Global Manufacturing & Supply Chain Management

Submitted by:
1) Mohanish Shah (1123)
2) !mit "hemnani (112#1)
3) $arshad %ayeda (112&)
') Gopal (armar ()
)) *e+ ,adha+ ()
- .Supply Chain Management
Supply chain management, is the active management of supply chain activities to
maximize customer value and achieve a sustainable competitive advantage. It represents
a conscious effort by the supply chain firms to develop and run supply chains in the most
effective & efficient ways possible. Supply chain activities cover everything from
product development, sourcing, production, and logistics, as well as the information
systems needed to coordinate these activities.
The organizations that make up the supply chain are linked! together through physical
flows and information flows. "hysical flows involve the transformation, movement, and
storage of goods and materials. They are the most visible piece of the supply chain. #ut
$ust as important are information flows. Information flows allow the various supply chain
partners to coordinate their long%term plans, and to control the day%to%day flow of goods
and material up and down the supply chain.
& supply chain consists of all parties involved, directly or indirectly, in fulfilling a
customer re'uest. The supply chain not only includes the manufacturer and suppliers, but
also transporters, warehouses, retailers, and customers themselves. (ithin each
organization, such as manufacturer, the supply chain includes all functions involved in
receiving and filling a customer re'uest. These functions include, but are not limited to,
new product development, marketing, operations, distribution, finance, and customer
service.
The concept of Supply )hain *anagement is based on two core ideas. The first is that
practically every product that reaches an end user represents the cumulative effort of
multiple organizations. These organizations are referred to collectively as the supply
chain.
The second idea is that while supply chains have existed for a long time, most
organizations have only paid attention to what was happening within their four walls.!
+ew businesses understood, much less managed, the entire chain of activities that
ultimately delivered products to the final customer. The result was dis$ointed and often
ineffective supply chain
Supply%)hain "rinciples, *ethodology & Solutions
Supply%)hain "rinciples
If supply%chain management has become top management-s new .religion,. then it needs
a doctrine. &ndersen )onsulting has stepped forward to provide the needed guidance,
espousing what it calls the .Seven "rinciples. of supply%chain management. (hen
consistently and comprehensively followed, the consulting firm says, these seven
principles bring a host of competitive advantages.
The seven principles as articulated by &ndersen )onsulting are as follows/
0. Segment customers based on service needs. )ompanies traditionally have grouped
customers by industry, product, or trade channel and then provided the same level of
service to everyone within a segment. 1ffective supply%chain management, by contrast,
groups customers by distinct service needs%%regardless of industry%%and then tailors
services to those particular segments.
2. )ustomise the Supply )hain *anagement network. In designing their Supply
)hain *anagement network, companies need to focus intensely on the service
re'uirements and profitability of the customer segments identified. The conventional
approach of creating a .monolithic. Supply )hain *anagement network runs counter to
successful supply%chain management.
3. 4isten to signals of market demand and plan accordingly. Sales and operations
planning must span the entire chain to detect early warning signals of changing demand
in ordering patterns, customer promotions, and so forth. This demand%intensive approach
leads to more consistent forecasts and optimal resource allocation.
5. 6ifferentiate product closer to the customer. )ompanies today no longer can afford
to stockpile inventory to compensate for possible forecasting errors. Instead, they need to
postpone product differentiation in the manufacturing process closer to actual consumer
demand.
7. Strategically manage the sources of supply. #y working closely with their key
suppliers to reduce the overall costs of owning materials and services, supply%chain
management leaders enhance margins both for themselves and their suppliers. #eating
multiple suppliers over the head for the lowest price is out, &ndersen advises. .8ain
sharing. is in.
9. 6evelop a supply%chain%wide technology strategy. &s one of the cornerstones of
successful supply%chain management, information technology must support multiple
levels of decision making. It also should afford a clear view of the flow of products,
services, and information.
:. &dopt channel%spanning performance measures. 1xcellent supply%chain
measurement systems do more than $ust monitor internal functions. They adopt measures
that apply to every link in the supply chain. Importantly, these measurement systems
embrace both service and financial metrics, such as each account-s true profitability.
The principles are not easy to implement, the &ndersen consultants say, because they run
counter to ingrained functionally oriented thinking about how companies organise,
operate, and serve customers. The organisations that do persevere and build a successful
supply chain have proved convincingly that you can please customers and en$oy growth
by doing so.
4ogistics/
The term, logistics, and its actions originated with the military. In the war
theater, logistics applied to the process of supplying equipment and supplies to
troops. Logistics as a business concept evolved in the 1!"s with the increasing
comple#ity of supplying businesses with materials and shipping out products in
an increasingly globali$ed supply chain. Today, the business sector uses this
term to describe the efficient flow and storage of goods from point of origin to the
point of consumption. The supply chain is a vital part of this process, including
transportation, shipping, receiving, storage, and management of all these
areas. %ithin the business sector, logistics can be applied to information,
transportation, inventory, warehousing, material handling, and pac&aging,
disposal, and security.
'usiness Logistics (efinitions
the preeminent worldwide professional association of supply chain management
professionals, defines logistics as )that part of supply chain management that
plans, implements, and controls the efficient, effective forward and reverse flow
and storage of goods, services and related information between the point of
origin and the point of consumption in order to meet customers* requirements.
+nother short ,-,./ definition is the management of inventory, at rest or in
motion. The main fields within logistics include0
Procurement Logistics is the entire process used to select
suppliers and negotiate contracts for delivery of goods or services.
It consists of activities such as market research, requirements
planning, make or buy decisions, supplier management, ordering,
and order controlling.
Production Logistics concerns itself with streamlining and
controlling the fow through the supply chain from point of entry to
the end, which is distribution logistics. Production logistics activities
are related to organizational concepts, layout planning, production
planning, and control.
istribution Logistics is concerned with the delivery of !nished
products to the customer. It consists of order processing,
warehousing, and transportation. "a#or sub$sectors within the
industry include air, rail, water, and truck transportation, urban
transit and ground passenger transportation, warehousing and
storage, and motor vehicle repair. Logistics involve the integration
of these sub sectors, including information, transportation,
inventory, warehousing, material$handling, and packaging.
isposal Logistics, also known as reverse logistics, stands for all
operations related to the reuse of products and materials. %he main
function of this !eld is to reduce logistics cost, enhance service,
and save natural resources.
+s the business world grew, this definition of logistics called for management,
leading to the development of e#perts called supply chain logisticians. This type
of leadership encompasses the planning and management of all activities
involved in sourcing, procurement, conversion, and logistics management
activities. Importantly, it also includes coordination and collaboration with channel
partners which can be suppliers, intermediaries, third1party service providers,
and customers.
%hy Logistics is Important to ,ompany
2ven small businesses deal with finding suppliers, if not with transporting
merchandise to a store. -mall business owners also conduct distribution logistics
with inventory and warehousing. +nd, every small business owner can tell you
about how they handle reverse logistics, with returned merchandise or refusal of
services. Larger businesses may deal in all four logistic fields.
In the business environment, logistics either have an internal or e#ternal focuses
3inbound or outbound4. (epending upon the business involved, this part of the
chain can be simple or complicated. 5or more complicated procedures, third
parties often are hired to conduct any one of the four fields within business
logistics.
Third1party logistics 36/L4 involves using e#ternal individuals or organi$ations to
e#ecute logistics activities that have traditionally been performed within an
organi$ation itself. If, for e#ample, a company decides to e#port its product, it
may hire a person or organi$ation to help with distribution logistics. Today, there
is a movement toward building fourth$party logistics 37/L4, which integrates
6/L competencies and other organi$ations to design, build, and run
comprehensive supply chain solutions. + 7/L general contractor would manage
other 6/Ls, truc&ers, forwarders, custom house agents, and others, essentially
ta&ing responsibility of a complete process for the customer.
