Supply Chain Management

Velky Potraviny
December 8, 2011

Presented by: Ahsan Khawar Fahd Iqtidar Mir Nabeel Siraj Umair Babar Chishti 12020378 12020367 12020325 12020157

Question 1 Warehousing Space: Currently they have 37stores but they plan to expand it 67 retail stores in a few years so this will obviously need more warehouse space. The current warehouse is having problems managing the workload, so how will it manage when the retail stores to be served increase by 81%! But if we analyze the details carefully we would see that there is a lot of space not used effectively because of the information asymmetry and poor coordination among employees. But he might need more space, which would increase the already high costs. Further when we see the layout of the warehouse it is so disorganized that it disrupts operations, nor is it used at its full capacity. In total four ramps could not be operated, two because of their height and two because there is Work In Progress lying in front of them. So this disrupts the smooth flow of goods across the warehouse, it increases time to unload and thus increases the cost. Also the offices are setup at different segregated areas in the warehouse, which might reduce the between the employees. Further, because we would need to provide facilities like Wi-Fi/kitchen/clean water etc. at multiple locations this will further increase the costs. Further there is empty space as well which should be utilized in such a way as to not disrupt the current flow of the goods, but to improve it, Coordination and Asymmetric information: If there is more coordination they can reduce their cycle time, as stated in the case that at one instance when they planned and coordinated they were able to reduce their unloading time by about 1/3rd. This will reduce uncertainty and certainly the need to keep more stock because of this uncertainty. Further this will help them reducing cost as the freed labor time because of shorter cycle times could be used in other areas. All the four people, driver, stepper, picker and receiver are dependent on each other. If one does not work correctly all other are affected. So it is extremely crucial that the three have access, because of limited access what happens is that they both try to maximize their own particular goals and in return do not care about other needs. Further, because of the non-existence of a bar codes system, the people at the warehouse had little knowledge of the actual demand at the retail network, so a bull whip effect was also created, which further increased the problems. Employee Satisfaction and rewards The problem of Coordination is further exacerbated by the key performance indicators decided for the warehouse employees. They are based on optimizing individual performance. So the receiver tries to unload as many pallets as possible without having any reference to the capacity of the stepper, and the stepper tries to move maximum pallets without any regard to the final order. The stepper places goods in no particular order and it is not easy for the picker to pick and for the driver to deliver. Similarly the buyer is judged on the number of stock outs, so he tries to buy as much inventory as possible to maximize his bonus. In this he ignores the added costs that others would have to bear because of the excess inventory. Change from a communist to capitalist society: In the communist era, most of the infrastructure was destroyed. After it ended, restoration was done but still a lot of improvements were needed. Because of the poor transportation system delivery was usually slow and unpredictable. And it was difficult to predict when the truck will arrive. This also increased the transportation time, and further added to the uncertainty, thus higher safety stock is needed for that. Also there was a shortage of warehousing space so as Velky will grow they might face this problems in regard to this. But as the economy is growing this might not be a very big problem. So Velky faces numerous problems related to its warehouse and should make a concrete plan to make sure that these problems do not re occur.

