the right place at the right time and payment is made.

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INWARD
Stock position reports are made on regular basis and audits are also carried out in the warehouses and stock taking reports are prepared to identify the exact needs of the warehouse. Our inventory conrol department is responsible for analyzing the need od stock and placesorders accodingly. Sometimes consolidated orders are made and mostly separate orders are made as per requirement and need of the branch and purchase order is issued to the principal and they process orders accordingly. Delivery Challan is issued by the principal and invoice sent to the distributor. Containers reach at the respective branches specified by Distributor head office. GRN is prepared and cross checked wih invoices received; entry is made in the ledger.

RISK COVERAGE Because of the nature of business, there is a huge risk involved in operations. 1. Cash in transit 2. Cash in safe 3. Cash & Goods in transit 4. Fidelity Insurance 5. Fire insurance

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6. Terrorism

INFORMATION FLOW:
All the communication is done electronically with all the principals. We are using our software based on visual basic. We have more than 1200 reporting formats. Multiple types of reports can be generated from the software depending on the customer/Principal needs.

Top to bottom approach One of the apporaches in informamation flow is top to bottom. Principal delegates tragets and other neccesary information to top management and such infotmation flow towards bottom of the chain for te execution of operations. Bottom to top approach Some informaion flows from bottom to top. Market infromation flows from eiher of the chain. Because DSFs are more closer to the market and directly interacts with the clients so they communicate the relevant information to the upper levels of the chain.

MVR Market visit report are prepared in order to further smoothen the operation and do a check and balance on the market activities

Competitive analysis (principal)

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Competitive analysis is done on monthly basis to further strengthen the coverage and competitive postion of the company. Ussually done by Principal and communincated to the distributor for implementation.

Surprise visits by TSO, BBM, AM, GM, director sales. Retail audits are conducted to know the flaws with in a market and making sure the execution and coverage is met up to the standard.

KEY PROCESSES IN SUPPLY CHAIN

Premier distributor SCM include he foolowing key processes:

Order Booking: DSF have been allocaed proposed journey plan and ther are required to sricly follow the rouing programs; order bookers directly interact wih customers and get the required market information and communicate I o the relevant person.

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Inventory control department takes care of stock position on regular basis and deal wih purchase orders. Storage function is a major par of SCM process of the organization. They have proper warehouses. They strictly follow ISO standards and monthly audit is carried on. Supply Services: DSF book orders from all the customers but they are delivered by salesmen. 96% execution of orders is the benchmark and 98% for order execution.

Logistics activities

Order placed by inventory control department and delivery challan received on delivery of istock on desired branch and unloading of stock is carried on. GRN issued and verified with invoices reveived via email. Warehousing activity
o

Delivery tuck holding area

Block Trailor concept 45 degree angle Back o back side to side

o Loading and unloading

Combination Separated Scattered

o Order Picking

Manual

Retail coverage through proper area plan. Vans are operated from 9 braches to different areas

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Geographical departmentalization in-house workshops and outsourced Outsourcing when required and contract based vans. Discount
o

Seasonal

o quantity o cash WAREHOUSING ACTIVITIES

Proper check and balance on the stock. Stock taking reports are prepared fortnightly and making sure that physical stock matches the computerized data. FIFO method is followed strictly. In food products, issue of expiry is a key area to look at. So, branch managers and store keepers make sure that FIFO is followed. Monthly reports are prepared Planning based on Primary/secondary targets Safety stocks are carried on 15-20 days basis depending on the nature of product. Reshuffling from one branch to anoher as per requirements. Excellent coordination among branch managers. Fire arrangements are made at all the warehouses by fixing alarms. Warehouses are maintained at sustainable temperature Stocks placed on pallets at a distance of 1 inch as per standards. Monthly audit is carried on to make sure all the standards are followed in all branches. Stock taking reports are prepared fortnightly to cross check inventory levels Product plus section based placemen of stocks

MAJOR COST COMPONENTS

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Being a distributor, Premier is incurring major cost components to proveide best possible service to its clients: Payroll Financial charges Transport cost Warehouse rent Market credit Outsourcing

Premier distributor is following efficient strategic planning to make corrective actions when needed. Proper stragiies are formed and implemented o reduce the overall operations cost as much as possible.

Issues
1. Pending Orders 2. To secure Left over sales 3. Cost of transport 4. Managing Supply 5. Managing Expiry of products 6. Vans management 7. Human resource retention ratio

Lost sale is one of the threats in the distribution industry. Being a distributor, we can not afford any lost sale due to any reason. Pending orders is one the major issues; weekly or sometimes daily visits are caried out to specifc shop and we try our level bes to fulfil the cusomers needs. We make sure that all the pending orders are met and get our efforts to secure our left over sales.

Cost of transport is also one of the factors in our company which is a major component of total cost. We look forward to minimize our cost as much as possible as increasing fuel prices is one of the threats with in distribution industry.

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Proper human resource manager is also one the major component of success factor of our industry. Retention of sales force is a major issue.

Managing supply: Managinf inward and ouward flow of product is a challenging task. Issues exist due to short expiry or excessive demand resulting in shortage of produc. We manage by reshuffling if stock is available at other branches for temporary solution and at the same time order is placed to the principal.

Certain items are receivied with short expiry so get rid of them as earliest as possible is a challenging task. We form straegy to sell those items or those with excessive inventory or slow moving items.

Challenges Oil prices Absenteeism Security issues Technological advancements Workforce turnover

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CONCULSION
Our key finding has included the following points regarding the supply chain process at PREMIER distributor: Close relaionship with principals and customers. Higly growth oriened company who has the its top priority for its principals, customers and all the employees Extensive coverage and distribution network resulting in leadership in the industry Proper utilization of resources
Managing flow of product, information and supply chain with of the best

of resources Strictly follow SOPs and efficient use of resources

Leading

to technological advancement and highly sophisticated information software generating various reports catering to the information needs of the management.

These include: Daily, Weekly & Monthly sales reports Customer, Territory & Area wise reports Product & Category wise reports Target Achievement reports Salesman & customer productivity reports

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 Brilliance in planning and excellence in execution are the top priorities in

what they do and how they do it Adequate Infrastructure & Resources Optimum level of infrastructure & resources enable us to perform the required task with greater efficiency

FUTURE RECOMMENDATIONS
Integration of sales and accounts system ledger More technological advancements Proper strategies neccesary to cope with HR issues. Need to further streamline close partnership with customers because of intense competition

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REFERENCES
LECTURES OF SIR RAFAY ALI KHAN INTERVIEWS WITH THE PREMIER GROUP EXECUTIVES QUESTIONNAIRE FILLED http://premiergroup.com.pk/ http://www.emeraldinsight.com/journals.htm?issn=1359-8546&volume=11&issue=6 http://eil.utoronto.ca/profiles/rune/node5.html http://bmb.cu.edu.tr/evlac/_private/Documents/Literature%20review%20links/UK.pdf http://www.avyg86.dsl.pipex.com/ecom/1770100405.pdf http://www.scmconsult.net/scmc/uploads/attaches/img45cabe4b9bff6.pdf

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