+nother specialty includes logistics consulting services. 5irms in this industry
speciali$e in the production and distribution of goods, from the first stages of
securing suppliers to the delivery of finished goods to consumers. -uch firms
give advice on improvements in the manufacturing process and productivity,
product quality control, inventory management, pac&aging, order processing, the
transportation of goods, and materials management and handling. In the
process, these consulting firms might suggest improvements to the
manufacturing process in order to use inputs better, increase productivity, or
decrease the amount of e#cess inventory. ,onsulting firms in this segment of the
industry also advise on the latest technology that lin&s suppliers, producers, and
customers together to streamline the manufacturing process.
2ven pro#ect management requires logistics, as one vein of this science
coordinates a sequence of resources to carry out pro8ects. Typical constraints in
pro8ect management include scope, time, and budget, or the same constraints
involved in business logistics. The time constraint refers to the amount of time
available to complete a pro8ect. The cost constraint refers to the budgeted
amount available for the pro8ect. The scope constraint refers to what must be
done to produce the pro8ect*s end result.
+ 9lobal :each
;o matter the si$e of a business, the concern for logistics can help any effort
utili$e the supply chain more efficiently by cutting costs when appropriate and by
avoiding waste of time and materials. If you are involved in logistics, you may
&now that this business is growing and that the career paths available within
this industry can range from cler&s and order fillers to ,2<s who manage
multinational business supply chains.
Logistics is one of the main functions within a company, and the supply chain is a
comple# and sometime fragile global endeavor dependent on a networ& of
independent, yet interconnected, moving parts. It requires professional
management. -upply chain professionals order the product, build it, move it, ship
it, distribute it, and drive the coordination processes with mar&eting, sales,
engineering, manufacturing, finance, and information technology. In short, they
ma&e any business effort seem effortless.
2/G012!0 M!345!C647--3G S67!68G-8S
The success of a global manufacturing strategy depends on four key factors/ ;i<
compatibility, ;ii< configuration, ;iii< coordination and ;iv< control.
A. Manufacturing Compatibility
Compatibility refers to the degree of consistency between a firm=s foreign
direct investment decisions and its competitive strategy. )ost%minimization and
the drive for globalization force *>1s to pursue economies of scale in
manufacturing, often by producing at low labor%cost sites. ?ther key variables
include dependability, quality, flexibility and innovation.
B. Manufacturing Configuration
*>1s consider three basic configurations en route to developing their global
manufacturing strategies. They are/
@ centralized manufacturing in a single country
;a global export approach<
@ regionalized manufacturing in the specific regions served
;a regionalized marketing and manufacturing approach<
@ local manufacturing in each country market served
;a multidomestic marketing and manufacturing approach<.
C. Coordination and Control
Coordination represents the linking or integrating of participants all along the
global supply chain into a unified system. Control embraces systems, such as
organizational structure and performance measurement, which are designed to
help ensure strategies are implemented, monitored and revised, when
appropriate.
3)-6 !3* G012!0 SCM
Information Technology (IT) and its use in organizations and across the supply chain has
become a determinant of competitive advantage for many corporations. This paper
focuses the usage of IT tools for Supply Chain Management (SCM). It also highlights the
contribution of IT in helping to restructure the entire distribution set up to achieve higher
service levels and lower inventory and lower supply chain costs.
An overview and tangible benefits of the existing IT tools that are widely deployed is
also provided with focus on existing configurations considerations, available
applications. The role of existing communication technologies in making IT an enabler of
SCM is highlighted by addressing a range of different point and enterprise solutions in a
variety of supply chain settings.
Critical IT demonstrations and implementations in SCM are discussed. Fundamental
changes have occurred in today's economy. These changes alter the relationship we have
with our customers, our suppliers, our business partners and our colleagues. Reflection on
the evolving and emerging Information Technology trends like Software Agents, RFID,
Web Services, Virtual Supply Chains, Electronic Commerce and Decision Support
Systems further highlights the importance of IT in the context of increasingly global
competition. The rapid adoption of the Internet for communication with all stake-
holders seems to reflect the potential of the new-age communication media.
The objectives of IT in SCM are
providing information availability and visibility;
enabling a single point of contact for data;
allowing decisions based on total supply chain information; and

enabling collaboration with partners

IT in SCM enables great opportunities, ranging from direct operational benefits to the
creation of strategic advantage. It changes industry structures and even the rules of
competition. IT is key in supporting companies creating strategic advantage by enabling
centralized strategic- planning with day-to-day centralized operations. Infact supply chain
become more market-oriented because of IT usage.
Cisco reported savings of $500 million by restructuring its internal operations and
integrating processes with suppliers and customers with the help of web-based tools
(Berger, 2000). The Wal-Mart & P&G experiences demonstrate how information sharing
can be utilized for mutual advantage. Through sound information technologies, Wal-
Mart shares point of sale information from its many retail outlet directly with P&G and
other major suppliers Anderson et al (1996).
Celestica, one of the worlds largest electronic manufacturing services companies, has
applied a web- based IT tool to regulate its global supply base (Shore, 2001). IT has
helped Celestica to improve its responsiveness to customers, thus helping its customer,
Dell to maintain its delivery promise to end-users.
CHALLENGES IN IMPLEMENTING INFORMATION TECHNOLOGY IN
SUPPLY CHAIN MANAGEMENT
Any company that has undertaken the mission of implementing an integrated supply
chain management strategy with the use of IT tools knows that one of the greatest
challenges it faces is the significant change in internal culture that is required to make the
supply chain redesign successful. It is not an easy thing, to re-conditionpeople to accept
change, especially in organizations where a certain mindset has prevailed for many years.
However difficult it may be to accomplish, change can be implemented successfully
when directed by a strong and knowledgeable leader, who understands the tools available
for achieving positive change, as well as their role in initiating and sustaining these
changes.
Integrating new applications with existing and legacy systems could also pose problems.
Incompatible systems at buyer and vendor facilities are another management challenge to
tackle. Data sharing with diverse stakeholders like suppliers and customers, filtering and
mining data generated and finding business value of the data are other issues.
Disconnected enterprise systems create data redundancy, errors and can lead to costly
business inefficiencies. Poor coordination between enterprise systems leads to flawed
production plans, increased supply chain pressure and poor customer service. Lack of
visibility of orders, schedules and shipments can lead to costly administrative decision
making processes.
EXISTING INFORMATION TECHNOLOGY TOOLS AND APPLICATIONS IN
SUPPLY CHAIN MANAGEMENT
Fig 3 IT tools in SCM
Electronic Data Interchange (EDI)
Introduced in the 1970s and popularized in the 1980s, Electronic Data Interchange (EDI)
technology has been widely used by firms in supply chains to facilitate transactions and
information exchanges. EDI is defined as computer to computer exchange of structured
data for automatic processing. EDI is used by supply chain partners to exchange essential
information necessary for the effective running of their businesses. These structural links
are usually set up between organizations that have a long- term trading relationship.
The main advantages of using EDI are to enter only informative needs on the computer
system once, and then it is able to speed of transaction and to reduce cost and error rates.
Other benefits of EDI are Quick process to information, Better customer service, reduced
paper work, increased productivity, improved tracing and expediting, Cost efficiency and
improved billing. Through the use of EDI supply chain partners can overcome the
distortions and exaggeration in supply and demand information by improving
technologies to facilitate real time sharing of actual demand and supply information.
