Consumer Product Company

Question: Discuss about the Consumer Product Company. Answer: Introduction: Consumer product company are the companies which provide merchandise and other items which are used by the consumers on a regular basis. Logistics is defined as the process of planning, implementing and controlling the efficient, effective flow and storage of goods and services and related information from point of origin to point of consumption for the purpose of confronting to customers requirements. (Council of Logistics Management) Logistics plays a vital role for such companies as the customers will switch to another product if the companys product is not available and to maintain a high level of service, huge costs are to be borne by the company in terms of inventory carrying costs. Thus the important logistics operational characteristics of consumer product company are: Complex distribution set up: As the consumer goods are regularly used by the customers, the products must be available in every nook and corner of the region where the company wants to increase its presence. High Inventory: The consumer product company has to maintain a high level of inventory in each store to provide high customer service to the customers. If the companies do not provide high level of inventory the customers may chose a competitor and will result in lost sales and loss of customer to the company. Regular replenishment of the inventory: The consumer product company has to regularly refill the goods sold to maintain high level of inventory. High fleet size: The consumer product company has a large number of vehicles in its fleet to have sufficient vehicles to regularly replenish the inventory. The various problem areas mentioned in the case are: Reduce the total logistics cost: The company Customer has been incurring high costs in the logistics of the products due to a large number of warehouses, higher fleet size, high inventory carrying cost. The company has done multiple acquisition in the recent past because of which it has overlapping network distribution. The company also has to maintain a high level of customer service which further increases the total cost. The aim of the company is to reduce its total logistics cost by $1 million. Reduce the distribution points within the network: The company has 64 warehouses in the region which are supplying products to the customers. The customer orders and volumes vary from one region to another. Thus company wants to reduce the distribution points within the network to 55 while having same efficiency as it currently has and be able to satisfy all the customers in the network. Improve inventory management systems: The company wanted to consolidate their outbound shipments of the ware houses to reduce the total inventory of the system. Thus a better inventory management which can notify when the distribution centres should send the vehicles to replenish the inventory, what should be the quantity of inventory the distribution centers and stores should keep and which route to be used to minimize time and reduce fuel consumption to maximize the profit of the company. Improve Customer service level: The customers of the company has been requesting for more inventory to be available so that they have a large range of products to choose from and if the inventory levels are high, they dont have to be disappointed because of stock out. They also demanded 24/ 7 flexibility so that they can order the products whenever they want and the product should be delivered to them. The customers have requested for the delivery of the products to be on the same day or next day. Thus company has to focus on these parameters to improve the customer service level while reducing the number of distribution centres. The specific area of logistics considered in the case is reduction of number of warehouses to reduce the total logistics cost of the company while maintaining the same service level. The activities in the logistics can be divided into Core activities and supporting activities. Core activities: Core activities are the activities which are required for the completion of logistics task. They contribute the most to the total cost involved in the logistics. Core activities include transportation of goods and services, inventory management, flow of information and order processing and maintaining customer service. These activities are the most important in a consumer product company as the goods are to be transported regularly to the customers. Supporting activities: The supporting activities of the logistics are the material handling, purchasing, protective packaging, information maintenance. These activities help in getting the core activities completed at a faster rate. The target areas of improvement are: Reduce the total logistics cost, Reduce the distribution points within the network, Improve inventory management systems, and Improve Customer service level. The reduction in total cost and distribution points are part of the core activities whereas the improvement in customer service level and inventory management are part of supporting activities. Lean technique is used by the companies to reduce the cost and the wastage as much as possible by the company. This method is more suitable for the companies which have high volume and low variability of purchase orders. Thus for consumer products company, the volumes are high and the variability is low thus it makes sense to use the lean technique of supply chain Agile technique is used by the companies to be highly flexible to the changing conditions of the company. This method is used by the companies which want to quickly adapt to any change in the demand, technology and economic conditions. The companies have to adjust their sourcing, logistics and sales to adapt to the agile supply chain. Thus for consumer products company, the variability is low and the demand is not much affected by the changes in economic conditions. Thus it should not use the agile technique of supply chain as the costs of the agile technique are much higher. The consultant has reduced the number of warehouses to reduce the total cost of the logistics currently incurred by the company. The company has done multiple acquisition in the recent past because of which it has overlapping network distribution. Thus to reduce the excess warehouses and to optimize the network distribution, the company has reduced the number of warehouses. With the reduction in warehouses, the time taken by the company to make goods available to all the customers will increase. Thus the company will have to make arrangement and have proper planning to assure that the goods are delivered in time to the customers. The transportation cost of the company will increase as the distance between the warehouse and the customers will increase which in turn will increase fuel cost and transportation cost for the company. The reduction in warehouses can lead to reduction in customer service level. As the customers require the products to be delivered the same day or the next day, the reduction in number of warehouses will make it difficult for the company to reach the customers on time thus reducing customer service level. References Lim Matt. (2014). Agile vs Lean Supply Chain Management. Retrieved from https://blog.procurify.com/2014/04/22/agile-lean-supply-chain-management/ Speh Thomas. (2009). Understanding Warehouse Costs and Risks. Retrieved from https://warehousing-forum.com/news/KB_v24n07_June2009.pdf Ecklund David. (2010). Warehousing Efficiency and Effectiveness in the Supply Chain Process. Retrieved from https://www.scmr.com/article/warehousing_efficiency_and_effectiveness_in_the_supply_chain_process