Question 2 Picking process: The picker upon receiving the pick list picks the items from the respective shelves and aisles. As discussed in the meeting, the major issue that the picker faces is that the items are not placed in their correct aisles and he has to travel longer distances to locate the items that need to be picked. There are several ways through which the picking process can be improved. Firstly, the fast moving goods can be in easy to access locations, such as main aisles. Also, they can be placed near the shipping area to reduce the picking time. Furthermore, items that are complementary and are usually picked together can be placed closer to each other to reduce picking times. Another issue that is related to the picking process and maybe some of the other processes is the inventory damages that occur during handling. These damages can lead to a huge increase in the overall costs for Velky. To address this issue, locations can be allocated on the basis of item fragility and weight. For instance, fragile items can be placed in the ground shelves and the heavier items can be placed closer to the shipping area. Receiving Process: The first issue in the receiving process is the fact that deliveries are not scheduled. So there are times when two or three supply trucks come in together and during such times the receiving process gets overburdened. At such times it is important for the receiver to make sure that all suppliers deliver complete orders and quantities. Besides an erratic delivery schedule, the receiver had no idea about how much quantities were going to be delivered during the coming day or week. This happened because the supplier either went short on an order or they would deliver an order very late due to the infrastructure problems. Resolving this issue requires improvements at multiple levels. Firstly, there is a need of building stronger relationships with the suppliers. Such relationships would reduce the number of orders that are shorted by the suppliers and also reduce the delays in deliveries. Also, by dealing with a select number of suppliers who are more reliable, the receivers will be able to better forecast the delivery schedule and hence plan ahead. Driving and shipment Process: There were two issues that effected the shipment and driving process. Firstly, the drivers were not able to load the shipments efficiently due to a much unorganized expedition area. The shipments for a specific store were not placed in a specific area and it took considerable time for the driver to find the specific pallets to be shipped to a specific store. This in turn was related to the second flaw in this process, the drivers had no fixed schedules of pickup and delivery and the picker and stepper had no idea when the driver was going to show up for the next delivery. These inefficiencies could be answered through developing a fixed schedule for the drivers and the pickers. There should be some safety margins between these timelines so that when a driver has to show up for pickup, the picker has already picked the goods and assorted them into a pallet. So time lines should be given to each department especially the drivers so that all the departments are aware of the time boundaries within which each of them is supposed to complete their task and hand over to the next party. Stepper Process: The main issue in this process is the fact that the stepper only cares about making sure that FIFO is being followed. The stepper doesnt care if the items are placed in the wrong place or the wrong shelve and this is mainly because the SKU #s are too small to read and hence the stepper or the receiver makes a lot of errors while receiving and assorting the goods in the shelves. The need for having better SKU tags is imminent. Firstly, it can reduce the number of misplaced items and reduce the picking time by a great extent. Secondly, it will also improve the shipment process by making it easier for the driver to spot shipments for specific stores. Another issue is that the stepper replenishes the picking area only on the basis of visual observation. This increases the chances of the picking area being out of stock when the picker starts filling orders. It can be avoided by using a formal replenishment system such as minimum stock levels and reorder points.

Empty Bottles process: The warehouse faces another problem of empty bottles strewn all over the place that are not being accepted by the suppliers. As a result, there is a huge shortage of storage space in the warehouse and also since the return of bottles is restricted, the handling costs of these bottles are very high. This problem could be improved at the retail outlets by making sure that there are different cartons for each type of bottle so that the customers dump each bottle in its related carton. This would reduce the overall space required for storing these bottles and also reduce the time required to assort them into different sizes. The ultimate solution would be to have proper contracts with the suppliers about the handling of these bottles. If the suppliers refused to pick them up, Velky could sell off the bottles to some recyclers to reduced its storage cluttering and make some extra cash. Question.3 Short Term Plans: Bonus Restructuring: On a priority basis, the bonus plans that are currently in place need to be revised. Currently, evaluation of a worker is based on the work that he does, but that worked is dependent on someone else as well. This is creating problems for the company, as people are keeping their own interests in mind, sometimes causing harm to the other employees evaluation. This method is not working. The company should come up with a single bonus evaluation system, which applies to all the employees working in the warehouse. This would reduce the problems currently being faced. By doing this, employees would work collectively to achieve a joint goal and they would know that anyone who does not work correctly would be responsible for the loss of all the employees. This would increase motivation as well. Office relocation: Apart from this, some short term actions include relocating all the offices in the warehouse to a single area to increase warehouse space and efficiency. Long Term Plans: Information sharing: There are many long term plans that the manager can implement. The biggest problem being faced by the warehouse is the lack of information sharing. Retailers have no idea about the inventory, the warehouse does not know about the future demand or current sales, the purchasers dont know the inventory in the warehouse, and the warehouse doesnt know when the delivery will be made or when will the next order come. All of this can be sorted out if the company invests in ERP software. The software can link the three different components of the supply chain, can cause better flow of information and lead to decreased inventory levels, leading to cost savings and efficiencies. Warehouse layout: As mentioned above in q2, the company also needs to make changes to the warehouse itself. The ramps that currently arent being used have to be made compatible with the company vans. The empty bottle issue (mentioned above) has to be taken care off to get extra space. More steppers need to be hired, because the pickers have complained that they rarely get hold of them as the steppers are usually occupied with the receivers. Job Clarity: The roles of each employee need to be clearly defined and a framework has to be made. This can be done by having similar meetings like the one mentioned in the case, to clearly define the roles of each employee and sort out any confusion between two employees regarding job functions. This would lead to the process being more effective. Clear Policies: Lastly, the bridge between the management and the employees need to be reduced. Currently, the employees do not know the exact responsibilities of the management, as was evident in the meeting when someone asked the manager as to what exactly does he do. This can be done again by the management adapting and implementing fixed policies that increase the trust of the employees. The changing policies of the management have left the employees confused. Hence a cross functional team can be made representing all functions that meets regularly to chalk out strategies and address issues facing every function.