Although companies gain a lot of benefits from EDI, it is often the mismatch between
EDIs expectations and the company's activities undertaken to achieve the desired
performance. Also larger organizations are major adopters of EDI, whereas Small and
Medium Enterprises (SME) often do not use EDI.
Bar coding and Scanner
Bar Codes are the representation of a number or code in a form suitable for reading by
machines (Rushton et al., 2000). Bar codes are widely used throughout the supply chain
to identify and track goods at all stages in the process. Bar codes are a series of different
width lines that may be presented in a horizontal order, called ladder orientation, or a
vertical order, called picket fence orientation. For example, goods received in a
warehouse may be identified by the warehouse management system and added to stock
held in the warehouse. When put away, the bar code is used to associate the storage
location with the bar-coded stock, and on dispatch the stock record is amended. The use
of bar codes can speed up operations significantly. On the other hand, the problems can
occur if bar codes are defaced or the labels fall off in transit. The maintenance
management must be applied for extending the long-lifeperiod of this equipment.
Bar code scanners are most visible in the check out counter of super markets and hyper
markets. This code specifies name of product and its manufacturer. Other applications are
tracking the moving items such as components in PC assembly operations, automobiles
in assembly plants.
Enterprise Resource Planning (ERP) Systems
Enterprise Resource Planning (ERP) Systems areEnterprise-wide Information Systems
used for automating all activities and functions of a business. These aretransaction-
based information systems that are integrated across the whole business. Basically, they
allow for data capture for the whole business into a single computer package whichs
give a single source for all the key business information activities, such as customer
orders, inventory and financials.
In addition to the huge costs that are involved in procuring an ERP application,
installation of such systems will entail widespread change within the organization. It will
have implications in terms of Business Process Reengineering (BPR), changes in
organizational structure, people and change management. Many companies have
benefited from using this system whilst some have experienced severe problems with
their application. Generally, they also require a lot of customization and training for each
user.
Warehouse Management Systems
Warehouse management systems are systems that control all the traditional activities of
warehouse operations. Areas covered usually include receipt of goods, allocation or
recording of storage locations, replenishment of picking locations, production of picking
instructions or lists, order picking, order assembly and stock rotation. Some systems are
used in conjunction with radio frequency (RF) communication equipment. This
equipment can be mounted on fork-lift trucks. The warehouse management system
communicates with the RF system and directs the activities of the warehouse staff
(Thongchattu et al, 2007). For example, when picking that it will provide the tasks for the
operative to carry out. Once the task is complete the operative updates the system and is
directed to the next task. This has the advantage of updating the stock holding in real
time.
There are highly sophisticated systems that control the operations of fully automated
warehouses. This may include automated storage and retrieval systems (AS/RS),
automated guided vehicles (AGVs), and the many other devices that are relatively
common in todays modern warehouse such as, conveyors, carousels, sortation systems,
etc. A number of computer models have now been developed to assist in the planning of
warehouse design and configuration. These are generally very sophisticated 3D
simulation models that provide a graphic, moving illustration on the computer screen of
the layout of the warehouse.
Transportation Management Systems
Transportation Management Systems provide more visibility into shipments and orders.
Scheduling issues are also addressed on time. Multiple transportation options can be
explored as a result of earlier visibility into the supply chain. Timely communication and
status reports can also be obtained. By having control on its supply chain, businesses can
make efficient routing decisions.
An example of such a system is developed by Target Corporation and NTE. Initially
Target was making transportation requests manually for inbound shipments. There was
limited visibility for shipments and as a result of this; there were more number of less-
than-truckloads, which was not cost-effective. Implementation of the new
system resulted in target vendors submitting the relevant freight information
electronically with increased speed and efficiency. The new system resulted in improved
cost controls, better labour planning and reduced administrative overheads.
Inventory Management Systems
6uring the mid to late 0AABs, retailers began implementing modern inventory
management systems, made possible in large part by advances in computer and software
technology. The systems work in a circular process, from purchase tracking to inventory
monitoring to re%orderingand back around again.
*odern inventory management systems must have the ability to track sales and available
inventory, communicate with suppliers in near real%time and receive and incorporate
other data, such as seasonal demand. They also must be flexible, allowing for a
merchant-s intuition. &nd, they must tell a storeowner when it-s time to reorder and how
much to purchase.
EMERGING AND NEW INFORMATION TECHNOLOGY SOLUTIONS FOR
SUPPLY CHAIN MANAGEMENT
Radio Frequency Identification (RFID)
The bar code was intended to improve efficiencies in the retail space, but the bar code
cannot uniquely identify the specific object such as when items are produced, the lot of
the items was made and when will the items expire. RFID was able to take care of these
issues.
Both RFID and Bar codes are indeed, quite similar, both being auto-ID technologies,
which are intended to provide item identification. The primary difference is the reading
data from the items. In bar coding, the reading device scans a printed label with optical
laser or imaging technology and in RFID; the reading device scans a tag by using radio
frequency signals
Figure 4 - RFID reader and tag communication flow diagram.
The tag is a microchip connected to a small antenna. The chip can capture a certain
amount of data. The radio waves via which the tag and the reader communicate with each
other can vary from low frequency (125 KHz) to microwave frequency (6 GHz). In the
view of De Wachter and Pleysier (2004) the impact of RFID from a supply chain
perspective includes: supply chain inversion, pressure on inventory, increased regulation
and legislation, cost control, connectivity and visibility. Supply chain inversion concerns
shifting from a push system to a pull system. Pressure on inventory is related to the use of
RFID to reduce lead times of information through faster and more reliable registration
and increased visibility in the supply chain. In terms of increased regulation and
legislation, government regulation has led to more product information and safety
requirements. RFID has been used for traceability and visibility of products.
Sofware Agents
Artificial Intelligence emerged into the paradigm of software agents with the application
area of multi-agent systems. A software agent is a software system, which has attributes
of intelligence, autonomy, perception or acting on behalf of a user. Agents can behave
autonomously or proactively. The intelligence of an agent refers to its ability of
performing tasks or actions using relevant information gathered as part of
different problem-solving techniques such as influencing, reasoning and application
specific knowledge. Java has been the most common tool for building such intelligent
agents which are increasingly becoming mobile. Most of the agent platforms available
today like AgentBuilder, Aglets, Voyager, JADE, ZEUS and FIPA are implemented
using this language.
Decision Support Systems
Decision Support Systems (DSS) are a specific class of computerized information
systems that supports business and organizational decision-making activities. A properly-
designed DSS is an interactive software-based system intended to help decision makers
compile useful information from raw data, documents, personal
knowledge, and/or business models to identify and solve problems and make decisions.
Typical information that a decision support application might gather and present would
be:
an inventory of all of your current information assets (including legacy and relational
data sources, cubes, data warehouses, and data marts),
comparative sales figures between one week and the next,
projected revenue figures based on new product sales assumptions;
the consequences of different decision alternatives, given past experience in a context
that is described
In SCM, there is always a likelihood of having disagreements among parties for a certain
decision making process. This phenomenon gets worse, when the business environment
becomes more competitive and turbulent. Accordingly Decision Support Systems (DSS)
have been integrating in various areas like logistics, inventory management, facility
design, sales analysis etc.
Baan, a leading ERP vendor unveiled an application, Baan Enterprise Decision Manager
for aiding corporate decision- making. Major retailers like Walmart, Sara Lee, Roebuck
have increasingly started using Collaborative Forecasting and Replenishment (CFAR)
which uses DSS for jointly developing forecasts. GAF Materials Corp, the largest
manufacturer of asphalt-based roofing materials in the US, uses a freight-
management DSS (Lee et al, 1999).
6
Electronic Commerce
Electronic commerce refers to the wide range of tools and techniques utilized to conduct
business in a paperless environment. Electronic commerce therefore includes electronic
data interchange, e-mail, electronic fund transfers, electronic publishing, image
processing, electronic bulletin boards, shared databases and magnetic/optical data
capture. Companies are able to automate the process of moving documents electronically
between suppliers and customers. This system provides access to customers all over the
world and thus eliminates geographical limitations.
Some of the E-commerce applications with applications in B2C (Business to Consumer)
and B2B (Business to Business) space, which are changing the dynamics of Supply Chain
Management include:
E-tailing: using the Internet for selling goods over the internet. The archetypal e-
tailing application is that of a bookseller such as Amazon. This company is renowned for
the fact that it only sells books over the internet and doesn't even take telephone orders.
Customers of Amazon interact with its website and carry out a number of functions
including:
browsing readers reviews of books;
reading feature articles about books and authors similar to those found in magazines and
newspapers;
searching for details of a book based on information such as the author's name or the title of
the book;
browsing the books which are the Amazon bestsellers;
ordering books using credit cards or some other similar payment method;
tracking the progress of an order.
e- Procurement: The term procurement is used to describe the purchase of goods and
services which are not directly used in the main business of a company. For example, a
car manufacturer will procure stationery for its employees or procure training courses for
them to attend in order to improve their skills. An e-procurement system which would
automatically take the form produced by the person making the procurement, check that
it satisfies all the company rules for procuring the item that is required, carry out
authorisation if it is below a certain limit or send the form to someone who can carry out
authorisation and then log the purchaser into the site of the supplier. He or she is then
able to use this site to make the purchase, quoting an automatically generated
procurement requisition number.
E-Auctions: These are sites on the web which run conventional auctions. There are two
types of auction: those that are carried out in real time, where participants log in to an
auction site using a browser at a specified time and bid for an article until the highest
price is reached and no other bids are forthcoming. The other type of site and the most
common is where an item is offered for sale and a date advertised after which no more
bids are accepted. Such sites make a profit from two sources: first they usually charge a
commission on the items that are sold and, second, they display adverts which are viewed
by visitors to the site. The auction site will then receive some fee for displaying the
advert, a further fee if a visitor clicks on an advert and it takes them to the advertiser's
website and another fee if they purchase something from this site. Again, this is just an
online analogue of a conventional business
') 9uality
-upply ,hain is all about managing the flow of materials and information
among the respective sta&eholders. =ey elements of the above are people and
processes. In1fact, -upply ,hain .anagement 3-,.4 is all about managing
people and processes to ensure fulfilment of customer needs and desires.
%hether it is procurement, production planning, inventory management,
distribution, warehousing, waste management or logistics including 3reverse4, it is
absolutely imperative that people and process focus help achieve customer
results. Thus, if -,. is all about people and processes, there cannot be any
better improvement model than T>. which focuses on people and processes.
The integration of T>. principles with -,. would be a significant enabler for
sigma level improvements in -,. performance.
Industries related to both manufacturing and services, irrespective of si$e have
attempted application of various T>. tools such as -i# sigma, Toyota /roduction
-ystem, Lean .anagement, Taguchi*s method, >uality circle, =ai$ens etc.. to
improve efficiency and effectiveness of operational processes along with s&ill and
capability improvement of people to ensure achievement of desired customer
satisfaction. ?owever most of the information related to T>. application reveals
that it has been ma8orly implemented in processes such as manufacturing, new
product development, etc., but very limited application in -,. processes. 5or eg0
Logistics is an area where there are very few cases of T>. implementation 3@ust
in Time4 and has a huge potential, considering the fact that it is one of the highest
carbon emitters.
%hile going through various literature on integration of T>. and -,., one of the
-,. 2#cellence .odels developed by 9opal =an8i and +lfred %ong indicates
the e#tent of T>. principles such as customer focus A goals, people based
management A people involvement, factual management or data based
management and culture of continuous improvement.......all of this driven by
leadership resulting in business e#cellence in -,. processes.
.anagement professor :obert @. Trent developed a set of activities for applying
Total >uality .anagement 3T>.4 to /urchasing activities. 2#panding these to
the entire -upply ,hain would be as indicative below0
Identify internal supply1chain customers and establish communication
lin&ages.
-et /erformance targets with customer e#pectations 3internal A e#ternal4
aligned across the chain.
,onduct regular performance reviews on the above targets.
Involve suppliers and employees early in product and process
development A improvement.
(evelop a consistent process for supplier selection or supply chain
collaborative partner selection.
:eward and recognise the improvements in line with customer
appreciation.
-ome of my thoughts on integrating T>. with -,. is indicated in the matri#
below....... the &ey assumption is that the performance metrics of all the
processes is aligned to the overall organisational customer goal........
1. ,ustomer 5irst 32#ternal, Internal4
/rocurement 1 ,ross 5unctional teams of supplier and customer will help
suppliers improve performance through effective customer communication.
Logistics, /lanning, (istribution 1 2mployees performing the above wor&
need to visit customer premises to understand customer operations and
implement improvements in the planning process 3manufacturing, logistics,
distribution4 to ensure customer ontime deliveries. 5ormation of teams with
customer representations would help in understanding customer requirements
and implementing effective action plans.
2nvironment .anagement 1 21a. 9reening effort through reduction in
logistics usage and travel.
21b. Tying up with B9reenB suppliers).%illingness to pay premiums to these
suppliers
21c. %aste recycling to BgenuineB recyclers 3statutory compliance and more4 and
trac&ing the same till its final disposal.

C. ,ontinual Improvement 1 ,ulture of ,ontinual Improvement through training of

employees on use of T>. tools such as >uality ,ircles 3famous D >, tools4,
=ai$ens etc.., and belief in every employee that he Bhas to do things better todayB
than yesterdayEEE
6. /eople Involvement0
6 >uality is achieved through /eople Involvement. It has to be everbodyFs
responsibility 3right from the ,hairman to the -ecurity %atchman4, thus need a
system for reward and recognition mechanism for >uality improvements as
appreciated by the customer 3either internal or e#ternal4.
6b. Training of the people involved is a BmustB in various >, tools and analysis
such as /areto, fishbone Acause 1effect, charts and histogram and various
statistical tools. 2vcen si# sigma methodology training is a BmustB to develop the
Bimprovement thought processB...
7. Leadership drive0
7a. Institute cultural transformation among the employees through aligned and
integrated ,ustomer quality goals across various functions, facilitate training to
employees to improve performance, and reward A recognition for employees on
achieving customer quality goals.
7b. Institute review mechanisms and train managers and leaders to as& BrightB
customer quality oriented questionsGGG
!. -ystem and /rocess .anagement mindset0
!a. ;eed to move from person based to process Asystem based wor&ing.
!b. ;eed to develop both efficiency and effectiveness measures for
Bperformance managementB of the processes. 5or eg0 :eduction in time from
/urchase requisition to purchase ordering could be an efficiency measure,
however number of items received ontime with $ero quality defects could be an
effectiveness measure.
!c. ;eed to develop process based reviews for process improvements to reduce
process variabilities and aim for B$ero defectB....preferably with customer
participation through cross functional teams.
!d. -ome -,. tools with help of technology is as indicated below0
/rocurement tools 1 21/rocurement, -+/ .., Hendor assessments and
development, vendor audits etc).
/lanning A -cheduling Tools 1 -+/ planning tools, IC planning tools
etc).To, planning tools)
Logistics 1 Hehicle :equisitioning, Hehicle Trac&ing -ystems, Hehicle
.aintenance systems, -afety -ystems.
%arehousing and (istribution 1 -+/ .. systems, :5I( systems,
.echanised material movement systems, To, systems such as 'uffer
.anagement, (istributor A:etailer material Trac&ing systems, @ust in Time
systems)..
2nvironment 1 -tatutory management of waste including buyer statutory
compliance for handling, storage and disposal, 2nvironment database
mangement, /rocurement of B9reenB products from B9reenB vendors..
I. 5act based management
Ia. ;eed to build an effective data based review mechanism).the data could be
numbers or sub8ective observations that could be used for analysis)for eg0
>uality 5unction (eployment 3>5(Fs4 tool to ensure transfer of observed
customer needs to actual information for changes........
Ib. <ne should not get into the Banalysis1paralysisB mode with respect to data
based management, however capturing data and further analysis to information
for improvement implementation to be encouraged.
-upply ,hain is interdependent on various functions and diverse people
involvement and hence T>. integration can only be possible with collaborative
effort of all the participants of -,. to ensure effective customer oriented quality
based improvement across the entire networ&. Thus training of all supply chain
participants in ,ustomer oriented quality management and improvement in an
organisationally aligned and integrated manner is highly essential. This is more
of a mindset change from 8ust wor& to improving wor& in a process centric
manner
94!0-6: S6!3*!7*S
The ISO 9000 family addresses various aspects of quality management and
contains some of ISOs best known standards. The standards provide guidance
and tools for companies and organizations who want to ensure that their products
and services consistently meet customers requirements, and that quality is
consistently improved.
There are many standards in the ISO 9000 family, including:
I&' ())*+,))- $ sets out the requirements of a quality
management system
I&' ()))+,)). $ covers the basic concepts and language
I&' ())/+,))( $ focuses on how to make a quality management
system more e0cient and e1ective
I&' *()**+,)** $ sets out guidance on internal and e2ternal
audits of quality management systems.

ISO 9001:2008
ISO 9001:2008 sets out the criteria for a quality management system and is the
only standard in the family that can be certifed to (although this is not a
requirement). It can be used by any organization, large or small, regardless of its
feld of activity. In fact ISO 9001:2008 is implemented by over one million
companies and organizations in over 170 countries.
Quality Management Principles
The standard is based on a number of quality management principles including a
strong customer focus, the motivation and implication of top management, the
process approach and continual improvement. These principles are explained in
more detail in the pdf 3uality "anagement Principles. Using ISO 9001:2008
helps ensure that customers get consistent, good quality products and services,
which in turn brings many business benefts.
Audits
Checking that the system works is a vital part of ISO 9001:2008. An organization
must perform internal audits to check how its quality management system is
working. An organization may decide to invite an independent certifcation body
to verify that it is in conformity to the standard, but there is no requirement for
this. Alternatively, it might invite its clients to audit the quality system for
themselves. Read more about certi!cation to management system
standards.
5)SUPPLIER NET!R"S
Sourcing is the path a firm pursues in obtaining materials, components and final
products either from within or outside of the organization and from both domestic
and foreign locations. 8lobal sourcing represents the first step in the process of
global materials management ;logistics< ;see +igures 0:.:, 0:.C<. +irms pursue
global sourcing strategies in order to reduce costs, improve 'uality, increase their
exposure to worldwide technology, improve the delivery%of%supplies process,
strengthen the reliability of supply, gain access to strategic materials, establish a
presence in a foreign market, satisfy offset re'uirements and,or react to competitors=
offshore sourcing practices. The three ma$or configurations that have emerged for
global sourcing are/ ;i< vertical integration ;ii< outsourcing through industrial
clusters, and ;iii< other outsourcing.
A. Ma#$ or Buy %$ci&ion
In determining whether to make or buy, *>1s should focus on making those parts
and performing those processes critical to a product and in which they have a
distinctive advantage. ?ther things can potentially be outsourced.
B. Suppli$r R$lation&
(hen an *>1 decides to outsource rather than integrate vertically, it must
determine the nature and extent of its involvement with suppliers.
C. Purc'a&ing (unction DSee +igure 0:.AE
8lobal progression in the purchasing function includes four phases/
@ 6omestic purchasing only
@ +oreign buying based on need
@ +oreign buying as a part of procurement strategy
@ Integration of global procurement strategy
The last phase is reached when a firm realizes the benefits from the integration
and coordination of purchasing on a global basis. &t this point, the *>1 may
once again be faced with the centralization vs. decentralization dilemma. 8lobal
sourcing options include/
@ assigning domestic buyers international purchasing duties
@ using foreign subsidiaries or business agents
@ establishing international purchasing offices
@ assigning the responsibility for global sourcing to a specific business unit or
units
@ integrating and coordinating sourcing on a worldwide basis.
E-sourcing, i.e., the use of the Internet in the purchasing process is rapidly
growing in popularity.
6)INVENTORY MANAGEMENT
1.-n+entory Management
-3671*4C6-13
Inventory is the stock of any item or resource used in an organization. &n
inventory system is the set of policies and controls that monitor levels of
inventory and determine what levels should be maintained, when stock
should be replenished, and how large orders should be.
#y convention, manufacturing inventory generally refers to items that
contribute to
or become part of a firm=s product output. *anufacturing inventory is
typically classified into raw materials, finished products, component parts,
supplies , and work%in%process.
In distribution, inventory is classified as in%transit , meaning that it is being
moved
in the system, and warehouse , which is inventory in a warehouse or
distribution center. Fetail sites carry inventory for immediate sale to
customers. In services, inventory generally refers to the tangible goods to be
sold and the supplies necessary to administer the service.
( 4 7 ( 1 S 8 S 1 5 - 3 % 8 3 6 1 7 :
&ll firms ;including GIT operations< keep a supply of inventory for the
following reasons/
1. 6o maintain independence of operations% & supply of materials at a
work center allows that center flexibility in operations. +or example,
because there are costs for making each new production setup, this inventory
allows management to reduce the number of setups. Independence of
workstations is desirable on assembly lines as well. The time that it takes to
do identical operations will naturally vary from one unit to the next.
Therefore, it is desirable to have a cushion of several parts within the
workstation so that shorter performance times can compensate for longer
performance times. This way the average output can be fairly stable.
2. 6o meet +ariation in product demand% If the demand for the product is
known precisely, it may be possible ;though not necessarily economical< to
produce the product to exactly meet the demand. Hsually, however, demand
is not completely known, and a safety or buffer stock must be maintained to
absorb variation.
3. 6o allo; fle<ibility in production scheduling% & stock of inventory
relieves the pressure on the production system to get the goods out. This
causes longer lead
times, which permit production planning for smoother flow and lower%cost
operation through larger lot%size production. Iigh setup costs, for example,
favor producing a larger number of units once the setup has been made.
- 3 % 8 3 6 1 7 : C 1 S 6 S
In making any decision that affects inventory size, the following costs must
be considered/
1. $olding (or carrying) costs% This broad category includes the costs for
storage facilities, handling, insurance, pilferage, breakage, obsolescence,
depreciation, taxes, and the opportunity cost of capital. ?bviously, high
holding costs tend to favor low inventory levels and fre'uent replenishment.
2. Setup (or production change) costs% To make each different product
involves
obtaining the necessary materials, arranging specific e'uipment setups,
filling out
the re'uired papers, appropriately charging time and materials, and moving
out the
previous stock of material. If there were no costs or loss of time in changing
from one product to another, many small lots would be produced. This
would reduce inventory levels, with a resulting savings in cost. ?ne
challenge today is to try to reduce these setup costs to permit smaller lot
sizes. ;This is the goal of a GIT system.<
3. 1rdering costs% These costs refer to the managerial and clerical costs to
prepare
the purchase or production order. ?rdering costs include all the details, such
as
counting items and calculating order 'uantities. The costs associated with
maintaining the system needed to track orders are also included in ordering
costs.
'. Shortage costs% (hen the stock of an item is depleted, an order for that
item must either wait until the stock is replenished or be canceled. (hen the
demand is not met and the order is canceled, this is referred to as a stock out.
& backorder is when the order is held and filled at a later date when the
inventory for the item is replenished. There is a trade%off between carrying
stock to satisfy demand and the costs resulting from stock outs and
backorders. This balance is sometimes difficult to obtain because it may not
be possible to estimate lost profits, the effects of lost customers, or lateness
penalties. +re'uently, the assumed shortage cost is little more than a guess,
although it is usually possible to specify a range of such costs.
2.6ransportation 3et;or=s
-3671*4C6-13
Today, more than ever, transportation executives are focused on
driving efficiencies within their supply chains. &ccording to the
)ouncil of Supply )hain *anagement "rofessionals ;)S)*"<,
transportation costs accounted for 5.: percent of sales in 2BBC. Total
logistics costs including carrying costs, warehousing and
administration were A.3 percent of sales for the average H.S. company
in 2BBC. #eginning in early 2BBC, shippers sought rate reductions
from transportation suppliers in an over%capacity marketplace.
)arriers from parcel, truckload and steamship lines have been
discounting rates to maintain market share. (hile these market
pressures have yielded substantial rate decreases, many of these rate
concessions have left providers operating with negative margins. In
many cases, the rate decreases have been so steep that carriers would
have been operating at a loss even during more robust economic
conditions. 8iven these circumstances, it could be argued that all of
the efforts made negotiating freight rates will have to be duplicated on
the back side of the recession when transportation costs increase by
double digits J a potentially net zero cost effect with no real
sustainable options to drive cost out of the supply chain and address
real inefficiencies. Iistory has shown that most cost exposures are
exchanged back and forth between the customer and the transportation
providers based on the current market dynamics.
!*%!36!G8S
?ne of the most effective measures for reducing costs and exposing
supply chain inefficiencies is the use of Transportation *anagement
Systems ;T*S<. T*S processes and technology should be the
foundation of supply chain success. These platforms are typically
designed, modeled and implemented on long%term savings rather than
immediate cost avoidance. This inherent characteristic adds stability,
reliability and transportation process cost controls. Key components
of a successful T*S solution include connectivity, optimization,
transparency and collaboration. & successful T*S solution is one that
accounts for all of the supply chain stakeholders
and makes decisions based on specific constraints or desired
outcomes. These decisions need to be supported by leading%edge
technology, experienced professionals and an extensive global
network. The results need to be focused on cost reductions and service
improvement. Feduced transportation expenditures are by far the
largest benefit of a T*S application, but benefits such as service level
improvements, increased market share due to customer service
process improvements and inventory reduction processes should not
be overlooked.
C$!0083G8S
Capital Constraints/ *any companies struggle with capital
constraints. They find themselves stuck between a need for more
efficient processes and
the lack of capital to invest in the desired improvements.
0ac= of 7esources and 8<pertise% *any T*S implementations
come with a host of upfront and ongoing re'uirements that are
necessary to gain and maintain the desired functionality. These
re'uirements include technology investment, maintenance fees and IT
staff for ongoing development and troubleshooting.
Scalability/ ?ff%the%shelf solutions can be too expensive for small to
mid%size shippers. The costs of implementing and operating them may
exceed the transportation savings or lower the F?I of the pro$ect
below a minimum threshold. *any large enterprise clients may have
complexities across their operating divisions that re'uire customized
solutions. &
one%size%fits%all! model simply can=t adapt to all of these variables.
S1046-13S
Capital Constraints/ 1ngage a provider who can deliver a solution
that aligns savings and pro$ect returns with the financial commitment
from your organization. & good provider will leverage their expertise
to capitalize on low hanging fruit (hich is often enough to offset
many pro$ect costs.
These immediate improvements can lower the upfront investment by
the customer and reduce overall capital re'uirements.
0ac= of 7esources and 8<pertise/ )onsider a provider that
incorporates the IT resources, development, troubleshooting and start
up as part of their solution. Such providers are often identified as
hosted T*S! providers. This model allows the provider to centralize
the IT resources and apply them towards multiple customers. This
lowers the total cost to the end user and provides on demand resources
instead of having idle in house resources awaiting the next need.
Scalability/ Smaller shippers should engage providers with a flexible
model that can be scaled down to match the size of the customers
operations.
These solutions often come in the form of transaction based pricing
or low cost standardized solutions. +or the large enterprise clients,
consider a provider whose model can be customized to meet the
specific re'uirements of the business. & flexible platform that can
reach across divisions, integrate multiple legacy processes and
systems, plus deliver outcomes tailored to
each operation will deliver the best possible results.
Case Study
Samsonite>s Global Supply Chain
-ntroduction
Samsonite )orporation was originally established in 0A0B as the -Shwayder Trunk
*anufacturing )ompany-. Gesse Shwayder started with the production of trunks,
with a wooden frame and leather side panels, under the trade name -Samson-. The
company name was changed to -Shwayder #rothers Inc.- in 0A30 and to
-Samsonite-, along with the trade name, in 0A97 ;Samsonite, 0AA2<.
6uring the second (orld (ar, Samsonite was re'uired to work for the war
industry and produce boxes for grenades, bombs and ammunition, which gave the
company an opportunity to get familiar with metals such as magnesium and
aluminium. This set the stage for Samsonite-s growth to the top of the luggage
sector. Samsonite introduced the magnesium suitcases in 0A79 and the resistant
&#S ;acrylic butadiene styrene< suitcases in 0A7C. In 0A92 Samsonite became a
trend%setter in the business market when its classical attachL case was introduced.
(hen the petrochemical industry introduced plastic materials, certain metal parts
were replaced by plastics, although many of today-s suitcases still have a
magnesium frame.
Samsonite was not only the first company to use such new materials, it also
introduced new production techni'ues, such as in$ection moulding. Samsonite-s
entry into the international market began in )anada in 0A79 with a plant in
Stratford, ?ntario. Seven years later, in 0A93, Samsonite participated in a $oint
venture in *exico originally with the "erez &lonso family, and presently with
Mitro S.&. In 0A95, Samsonite signed a licensing agreement with &ce 4uggage
)ompany, Gapan-s leading luggage manufacturer.
In 0A97 Samsonite started exporting suitcases to the 1uropean continent, because
it did not want to incur high fixed costs, given the limited potential market at that
time. Iowever, the new concept of hard%side suitcases andattachL cases caught on
well in 1urope. &s the cost of transportation is substantial for hard%side suitcases
;.transporting air.<, Samsonite decided rather 'uickly to start with the production
and assembly of hard%side suitcases in 1urope itself. It invested in production
facilities rather than in licensing due to the novelty of the products ;6avidson and
*c+etridge, 0AC2<.
#elgium was chosen as the home base for the 1uropean market because of its
central location and the investment incentives that were granted at that time. The
production and assembly of hard%side suitcases was launched in 0A99 in
?udenaarde ;#elgium< in a disused textile factory with second%hand machinery.
The various wholesalers in 1uropean countries were supplied either through
wholly owned marketing and sales affiliates, as in +rance ;0A99< and 8ermany
;0A9:<, or through exclusive distributors ;see +igure 3.<. Traditional marketing
literature based the integration of distribution channels on production cost, i.e.
integration will take place when fixed costs can be spread over a large volume of
business ;Fosenbloom, 0AC:<. Transaction cost analysis states that the firm will
internalise activities that it is able to perform at lower cost and will rely on the
market for activities in which other providers have an advantage. +or instance,
high%volume fast%food outlets in concentrated locations, which are easy to monitor,
tend to be owned and operated by the firm, while small, dispersed outlets are
franchised ;#rickley and 6ark, 0AC:<. The ob$ective is to minimise the sum of
transaction and production costs in making forward integration decisions
;(illiamson, 0AC7<.
+or Samsonite, this meant setting up wholly owned sales and marketing affiliates
in familiar, large markets such as +rance and 8ermany, and using exclusive
distributors in unfamiliar, limited markets such as Spain and Italy.
Samsonite?s decentralised @supply chain@ (1A#)/1A')
In 0A:3, the production range in 1urope was expanded into soft%side luggage by
the take%over of a local #elgian firm ?da, located in Torhout, in order to 'uickly
address the growing demand for soft%side luggage. In order to meet the growing
demand for hard%side luggage, the production of hard%side suitcases was expanded
by establishing a new plant in ?udenaarde in 0A:7.
6he centralised distribution system
In 0A:7 Samsonite also decided to change the organisation of its distribution
system and to $ockey the wholesale activity out of its supply chain and to supply
the Samsonite products directly to its retail dealers in the different 1uropean
countries from one central warehouse. The factory warehouses and the warehouses
in the different 1uropean countries were closed down and one central warehouse
was established in ?udenaarde ;#elgium< to serve the total 1uropean market. This
reorganisation meant that products were transported from the different factories
directly to the central warehouse, stored there and shipped to all its retailers upon
re'uest.
Samsonite?s CentraliBed Supply Chain (1A)/mid 1A&Cs)
In the new system, each retail dealer in 1urope could place his order directly to
Samsonite either through a salesman or with a simple telephone call to the local
office in his country that forwarded the order to the distribution centre. Samsonite
invested heavily in information systems in order to manage its time%based
1uropean distribution network, because lead time is very much dependent upon an
efficient administration. The salesmen and local offices transmit the orders to the
central warehousing and dispatching company via modem, where a supercomputer
processes the orders of retailers from the different 1uropean countries to the
warehouse and the truck drivers who take care of the delivery of the orders to the
retail dealers in the various countries. The pooling of the orders originating from
each local office allowed Samsonite to circumvent customs formalities for each
separate retail order, to cut down on delivery time and to assure the supply to all
its retail dealers within 5C hours. The local office was billed at transfer prices in
local currency for the centralised order. The retailers, which constituted the
centralised order,
were billed for their part through the local office. &s such, Samsonite was able not
only to minimise the administrative burden of customs formalities, but also to
centralise its currency exposure, to allow for better hedging operations, and to
communicate directly with local retailers.
This centralised distribution system also allowed Samsonite to improve on its
operating profit margin with 27 to 3B percent, and to strengthen its brand through
improved marketing and advertising. This logistical system created a real
competitive edge for Samsonite as compared to other companies in the sector and
strongly contributed to its continuous commercial success. In a way, Samsonite
had set up a distribution system that somehow prefigured the Single 1uropean
*arket of 0AA2 in the particular area of its operations.
6he -nternationaliBation of the (roduction 3et;or=
Samsonite=s products can generally be divided into two categories/ hard%side and
soft%side products. In 0AA7, hard%side products represented 5C percent of its sales,
while soft%side products accounted for 22 percent. &ttachL cases and travel bags,
that generally fall in the soft%side category, represented the remaining 3B percent
of sales.
$ard/side products
The sources of the competitive advantage for its hard%side products are based on
extensive Fesearch & 6evelopment ;F&6<, and its experience with difficult
production processes of its high technological and capital intensive products. In
order to take full advantage and protect these firm%specific advantages, Samsonite
also perceives it to be in its best interest to internalize the production of these hard%
side products within its organisation. &s the cost of transportation is substantial for
hard%side suitcases, the location of the production facilities close to the
warehousing and dispatching company in ?udenaarde ;#elgium< is essential in a
centralised distribution system. (hen Samsonite decided in 0AC5 to set up a
second production plant in ILnin%#eaumont ;+rance< for the production of hard%
side luggage to avoid depending upon a single plant ;?udenaarde, #elgium< for
the production of its hard%side suitcases, a ma$or locational advantage of this new
location in >orthern +rance was the limited distance to the central warehousing
and dispatching company in ?udenaarde ;#elgium<. &lso the granted investment
incentives played an important role. In order to sustain its competitive advantages,
Samsonite was forced to almost constantly invest in modern, productive, efficient
and flexible industrial infrastructure in order to respond to the ever changing
market needs. Samsonite invested 'uite heavily in F&6 of new products and
purchased new machinery for the expansion of the production facilities in
?udenaarde. The production capacity and the employment in the +rench plant in
ILnin%#eaumont was doubled over the years.
Soft/side products
The production process for soft%side products does not re'uire as extensive F&6
or high technological and capital intensive production technology as for the hard%
side luggage. Soft%side luggage is comparable to products in the textile industry,
where the cost of skilled labour represents a higher proportion of the standard cost
instead of capital and technology. Samsonite ac'uired the #elgian soft%side
luggage producer =?da= in 0A:3 in
order to enter the growing soft%side luggage market. Iowever, as there were %apart
from the brand name % only limited internalisation advantages, Samsonite decided
to supply the different 1uropean markets through licensees, such as in Italy and
Spain. &s the 1uropean unification programme progressed, Samsonite wanted to
take advantage of the growing locational advantages of this integrated market and
impose its 1uropean distribution network on its soft%side products as well. It
decided to expand through investment in its soft%side production lines in 1uropean
countries with lower wage levels.
The Samsonite )orporation therefore set up a ma$ority ;9BN< $oint venture ;GM<
with the Italian family business OSaturn= in 0AC7, which had been its licensee for
Italy until then. The company-s name was changed to OSamsonite Italy= with its
head'uarters in *ilan ;Italy< and the production facilities in "orto )eresio ;Italy<
at the Swiss border. Samsonite-s presence in Italy also ensured a close contact with
world%famous Italian designers. The entry of Spain and "ortugal into the 1uropean
)ommunity ;1)< in 0AC9
provided the necessary incentives for Samsonite to get a strong foothold on the
Iberian peninsula and the )anary Islands. &t the re'uest of the Spanish
government the Samsonite )orporation ac'uired its former Spanish licensee and
state owned enterprise OIndustrias Tauro=, the largest producer of suitcases in
Spain, in 0AC7. The name of the company was changed to OSamsonite 1spaPa= and
the production was started in *adrid.
Samsonite also wanted to improve on the 'uality of the products and implement its
own production processes. The plants were therefore e'uipped with state%of%the%
art )&6%)&* installations. &lso its (orld )lass *anufacturing ;()*< method,
i.e., each product being produced and assembled from start to finish by
autonomous cells of about a dozen employees, was implemented. Samsonite later
built a new and larger production plant in Saltrio ;Italy< to replace the old factory
in "orto )eresio ;Italy<. &nd in Spain a new production unit in Tres )antos near
*adrid was added to the existing plant in *adrid.
Subcontracting
&lthough it is more economical to relocate labour intensive production, i.e. soft%
side luggage in countries with low wages, it does not necessarily mean that the
production has to be organised within the Samsonite group. #ecause of the limited
internalisation advantages ;low transaction costs<, Samsonite engaged in outside
sourcing for the production of its low%end softside product lines. It first
subcontracted companies in South%Korea and Taiwan in 0A:A and 0ACB. Iowever,
the contracts were terminated in the 0ACBs as both companies had fallen victim to
the same rigorous policy of cost efficiency, that had first won them the contract.
The increase of the labour costs in the &sian >ewly Industrialising )ountries and
the difficulties with the foreign exchange management obliged Samsonite to put an
end to its subcontracting operations in Taiwan and South Korea.
Instead, Samsonite prospected )entral and 1astern 1urope as early as 0AC7. It
contacted the Iungarian producer of luggage O"alota= and signed a cooperation
agreement in 0AC: to produce and supply low%end soft%side luggage for
Samsonite. &lthough the Iungarian company was a leading luggage manufacturer
in the local market, it was not at all internationally competitive because of its lack
of advanced technology and the low 'uality of its products.
&lthough subcontracting arrangements linking purchaser to producer are in theory
purely market based ;pricing mechanism<, in practice there is often an input from
the purchaser to ensure that 'uality standards meet specifications and often advice
on methods of production is given ;#uckley, "ass and "rescott, 0AAB<. Samsonite
set up a separate department to cover the market needs and to source outside the
regular Samsonite production facilities. This department also supplied
management support ;hierarchal mechanism< to the suppliers in order to attain the
re'uired 'uality levels and to fit these activities within Samsonite-s centralised
1uropean distribution system.
&s the Iungarian company "alota proved to be an efficient subcontractor,
Samsonite decided to enter into a ma$ority ;9B percent< $oint venture with its
partner in 0ACA in order to upgrade the product and production technology, and
introduce new logistics and accounting systems ;increased internalization
advantages<. Initially Samsonite contributed the necessary capital and technology
to the new venture, while the local partner=s contribution consisted of land,
buildings, and the workforce. The company was renamedOSamsonite Iungaria=
with the plant for the production of soft%side luggage
located in SzekszQrd ;Iungary< and its head'uarters in #udapest.
In 0AA0, when Samsonite decided to increase its Iungarian production by
upgrading its level of technology and adding new production lines, the local
company was forced to sell its share to the #elgian partner because it could no
longer finance its part in the new investment initiatives. In 0AA7 Samsonite
Iungaria again enlarged its factory in SzekszQrd by investing almost HSR2 million
in buildings and HSR 07B,BBB in machinery, which resulted in an increase of
production in SzekszQrd by 2B percent. The main reason for Samsonite to
participate in the Iungarian production plant was to create a Olow cost= supply
basis. The increase of the labour costs in (estern 1urope forced the company to
seek new production sites for its labour intensive soft%side products. Samsonite-s
ma$or locational advantage in Iungary was its low production costs, which were
on average only about one tenth of the (est 1uropean level. 1ven after ad$ustment
for the higher
inflation in most )11 countries, wage rates are substantially lower in 1astern
1urope.
&fter the fall of the Iron )urtain, Samsonite wanted to intensify its cooperation
with )entral and 1astern 1urope, as these countries represented not only a low
cost supply basis but also a growing consumer potential. Samsonite subse'uently
signed co%operation agreements for outsourcing with companies in #ulgaria
;0ACA<, the )zech Fepublic ;0AA0<, Slovenia and the Fussian +ederation ;0AA5<,
and ac'uired another production affiliate J with which it was already familiar
through its existing Iungarian venture % in
Slovakia ;0AA:<. The motivations of Samsonite 1urope in building up a supply
network in )11 have to be seen within the context of 1uropean economic
integration and the changing locational advantages within the strategic setting of
the company as it is increasingly facing the globalization of the world economy.
Samsonite was also one of the first (estern companies to open a store in the
Goem shopping centre at the Fed S'uare in *oscow. #esides, the company
developed a dealer network with more than 7BB companies in the former 1ast bloc
countries, such as )roatia, "oland, #ulgaria, Iungary, Fomania, the )zech
Fepublic, the Fussian +ederation, Fomania, the #altic States, and the
Hkraine. The turnover realised by these )11 dealers represented :.7 percent
of the total 1uropean sales in 0AA5.
8iven the growing globalisation, Samsonite 1urope not only focused its attention
on the former 1ast bloc countries, but also decided to engage in some
subcontracting in )hina and Mietnam. The Mietnamese subcontractor had formerly
been Samsonite=s subcontractor in South Korea. Ie had closed his production
plant in South Korea to start up again in Mietnam, illustrating the volatile wage
conditions on a global and regional level. The company tries to select different
third%party suppliers to take advantage of changes in manufacturing conditions,
payment terms, exchange rates and shipping costs. Samsonite has therefore
implemented a centralised and coordinated system of all outsourcing of finished
products on a global level. The company wants to achieve maximum advantage
from its purchasing leverage by aggregating orders from the company-s different
locations and by better planning and timing its re'uirements and purchases. ?n the
whole, subcontractors provide Samsonite 1urope not only with finished soft%side
products, but also with semi%finished soft%side parts which are used in Samsonite=s
own factories. Samsonite, as the world%wide market leader in the luggage sector,
produced and sold approximately 7.3 million pieces of luggage in 1urope in 0AA5.
The manufacturing activity was carried out either in wholly owned plants in
1urope or through subcontractors. ?utsourcing represented approximately 2B
percent of total production in 0AA5. Since the last few years, the )11 countries
have become the main basis of outsourcing for Samsonite due to their locational
advantages such as its geographical proximity, low labour costs and favourable
exchange rates.3. The wholly%owned production plants still produced the bulk of
the Samsonite soft%side and especially hard%side products. The outsourcing for
hard%side products is very limited and consists only of certain components, such as
wheels for suitcases, from some )zech suppliers. Table 0 indicates the yearly
production of Samsonite products in units for the various production facilities.
Samsonite-s global supply chain ;0AA9<
Samsonite>s Global Supply Chain System
Sourcing by Samsonite 8urope in 1AA'
Conclusion
The head'uarters of Samsonite 1urope were established in ?udenaarde ;#elgium<
back in 0A99. Samsonite rationalised its 1uropean distribution system as early as
0A:7, which somehow prefigured the 1uropean single market in the particular area
of its operations. ?udenaarde served as the hub of the cross%border value%adding
network of Samsonite in 1urope, as it assumed not only the Ocore= production
activities of hard%side luggage and took care of the logistics and warehousing for
the "an%1uropean distribution system, but also did all of the research and
development activities in 1urope. *anaging the flow of goods had become an
exact and exacting exercise, $ustifying the investment Samsonite made in its
computer systems needed to manage the supply chain and to track and trace
consignments en route or in the warehouse.
Samsonite-s policy to get its products to the retailers as cost effectively as possible,
led to the development of its production activities by means of international
ac'uisitions, $oint ventures, strategic alliances, licensing and outsourcing
agreements. It implemented a policy of transferring the production of labour
intensive product lines, as it was more economical to relocate and subcontract
production to low wage countries. Samsonite was
also forced to almost constantly invest in modern, productive, efficient and
flexible industrial infrastructure in 1urope. The regional integration allowed
further rationalisation of manufacturing and distribution by breaking down internal
barriers. Samsonite focused on manufacturing through specialization in its
different plants in order to realise large production volumes to achieve substantial
economies of scale. Samsonite-s drive for efficiency and economies of scale and
scope, and its search for low%wage%cost production led to the development of its
international supply chain. &s a concept, supply chain management is central to
corporate operations and a potential source of competitive advantage through
management of relationships and operational co%ordination from supplier to
customer. The supply chain has become a vital strategic focus for the organisation/
delivering 'uality products to customers 'uickly, responsively and efficiently. +or
Samsonite, supply chain management became one of its main competitive
advantages in the global economy as it was able to reduce costs substantially and
strengthen its brand through improved marketing and advertising.